UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019March 31, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission file number 001-33998
Churchill Downs IncorporatedIncorporated
(Exact name of registrant as specified in its charter)
Kentucky61-0156015
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
600 North Hurstbourne Parkway, Suite 400Louisville
Louisville,Kentucky40222
(Address of Principal Executive Offices)(Zip Code)
(502)-(502) 636-4400
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, No Par ValueCHDNThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒☐    No  ☐☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No  ☒
The number of shares outstanding of registrant’s common stock at July 17, 2019April 15, 2020 was 40,036,37739,434,743 shares.



CHURCHILL DOWNS INCORPORATED
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended June 30, 2019March 31, 2020
 
3
4
5
6
8
3227
4842
4842
4944
5046
5148
5149
5149
5149
5249
5350

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
2

PART I.FINANCIAL INFORMATION2

PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
(in millions, except per common share data)2019 2018 2019 2018(in millions, except per common share data)20202019
Net revenue:       Net revenue:
Churchill Downs$182.2
 $154.9
 $203.2
 $156.9
Churchill Downs$23.5  $21.0  
Online Wagering95.6
 93.7
 158.7
 156.9
Online Wagering67.3  63.1  
Gaming177.6
 108.1
 346.4
 219.6
Gaming147.6  168.8  
All Other22.0
 22.7
 34.5
 35.3
All Other14.5  12.5  
Total net revenue477.4

379.4
 742.8
 568.7
Total net revenue252.9  265.4  
Operating expense:       Operating expense:
Churchill Downs73.6
 58.0
 97.0
 67.9
Churchill Downs26.6  23.4  
Online Wagering62.0
 59.5
 107.1
 103.5
Online Wagering50.1  45.1  
Gaming133.2
 78.1
 258.2
 157.7
Gaming124.8  125.0  
All Other21.5
 22.0
 37.0
 38.3
All Other21.1  15.5  
Selling, general and administrative expense30.1
 23.1
 55.0
 41.5
Selling, general and administrative expense24.1  24.9  
Impairment of intangible assetsImpairment of intangible assets17.5  —  
Transaction expense, net0.6
 2.1
 4.1
 3.5
Transaction expense, net0.3  3.5  
Total operating expense321.0
 242.8
 558.4
 412.4
Total operating expense264.5  237.4  
Operating income156.4
 136.6
 184.4
 156.3
Operating (loss) incomeOperating (loss) income(11.6) 28.0  
Other income (expense):       Other income (expense):
Interest expense, net(19.4) (9.7) (33.1) (19.3)Interest expense, net(19.3) (13.7) 
Equity in income of unconsolidated affiliates9.5
 8.8
 13.6
 15.3
Miscellaneous, net0.4
 0.3
 0.4
 0.4
Equity in (loss) income of unconsolidated affiliatesEquity in (loss) income of unconsolidated affiliates(3.3) 4.1  
Total other expense(9.5) (0.6) (19.1) (3.6)Total other expense(22.6) (9.6) 
Income from continuing operations before provision for income taxes146.9
 136.0
 165.3
 152.7
Income tax provision(38.6) (32.8) (45.1) (35.4)
Income from continuing operations, net of tax108.3
 103.2
 120.2
 117.3
(Loss) income from discontinued operations, net of tax(1.2) (0.1) (1.5) 167.8
Net income$107.1
 $103.1
 $118.7
 $285.1
(Loss) income from continuing operations before provision for income taxes(Loss) income from continuing operations before provision for income taxes(34.2) 18.4  
Income tax benefit (provision)Income tax benefit (provision)11.6  (6.5) 
(Loss) income from continuing operations, net of tax(Loss) income from continuing operations, net of tax(22.6) 11.9  
Loss from discontinued operations, net of taxLoss from discontinued operations, net of tax(0.9) (0.3) 
Net (loss) incomeNet (loss) income(23.5) 11.6  
Net loss attributable to noncontrolling interestNet loss attributable to noncontrolling interest(0.1) —  
Net (loss) income and comprehensive (loss) income attributable to CDINet (loss) income and comprehensive (loss) income attributable to CDI$(23.4) $11.6  
       
Net income (loss) per common share data - basic:       
Net (loss) income per common share data - basic:Net (loss) income per common share data - basic:
Continuing operations$2.69
 $2.54
 $2.99
 $2.80
Continuing operations$(0.57) $0.30  
Discontinued operations$(0.03) $—
 $(0.04) $3.99
Discontinued operations$(0.02) $(0.01) 
Net income per common share data - basic$2.66
 $2.54
 $2.95
 $6.79
Net (loss) income per common share data - basicNet (loss) income per common share data - basic$(0.59) $0.29  
       
Net income (loss) per common share data - diluted:       
Net (loss) income per common share data - diluted:Net (loss) income per common share data - diluted:
Continuing operations$2.66
 $2.52
 $2.96
 $2.78
Continuing operations$(0.57) $0.30  
Discontinued operations$(0.03) $—
 $(0.04) $3.97
Discontinued operations$(0.02) $(0.01) 
Net income per common share data - diluted$2.63
 $2.52
 $2.92
 $6.75
Net (loss) income per common share data - dilutedNet (loss) income per common share data - diluted$(0.59) $0.29  
       
Weighted average shares outstanding:       Weighted average shares outstanding:
Basic40.1
 40.7
 40.3
 42.0
Basic39.7  40.4  
Diluted40.7
 40.9
 40.7
 42.2
Diluted39.7  40.6  
       
Other comprehensive income (loss):       
Foreign currency translation, net of tax$—
 $—
 $—
 $0.6
Change in pension benefits, net of tax—
 (0.2) —
 (0.4)
Other comprehensive income (loss)—
 (0.2) —
 0.2
Comprehensive income$107.1
 $102.9
 $118.7
 $285.3
The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
3

CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions)June 30, 2019 December 31, 2018(in millions)March 31, 2020December 31, 2019
ASSETS   ASSETS
Current assets:   Current assets:
Cash and cash equivalents$202.7
 $133.3
Cash and cash equivalents$700.9  $96.2  
Restricted cash42.8
 40.0
Restricted cash43.6  46.3  
Accounts receivable, net72.8
 28.8
Accounts receivable, net36.5  37.3  
Income taxes receivable—
 17.0
Income taxes receivable25.2  14.5  
Other current assets30.2
 22.4
Other current assets36.8  26.9  
Total current assets348.5
 241.5
Total current assets843.0  221.2  
Property and equipment, net880.0
 757.5
Property and equipment, net990.8  937.3  
Investment in and advances to unconsolidated affiliates621.8
 108.1
Investment in and advances to unconsolidated affiliates630.0  634.5  
Goodwill363.8
 338.0
Goodwill367.1  367.1  
Other intangible assets, net354.7
 264.0
Other intangible assets, net351.1  369.8  
Other assets19.7
 16.1
Other assets21.8  21.1  
Total assets$2,588.5
 $1,725.2
Total assets$3,203.8  $2,551.0  
   
LIABILITIES AND SHAREHOLDERS' EQUITY   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:   Current liabilities:
Accounts payable$107.2
 $47.0
Accounts payable$80.6  $57.8  
Purses payable33.0
 15.8
Account wagering deposit liabilities29.6
 29.6
Accrued expense104.9
 89.8
Income taxes payable15.0
 —
Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities161.4  173.4  
Current deferred revenue15.1
 47.9
Current deferred revenue98.1  42.5  
Current maturities of long-term debt4.0
 4.0
Current maturities of long-term debt4.0  4.0  
Dividends payable—
 22.5
Dividends payable—  23.5  
Total current liabilities308.8
 256.6
Total current liabilities344.1  301.2  
Long-term debt, net of current maturities and loan origination fees385.6
 387.3
Long-term debt, net of current maturities and loan origination fees1,071.6  384.0  
Notes payable, net of debt issuance costs1,084.9
 493.0
Notes payable, net of debt issuance costs1,086.3  1,085.9  
Non-current deferred revenue17.2
 21.1
Non-current deferred revenue16.7  16.7  
Deferred income taxes199.9
 78.2
Deferred income taxes210.9  212.8  
Other liabilities38.8
 15.7
Other liabilities38.6  39.4  
Total liabilities2,035.2
 1,251.9
Total liabilities2,768.2  2,040.0  
Commitments and contingencies

 

Commitments and contingencies
Shareholders' equity:   Shareholders' equity:
Preferred stock, no par value; 0.3 shares authorized; no shares issued or outstanding—
 —
Common stock, no par value; 150.0 shares authorized; 40.0 shares issued and outstanding at June 30, 2019 and 40.4 shares at December 31, 20182.9
 —
Preferred stockPreferred stock—  —  
Common stockCommon stock—  —  
Retained earnings551.3
 474.2
Retained earnings433.9  509.2  
Accumulated other comprehensive loss(0.9) (0.9)Accumulated other comprehensive loss(0.9) (0.9) 
Total Churchill Downs Incorporated shareholders' equityTotal Churchill Downs Incorporated shareholders' equity433.0  508.3  
Noncontrolling interestNoncontrolling interest2.62.7
Total shareholders' equity553.3
 473.3
Total shareholders' equity435.6  511.0  
Total liabilities and shareholders' equity$2,588.5
 $1,725.2
Total liabilities and shareholders' equity$3,203.8  $2,551.0  
The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
4

CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Three Months Ended March 31, 2020
Common StockRetained
Earnings		Accumulated Other Comprehensive LossNoncontrolling InterestTotal Shareholders' Equity
(in millions, except per common share data)SharesAmount
Balance, December 31, 201939.7$—  $509.2  $(0.9) $2.7  $511.0  
Net loss(23.4) (0.1) (23.5) 
Repurchase of common stock(0.3) (4.3) (23.6) (27.9) 
Cash settlement of stock awards(12.7) (12.7) 
Taxes paid related to net share settlement of stock awards(15.1) (15.1) 
Stock-based compensation4.34.3  
Adoption of ASC 326(0.5) (0.5) 
Balance, March 31, 202039.4  $—  $433.9  $(0.9) $2.6  $435.6  
 Common Stock 
Retained
Earnings
 Accumulated Other Comprehensive Loss Total Shareholders' Equity
(in millions)Shares Amount   
Balance, December 31, 201840.4
 $—
 $474.2
 $(0.9) $473.3
Net income    11.6
   11.6
Issuance of common stock0.1
 —
     —
Repurchase of common stock(0.3) (4.7) (20.3)   (25.0)
Taxes paid related to net share settlement of stock awards(0.1) —
 (7.6)   (7.6)
Issuance of restricted stock awards, net of forfeitures0.1
 —
     —
Stock-based compensation  4.7
     4.7
Adoption of ASC 842    (0.3)   (0.3)
Other    0.2
   0.2
Balance, March 31, 201940.2
 —
 457.8
 (0.9) 456.9
Net income    107.1
   107.1
Repurchase of common stock(0.2) (4.4) (13.6)   (18.0)
Stock-based compensation  7.4
     7.4
Other  (0.1)     (0.1)
Balance, June 30, 201940.0
 $2.9
 $551.3
 $(0.9) $553.3


 Common Stock 
Retained
Earnings
 Accumulated Other Comprehensive Loss Total Shareholders' Equity
(in millions)Shares Amount   
Balance, December 31, 201746.2
 $7.3
 $634.3
 $(1.3) $640.3
Net income    182.0
   182.0
Issuance of common stock0.1
 —
     —
Repurchase of common stock(5.7) (13.5) (488.0)   (501.5)
Taxes paid related to net share settlement of stock awards(0.1) —
 (12.9)   (12.9)
Issuance of restricted stock awards, net of forfeitures0.1
 —
     —
Stock-based compensation  6.2
     6.2
Adoption of ASC 606    29.7
   29.7
Other      0.4
 0.4
Balance, March 31, 201840.6
 —
 345.1
 (0.9) 344.2
Net income    103.1
   103.1
Issuance of common stock0.1
 —
     —
Repurchase of common stock—
 (0.3) 
   (0.3)
Stock-based compensation  6.4
     6.4
Other  (0.1) (0.1)   (0.2)
Balance, June 30, 201840.7
 $6.0
 $448.1
 $(0.9) $453.2

Three Months Ended March 31, 2019
Common StockRetained
Earnings		Accumulated Other Comprehensive LossNoncontrolling InterestTotal Shareholders' Equity
(in millions, except per common share data)SharesAmount
Balance, December 31, 201840.4  $—  $474.2  $(0.9) $—  $473.3  
Net income11.6  11.6  
Issuance of common stock0.1  —  —  
Repurchase of common stock(0.3) (4.7) (20.3) (25.0) 
Taxes paid related to net share settlement of stock awards(0.1) —  (7.6) (7.6) 
Issuance of restricted stock awards, net of forfeitures0.1  —  —  
Stock-based compensation4.7  4.7  
Adoption of ASC 842(0.3) (0.3) 
Other0.2  0.2  
Balance, March 31, 201940.2  $—  $457.8  $(0.9) $—  $456.9  
The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
5

CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,Three Months Ended March 31,
(in millions)2019 2018(in millions)20202019
Cash flows from operating activities:   Cash flows from operating activities:
Net income$118.7
 $285.1
Adjustments to reconcile net income to net cash provided by operating activities:   
Net (loss) incomeNet (loss) income$(23.5) $11.6  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization42.3
 29.1
Depreciation and amortization22.0  20.8  
Distributions from unconsolidated affiliates11.5
 9.9
Distributions from unconsolidated affiliates1.3  6.0  
Equity in income of unconsolidated affiliates(13.6) (15.3)
Equity in loss (income) of unconsolidated affiliatesEquity in loss (income) of unconsolidated affiliates3.3  (4.1) 
Stock-based compensation12.1
 12.6
Stock-based compensation4.3  4.7  
Deferred income taxes12.1
 6.9
Deferred income taxes(1.9) 6.4  
Gain on sale of Big Fish Games—
 (219.5)
Impairment of intangible assetsImpairment of intangible assets17.5  —  
Amortization of operating lease assetsAmortization of operating lease assets1.2  —  
Other1.1
 (2.3)Other0.9  0.4  
Changes in operating assets and liabilities, net of business acquisitions and dispositions:   Changes in operating assets and liabilities, net of business acquisitions and dispositions:
Income taxes31.9
 55.3
Income taxes(10.7) 0.3  
Deferred revenue(36.9) (43.7)Deferred revenue53.4  46.2  
Other assets and liabilities35.1
 44.2
Other assets and liabilities(24.3) (22.0) 
Net cash provided by operating activities214.3
 162.3
Net cash provided by operating activities43.5  70.3  
Cash flows from investing activities:   Cash flows from investing activities:
Capital maintenance expenditures(26.2) (13.7)Capital maintenance expenditures(9.0) (13.9) 
Capital project expenditures(32.6) (58.7)Capital project expenditures(39.3) (14.2) 
Acquisition of businesses, net of cash acquired(172.1) —
Acquisition of businesses, net of cash acquired—  (171.3) 
Investments in and advances to unconsolidated affiliates(410.1) —
Investments in and advances to unconsolidated affiliates—  (409.8) 
Distributions of capital from unconsolidated affiliates8.1
 —
Acquisition of gaming licenses(22.1) —
Proceeds from sale of Big Fish Games—
 970.7
Other1.1
 (5.9)Other—  (9.9) 
Net cash (used in) provided by investing activities(653.9) 892.4
Net cash used in investing activitiesNet cash used in investing activities(48.3) (619.1) 
Cash flows from financing activities:   Cash flows from financing activities:
Proceeds from borrowings under long-term debt obligations1,235.3
 117.2
Proceeds from borrowings under long-term debt obligations719.8  1,231.9  
Repayments of borrowings under long-term debt obligations(637.3) (361.3)Repayments of borrowings under long-term debt obligations(32.4) (632.9) 
Payment of dividends(22.2) (23.5)Payment of dividends(23.4) (22.2) 
Repurchase of common stock(45.5) (501.8)Repurchase of common stock(28.4) (26.5) 
Cash settlement of stock awardsCash settlement of stock awards(12.7) —  
Taxes paid related to net share settlement of stock awards(7.6) (12.9)Taxes paid related to net share settlement of stock awards(15.1) (7.6) 
Debt issuance costs(8.6) —
Debt issuance costs(0.9) (7.5) 
Big Fish Games earnout payment—
 (31.8)
Big Fish Games deferred payment—
 (26.4)
Other(2.3) (4.4)Other(0.1) (2.3) 
Net cash provided by (used in) financing activities511.8
 (844.9)
Net cash provided by financing activitiesNet cash provided by financing activities606.8  532.9  
Net increase in cash, cash equivalents and restricted cash72.2
 209.8
Net increase in cash, cash equivalents and restricted cash602.0  (15.9) 
Effect of exchange rate changes on cash flows—
 (0.6)
Cash, cash equivalents and restricted cash, beginning of period173.3
 85.5
Cash, cash equivalents and restricted cash, beginning of period142.5  173.3  
Cash, cash equivalents and restricted cash, end of period$245.5
 $294.7
Cash, cash equivalents and restricted cash, end of period$744.5  $157.4  
The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
6

CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

Six Months Ended June 30,Three Months Ended March 31,
(in millions)2019 2018(in millions)20202019
Supplemental disclosures of cash flow information:   Supplemental disclosures of cash flow information:
Cash paid during the period for:   Cash paid during the period for:
Interest$23.6
 $8.5
Interest$16.6  $18.8  
Income taxes1.3
 23.7
Income taxes0.5  0.5  
Schedule of non-cash investing and financing activities:   Schedule of non-cash investing and financing activities:
Deferred tax liability assumed from equity investmentDeferred tax liability assumed from equity investment$—  $103.2  
Property and equipment additions included in accounts payable and accrued expenses6.8
 21.9
Property and equipment additions included in accounts payable and accrued expenses36.5  3.7  
Deferred tax liability assumed from equity investment109.6
 —
Repurchase of common stock included in accrued expensesRepurchase of common stock included in accrued expenses—  1.0  
The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
7
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)



1. DESCRIPTION OF BUSINESS
Basis of Presentation
The Churchill Downs Incorporated (the "Company", "we", "us", "our") financial statements are presented in conformity with the requirements of this Quarterly Report on Form 10-Q and consequently do not include all of the disclosures normally required by U.S. generally accepted accounting principles ("GAAP") or those normally made in our Annual Report on Form 10-K. The December 31, 20182019 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP.
The following information is unaudited. All per share amounts assume dilution unless otherwise noted. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
In the opinion of management, all adjustments necessary for a fair statement of this information have been made, and all such adjustments are of a normal, recurring nature.
Segments
During the first quarter of 2019, we realignedWe conduct our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources. Our internal management reporting changed primarily due to the continued growth in ourbusiness through three reportable segments: Churchill Downs, RacetrackOnline Wagering, and Derby City Gaming business and our casino and associated racing businesses, which resulted in our chief operating decision maker's decision to realign our operating segments primarily based on the regulatory licenses governing each business. Since each of these individual businesses operates under single or interdependent licenses, each of these businesses represents an operating segment. As our TwinSpires business and online sports betting and iGaming businesses are managed together, these businesses represent an operating segment. For financial reporting purposes, weGaming. We aggregate our operating segments that are similar into three reportable segments as follows:
Churchill Downs
The Churchill Downs segment includes live and historical pari-mutuel racing related revenue and expenses at Churchill Downs Racetrack and Derby City Gaming.
Churchill Downs Racetrack is the home of The Kentucky Derby andconducts live racing during the year. Derby City Gaming is a historical racing machine facility that operates under the Churchill Downs pari-mutuel racing license at its ancillary training facility in Louisville, Kentucky.
Churchill Downs Racetrack and Derby City Gaming earn commissions primarily from pari-mutuel wagering on live races at Churchill Downs and on historical races at Derby City Gaming; simulcast fees earned from other wagering sites; admissions, personal seat licenses, sponsorships, television rights, and other miscellaneous services (collectively "racing event-related services"), as well as food and beverage services.
Online Wagering
The Online Wagering segment includes the revenue and expenses for the TwinSpires business ("TwinSpires") and the online Sports Betting and iGaming business.
TwinSpires operates our online horseracing wagering business on TwinSpires.com, BetAmerica.com and other Company platforms; facilitates high dollar wagering by international customers ("Velocity"); and provides the platform for horseracing statistical data generated by our information business that provides data and processing services to the equine industry ("Brisnet").
Our Sports Betting and iGaming business includes the online BetAmerica sports betting and casino gaming operations.
Gaming
The Gaming segment includes revenue and expenses for the casino properties and associated racetrack or Jai Alai facilities which support the casino license as applicable. The Gaming segment has approximately 11,000 slot machines and video lottery terminals ("VLTs") located in eight states.
The Gaming segment revenue and expenses includes the following properties:
◦Calder Casino and Racing ("Calder")

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
8
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


◦Fair Grounds Slots, Fair Grounds Race Course, and Video Services, LLC ("VSI") (collectively, "Fair Grounds and VSI")
◦Harlow’s Casino Resort and Spa ("Harlow's")
◦Lady Luck Casino Nemacolin ("Lady Luck Nemacolin") management agreement
◦Ocean Downs Casino and Racetrack ("Ocean Downs")
◦Oxford Casino and Hotel ("Oxford")
◦Presque Isle Downs and Casino ("Presque Isle")
◦Riverwalk Casino Hotel ("Riverwalk")
The Gaming segment also includes net income for our ownership portion of the Company’s equity investments in the following:
◦61.3% equity investment in Midwest Gaming Holdings, LLC ("Midwest Gaming"), the parent company of Rivers Casino Des Plaines in Des Plaines, Illinois ("Rivers Des Plaines")
◦50% equity investment in Miami Valley Gaming and Racing ("MVG")
The Gaming segment generates revenue and expenses from slot machines, table games, VLTs, video poker, retail sports betting, ancillary food and beverage services, hotel services, commission on pari-mutuel wagering, racing event-related services, and / or other miscellaneous operations.
We have aggregated the following businesses as well as certain corporate operations, and other immaterial joint ventures, in "All Other" to reconcile to consolidated results:
Arlington International Racecourse ("Arlington")
United Tote
All Other. We conduct our business through these reportable segments and report net revenue and operating expense associated with these reportable segments in the accompanying condensed consolidated statements of comprehensive income.
Recent Developments Regarding COVID-19
In recent months, a new strain of coronavirus (COVID-19) has spread to many countries in the world, including the United States, and the outbreak has been declared a pandemic by the World Health Organization. The prior year results were reclassifiedU.S. Secretary of Health and Human Services has also declared a public health emergency in the United States in response to conformthe outbreak. Considerable uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent of and effectiveness of responses taken on international, national and local levels. Measures taken to this presentation.limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, have already resulted in significant negative economic impacts in the United States and in relation to our business. The long-term impact of COVID-19 on the United States and world economies remains uncertain, the duration and scope of which cannot currently be predicted.
Effective January 1, 2019,In response to the measures taken to limit the impact of COVID-19 described above, and for the protection of our employees, customers, and communities, we have temporarily closed or suspended operations at the following properties, effective as of the following dates:
Churchill Downs
•Simulcast operations at Churchill Downs Racetrack on March 15, 2020.
•Derby City Gaming on March 15, 2020.
Gaming
Wholly-Owned Properties
•Calder Casino and Racing ("Calder") on March 16, 2020.
•Fair Grounds Slots and Video Services, LLC ("VSI") on March 16, 2020.
•Fair Grounds Race Course conducted spectator-free live racing, including the Louisiana Derby, from March 13, 2020 through March 21, 2020 and canceled the remainder of racing dates.
•Harlow's Casino Resort and Spa ("Harlow's") on March 16, 2020.
•Ocean Downs Casino and Racetrack ("Ocean Downs") on March 15, 2020.
•Oxford Casino and Hotel ("Oxford") on March 16, 2020.
•Presque Isle Downs and Casino ("Presque Isle") on March 16, 2020.
•Riverwalk Casino Hotel ("Riverwalk") on March 16, 2020.
Managed Properties
•Lady Luck Casino Nemacolin ("Lady Luck Nemacolin") on March 16, 2020.
Equity Investments
•Rivers Casino Des Plaines ("Rivers Des Plaines") on March 15, 2020.
•Miami Valley Gaming and Racing ("MVG") on March 14, 2020.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
8
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

All Other
•Arlington International Racecourse ("Arlington") off track betting facilities ("OTBs") and simulcast operations on March 16, 2020.
•Turfway Park conducted spectator-free live racing from March 12, 2020 through March 25, 2020 and canceled the remainder of racing dates.
On March 25, 2020, as a result of the temporary closures and suspended operations described above, the Company does not allocate corporateannounced the temporary furlough of employees at its wholly-owned gaming properties and certain wholly-owned racing operations. The Company is continuing to provide health, dental, vision and life insurance benefits to furloughed employees at our wholly-owned properties. The Company also implemented a salary reduction for all remaining non-furloughed salaried employees based on a percentage that varies dependent upon the amount of each employee’s salary. The most senior level of executive management has received the largest salary decrease, based on both percentage and dollar amount. The salary reductions will remain in effect until the Company begins to return to normalized operations.
There have been a number of other related expensesaspects of our business that have been impacted by COVID-19 during the three months ended March 31, 2020, including the following:
•The Company rescheduled the 146th Kentucky Oaks and Derby from May 1-2, 2020 to September 4-5, 2020.
•Starting in mid-February 2020, U.S. and international sporting events were cancelled, which reduced our sports betting options for our customers.
•Horse racing content for wagering on our TwinSpires business ("TwinSpires") decreased, although handle increased as our customers wagered more on the content that was available.
Financial Status and Outlook
The Company has temporarily reduced its planned maintenance and project capital expenditures for 2020 as a result of the temporary property and operations closures and our prioritization of capital investments based on the highest near-term return opportunities in order to maintain financial flexibility.
On March 16, 2020, we borrowed $675.4 million on our revolving credit facility (the "Revolver") pursuant to the reportable segmentsCredit Agreement (defined below) to provide the Company with additional financial flexibility, which provided the Company with $700.9 million of cash and cash equivalents as of March 31, 2020. The Company was in compliance with all applicable covenants in the accompanying condensed consolidatedCredit Agreement at March 31, 2020.
On April 28, 2020, the Company entered into a Second Amendment to its Credit Agreement, which (i) provides for a financial covenant relief period through the date on which the Company delivers its quarterly financial statements and compliance certificate for the fiscal quarter ending June 30, 2021, subject to certain exceptions (the “Financial Covenant Relief Period”), (ii) amends the definition of comprehensive income. The prior year results“Consolidated EBITDA” in the accompanyingCredit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extends certain deadlines and makes certain other amendments to the Company’s financial reporting obligations, (iv) places certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amends the definitions of “Material Adverse Effect” and “License Revocation” in the Credit Agreement to take into consideration COVID-19.
During the Financial Covenant Relief Period, the Company will not be required to comply with its existing consolidated statementstotal secured net leverage ratio financial covenant and the interest coverage ratio financial covenant. The Company has agreed to a minimum liquidity financial covenant that requires the Company and its restricted subsidiaries to maintain liquidity of comprehensive income were reclassifiedat least $150.0 million during the Financial Covenant Relief Period.
We continue to conformassess the situation at our properties and operations on a daily basis; however, we are unable to this presentation.determine when we will be able to reopen our properties and operations and the conditions upon which we will reopen. Our second quarter of 2020 financial results will be materially impacted by the rescheduling of the Kentucky Oaks and Derby from the second quarter of 2020 to the third quarter of 2020, by the continued closure and suspended operations of our wholly-owned gaming properties and certain wholly-owned racing operations, and by the continued closure of the casino properties related to our two equity investments.
Based on our current projected operating cash flow needs, interest and debt repayments, and revised maintenance and project capital expenditures, we believe we have adequate cash for at least the next twelve months to fund our business operations, meet all of our financial commitments, and invest in key growth capital projects.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
9
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Acquisitions of Presque Isle and Lady Luck Nemacolin
On January 11, 2019, we completed the acquisition of Presque Isle located in Erie, Pennsylvania from Eldorado Resorts, Inc. ("ERI") for cash consideration of $178.9 million (the "Presque Isle Transaction") and $1.6 million of working capital and other purchase price adjustments.
On March 8, 2019, the Company assumed management and acquired certain assets related to the management of Lady Luck Nemacolin in Farmington, Pennsylvania, from ERI for cash consideration of $100,000 (the "Lady Luck Nemacolin Transaction").
Acquisition of Certain Ownership Interests of Midwest Gaming Holdings, LLC
On October 31, 2018,March 5, 2019, the Company announced that it had entered into a definitive purchase agreement pursuant to whichcompleted the Company acquiredacquisition of certain ownership interests of Midwest Gaming Holdings, LLC ("Midwest Gaming"), the parent company of Rivers Des Plaines in Des Plaines, Illinois for cash (the "Sale Transaction").
The Sale Transaction was comprisedto acquire approximately 42% of (i) the Company’s purchase of 100% of the ownership stake in Midwest Gaming held byfrom affiliates and co-investors of Clairvest Group Inc. ("Clairvest") for approximately $291.0 million and (ii) the Company’s offer to purchase, on the same terms, additional unitsmembers of Midwest Gaming held by High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC and Casino Investors, LLC ("Casino Investors") (collectively, the "Sellers"for cash consideration of approximately $406.6 million and $3.5 million of certain transaction costs and working capital adjustments (the "Sale Transaction"). On March 5, 2019, the Company completed the Sale Transaction.
Following the closing of the Sale Transaction, the parties entered intocompleted a recapitalization transaction on March 6, 2019 (the "Recapitalization"), pursuant to which Midwest Gaming used approximately $300.0 million in proceeds from newamended and extended credit facilities to redeem, on a pro rata basis, additional Midwest Gaming units held by High Plaines and Casino Investors (the "Recapitalization" and together with the Sale Transaction, the "Transactions").
Based on the results of the purchase of the Clairvest ownership stake and the purchase, on the same terms, of additional units held by High Plaines and Casino Investors, the Company acquired, at the closing of the Sale Transaction, approximately 42% of Midwest Gaming for aggregate cash consideration of approximately $406.6 million.Investors. As a result of the Recapitalization, on March 6, 2019, 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.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
9
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


The total aggregate cash consideration paid for the Sale Transaction was $410.1 million, which included $3.5 million for certain transaction costs and working capital adjustments. We also recognized a $109.6$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.ownership stake in Midwest Gaming.
Refer to Note 12,14, Investments in and Advances to Unconsolidated Affiliates, for further information on the Transactions.Midwest Gaming transactions.
SaleTurfway Park Acquisition
The Company completed the acquisition of Big Fish Games, Inc.Turfway Park from Jack Entertainment LLC ("JACK") and Hard Rock International (“Hard Rock”) on October 9, 2019 for total consideration of $46.0 million in cash ("Turfway Park Acquisition").Turfway Park is located on 197 acres in Florence, Kentucky. The Company has announced plans and has begun to invest up to $150.0 million (including the Turfway Park Acquisition total consideration of $46.0 million) in a state-of-the-art live and historical thoroughbred racing facility at Turfway Park.
Refer to Note 4, Acquisitions, for further information on the Turfway Park Acquisition.
Seasonality
Churchill Downs
Due to the seasonal nature of our live racing business at Churchill Downs Racetrack, revenue and operating results for any interim quarter are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year. Historically, the majority of our live racing revenue occurs during the second quarter with the running of the Kentucky Derby and Kentucky Oaks. However, as announced on March 17, 2020, due to the COVID-19 pandemic, the Company rescheduled the 146th Kentucky Oaks and Kentucky Derby from May 1, 2020 and May 2, 2020 to September 4, 2020 and September 5, 2020, respectively.
Online Wagering
Due to the seasonal nature of the racing business, revenue and operating results for any interim quarter are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year. Historically, our revenue is higher in the second quarter with the running of the Kentucky Derby and the Kentucky Oaks. However, as announced on March 17, 2020, due to the COVID-19 pandemic, the Company rescheduled the 146th Kentucky Oaks and Kentucky Derby from May 1, 2020 and May 2, 2020 to September 4, 2020 and September 5, 2020, respectively.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
10
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

2. RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncement - Adopted on January 1, 2020
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses, ("ASC 326") which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets. We adopted ASC 326 on January 1, 2020 using the modified retrospective approach. We recognized the cumulative effect of applying ASC 326 as an opening balance sheet adjustment at January 1, 2020. The comparative information has not been retrospectively adjusted and continues to be reported under the accounting standards in effect for those periods. The adoption of ASC 326 did not have a material impact on our business and therefore we have not included the disclosure requirements of ASC 326 in this Quarterly Report on Form 10-Q.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. This new guidance simplifies the accounting for goodwill impairments by removing step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. We adopted this guidance on January 1, 2020. The new guidance did not result in a cumulative adjustment upon adoption and the fair value of our Presque Isle reporting unit exceeded the carrying amount in our March 31, 2020 trigger event testing (refer to Note 7, Asset Impairment, for further information). As a result, there was no impairment recognized under the new guidance for the period ended March 31, 2020.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other: Internal-Use Software, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance also requires an entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. We adopted this guidance on January 1, 2020. This guidance is consistent with our current accounting policies, and therefore our adoption of this guidance did not have a material impact on our business.
3. SIGNIFICANT ACCOUNTING POLICIES
Except for the accounting policy for the allowance for doubtful accounts receivable described below, which was updated as a result of our adoption of ASC 326 on January 1, 2020, as described in Note 2, Recent Accounting Pronouncements, there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2019.
Allowance for Doubtful Accounts Receivable
Upon our adoption of ASC 326 on January 1, 2020, we maintained 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 condensed consolidated balance sheets. The Company evaluates current expected credit losses on a collective (pool) basis when similar risk characteristics exist. Write-offs are recognized when the Company concludes that all or a portion of a financial asset is no longer collectible. Any subsequent recovery is recognized when it occurs.
4. ACQUISITIONS
Turfway Park
On October 9, 2019, the Company completed the Turfway Park Acquisition for total consideration of $46.0 million. Of the total consideration paid, $36.0 million was allocated to JACK and accounted for as a business combination. The remaining $10.0 million was paid to Hard Rock for the assignment of the purchase and sale agreement rights and was accounted for separately from the business combination as an intangible asset and amortized through expense in the fourth quarter of 2019.

The cash purchase price paid to JACK was $36.0 million, less $0.9 million of working capital and purchase price adjustments. The preliminary fair values of the assets acquired and liabilities assumed, net of cash acquired of $0.6 million, at the date of acquisition were as follows: property and equipment (primarily land) of $18.8 million, indefinite-lived gaming rights of $9.8 million, indefinite-lived trademark of $5.5 million, goodwill of $3.0 million, and current liabilities of $2.6 million.

The Company has not included other disclosures regarding the Turfway Park Acquisition because the acquisition is immaterial to our business.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
11
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

5. DISCONTINUED OPERATIONS
On November 29, 2017, the Company entered into a definitive Stock Purchase Agreement (the "Stock Purchase Agreement") to sell its mobile gaming subsidiary, Big Fish Games, Inc. ("Big Fish Games"), a Washington corporation, to Aristocrat Technologies, Inc. (the "Purchaser"), a Nevada corporation, an indirect, wholly owned subsidiary of Aristocrat Leisure Limited, an Australian corporation (the "Big Fish Transaction"). On January 9, 2018, pursuant to the Stock Purchase Agreement, the Company completed the Big Fish Transaction. The Purchaser paid an aggregate consideration of $990.0 million in cash in connection with the Big Fish Transaction, subject to customary adjustments for working capital and indebtedness and certain other adjustments as set forth in the Stock Purchase Agreement.
The Company received cash proceeds of $970.7 million, which was net of $5.2 million of working capital adjustments and $14.1 million of transaction costs.
Big Fish Games segment and the related Big Fish Transaction meet the criteria for discontinued operation presentation. Accordingly, theThe condensed consolidated statements of comprehensive income and the notes to financial statements reflect Big Fish Games as discontinued operations for all periods presented. Unless otherwise specified, disclosures in these condensed consolidated financial statements reflect continuing operations only. The condensed consolidated statements of cash flows include both continuing and discontinued operations.
The following table presents the financial results of Big Fish Games included in "loss from discontinued operations, net of tax" in the accompanying condensed consolidated statements of comprehensive income:
Three Months Ended March 31,
(in millions)20202019
Net revenue$—  $—  
Selling, general and administrative expense1.2  0.4  
Loss from discontinued operations before provision for income taxes(1.2) (0.4) 
Income tax benefit0.3  0.1  
Loss from discontinued operations, net of tax$(0.9) $(0.3) 

6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, by segment, is comprised of the following:
(in millions)Churchill DownsOnline WageringGamingAll OtherTotal
Balances as of December 31, 2019$49.7  $148.2  $165.2  $4.0  $367.1  
Additions—  —  —  —  —  
Balances as of March 31, 2020$49.7  $148.2  $165.2  $4.0  $367.1  
Other intangible assets are comprised of the following:
March 31, 2020December 31, 2019
(in millions)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Definite-lived intangible assets$31.3  $(16.2) $15.1  $31.3  $(15.0) $16.3  
Indefinite-lived intangible assets336.0  353.5  
Total$351.1  $369.8  
Refer to Note 5, Discontinued Operations,7, Asset Impairment, for further information on the discontinued operations relating to the Big Fish Transaction.
Stock Split
On October 31, 2018, the Company announced a three-for-one split (the "Stock Split") of the Company's common stock for shareholders of record as of January 11, 2019. The additional shares resulting from the Stock Split were distributed on January 25, 2019. Our common stock began trading at the split-adjusted price on January 28, 2019. All shareregarding our goodwill and per-share amounts in the Company’s condensed consolidated financial statements and related notes have been retroactively adjusted to reflect the effects of the Stock Split.
Seasonality
Churchill Downs
Due to the seasonal nature of our live racing business at Churchill Downs Racetrack, revenue and operating results for any interim quarter are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year. Historically, the majority of our live racing revenue occurs during the second quarter.
Online Wagering
Due to the seasonal nature of the racing business, revenue and operating results for any interim quarter are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year. Historically, our revenue is higher in the second quarter with the running of the Kentucky Derby and the Kentucky Oaks.
Gaming
Revenue from the properties in our Gaming segment has a seasonal component and is typically higher during the first and second quarters.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncement - Adopted on January 1, 2019
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases, and subsequently has issued additional guidance (collectively, "ASC 842"), which requires companies to generally recognize operating and financing lease liabilities and corresponding right-of-use assets ("ROUAs") on the balance sheet. We adopted ASC 842 on January 1, 2019 using the modified transition method. As part of the transition to ASC 842, we elected the package of practical expedients that allowed us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We recognized

other intangible assets.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
1012
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


the cumulative effect of applying ASC 842 as an opening balance sheet adjustment at January 1, 2019. The comparative information has not been retrospectively adjusted and continues to be reported under the accounting standards in effect for those periods.
The adoption of ASC 842 had no impact on our accompanying condensed consolidated statements of comprehensive income or statements of cash flows. Due to the adoption of ASC 842, we recognized operating lease ROUAs and lease liabilities for our operating leases with lease terms greater than one year. We do not have any material finance leases or any material operating leases where we are the lessor. We expect the adoption of ASC 842 will not materially impact our results of operations, financial condition, or cash flows on an ongoing basis.
The cumulative effects of the changes made to our accompanying condensed consolidated balance sheets as of January 1, 2019 for the adoption of ASC 842 were as follows:
(in millions)As Reported at December 31, 2018 Adoption of ASC 842 Balance at January 1, 2019
ASSETS     
Other current assets$22.4
 $(0.3) $22.1
Property and equipment, net757.5
 25.3
 782.8
      
LIABILITIES     
Accrued expense89.8
 3.8
 93.6
Other liabilities15.7
 21.5
 37.2
      
SHAREHOLDERS' EQUITY     
Retained earnings474.2
 (0.3) 473.9

Recent Accounting Pronouncements - effective in 2020 or thereafter
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other: Internal-Use Software, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance also requires an entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. The guidance is effective in 2020 with early adoption permitted and may be applied prospectively or retrospectively. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses, which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets. The guidance will become effective in 2020, and is to be applied through a modified retrospective approach during the year of adoption. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. This new guidance simplifies the accounting for goodwill impairments by removing step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. The new guidance is effective in 2020 with early adoption permitted for any goodwill impairment test performed between January 1, 2017 and January 1, 2020, and is to be applied prospectively. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.
3. SIGNIFICANT ACCOUNTING POLICIES
Except for the accounting policy for leases, which was updated as a result of our adoption of ASC 842 on January 1, 2019, as described in Note 2, Recent Accounting Pronouncements, there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2018, that have had a material impact on our condensed consolidated financial statements and related notes.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
11
(Unaudited)
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


7. ASSET IMPAIRMENT

Leases
We determine if an arrangement is a lease at inception. Operating leases are included in property and equipment, net; accrued expense; and other liabilities on our condensed consolidated balance sheets. We generally do not separate lease and non-lease components for our lease contracts. We do not applyDuring the ROUA and leases liability recognition requirements to short-term leases.
Operating lease ROUAs and lease liabilities are recognized based onquarter ended March 31, 2020, the present value of the future minimum lease payments over the lease term at commencement date. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future lease payments. The operating lease ROUAs also include any lease payments made prior to commencement and exclude lease incentives and initial direct costs incurred. Our lease terms include all non-cancelable periods and may include options to extendCompany evaluated whether events or terminate the lease whencircumstances changed that would indicate it is reasonably certainmore likely than not that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
4. ACQUISITIONS
Presque Isle
On January 11, 2019, the Company completed the Presque Isle Transaction for a cash purchase priceany of $178.9 million and $1.6 million of working capital and other purchase price adjustments. The fair values for the assets acquired and liabilities assumed in the Presque Isle Transaction shown below are 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 primary areas of the preliminary valuations that are not yet finalized relate to income taxes,its intangible assets, working capital adjustments, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition date during the measurement period. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed, net of cash acquired of $8.4 million, at the date of the acquisition.
(in millions)Total
Current assets$2.1
Property and equipment78.5
Goodwill25.8
Intangible assets71.2
Current liabilities(4.9)
Non-current liabilities(0.6)
 $172.1

The preliminary fair value of the intangible assets consists of the following:
(in millions)Fair Value Recognized Weighted-Average Useful Life
Gaming rights$56.0
 N/A
Trademark15.2
 N/A
Total intangible assets$71.2
  

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 January 11, 2019.
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 remaininggoodwill, or property and equipment, were primarily determined usingimpaired ("Trigger Event"), or if there were any other than temporary impairments of our equity investments. Factors considered in this evaluation included, among other things, the cost replacement method which is based on replacement or reproduction costsamount of the assets.
The fair value over carrying value from the annual impairment testing performed as of April 1, 2019, changes in carrying values, changes in discount rates, and the impact of temporary property closures due to the COVID-19 pandemic on cash flows. Based on the Company's evaluation, the Company concluded that a Trigger Event occurred related to the Presque Isle gaming rights, trademark, and the reporting unit's goodwill due to the impact and uncertainty of the COVID-19 pandemic and the recent closing of the Presque Isle Transaction in 2019.
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 of the overall business enterprise based on a projected cash flow stream. This method assumes that the Presque Isle gaming rights intangible asset providesprovide 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/

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
12
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


or the creation of all tangible and intangible assets. The estimated future revenue, and operating expenses, and start-up costs, of Presque Isleand discount rate were the primary inputs in the valuation. The
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 its Presque Isle gaming rights intangible asset was assigned an indefinite useful life based on($12.5 million related to the Company's expected use ofGaming segment and $2.5 million related to the asset and determination that no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of the gaming rights. The renewal of the gaming rights in Pennsylvania is subject to various legal requirements. However, the Company's historical experience has not indicated, nor does the Company expect, any limitations regarding its ability to continue to renew its gaming rights in Pennsylvania.Online Wagering segment).
The Presque Isle trademark intangible asset was initially valued in first quarter of 2019 using the relief-from-royalty method of the income approach, which estimates the fair value of the intangible asset by discounting the fair value of the hypothetical royalty payments a market participant would be willing to pay to enjoy the benefits of the asset. The trademark was assigned an indefinite useful life basedestimated future revenue, royalty rate, and discount rate were the primary inputs in the valuation of the trademark.
Based on the Company’s intentionTrigger Event, the Company updated the discount rate to keepreflect the increased uncertainty of the cash flows and updated projected cash flow stream. As a result, the Company recognized an impairment of $2.5 million in first quarter of 2020 for its Presque Isle name for an indefinite period of time.trademark.
Goodwill of $25.8 million was recognized due to the expected contribution of Presque Isle to the Company's overall business strategy. The goodwill was assigned to the Gaming segment and is deductible for tax purposes.
For the period from the Presque Isle Transaction on January 11, 2019 through June 30, 2019, net revenue was $67.0 million and net income was not material for the period.
The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Company's acquisition of Presque Isle occurred as of January 1, 2018. The unaudited pro forma financial information is not necessarily indicative of either future results of operations or results of operations that might have been achieved had the acquisition been consummated as of January 1, 2018. The unaudited pro forma net income giving effect to the Presque Isle Transaction was not materially different than our historical net income.
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2019 2018 2019 2018
Net revenue$477.4
 $416.3
 $746.0
 $638.8

Lady Luck Nemacolin
On March 8, 2019, we completed the Lady Luck Nemacolin Transaction, by which we assumed management and acquired certain assets related to the management of Lady Luck Nemacolin from ERI for cash consideration of $100,000. The Lady Luck Nemacolin Transaction did not meet the definition of a business and therefore was accounted for as an asset acquisition. The net assets acquired in conjunction with the Lady Luck Nemacolin Transaction were not material.
Ocean Downs
On July 16, 2018, the Company announced its entry into a tax-efficient partial liquidation agreement (the "Liquidation Agreement") for the remaining 50% ownership of the Casino at Ocean Downs and Ocean Downs Racetrack located in Berlin, Maryland ("Ocean Downs") owned by Saratoga Casino Holdings LLC ("SCH") in exchange for the Company's 25% equity interest in SCH, which is the parent company of Saratoga Casino Hotel in Saratoga Springs, New York ("Saratoga New York") and Saratoga Casino Black Hawk in Black Hawk, Colorado ("Saratoga Colorado") (collectively, the "Ocean Downs/Saratoga Transaction"). As part of the Ocean Downs/Saratoga Transaction, Saratoga Harness Racing, Inc. ("SHRI") has agreed to grant the Company and its affiliates exclusive rights to operate online sports betting and iGaming on behalf of SHRI in New York and Colorado for a period of fifteen years from the date of the Liquidation Agreement, should such states permit SHRI to engage in sports betting and iGaming, subject to payment of commercially reasonable royalties to SHRI.
On August 31, 2018, the Company completed the Ocean Downs/Saratoga Transaction, which resulted in the Company owning 100% of the equity interests of Ocean Downs. We therefore consolidated Ocean Downs as of the transaction date. Upon the closing of the Ocean Downs/Saratoga Transaction, the Company no longer has an equity interest or management involvement in Saratoga New York or Saratoga Colorado. Prior to the Ocean Downs/Saratoga Transaction, the Company held an effective 62.5% ownership interest in Ocean Downs, and a 25% ownership interest in Saratoga New York and Saratoga Colorado, all of which were accounted for under the equity method. The consideration transferred to SCH to acquire the remaining interest in Ocean Downs was the Company's equity investments in Saratoga New York and Saratoga Colorado, which had an aggregate fair value of $47.8 million at the acquisition date. Under the acquisition method, the fair values of the consideration transferred and the Company's equity method investment in Ocean Downs, which had a fair value of $80.5 million at the acquisition date, were allocated to the assets acquired and liabilities assumed in the Ocean Downs/Saratoga Transaction. The Company's carrying values in these equity method investments were significantly less than the fair values, resulting in a pre-tax gain of $54.9 million, which is included in the accompanying consolidated statements of comprehensive income. The fair value of the Company's equity method investments in Ocean Downs, Saratoga New York, and Saratoga ColoradoPresque Isle reporting unit's goodwill was determined under the market and income valuation

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
13
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


approaches using inputs primarily related to discounted projected cash flows and price multiples of publicly traded comparable companies.
The following unaudited pro forma consolidated financial information forIn accordance with Accounting Standards Codification 350, Intangibles - Goodwill and Other, the Company has been prepared assuming the Company's acquisitionperformed its impairment testing of the remaining 50% interest in Ocean Downs occurred as of January 1, 2018. The unaudited pro forma financial information is not necessarily indicative of either future results of operations or results of operations that might have been achieved hadPresque Isle gaming rights and trademark prior to testing Presque Isle goodwill. Based on the acquisition been consummated as of January 1, 2018. The unaudited pro forma net income giving effect to the Ocean Downs/Saratoga Transaction was not materially different than our historical net income.
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2018 2018
Net revenue$400.9
 $607.1

5. DISCONTINUED OPERATIONS
On January 9, 2018,Trigger Event, the Company completedupdated the Big Fish Transaction, which haddiscount rate to reflect the increased uncertainty of the cash flows and updated project cash flow stream. As a purchase price of $990.0 million. The Company received cash proceeds of $970.7 million, which was net of $5.2 million of working capital adjustments and $14.1 million of transaction costs. The Company derecognized the following upon the Big Fish Transaction:
(in millions) 
Cash and cash equivalents$0.3
Accounts receivable34.7
Game software development, net6.7
Other current assets17.0
Property and equipment, net17.8
Game software development, net13.8
Goodwill530.7
Other intangible assets, net238.4
Other assets24.0
Accounts payable(8.5)
Accrued expense(22.6)
Deferred revenue(44.2)
Deferred income taxes(52.0)
Other liabilities(4.9)
Carrying value of Big Fish Games$751.2

The Company recognized a gain of $219.5 million upon the sale recorded in income from discontinued operations on the condensed consolidated statement of comprehensive income for the three months ended March 31, 2018. The gain consisted of cash proceeds of $970.7 million offset by the carrying value of Big Fish Games of $751.2 million. The income tax provision on the gain was $51.2 million, resulting in an after tax gain of $168.3 million.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
14
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


The following table presents the financial results of Big Fish Games included in "(loss) income from discontinued operations, net of tax" in the accompanying condensed consolidated statements of comprehensive income:
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2019 2018 2019 2018
Net revenue$—
 $—
 $—
 $13.2
        
Operating expenses—
 —
 —
 8.4
Selling, general and administrative expense1.6
 0.6
 2.0
 4.9
Research and development—
 —
 —
 0.9
Total operating expense1.6
 0.6
 2.0
 14.2
Operating loss(1.6) (0.6) (2.0) (1.0)
Other income (expense)       
Gain on sale of Big Fish Games—
 —
 —
 219.5
Other expense—
 —
 —
 (0.1)
Total other income (expense)—
 —
 —
 219.4
(Loss) income from discontinued operations before provision for income taxes(1.6) (0.6) (2.0) 218.4
Income tax benefit (provision)0.4
 0.5
 0.5
 (50.6)
(Loss) income from discontinued operations, net of tax$(1.2) $(0.1) $(1.5) $167.8

Stock-Based Compensation
For the six months ended June 30, 2018,result, the Company recognized $3.4 million of stock-based compensation expense related to Big Fish Games, which included the impact of the accelerated vesting dates of restricted stock awards held by Big Fish Games' employeesdid not recognize an impairment for Presque Isle goodwill in conjunction with the Big Fish Transaction.
Earnout Liabilities
As of December 31, 2017, we had $34.2 million of deferred earnout consideration and $28.4 million of deferred payments due to the founder of Big Fish Games, both of which were paid on January 3, 2018.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
In the first quarter of 2019, we realigned our segments as described in Note 1, Description of Business. This change resulted in2020 because the allocation of the previous Racing segment goodwill balance of $51.7 million as follows: $49.7 million to the Churchill Downs segment, $1.0 million to the Gaming segment, and $1.0 million to All Other, based on the relative fair value approach. The Company evaluated whether an interim goodwill impairment test should be performed as a result of our segment changes. Based on this evaluation, the Company determined this event did not indicate it was more likely than not that a goodwill impairment exists.
Goodwill, by segment, is comprised of the following:
 Churchill Downs Online Wagering Gaming All Other Total
Balances as of December 31, 2018$49.7
 $148.2
 $139.1
 $1.0
 $338.0
Additions—
 —
 25.8
 —
 25.8
Balances as of June 30, 2019$49.7
 $148.2
 $164.9
 $1.0
 $363.8

During the first quarter of 2019, we established goodwill of $25.8 million related to the Presque Isle Transaction.
We performed our annual goodwill impairment analysis as of April 1, 2019 and no adjustment toexceeded the carrying value of goodwill was required. We assessed goodwill for impairment by performing step one fair value calculations on a quantitative basis for each reporting unit. We concluded that the fair values of our reporting units exceeded their carrying values and therefore no impairments were identified.value.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
15
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Other intangible assets are comprised of the following:
 June 30, 2019 December 31, 2018
(in millions)Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Definite-lived intangible assets$33.1
 $(16.6) $16.5
 $32.1
 $(14.1) $18.0
Indefinite-lived intangible assets    338.2
     246.0
Total

 

 $354.7
     $264.0

During 2019, we established indefinite-lived intangible assets of $56.0 million for gaming rights and $15.2 million for trademarks related to the Presque Isle Transaction. We also acquired indefinite-lived intangible assets of $8.0 million for online gaming rights in Pennsylvania related to our Online Wagering operations, $10.0 million for retail sports betting gaming rights at Presque Isle and online sports betting gaming rights in Pennsylvania, as well as $3.0 million for other gaming rights at Presque Isle.
We performed our annual indefinite-lived intangible assets impairment analysis as of April 1, 2019, 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 carrying value and therefore no impairments were identified.
7.8. INCOME TAXES
The Company’s effective income tax rate for the three months ended June 30,March 31, 2020 reflects a tax benefit on a pretax loss. The income tax rate was higher than the U.S. federal statutory rate of 21.0% primarily resulting from tax benefits recognized during a period of pretax loss related to state income taxes and tax deductions in excess of book deductions related to vesting of restricted stock units.
The Company's effective income tax rate for the three months ended March 31, 2019 was higher than the U.S. federal statutory rate of 21.0%, primarily due to state income taxes and certain expenses that are not deductible for the purposes of income taxes. This expense was partially offset by tax benefits resulting from tax deductions from vesting of stock awards in excess of book deductions.
The Company’s effective income tax rate for the six months ended June 30, 2019 was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes, as well as $2.2$2.8 million of future income tax expenses recognized from the remeasurementre-measurement of our net deferred tax liabilities based on an increase in income attributable to states with higher tax rates compared to the prior year period,quarter, as well as state income taxes and certain non-deductible expenses that are not deductible for the purposes of income taxes. This expense was partially offset by tax benefits resulting from tax deductions from vesting of stock awards in excess of book deductions.
During the first quarter of 2019, we recognized a $109.6 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 interest in Midwest Gaming. Refer to Note 12, Investments in and Advances to Unconsolidated Affiliates, for further information.
The Company’s effective income tax rate for the three and six months ended June 30, 2018 was higher than the U.S. federal statutory rate of 21.0%, primarily due to state income taxes and certain expenses that are not deductible for income tax purposes, partially offset by tax benefits resulting from tax deductions from vesting of stock awards in excess of book deductions as well as deferred tax benefits from Kentucky House Bill 487, which was enacted on April 27th, 2018 and lowered Kentucky’s corporate tax rate from 6%related to 5%, imposed a single-sales factor apportionment effective for the 2018 tax year and beyond, and required a combined Kentucky tax return.vesting of restricted stock units.
8.9. SHAREHOLDERS’ EQUITY
On October 30, 2018, the Board of Directors of the Company approved a new common stock repurchase program of up to $300.0 million. The new program replaced the prior $250.0 million program that was authorized in April 2017 and had unused authorization of $78.3 million. The new authorized amount includes and is not in addition to any unspent amount
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
13
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

remaining under the prior authorization. Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The repurchase program has no time limit and may be suspended or discontinued at any time.
For the three and six months ended June 30, 2019,March 31, 2020, we repurchased 187,608 and 470,024235,590 shares respectively, of our common stock under the October 2018 stock repurchase program at an aggregate purchase price of $18.0$27.9 million and $43.0 million, respectively, based on trade date. We had approximately $225.0$147.1 million of repurchase authority remaining under this program at June 30, 2019,March 31, 2020, based on trade date. As of June 30, 2019, we had no accrual for the future cash settlement of executed repurchases of our common stock compared to $2.5 million as of December 31, 2018.
On November 29, 2017, the Board of Directors of the Company authorized a $500.0 million share repurchase program in a "modified Dutch auction" tender offer (the "Tender Offer") utilizing a portion of the proceeds from the Big Fish Transaction. The Company

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
16
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


completed the Tender Offer on February 12, 2018, and repurchased 5,660,376 shares of the Company's common stock at a purchase price of $88.33 per share with an aggregate cost of $500.0 million, excluding fees and expenses related to the Tender Offer.
9.10. STOCK-BASED COMPENSATION PLANS
We have stock-based employee compensation plans with awards outstanding under the Churchill Downs Incorporated 2007 Omnibus Stock Incentive Plan, the Churchill Downs Incorporated 2016 Omnibus Stock Incentive Plan (the "2016 Plan"), and the Executive Long-Term Incentive Compensation Plan, which was adopted pursuant to the 2016 Plan. Our total stock-based compensation expense, which includes expenses related to restricted stock awards ("RSAs"), restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and stock options associated with our employee stock purchase plan was $7.4$4.3 million for the three months ended June 30, 2019March 31, 2020 and $6.4$4.7 million for the three months ended June 30, 2018. Stock-based compensation expense was $12.1 million for the six months ended June 30, 2019 and $9.2 million for the six months ended June 30, 2018.March 31, 2019.
During the sixthree months ended June 30, 2019,March 31, 2020, the Company awarded RSAsRSUs to employees and RSUs and PSUs to certain named executive officers and RSUs to directors.("NEOs"). The vesting criteria for the PSU awards granted in 20192020 were based on a three yearthree-year service period with two performance conditions and a market condition related to relative total shareholder return ("TSR") consistent with prior year grants. The total compensation cost we will recognize under the PSUs will be determined using the Monte Carlo valuation methodology, which factors in the value of the TSR market condition when determining the grant date fair value of the PSU. Compensation cost for each PSU is recognized during the performance and service period based on the probable achievement of the two performance criteria. The PSUs are converted into shares of our common stock at the time the PSU award value is finalized.
On February 12, 2020, the Compensation Committee of the Board of Directors offered, and the NEOs accepted, to settle the 2017 PSU Awards in cash.
A summary of the RSAs, RSUs and PSUs granted during 20192020 is presented below (shares/units(units in thousands):
Grant YearAward TypeNumber of Units AwardedVesting Terms
2020RSU44
Vest equally over three service periods ending in 2021, 2022, and 2023
2020RSU37
Vest equally over three service periods ending in 2020, 2021, and 2022
2020PSU37
Three year performance and service period ending in 2022
Grant Year Award Type Number of Shares/Units Awarded Vesting Terms
       
2019 RSA 64 Vest equally over three service periods ending in 2020, 2021, and 2022
2019 RSU 55 Vest equally over three service periods ending in 2019, 2020, and 2021
2019 PSU 53 Three year performance and service period ending in 2021
2019 RSU 10 One year service period ending in 2020

10.11. DEBT
2027 Senior NotesCredit Agreement
On March 25, 2019, we completed an offering16, 2020, the Company entered into a First Amendment (the “First Amendment”) to its Credit Agreement (as amended, the “Credit Agreement”), dated December 27, 2017, among the Company, the subsidiary guarantors party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders and other financial institutions party thereto.
The First Amendment extends the maturity for the Company’s Revolver to at least September 27, 2024, which is 91 days prior to the latest maturity date of $600.0 million in aggregate principal amountthe Company’s term loan facility on December 27, 2024. Previously, the maturity date of 5.50% Senior Unsecured Notes that mature on April 1, 2027 (the "2027 Senior Notes") in a private offeringthe revolving credit facility was December 27, 2022.
The interest rates applicable to qualified institutional buyers pursuant to Rule 144A that is exempt from registrationthe Company’s borrowings under the Securities ActCredit Agreement are LIBOR-based plus a spread, determined by the Company’s consolidated total net leverage ratio. The First Amendment, among other things, lowers the upper limit of 1933, as amended (the "Securities Act")the applied spreads with respect to revolving loans from 2.25% to 1.75% and for commitment fees with respect thereto from 0.35% to 0.30%, and generally offers a reduced pricing schedule for outstanding borrowings and commitment fees with respect to certain non-U.S. persons in accordance with Regulation Sthe Revolver across all other leverage pricing levels. The interest rates applicable to borrowings under the Securities Act.facilities are LIBOR-based plus a spread, determined by the Company’s consolidated total net leverage ratio. The 2027 Senior Notes were issued at par, with interest payable on April 1st and October 1st of each year, commencing on October 1, 2019. First Amendment does not alter the Company’s borrowing capacity.
The Company used the net proceeds from the offering to repay our outstanding balance on our 2017 Senior Secured credit agreement (the "2017 Credit Agreement"). In connection with the offering, we capitalized $9.0$1.1 million of debt issuance costs associated with the First Amendment which are being amortized as interest expense over the termremaining duration 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 "Guarantors"), and U.S Bank National Association, as trustee. The Company may redeem some or all of the 2027 Senior Notes at any time prior to April 1, 2022, at a price equal to 100% of the principal amount of the 2027 Senior Notes redeemed plus an applicable make-whole premium. On or after such date, the Company may redeem some or all of the 2027 Senior Notes at redemption prices set forth in the 2027 Indenture. In addition, at any time prior to April 1, 2022, the Company may redeem up to 40% of the aggregate principal amount of the 2027 Senior Notes at a redemption price equal to 105.50% of the principal amount thereof with the net cash proceeds of one or more equity offerings provided that certain conditions are met. The terms of the 2027 Indenture, among other things, limit the ability of the Company to: (i) incur additional debt and issue preferred stock; (ii) pay dividends or make other restricted payments; (iii) make certain investments; (iv) create liens; (v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments; (vi) sell assets; (vii) merge or consolidate with other entities; and (viii) enter into transactions with affiliates.
In connection with the issuance of the 2027 Senior Notes, the Company and the 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.

Revolver.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
1714
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


On March 16, 2020, we borrowed $675.4 million on our Revolver to provide the Company with additional financial flexibility, which provided the Company with $700.9 million of cash and cash equivalents as of March 31, 2020. The Company was in compliance with all applicable covenants in the Credit Agreement at March 31, 2020.
11.On April 28, 2020, the Company entered into a Second Amendment to its Credit Agreement, which (i) provides for a financial covenant relief period through the date on which the Company delivers its quarterly financial statements and compliance certificate for the fiscal quarter ending June 30, 2021, subject to certain exceptions (the “Financial Covenant Relief Period”), (ii) amends the definition of “Consolidated EBITDA” in the Credit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extends certain deadlines and makes certain other amendments to the Company’s financial reporting obligations, (iv) places certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amends the definitions of “Material Adverse Effect” and “License Revocation” in the Credit Agreement to take into consideration COVID-19.
During the Financial Covenant Relief Period, the Company will not be required to comply with its existing consolidated total secured net leverage ratio financial covenant and the interest coverage ratio financial covenant. The Company has agreed to a minimum liquidity financial covenant that requires the Company and its restricted subsidiaries to maintain liquidity of at least $150.0 million during the Financial Covenant Relief Period.
12. REVENUE FROM CONTRACTS WITH CUSTOMERS
Performance Obligations
As of June 30, 2019,March 31, 2020, the Churchill Downs segment had remaining performance obligations, on contracts with a duration greater than one year, with an aggregate transaction price of $144.0$167.5 million. The revenue we expect to recognize on these remaining performance obligations is $1.3$47.5 million for the remainder of 2019, $40.32020, $37.1 million in 2020, $29.92021, $31.7 million in 2021,2022, and the remainder thereafter.
As of June 30, 2019,March 31, 2020, our remaining performance obligations in segments other than Churchill Downs were not material.
Contract Assets and Contract Liabilities
As of June 30, 2019March 31, 2020 and December 31, 2018,2019, contract assets were not material.
As of June 30, 2019March 31, 2020 and December 31, 2018,2019, contract liabilities were $35.9$119.0 million and $69.9$63.1 million, respectively, which are included in current deferred revenue, non-current deferred revenue, and accrued expense in the accompanying condensed consolidated balance sheets. Contract liabilities primarily relate to the Churchill Downs segment and the decreaseincrease was primarily due to revenue recognizedcash payments received for fulfilledunfulfilled performance obligations. We recognized $45.8$3.8 million of revenue during the three months ended June 30, 2019 and $48.5March 31, 2020 that was included in the contract liabilities balance at December 31, 2019. We recognized $2.7 million of revenue during the sixthree months ended June 30,March 31, 2019 that was included in the contract liabilities balance at December 31, 2018. We recognized $47.9 million of revenue during the three months ended June 30, 2018 and $50.1 million of revenue during the six months ended June 30, 2018 that was included in the contract liabilities balance at January 1, 2018.
Disaggregation of Revenue
In Note 17,18, Segment Information, the Company has included its disaggregated revenue disclosures as follows: 
•For the Churchill Downs segment, revenue is disaggregated between Churchill Downs Racetrack and Derby City Gaming given that Churchill Downs Racetrack's revenues primarily revolve around live racing events while Derby City Gaming's revenues primarily revolve around historical racing events. Within the Churchill Downs segment, revenue is further disaggregated between live and simulcast racing, historical racing, racing event-related services, and other services.
•For the Online Wagering segment, revenue is disaggregated between the TwinSpires business and online sports betting and iGaming business given that TwinSpires' revenue is primarily related to online pari-mutuel wagering on live race events while online sports betting and iGaming revenue relates to casino gaming service offerings.   Online sports betting and iGaming service offerings are currently nominal. Within the Online Wagering segment, revenue is further disaggregated between live and simulcast racing, gaming, and other services.
•For the Gaming segment, revenue is disaggregated by location given the geographic economic factors that affect the revenue of Gaming service offerings. Within the Gaming segment, revenue is further disaggregated between live and simulcast racing, racing event-related services, gaming, and other services.
We believe that these disclosures depict how the amount, nature, timing, and uncertainty of cash flows are affected by economic factors.
12.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
15
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

13. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
(in millions)March 31, 2020December 31, 2019
Account wagering deposits liability$32.7  $28.9  
Accrued interest22.1  19.7  
Purses payable15.2  19.9  
Accrued salaries and related benefits11.2  29.2  
Other80.2  75.7  
Total$161.4  $173.4  

14. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Midwest Gaming
On March 5, 2019, the Company completed the Sale Transaction to acquire approximately 42% of Midwest Gaming, the parent company of Rivers Des Plaines, for cash consideration of approximately $406.6 million and $3.5 million forof certain transaction costs and working capital adjustments. Following the closing of the Sale Transaction, the parties completed 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%36.0% of Midwest Gaming and Casino Investors retained ownership of 2.7% of Midwest Gaming.
We also recognized a $109.6$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 LLClimited liability company agreement was entered into by allthe members of Midwest Gaming as a result of the change in ownership structure. Under the new LLClimited 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.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
18
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


The Company’s investment in Midwest Gaming is presented at our initial cost of investment plus its 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 $841.4 million higher than the Company’s underlying equity in the net assets of Midwest Gaming. This equity method basis difference was comprised of $860.1 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 June 30, 2019,March 31, 2020, the net aggregate basis difference between the Company’s investment in Midwest Gaming and the amounts of the underlying equity in net assets was $841.1$834.0 million.
Summarized Financial Results for our Unconsolidated Affiliates
Summarized below are the financial results for our unconsolidated affiliates. The summarized income statement information for the three and six months ended June 30,March 31, 2020 and 2019 and summarized balance sheet information as of June 30,March 31, 2020 and December 31, 2019 includes the following equity investments: MVG, Midwest GamingRivers Des Plaines from the transaction date of March 5, 2019, and two other immaterial joint ventures. The summarized income statement information for the three and six months ended June 30, 2018 includes the following equity investments: MVG, Saratoga New York, Saratoga Colorado, Ocean Downs, and two other immaterial joint ventures. Summarized balance sheet information as of December 31, 2018 included MVG and two other immaterial joint ventures.
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2019 2018 2019 2018
Net revenue$166.3
 $114.5
 $255.8
 $216.1
        
Operating and SG&A expense119.1
 84.4
 180.1
 163.3
Depreciation and amortization3.3
 6.6
 5.5
 13.1
Total operating expense122.4
 91.0
 185.6
 176.4
Operating income43.9
 23.5
 70.2
 39.7
Interest and other, net(25.3) (2.6) (42.3) (4.9)
Net income$18.6
 $20.9
 $27.9
 $34.8

(in millions)June 30, 2019 December 31, 2018
Assets   
Current assets$58.1
 $24.0
Property and equipment, net243.7
 95.7
Other assets, net235.7
 106.7
Total assets$537.5
 $226.4
    
Liabilities and Members' Equity   
Current liabilities$89.0
 $21.2
Long-term debt735.3
 —
Other liabilities20.3
 —
Members' (deficit) equity(307.1) 205.2
Total liabilities and members' (deficit) equity$537.5
 $226.4

13. LEASES
Our operating leases with terms greater than one year are primarily related to buildings and land. Our operating leases with terms less than one year are primarily related to equipment. Most of our building and land leases have terms of 2 to 10 years and include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years or more. Certain of our lease agreements include lease payments based on a percentage of net gaming revenue and others include rental payment adjustments periodically for inflation. As of June 30, 2019, operating lease ROUAs included in property and equipment, net were $24.9 million.

Three Months Ended March 31,
(in millions)20202019
Net revenue$137.8  $89.5  
Operating and SG&A expense100.8  61.0  
Depreciation and amortization4.2  2.2  
Total operating expense105.0  63.2  
Operating income32.8  26.3  
Interest and other, net(35.8) (17.0) 
Net (loss) income$(3.0) $9.3  
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
1916
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


The components of total lease cost were as follows:
(in millions)Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Short-term lease cost (a) (b)
$6.2
 $8.7
Operating lease cost (b)
1.6
 3.1
Total lease cost$7.8
 $11.8
(a) Includes leases with terms of one month or less
(b) Includes variable lease costs, which were not material
Other information related to operating leases was as follows:
(in millions, except lease term and discount rate)Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Supplemental Cash Flow Information   
Cash paid for amounts included in the measurement of lease liabilities$1.3
 $2.3
ROUAs obtained in exchange for lease obligations$0.7
 $1.5

Lease Term and Discount RateJune 30, 2019
Weighted average remaining lease term7.0 years
Weighted average discount rate3.9%

(Unaudited)
As of June 30, 2019, future minimum operating lease payments on non-cancelable leases were as follows:
(in millions)  
Years Ended December 31, Totals
2019 (excludes six months ended June 30, 2019) $2.9
2020 5.2
2021 4.5
2022 3.5
2023 3.0
Thereafter 11.2
Total future minimum lease payments 30.3
Less: Imputed interest 3.8
Present value of lease liabilities $26.5
   
Reported lease liabilities as of June 30, 2019  
Accrued expense (current maturities of leases) $4.5
Other liabilities (non-current maturities of leases) 22.0
Present value of lease liabilities $26.5


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
20
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)



As required by ASC 842, the future minimum operating lease payments on non-cancelable leases as of December 31, 2018 under the accounting standards in effect as of that period were as follows:
(in millions) 
Years Ended December 31,
  
2019$5.0
20204.5
20213.8
20223.1
20233.0
Thereafter11.2
Total$30.6

(in millions)March 31, 2020December 31, 2019
Assets
Current assets$126.6  $64.0  
Property and equipment, net273.1  256.1  
Other assets, net246.0  240.1  
Total assets$645.7  $560.2  
Liabilities and Members' Deficit
Current liabilities$112.7  $73.3  
Long-term debt775.6  745.0  
Other liabilities41.8  20.6  
Members' deficit(284.4) (278.7) 
Total liabilities and members' deficit$645.7  $560.2  
14.
15. FAIR VALUE OF ASSETS AND LIABILITIES
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate.
Restricted Cash
Our restricted cash accounts that are held in interest-bearing accounts qualify for Level 1 in the fair value hierarchy, which includes unadjusted quoted market prices in active markets for identical assets.
Debt
The fair value of the Company’s 4.75% Senior Notes due 2028 (the "2028 Senior Notes") and 5.375% Senior Notes due 2027 ("2027 Senior NotesNotes") 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 valuevalues of the Company's $400.0 million Senior Secured Term Loan B due 2024 (the "Term Loan B") approximates itsand Revolver under the Credit Agreement approximate the gross carrying value as it isof the variable rate debt and as such is aare Level 2 measurement.measurements.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
17
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The carrying amounts and estimated fair values by input level of the Company's financial instruments are as follows:
March 31, 2020
(in millions)Carrying AmountFair ValueLevel 1Level 2Level 3
Financial assets:
Restricted cash$43.6  $43.6  $43.6  $—  $—  
Financial liabilities:
Term Loan B387.2  391.0  —  391.0  —  
Revolver688.4  688.4  —  688.4  —  
2027 Senior Notes592.3  558.0  —  558.0  —  
2028 Senior Notes494.0  435.0  —  435.0  —  
December 31, 2019
(in millions)Carrying AmountFair ValueLevel 1Level 2Level 3
Financial assets:
Restricted cash$46.3  $46.3  $46.3  $—  $—  
Financial liabilities:
Term Loan B388.0  392.0  —  392.0  —  
2027 Senior Notes592.0  636.0  —  636.0  —  
2028 Senior Notes493.9  515.2  —  515.2  —  
 June 30, 2019
(in millions)Carrying Amount Fair Value Level 1 Level 2 Level 3
Financial assets:         
Restricted cash$42.8
 $42.8
 $42.8
 $—
 $—
Financial liabilities:         
Term Loan B389.6
 394.0
 —
 394.0
 —
2027 Senior Notes591.4
 627.7
 —
 627.7
 —
2028 Senior Notes493.5
 502.4
 —
 502.4
 —
          
 December 31, 2018
(in millions)Carrying Amount Fair Value Level 1 Level 2 Level 3
Financial assets:         
Restricted cash$40.0
 $40.0
 $40.0
 $—
 $—
Financial liabilities:         
Term Loan B391.3
 396.0
 —
 396.0
 —
2028 Senior Notes493.0
 452.4
 —
 452.4
 —


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
21
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


15.16. CONTINGENCIES
We are involved in litigation arising in the ordinary course of conducting business. We carry insurance for workers' compensation claims from our employees and general liability for claims from independent contractors, customers and guests. We are self-insured up to an aggregate stop loss for our general liability and workers' compensation coverages.
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 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.
We review all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in the early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including, but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated.
If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. In the event that a legal proceeding results in a substantial judgment against, 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.

Louisiana Environmental Protection Agency Non-Compliance Issue
On December 6, 2013, we received a notice from the United States Environmental Protection Agency ("EPA") regarding alleged CAFO non-compliance at Fair Grounds Race Course. On October 21, 2019, we reached an agreement in principle, subject to final regulatory and court approval. If approved, the agreement will include a $2.8 million penalty, which was accrued for in the third quarter of 2019 and is included in accrued expense and other current liabilities in our accompanying condensed consolidated balance sheets at March 31, 2020 and December 31, 2019.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
2218
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


16.17. NET INCOME PER COMMON SHARE COMPUTATIONS
The following is a reconciliation of the numerator and denominator of the net income per common share computations:
Three Months Ended March 31,
(in millions, except per share data)20202019
Numerator for basic net (loss) income per common share:
Net (loss) income from continuing operations$(22.6) $11.9  
Net loss attributable to noncontrolling interest(0.1) —  
Net (loss) income from continuing operations, net of loss attributable to noncontrolling interests(22.5) 11.9  
Net loss from discontinued operations(0.9) (0.3) 
Numerator for basic net (loss) income per common share$(23.4) $11.6  
Numerator for diluted net (loss) income from continuing operations per common share$(22.5) $11.9  
Numerator for diluted net (loss) income per common share$(23.4) $11.6  
Denominator for net (loss) income per common share:
Basic39.7  40.4  
Plus dilutive effect of stock awards—  0.2  
Diluted39.7  40.6  
Net (loss) income per common share data:
Basic
Continuing operations$(0.57) $0.30  
Discontinued operations$(0.02) $(0.01) 
Net (loss) income per common share - basic$(0.59) $0.29  
Diluted
Continuing operations$(0.57) $0.30  
Discontinued operations$(0.02) $(0.01) 
Net (loss) income per common share - diluted$(0.59) $0.29  
Anti-dilutive stock awards excluded from the calculation of diluted shares0.5  —  
 Three Months Ended June 30, Six Months Ended June 30,
(in millions, except per share data)2019 2018 2019 2018
Numerator for basic net income per common share:       
Net income from continuing operations$108.3
 $103.2
 $120.2
 $117.3
Net (loss) income from discontinued operations(1.2) (0.1) (1.5) 167.8
Numerator for basic net income per common share$107.1
 $103.1
 $118.7
 $285.1
        
Numerator for diluted net income from continuing operations per common share$108.3
 $103.2
 $120.2
 $117.3
Numerator for diluted net income per common share:$107.1
 $103.1
 $118.7
 $285.1
        
Denominator for net income per common share:       
Basic40.1
 40.7
 40.3
 42.0
Plus dilutive effect of stock awards0.6
 0.2
 0.4
 0.2
Diluted40.7
 40.9
 40.7
 42.2
        
Net income (loss) per common share data:       
Basic       
Continuing operations$2.69
 $2.54
 $2.99
 $2.80
Discontinued operations$(0.03) $—
 $(0.04) $3.99
Net income per common share - basic$2.66
 $2.54
 $2.95
 $6.79
        
Diluted       
Continuing operations$2.66
 $2.52
 $2.96
 $2.78
Discontinued operations$(0.03) $—
 $(0.04) $3.97
Net income per common share - diluted$2.63
 $2.52
 $2.92
 $6.75

17.18. SEGMENT INFORMATION
We manage our operations through three3 reportable segments:
•Churchill Downs
The Churchill Downs segment includes live and historical pari-mutuel racing related revenue and expenses at Churchill Downs Racetrack and Derby City Gaming.
Churchill Downs Racetrack is the home of The Kentucky Derby andconducts live racing during the year. Derby City Gaming is a historical racing machine facility that operates under the Churchill Downs pari-mutuel racing license at its ancillary training facility in Louisville, Kentucky.
Churchill Downs Racetrack and Derby City Gaming earn commissions primarily from pari-mutuel wagering on live races at Churchill Downs and on historical races at Derby City Gaming; simulcast fees earned from other wagering sites; admissions, personal seat licenses, sponsorships, television rights, and other miscellaneous services (collectively "racing event-related services"), as well as food and beverage services.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
19
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

•Online Wagering
The Online Wagering segment includes the revenue and Gaming. Referexpenses for TwinSpires and the online sports betting and iGaming business.
TwinSpires operates our online horse racing wagering business on TwinSpires.com, BetAmerica.com and other Company platforms; facilitates high dollar wagering by international customers ("Velocity"); and provides the platform for horse racing statistical data generated by our information business that provides data and processing services to Note 1, Descriptionthe equine industry ("Brisnet").
Our sports betting and iGaming business includes the online BetAmerica sports betting and casino gaming operations.
•Gaming
The Gaming segment includes revenue and expenses for the casino properties and associated racetrack or jai alai facilities which support the casino license. The Gaming segment has approximately 11,000 slot machines and VLTs and 200 table games located in 8 states.
The Gaming segment revenue and Adjusted EBITDA includes the following properties:
◦Calder
◦Fair Grounds Slots, Fair Grounds Race Course, and VSI (collectively, "Fair Grounds and VSI")
◦Harlow’s
◦Lady Luck Nemacolin management agreement
◦Ocean Downs
◦Oxford
◦Presque Isle
◦Riverwalk
The Gaming segment Adjusted EBITDA also includes the Adjusted EBITDA related to the Company’s equity investments in the following:
◦61.3% equity investment in Midwest Gaming, the parent company of Business, for further information regardingRivers Des Plaines
◦50% equity investment in MVG
The Gaming segment generates revenue and expenses from slot machines, table games, VLTs, video poker, retail sports betting, ancillary food and beverage services, hotel services, commission on pari-mutuel wagering, racing event-related services, and / or other miscellaneous operations.
We have aggregated the changes we madefollowing businesses as well as certain corporate operations, and other immaterial joint ventures in "All Other" to reconcile to consolidated results:
•Arlington
•United Tote
•Oak Grove Racing and Gaming
•Turfway Park
•Corporate
We conduct our business through these reportable segments duringand report net revenue and operating expense associated with these reportable segments in the first quarteraccompanying condensed consolidated statements of 2019. Accordingly, prior year amounts in this Form 10-Q have been reclassified to conform to this presentation.
comprehensive income. Eliminations include the elimination of intersegment transactions. We utilize non-GAAP measures, including EBITDA (earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA. Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA includes the following adjustments:
Adjusted EBITDA includes our portion of EBITDA from our equity investments.
Adjusted EBITDA excludes:
•Transaction expense, net which includes:
◦Acquisition and disposition related charges, including fair value adjustments related to earnouts and deferred payments;charges;
◦Calder racing exit costs; and

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
23
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


◦Other transaction expense, including legal, accounting, and other deal-related expense;
•Stock-based compensation expense;
•Midwest Gaming's impact on our investments in unconsolidated affiliates from:
◦The impact of changes in fair value of interest rate swaps; and
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
20
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

◦Recapitalization and transaction costs;
•Asset impairments;
•Gain on Ocean Downs/Saratoga Transaction;
Loss on extinguishment of debt;•Legal reserves;
•Pre-opening expense; and
•Other charges, recoveries and expenses
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. Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with GAAP. 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 condensed consolidated statements of comprehensive income.
Effective January 1, 2019, the Company does not allocate corporate and other related expenses to the operating segments in the accompanying condensed consolidated statements of comprehensive income. Accordingly, the prior year amounts in the accompanying consolidated statements of comprehensive income were reclassified to conform to this presentation.
The tables below present net revenue from external customers and intercompany revenue from each of our segments, net revenue from external customers for each group of similar services, Adjusted EBITDA by segment, and a reconciliation of comprehensive (loss) income to Adjusted EBITDA:

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
2421
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2019 2018 2019 2018
Net revenue from external customers:       
Churchill Downs:       
Churchill Downs Racetrack$161.0
 $154.9
 $163.3
 $156.9
Derby City Gaming21.2
 —
 39.9
 —
Total Churchill Downs182.2
 154.9
 203.2
 156.9
Online Wagering:       
TwinSpires95.6
 93.7
 158.6
 156.9
Online Sports Betting and iGaming—
 —
 0.1
 —
Total Online Wagering95.6
 93.7
 158.7
 156.9
Gaming:       
Oxford26.3
 26.2
 50.2
 50.4
Calder25.6
 26.0
 51.0
 50.9
Riverwalk14.2
 13.6
 30.5
 28.0
Harlow’s13.3
 12.5
 28.6
 25.8
Fair Grounds and VSI30.9
 29.5
 68.4
 63.9
Ocean Downs21.9
 —
 40.3
 —
Presque Isle37.1
 —
 66.8
 —
Lady Luck Nemacolin8.3
 —
 10.6
 —
Saratoga—
 0.3
 —
 0.6
Total Gaming177.6
 108.1
 346.4
 219.6
All Other22.0
 22.7
 34.5
 35.3
Net revenue from external customers$477.4
 $379.4
 $742.8
 $568.7

Three Months Ended March 31,
(in millions)20202019
Net revenue from external customers:
Churchill Downs:
Churchill Downs Racetrack$1.9  $2.3  
Derby City Gaming21.6  18.7  
Total Churchill Downs23.5  21.0  
Online Wagering:
TwinSpires66.6  63.0  
Online Sports Betting and iGaming0.7  0.1  
Total Online Wagering67.3  63.1  
Gaming:
Fair Grounds and VSI31.6  37.5  
Presque Isle27.6  29.7  
Calder21.8  25.4  
Oxford20.1  23.9  
Ocean Downs14.8  18.4  
Riverwalk12.7  16.3  
Harlow’s11.7  15.3  
Lady Luck Nemacolin7.3  2.3  
Total Gaming147.6  168.8  
All Other14.5  12.5  
Net revenue from external customers$252.9  $265.4  
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2019 2018 2019 2018
Intercompany net revenue:       
Churchill Downs$10.9
 $9.4
 $11.3
 $9.7
Online Wagering0.4
 0.4
 0.7
 0.8
Gaming0.2
 0.1
 1.5
 1.1
All Other3.4
 3.6
 5.6
 6.0
Eliminations(14.9) (13.5) (19.1) (17.6)
Intercompany net revenue$—
 $—
 $—
 $—

Three Months Ended March 31,
(in millions)20202019
Intercompany net revenue:
Churchill Downs$0.3  $0.4  
Online Wagering0.4  0.3  
Gaming1.5  1.3  
All Other3.0  2.2  
Eliminations(5.2) (4.2) 
Intercompany net revenue$—  $—  



FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
2522
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


 Three Months Ended June 30, 2019
(in millions)Churchill Downs Online Wagering Gaming Total Segments All Other Total
Net revenue from external customers           
Pari-mutuel:           
Live and simulcast racing$41.3
 $91.1
 $5.5
 $137.9
 $12.2
 $150.1
Historical racing19.9
 —
 —
 19.9
 —
 19.9
Racing event-related services113.4
 —
 0.8
 114.2
 2.2
 116.4
Gaming(a)
—
 —
 150.2
 150.2
 —
 150.2
Other(a)
7.6
 4.5
 21.1
 33.2
 7.6
 40.8
Total$182.2
 $95.6
 $177.6
 $455.4
 $22.0
 $477.4
 Three Months Ended June 30, 2018
(in millions)Churchill Downs Online Wagering Gaming Total Segments All Other Total
Net revenue from external customers           
Pari-mutuel:           
Live and simulcast racing$39.5
 $89.7
 $4.4
 $133.6
 $13.6
 $147.2
Historical racing—
 —
 —
 —
 —
 —
Racing event-related services109.6
 —
 0.7
 110.3
 2.2
 112.5
Gaming(a)
—
 —
 87.1
 87.1
 —
 87.1
Other(a)
5.8
 4.0
 15.9
 25.7
 6.9
 32.6
Total$154.9
 $93.7
 $108.1
 $356.7
 $22.7
 $379.4

Three Months Ended March 31, 2020
(in millions)Churchill DownsOnline WageringGamingTotal SegmentsAll OtherTotal
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing$1.0  $63.9  $9.9  $74.8  $9.9  $84.7  
Historical racing(a)
20.4  —  —  20.4  —  20.4  
Racing event-related services—  —  1.3  1.3  0.1  1.4  
Gaming(a)
—  0.7  121.6  122.3  —  122.3  
Other(a)
2.1  2.7  14.8  19.6  4.5  24.1  
Total$23.5  $67.3  $147.6  $238.4  $14.5  $252.9  

Three Months Ended March 31, 2019
(in millions)Churchill DownsOnline WageringGamingTotal SegmentsAll OtherTotal
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing$1.4  $60.5  $12.2  $74.1  $7.5  $81.6  
Historical racing(a)
17.7  —  —  17.7  —  17.7  
Racing event-related services—  —  1.5  1.5  —  1.5  
Gaming(a)
—  0.1  146.6  146.7  —  146.7  
Other1.9  2.5  8.5  12.9  5.0  17.9  
Total$21.0  $63.1  $168.8  $252.9  $12.5  $265.4  
(a) Food and beverage, hotel, and other services furnished to customers for free as an inducement to gamble or through the redemption of our customers' loyalty points are recorded at their estimated standalone selling prices in Other revenue with a corresponding offset recorded as a reduction in Gaming revenue.historical pari-mutuel revenue for HRMs or gaming revenue for our casino properties. These amounts were $7.9$7.6 million for the three months ended June 30, 2019March 31, 2020 and $6.6$7.8 million for the three months ended June 30, 2018.March 31, 2019.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
2623
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


 Six Months Ended June 30, 2019
(in millions)Churchill Downs Online Wagering Gaming Total Segments All Other Total
Net revenue from external customers           
Pari-mutuel:           
Live and simulcast racing$42.7
 $151.6
 $17.7
 $212.0
 $19.7
 $231.7
Historical racing37.4
 —
 —
 37.4
 —
 37.4
Racing event-related services113.4
 —
 2.3
 115.7
 2.2
 117.9
Gaming(b)
—
 0.1
 289.2
 289.3
 —
 289.3
Other(b)
9.7
 7.0
 37.2
 53.9
 12.6
 66.5
Total$203.2
 $158.7
 $346.4
 $708.3
 $34.5
 $742.8
 Six Months Ended June 30, 2018
(in millions)Churchill Downs Online Wagering Gaming Total Segments All Other Total
Net revenue from external customers           
Pari-mutuel:           
Live and simulcast racing$40.8
 $150.7
 $15.0
 $206.5
 $21.5
 $228.0
Historical racing—
 —
 —
 —
 —
 —
Racing event-related services109.6
 —
 2.1
 111.7
 2.2
 113.9
Gaming(b)
—
 —
 175.0
 175.0
 —
 175.0
Other(b)
6.5
 6.2
 27.5
 40.2
 11.6
 51.8
Total$156.9
 $156.9
 $219.6
 $533.4
 $35.3
 $568.7
(b) Food and beverage, hotel, and other services furnished to customers for free as an inducement to gamble or through the redemption of our customers' loyalty points are recorded at their estimated standalone selling prices in Other revenue with a corresponding offset recorded as a reduction in Gaming revenue. These amounts were $15.5 million for the six months ended June 30, 2019 and $12.6 million for the six months ended June 30, 2018.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
27
(Unaudited)
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)



Adjusted EBITDA by segment is comprised of the following:
Three Months Ended March 31, 2020
(in millions)Churchill DownsOnline WageringGaming
Net revenue$23.8  $67.7  $149.1  
Taxes and purses(7.1) (3.9) (59.1) 
Marketing and advertising(1.1) (3.5) (5.3) 
Salaries and benefits(6.2) (3.5) (29.5) 
Content expense(0.4) (33.2) (1.2) 
Selling, general and administrative expense(1.5) (1.4) (6.7) 
Other operating expense(5.6) (7.2) (19.5) 
Other income—  —  21.2  
Adjusted EBITDA$1.9  $15.0  $49.0  
 Three Months Ended June 30, 2019
(in millions)Churchill Downs Online Wagering Gaming
Net revenue$193.1
 $96.0
 $177.8
      
Taxes & purses(35.7) (4.3) (68.5)
Marketing & advertising(3.6) (4.5) (5.1)
Salaries & benefits(12.5) (2.7) (25.4)
Content expense(0.8) (51.8) (1.7)
SG&A expense(2.0) (1.9) (6.9)
Other operating expense(16.6) (8.6) (21.8)
Other income—
 —
 27.7
Adjusted EBITDA$121.9
 $22.2
 $76.1

Three Months Ended March 31, 2019
(in millions)Churchill DownsOnline WageringGaming
Net revenue$21.4  $63.4  $170.1  
Taxes and purses(6.2) (3.3) (65.0) 
Marketing and advertising(1.1) (1.0) (5.1) 
Salaries and benefits(5.2) (2.5) (24.5) 
Content expense(0.5) (32.1) (1.2) 
Selling, general and administrative expense(1.7) (1.8) (6.4) 
Other operating expense(5.3) (5.8) (19.0) 
Other income—  —  15.9  
Adjusted EBITDA$1.4  $16.9  $64.8  
 Three Months Ended June 30, 2018
(in millions)Churchill Downs Online Wagering Gaming
Net revenue$164.3
 $94.1
 $108.2
      
Taxes & purses(27.3) (4.6) (35.5)
Marketing & advertising(3.2) (3.1) (3.5)
Salaries & benefits(9.7) (2.4) (15.6)
Content expense(0.9) (49.8) (1.1)
SG&A expense(1.2) (1.6) (4.0)
Other operating expense(14.2) (8.2) (15.7)
Other income0.1
 —
 12.9
Adjusted EBITDA$107.9
 $24.4

$45.7



FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
2824
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)


 Six Months Ended June 30, 2019
(in millions)Churchill Downs Online Wagering Gaming
Net revenue$214.5
 $159.4
 $347.9
      
Taxes & purses(41.9) (7.6) (133.5)
Marketing & advertising(4.7) (5.5) (10.2)
Salaries & benefits(17.7) (5.2) (49.9)
Content expense(1.3) (83.9) (2.9)
SG&A expense(3.7) (3.7) (13.3)
Other operating expense(21.9) (14.4) (40.8)
Other income—
 —
 43.6
Adjusted EBITDA$123.3
 $39.1
 $140.9
 Six Months Ended June 30, 2018
(in millions)Churchill Downs Online Wagering Gaming
Net revenue$166.6
 $157.7
 $220.7
      
Taxes & purses(28.0) (8.0) (73.5)
Marketing & advertising(3.5) (3.9) (7.1)
Salaries & benefits(12.8) (4.5) (32.5)
Content expense(1.3) (82.0) (2.0)
SG&A expense(2.2) (3.0) (7.8)
Other operating expense(17.0) (14.0) (29.4)
Other income0.1
 —
 23.7
Adjusted EBITDA$101.9
 $42.3
 $92.1



FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
29
(Unaudited)
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)



 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2019 2018 2019 2018
Reconciliation of Comprehensive Income to Adjusted EBITDA:       
        
Comprehensive income$107.1
 $102.9
 $118.7
 $285.3
Foreign currency translation, net of tax—
 —
 —
 (0.6)
Change in pension benefits, net of tax—
 0.2
 —
 0.4
Net income107.1
 103.1
 118.7
 285.1
Loss (income) from discontinued operations, net of tax1.2
 0.1
 1.5
 (167.8)
Income from continuing operations, net of tax108.3

103.2

120.2

117.3
        
Additions:       
Depreciation and amortization21.5
 15.3
 42.3
 29.1
Interest expense19.4
 9.7
 33.1
 19.3
Income tax provision38.6
 32.8
 45.1
 35.4
EBITDA$187.8
 $161.0
 240.7
 201.1
        
Adjustments to EBITDA:       
Selling, general and administrative:       
Stock-based compensation expense$7.4
 $6.4
 12.1
 9.2
Other charges—
 —
 0.5
 —
Pre-opening expense0.9
 0.7
 2.2
 1.3
Transaction expense, net0.6
 2.1
 4.1
 3.5
Other income, expense:       
Interest, depreciation and amortization expense related to equity investments9.7
 4.3
 13.2
 8.6
Changes in fair value of Midwest Gaming's interest rate swaps7.9
 —
 12.2
 —
Midwest Gaming's recapitalization and transactions costs0.8
 —
 4.7
 —
Other(0.1) —
 (0.1) —
Total adjustments to EBITDA27.2
 13.5
 48.9
 22.6
Adjusted EBITDA$215.0
 $174.5
 $289.6
 $223.7
        
Adjusted EBITDA by segment:       
Churchill Downs$121.9
 $107.9
 $123.3
 $101.9
Online Wagering22.2
 24.4
 39.1
 42.3
Gaming76.1
 45.7
 140.9
 92.1
Total segment Adjusted EBITDA220.2
 178.0
 303.3
 236.3
All Other(5.2) (3.5) (13.7) (12.6)
Total Adjusted EBITDA$215.0
 $174.5
 $289.6
 $223.7

Three Months Ended March 31,
(in millions)20202019
Reconciliation of Comprehensive (Loss) Income to Adjusted EBITDA:
Net (loss) income and comprehensive (loss) income attributable to CDI$(23.4) $11.6  
Net loss attributable to noncontrolling interest0.1  —  
Net (loss) income before noncontrolling interest(23.5) 11.6  
Loss from discontinued operations, net of tax0.9  0.3  
(Loss) income from continuing operations, net of tax(22.6) 11.9  
Additions:
Depreciation and amortization22.0  20.8  
Interest expense19.3  13.7  
Income tax (benefit) provision(11.6) 6.5  
EBITDA$7.1  $52.9  
Adjustments to EBITDA:
Selling, general and administrative:
Stock-based compensation expense$4.3  $4.7  
Other charges—  0.5  
Pre-opening expense and other expense1.7  1.3  
Impairment of intangible assets17.5  —  
Transaction expense, net0.3  3.5  
Other income, expense:
Interest, depreciation and amortization expense related to equity investments9.5  3.5  
Changes in fair value of Midwest Gaming's interest rate swaps14.9  4.3  
Midwest Gaming's recapitalization and transactions costs—  3.9  
Total adjustments to EBITDA48.2  21.7  
Adjusted EBITDA$55.3  $74.6  
Adjusted EBITDA by segment:
Churchill Downs$1.9  $1.4  
Online Wagering15.0  16.9  
Gaming49.0  64.8  
Total segment Adjusted EBITDA65.9  83.1  
All Other$(10.6) $(8.5) 
Total Adjusted EBITDA$55.3  $74.6  
The table below presents information about equity in (loss) income of unconsolidated investments included in our reported segments:
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2019 2018 2019 2018
Gaming$9.5
 $8.8
 $13.6
 $15.3


Three Months Ended March 31,
(in millions)20202019
Gaming$(3.3) $4.1  
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
3025
Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)



The table below presents total asset information for each of our segments:
(in millions)June 30, 2019 December 31, 2018
Total assets:   
Churchill Downs$371.4
 $359.6
Online Wagering244.3
 222.8
Gaming1,605.3
 877.1
Total segment assets2,221.0
 1,459.5
All Other367.5
 265.7
Total assets$2,588.5
 $1,725.2

(in millions)March 31, 2020December 31, 2019
Total assets:
Churchill Downs$369.1  $370.3  
Online Wagering243.7  241.5  
Gaming940.3  1,030.1  
Total segment assets1,553.1  1,641.9  
All Other1,650.7  909.1  
Total assets$3,203.8  $2,551.0  
The table below presents total capital expenditures for each of our segments:
Three Months Ended March 31,
(in millions)20202019
Capital expenditures:
Churchill Downs$12.1  $9.6  
Online Wagering3.6  11.5  
Gaming3.3  2.5  
Total segment capital expenditures19.0  23.6  
All Other29.3  4.5  
Total capital expenditures$48.3  $28.1  
 Six Months Ended June 30,
(in millions)2019 2018
Capital expenditures:   
Churchill Downs$21.9
 $56.1
Online Wagering4.9
 4.7
Gaming28.2
 8.6
Total segment capital expenditures55.0
 69.4
All Other3.8
 3.0
Total capital expenditures$58.8
 $72.4

18.19. SUBSEQUENT EVENT
On July 25, 2019, Midwest Gaming & Entertainment, LLC,April 28, 2020, the wholly owned operating subsidiaryCompany entered into a Second Amendment to its Credit Agreement, which (i) provides for a financial covenant relief period through the date on which the Company delivers its quarterly financial statements and compliance certificate for the fiscal quarter ending June 30, 2021, subject to certain exceptions (the “Financial Covenant Relief Period”), (ii) amends the definition of Midwest Gaming, notified“Consolidated EBITDA” in the Illinois Gaming BoardCredit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extends certain deadlines and makes certain other amendments to the Company’s financial reporting obligations, (iv) places certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amends the definitions of “Material Adverse Effect” and “License Revocation” in the Credit Agreement to take into consideration COVID-19.
During the Financial Covenant Relief Period, the Company will not be required to comply with its intentionexisting consolidated total secured net leverage ratio financial covenant and the interest coverage ratio financial covenant. The Company has agreed to reserve 800 additional gaming positionsa minimum liquidity financial covenant that requires the Company and its restricted subsidiaries to maintain liquidity of at Rivers Des Plaines in accordance withleast $150.0 million during the amended Illinois Gambling Act that was signed into law on June 28, 2019.

Financial Covenant Relief Period.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
3126

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information set forth in this discussion and analysisThis report contains various "forward-looking statements"“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the "Act"“Act”), which provides certain "safe harbor"“safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Qreport are made pursuant to the Act. The reader is cautioned that such forward-looking statements are based on information available at the time and/or management’s good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date that the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "might", "plan", "predict", "project", "seek", "should", "will",“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “seek,” “should,” “will,” and similar words, although some forward-looking statements are expressed differently.
Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include the following:
•the impact of the novel coronavirus (COVID-19) pandemic and related economic matters on our results of operations, financial conditions and prospects;
•the effect of economic conditions on our consumers' confidence and discretionary spending or our access to credit;
•additional or increased taxes and fees;
•public perceptions or lack of confidence in the integrity of our business; business or any deterioration in our reputation;
•loss of key or highly skilled personnel;
•restrictions in our debt facilities limiting our flexibility to operate our business;
•general risks related to real estate ownership, including fluctuations in market values and environmental regulations;
•catastrophic events and system failures disrupting our operations;
•online security risk, including cyber-security breaches;
•inability to recover under our insurance policies for damages sustained at our properties in the event of inclement weather and casualty events;
•increases in insurance costs and inability to obtain similar insurance coverage in the future;
•inability to identify and complete acquisition, expansion or divestiture projects, on time, on budget or as planned;
•difficulty in integrating recent or future acquisitions into our operations; number
•costs and uncertainties relating to the development of people attendingnew venues and wagering on live horse races; expansion of existing facilities;
•risks associated with equity investments, strategic alliances and other third-party agreements;
•inability to respond to rapid technological changes in a timely manner;
•inadvertent infringement of the intellectual property of others;
•inability to protect our own intellectual property rights;
•payment-related risks, such as risk associated with fraudulent credit card and debit card use;
•compliance with the Foreign Corrupt Practices Act or applicable money-laundering regulations;
•risks related to pending or future legal proceedings and other actions;
•inability to negotiate agreements with industry constituents, including horsemen and other racetracks;
•work stoppages and labor issues;
•changes in consumer preferences, attendance, wagering, and sponsorship with respect to Churchill Downs Racetrack and the Kentucky Derby;
•personal injury litigation related to injuries occurring at our racetracks; weather and other conditions affecting our ability to conduct live racing;
•the occurrence of extraordinary events, such as terrorist attacks and public health threats;
•changes in the regulatory environment of our racing operations;
•increased competition in the horse racing business;
•difficulty in attracting a sufficient number of horses and trainers for full field horseraces; inability to negotiate agreements with industry constituents, including horsemen and other racetracks; personal injury litigation related to injuries occurring at our racetracks; horse races;
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
27

•our inability to utilize and provide totalisatortotalizator services; weather conditions affecting our ability to conduct live racing; increased competition in the horseracing business; changes in the regulatory environment of our racing operations;
•changes in regulatory environment of our online horseracinghorse racing wagering business; increase
•a reduction in the number of people wagering on live horse races;
•increased competition in our online horseracing; horse racing wagering business;
•uncertainty and changes in the legal landscape relating to our online horse racing wagering business;
•continued legalization of online sports betting and iGaming in the United States and our ability to predict and capitalize on any such legalization;
•inability to expand our sports betting operations and effectively compete;
•failure to manage risks associated with sports betting;
•failure to comply with laws requiring us to block access to certain individuals could result in penalties or impairment with respect to our mobile and online wagering products;
•increased competition in our casino business;
•changes in regulatory environment of our casino business; development and expansion of casinos is costly and susceptible to delays, cost overruns and other uncertainties; and
•concentration and evolution of slot machine manufacturing and other technology conditions that could impose additional costs.costs; and
•inability to collect gaming receivables from the customers to whom we extend credit.
The following information is unaudited. Tabular dollars are in millions, except per share amounts. All per share amounts assume dilution unless otherwise noted. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018,2019, including Part I - Item 1A, "Risk Factors" of our Form 10-K for a discussion regarding some of the reasons that actual results may be materially different from those we anticipate.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
3228

Our Business
Executive Overview
We are an industry-leading racing, online wagering and gaming entertainment company anchored by our iconic flagship event - The Kentucky Derby. We own and operate Derby City Gaming, a historical racing machine ("HRM") facility in Louisville, Kentucky. We also own and operate the largest legal online horseracinghorse racing wagering platform in the U.S., TwinSpires.com, and we operate sports betting and iGaming through our BetAmerica platform in multiple states. We are also a leader in brick-and-mortar casino gaming with approximately 11,000 slot machines and video lottery terminals ("VLTs") and 200 table games in eight states. We also operate sports wagering and iGaming through our BetAmerica platform in multiple states. We were organized as a Kentucky corporation in 1928, and our principal executive offices are located in Louisville, Kentucky.
SegmentsRecent Developments Regarding COVID-19
In recent months, a new strain of coronavirus (COVID-19) has spread to many countries in the world, including the United States, and the outbreak has been declared a pandemic by the World Health Organization. The U.S. Secretary of Health and Human Services has also declared a public health emergency in the United States in response to the outbreak. Considerable uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent of and effectiveness of responses taken on international, national and local levels. Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, have already resulted in significant negative economic impacts globally and in relation to our business. The long-term impact of COVID-19 on the United States and world economies remains uncertain, the duration and scope of which cannot currently be predicted. Please refer to Part II, Section 1A., “Risk Factors,” of this Quarterly Report on Form 10-Q for further information.
In response to the measures taken to limit the impact of COVID-19 described above, and for the protection of our employees, customers, and communities, we have temporarily closed or suspended operations at the following properties, effective as of the following dates:
Churchill Downs
•Simulcast operations at Churchill Downs Racetrack on March 15, 2020.
•Derby City Gaming on March 15, 2020.
Gaming
Wholly-Owned Properties
•Calder Casino and Racing ("Calder") on March 16, 2020.
•Fair Grounds Slots and Video Services, LLC ("VSI") on March 16, 2020.
•Fair Grounds Race Course conducted spectator-free live racing, including the Louisiana Derby, from March 13, 2020 through March 21, 2020 and canceled the remainder of racing dates.
•Harlow's Casino Resort and Spa ("Harlow's") on March 16, 2020.
•Ocean Downs Casino and Racetrack ("Ocean Downs") on March 15, 2020.
•Oxford Casino and Hotel ("Oxford") on March 16, 2020.
•Presque Isle Downs and Casino ("Presque Isle") on March 16, 2020.
•Riverwalk Casino Hotel ("Riverwalk") on March 16, 2020.
Managed Properties
•Lady Luck Casino Nemacolin ("Lady Luck Nemacolin") on March 16, 2020.
Equity Investments
•Rivers Casino Des Plaines ("Rivers Des Plaines") on March 15, 2020.
•Miami Valley Gaming and Racing ("MVG") on March 14, 2020.
All Other
•Arlington International Racecourse ("Arlington") off track betting facilities ("OTBs") and simulcast operations on March 16, 2020.
•Turfway Park conducted spectator-free live racing from March 12, 2020 through March 25, 2020 and canceled the remainder of racing dates.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
29

On March 25, 2020, as a result of the temporary closures and suspended operations described above, the Company announced the temporary furlough of employees at its wholly-owned gaming properties and certain wholly-owned racing operations. The Company is continuing to provide health, dental, vision and life insurance benefits to furloughed employees at our wholly-owned properties. The Company also implemented a salary reduction for all remaining non-furloughed salaried employees based on a percentage that varies dependent upon the amount of each employee’s salary. The most senior level of executive management has received the largest salary decrease, based on both percentage and dollar amount. The salary reductions will remain in effect until the Company begins to return to normalized operations.
There have been a number of other aspects of our business that have been impacted by COVID-19 during the three months ended March 31, 2020, including the following:
•The Company rescheduled the 146th Kentucky Oaks and Derby from May 1-2, 2020 to September 4-5, 2020. Kentucky Derby week race dates and related events will begin on September 1, 2020.
•Starting in mid-February 2020, U.S. and international sporting events were cancelled, which reduced our sports betting options for our customers.
•Horse racing content for wagering on our TwinSpires business ("TwinSpires") decreased, although handle increased as our customers wagered more on the content that was available.
Financial Status and Outlook
The Company has temporarily reduced its planned maintenance and project capital expenditures for 2020 as a result of the temporary property and operations closures and our prioritization of capital investments based on the highest near-term return opportunities in order to maintain financial flexibility.
On March 16, 2020, we borrowed $675.4 million on our revolving credit facility (the "Revolver") pursuant to the Credit Agreement (defined below) to provide the Company with additional financial flexibility, which provided the Company with $700.9 million of cash and cash equivalents as of March 31, 2020. The Company was in compliance with all applicable covenants in the Credit Agreement at March 31, 2020.
On April 28, 2020, the Company entered into a Second Amendment to its Credit Agreement, which (i) provides for a financial covenant relief period through the date on which the Company delivers its quarterly financial statements and compliance certificate for the fiscal quarter ending June 30, 2021, subject to certain exceptions (the “Financial Covenant Relief Period”), (ii) amends the definition of “Consolidated EBITDA” in the Credit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extends certain deadlines and makes certain other amendments to the Company’s financial reporting obligations, (iv) places certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amends the definitions of “Material Adverse Effect” and “License Revocation” in the Credit Agreement to take into consideration COVID-19.
During the firstFinancial Covenant Relief Period, the Company will not be required to comply with its existing consolidated total secured net leverage ratio financial covenant and the interest coverage ratio financial covenant. The Company has agreed to a minimum liquidity financial covenant that requires the Company and its restricted subsidiaries to maintain liquidity of at least $150.0 million during the Financial Covenant Relief Period.
We continue to assess the situation at our properties and operations on a daily basis; however, we are unable to determine when we will be able to reopen our properties and operations and the conditions upon which we will reopen. Our second quarter of 2019, we realigned2020 financial results will be materially impacted by the rescheduling of the Kentucky Oaks and Derby from the second quarter of 2020 to the third quarter of 2020, by the continued closure and suspended operations of our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results ofwholly-owned gaming properties and certain wholly-owned racing operations, and to assess performance and allocate resources. Refer to Note 1, Descriptionby the continued closure of Business,the casino properties related to our condensed consolidatedtwo equity investments.
Based on our current projected operating cash flow needs, interest and debt repayments, and revised maintenance and project capital expenditures, we believe we have adequate cash for at least the next twelve months to fund our business operations, meet all of our financial statementscommitments, and invest in key growth capital projects.
Asset Impairment
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 its indefinite-lived intangible assets, goodwill, or property and equipment, were impaired ("Trigger Event"), or if there were any other than temporary impairments of our equity investments. Factors considered in this evaluation included, among other things, the amount of the fair value over carrying value from the annual
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
30

impairment testing performed as of April 1, 2019, changes in carrying values, changes in discount rates, and the impact of temporary property closures due to the COVID-19 pandemic on cash flows. Based on the Company's evaluation, the Company concluded that a Trigger Event occurred related to the Presque Isle gaming rights, trademark, and the reporting unit's goodwill due to the impact and uncertainty of the COVID-19 pandemic and the recent closing of the Presque Isle Transaction in 2019. As a result of the Trigger Event, the Company recognized an impairment of $15.0 million for further information. For financial reporting purposes, we aggregateits Presque Isle gaming rights intangible asset and an impairment of $2.5 million for its Presque Isle trademark intangible asset.
Segments
We manage our operating segments intooperations through three reportable segments as follows:
•Churchill Downs
The Churchill Downs segment includes live and historical pari-mutuel racing related revenue and expenses at Churchill Downs Racetrack and Derby City Gaming.
Churchill Downs Racetrack is the home of The Kentucky Derby and conducts live racing during the year. Derby City Gaming is a historical racing machine facility that operates under the Churchill Downs pari-mutuel racing license at its ancillary training facility in Louisville, Kentucky.
Churchill Downs Racetrack and Derby City Gaming earn commissions primarily from pari-mutuel wagering on live races at Churchill Downs and on historical races at Derby City Gaming; simulcast fees earned formfrom other wagering sites; admissions, personal seat licenses, sponsorships, television rights, and other miscellaneous services (collectively "racing event-related services"), as well as food and beverage services.
•Online Wagering
The Online Wagering segment includes the revenue and expenses for the TwinSpires business ("TwinSpires") and the online Sports Bettingsports betting and iGaming business.
TwinSpires operates our online horseracinghorse racing wagering business on TwinSpires.com, BetAmerica.com and other Company platforms; facilitates high dollar wagering by international customers ("Velocity"); and provides the platform for horseracinghorse racing statistical data generated by our information business that provides data and processing services to the equine industry ("Brisnet").
Our Sports Bettingsports betting and iGaming business includes the online BetAmerica sports betting and casino gaming operations.
•Gaming
The Gaming segment includes revenue and expenses for the casino properties and associated racetrack or Jai Alaijai alai facilities which support the casino license. The Gaming segment has approximately 11,000 slot machines and VLTs and 200 table games located in eight states.
The Gaming segment revenue and Adjusted EBITDA includes the following properties:
◦Calder Casino and Racing ("Calder")
◦Fair Grounds Slots, Fair Grounds Race Course, and Video Services, LLC ("VSI") (collectively, "Fair Grounds and VSI")
◦Harlow’s Casino Resort and Spa ("Harlow's")
◦Lady Luck Casino Nemacolin ("Lady Luck Nemacolin") management agreement
◦Ocean Downs Casino and Racetrack ("Ocean Downs")
◦Oxford Casino and Hotel ("Oxford")
◦Presque Isle Downs and Casino ("Presque Isle")
◦Riverwalk Casino Hotel ("Riverwalk")

◦Calder
◦Fair Grounds Slots, Fair Grounds Race Course, and VSI (collectively, "Fair Grounds and VSI")
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
33
◦Harlow's

◦Lady Luck Nemacolin management agreement
◦Ocean Downs
◦Oxford
◦Presque Isle
◦Riverwalk
The Gaming segment Adjusted EBITDA also includes the Adjusted EBITDA related to the Company’s equity investments in the following:
◦61.3% equity investment in Midwest Gaming Holdings, LLC ("Midwest Gaming"), the parent company of Rivers Casino Des Plaines in Des Plaines, Illinois ("Rivers Des Plaines")
◦50% equity investment in Miami Valley Gaming and Racing ("MVG")
◦61.3% equity investment in Midwest Gaming, the parent company of Rivers Des Plaines in Des Plaines, Illinois
◦50% equity investment in MVG
The Gaming segment generates revenue and expenses from slot machines, table games, VLTs, video poker, retail sports betting, ancillary food and beverage services, hotel services, commission on pari-mutuel wagering, racing event-related services, and / or other miscellaneous operations.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
31

We have aggregated the following businesses as well as certain corporate operations, and other immaterial joint ventures in "All Other" to reconcile to consolidated results:
•Arlington International Race Course ("Arlington")
•United Tote
•Oak Grove Racing and Gaming ("Oak Grove")
•Turfway Park
•Corporate
We conduct our business through these reportable segments and report net revenue and operating expense associated with these reportable segments in the accompanying condensed consolidated statements of comprehensive income. The prior year results were reclassified to conform to this presentation.
Effective January 1, 2019, the Company does not allocate corporate and other related expenses to the operating segments in the accompanying condensed consolidated statements of comprehensive income. The prior year results in the accompanying consolidated statements of comprehensive income were reclassified to conform to this presentation.
Acquisitions of Presque Isle and Lady Luck Nemacolin
On January 11, 2019, we completed the acquisition of Presque Isle located in Erie, Pennsylvania from Eldorado Resorts, Inc. ("ERI") for cash consideration of $178.9 million (the "Presque Isle Transaction") and $1.6 million of working capital and other purchase price adjustments.
On March 8, 2019, the Company assumed management and acquired certain assets related to the management of Lady Luck Nemacolin in Farmington, Pennsylvania, from ERI for cash consideration of $100,000 (the "Lady Luck Nemacolin Transaction").
Acquisition of Certain Ownership Interests of Midwest Gaming Holdings, LLC
On March 5, 2019, the Company completed the acquisition of certain ownership interests of Midwest Gaming, Holdings, LLC ("Midwest Gaming"), the parent company of Rivers Des Plaines in Des Plaines, Illinois (the "Sale Transaction") 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 forof certain transaction costs and working capital adjustments.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 Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC, and Casino Investors, LLC ("Casino Investors").Investors. As a result of the Recapitalization, the Company's ownership of Midwest Gaming increased to 61.3%. High Plaines retained ownership of 36%36.0% of Midwest Gaming and Casino Investors retained ownership of 2.7% of Midwest Gaming.
We also recognized a $109.6$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.
Refer to Note 12, Investments in and Advances to Unconsolidated Affiliates, to our condensed consolidated financial statements for further information on the Sale Transaction and the Recapitalization.Turfway Park Acquisition
Sale of Big Fish Games, Inc.
On November 29, 2017, the Company entered into a definitive Stock Purchase Agreement (the "Stock Purchase Agreement") to sell its mobile gaming subsidiary, Big Fish Games, Inc. ("Big Fish Games"), a Washington corporation, for aggregate cash consideration of $990.0 million, to Aristocrat Technologies, Inc. (the "Purchaser"), a Nevada corporation, an indirect, wholly owned subsidiary of Aristocrat Leisure Limited, an Australian corporation (the "Big Fish Transaction"). On January 9, 2018, pursuant to the Stock Purchase Agreement, theThe Company completed the Big Fish Transaction.acquisition of Turfway Park from Jack Entertainment LLC ("JACK") and Hard Rock International (“Hard Rock”) on October 9, 2019 for total consideration of $46.0 million in cash ("Turfway Park Acquisition").Turfway Park is located on 197 acres in Florence, Kentucky. The Company received cash proceedshas announced plans and has begun to invest up to $150.0 million (including the Turfway Park Acquisition total consideration of $970.7$46.0 million) in a state-of-the-art live and historical thoroughbred racing facility at Turfway Park.
Of the $46.0 million which was net of $5.2total consideration, $36.0 million, less $0.9 million of working capital and purchase price adjustments, and $14.1was accounted for as a business combination. The remaining $10.0 million of transaction costs.
Big Fish Games andwas paid to Hard Rock for the related Big Fish Transaction meet the criteria for discontinued operation presentation. Accordingly, the condensed consolidated statements of comprehensive income and the notes to financial statements reflect Big Fish Games as discontinued operations for all periods presented. Unless otherwise specified, disclosures in these condensed consolidated financial statements reflect continuing operations only. The condensed consolidated statements of cash flows include both continuing and

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
34

discontinued operations. Refer to Note 5 of our condensed consolidated financial statements, Discontinued Operations, for further information on the discontinued operations relating to the Big Fish Transaction.
Stock Split
On October 31, 2018, the Company announced a three-for-one split (the "Stock Split")assignment of the Company's common stockpurchase and sale agreement rights and was accounted for shareholders of record as of January 11, 2019. The additional shares resultingseparately from the Stock Split were distributed on January 25, 2019. Our common stock began trading at the split-adjusted price on January 28, 2019. All sharebusiness combination as an intangible asset and per-share amountswas amortized through expense in the Company’s condensed consolidated financial statements and related notes have been retroactively adjusted to reflect the effectsfourth quarter of the Stock Split.2019.
Key Indicators to Evaluate Business Results and Financial Condition
Our management monitors a variety of key indicators to evaluate our business results and financial condition. These indicators include changes in net revenue, operating expense, operating income, earnings per share, outstanding debt balance, operating cash flow and capital spend.
Our condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP"). We also use non-GAAP measures, including EBITDA (earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA. We believe that the use of Adjusted EBITDA as a key performance measure of results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
32

performance, develop strategy and allocate resources. Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results.
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the following:
Adjusted EBITDA includes our portion of EBITDA from our equity investments.
Adjusted EBITDA excludes:
•Transaction expense, net which includes:
◦Acquisition and disposition related charges, including fair value adjustments related to earnouts and deferred payments;charges;
◦Calder racing exit costs; and
◦Other transaction expense, including legal, accounting and other deal-related expense;
•Stock-based compensation expense;
•Midwest Gaming's impact on our investments in unconsolidated affiliates from:
◦The impact of changes in fair value of interest rate swaps; and
◦Recapitalization and transaction costs;
•Asset impairments;
•Gain on Ocean Downs/Saratoga Transaction;
Loss on extinguishment of debt;•Legal reserves;
•Pre-opening expense; and
•Other charges, recoveries and expenses
For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying condensed consolidated statements of comprehensive income. Refer to the reconciliation of comprehensive income to Adjusted EBITDA included in this section for additional information.
Government Regulations and Legislative Actions
We are subject to various federal, state and international laws and regulations that affect our businesses. The ownership, operation and management of our Churchill Downs, Online Wagering, and Gaming andsegments, as well as our other investmentsoperations, are subject to regulation under the laws and regulations of each of the jurisdictions in which we operate. The ownership, operation and management of our segmentsbusinesses and properties are also subject to legislative actions at both the federal and state level. The following update on our regulatoryThere have been no material changes with respect to Government Regulations and legislative activities should be readLegislative Changes disclosed in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, including Part I - Item 1, "Business," for a discussion of regulatory and legislative issues.2019.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
35

Specific State Casino Regulations and Legislative Actions
Illinois
On June 28, 2019, the Governor of Illinois signed legislation into law that expands gaming opportunities in Illinois. Some of the highlights of the legislation are as follows:
Existing Illinois casinos:
The ten existing casinos can expand from 1,200 gaming positions to up to 2,000 gaming positions.
Allows for a tax credit for facility renovation and requires a reconciliation payment after year three post expansion / build.
New casinos in Illinois:
Authorizes licenses for six new casinos to be located in downtown Chicago, Waukegan, Rockford, Cook County South Suburbs, Williamson County and Danville and slots at the Chicago International and Midway airports.
The combination of the new downtown Chicago casino and the two airports can have up to 4,000 gaming positions. The new Williamson County casino can have up to 1,200 gaming positions. The other four new casinos can have up to 2,000 gaming positions.
Requires an upfront reconciliation payment and a reconciliation payment after year three post expansion / build.
Racetracks in Illinois:
Racetracks outside of Cook County can add up to 900 gaming positions.
Racetracks inside of Cook County can add up to 1,200 gaming positions.
Authorizes a new standardbred racetrack in Cook County.
Unused gaming positions can be purchased by other racetrack facilities.
Requires a purse contribution based on a graduated percentage of annual adjusted gross gaming receipts and imposes a graduated pari-mutuel tax.
Requires a reconciliation payment after year three post expansion / build if gaming positions are added.
Other significant provisions:
Existing and new video gaming terminal locations can increase from five units to a maximum of six units, can increase the maximum bet and can increase the maximum pay-out. Truck stop locations can increase from five units to a maximum of 10 units.
Promotional free play can be deducted from taxable revenue up to 20% of adjusted gross receipts ("AGR") starting January 1, 2020.
Table games revenue will be taxed under a new separate graduated privilege tax rate structure of 15% of the first $25 million of AGR and 20% above $25 million of AGR when the first new casino begins operations.
The new Chicago casino will be required to pay a privilege tax equal to 33% of annual gross receipts instead of the graduated privilege tax for slot machines and table games.
We believe this legislation will have a positive impact on our business operations.
Specific State Sports Betting and iGaming Regulations and Legislative Actions
Illinois
Sports Betting
On June 28, 2019, the Governor of Illinois signed legislation into law that authorizes sports betting in Illinois. Some of the highlights of the legislation are as follows:
▪Casinos, racetracks and sports venues that hold more than 17,000 people are authorized to operate sports wagering at brick and mortar locations and online.
▪Racetracks can have three affiliated off-track betting facilities ("OTBs") that are authorized to operate sports wagering at the OTB location and online.
▪The license fee for casinos is up to $10.0 million based on AGR, for racetracks is up to $10.0 million based on handle, and for sports venues is $10.0 million.
▪During the 18-month period after the first license becomes operational, all sports wagering accounts must be established at a licensed gaming facility.
▪Three online licenses can be issued through a competitive bid process upon payment of a $20.0 million per license fee after the 18-month period.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
36

▪The lottery is authorized to offer a pilot program of lottery sports betting terminals at 2,500 retail locations. The program is scheduled to sunset in January 1, 2024.
▪The bill sets a tax rate of 15% on adjusted sports wagering receipts with an additional tax of 2% on wagers placed in Cook County and official league data must be used by operators.
We believe this legislation will have a positive impact on our business operations.
TwinSpires Regulations and Legislative Actions
Illinois
On June 28, 2019, the Governor of Illinois signed legislation into law that removes the sunset date for advance deposit wagering operations. We believe this legislation will have a positive impact on our business operations.
Consolidated Financial Results
The following table reflects our net revenue, operating income, net income, Adjusted EBITDA, and certain other financial information:
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2019 2018 Change 2019 2018 Change
Net revenue$477.4
 $379.4
 $98.0
 $742.8
 $568.7
 $174.1
Operating income156.4
 136.6
 19.8
 184.4
 156.3
 28.1
Operating income margin33% 36%   25% 27%  
Net income from continuing operations$108.3
 $103.2
 $5.1
 $120.2
 $117.3
 $2.9
Net income107.1
 103.1
 4.0
 118.7
 285.1
 (166.4)
Adjusted EBITDA215.0
 174.5
 40.5
 289.6
 223.7
 65.9
Three Months Ended March 31,
(in millions)20202019Change
Net revenue$252.9  $265.4  $(12.5) 
Operating (loss) income(11.6) 28.0  (39.6) 
Operating (loss) income margin(5)%11 %
Net (loss) income from continuing operations$(22.6) $11.9  $(34.5) 
Net (loss) income attributable to Churchill Downs Incorporated(23.4) 11.6  (35.0) 
Adjusted EBITDA55.3  74.6  (19.3) 
Three Months Ended June 30, 2019,March 31, 2020, Compared to Three Months Ended June 30, 2018March 31, 2019
•Net revenue increased $98.0decreased $12.5 million driven by a $69.6$21.2 million decrease from Gaming due to the temporary closure of all Gaming properties due to the COVID-19 pandemic. Partially offsetting these decreases were a $4.2 million increase from the Gaming segment primarilyOnline Wagering due to the Presque Isle, Lady Luck Nemacolinan increase in handle and Ocean Downs/Saratoga Transactions, as well as growth at our other gaming properties, andactive players, a $28.8$2.5 million increase from Churchill Downs primarily due to the opening of Derby City GamingGaming's continued growth, and a successful Kentucky Derby and Oaks week driven by increased ticket sales for reserved seating, sponsorship growth, and handle at Churchill Downs Racetrack. Partially offsetting these increases was$2.0 million increase from All Other primarily due to a $0.4 million decreasefull quarter of results from other sources.the Turfway Park Acquisition.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
33

•Operating (loss) income increased $19.8decreased $39.6 million due to a $14.4$21.0 million increasedecrease from Gaming due to the temporary closure of all Gaming properties; a $17.5 million non-cash impairment of the Presque Isle gaming rights and trademark intangible assets; a $3.6 million decrease from All Other primarily driven bydue to the increase in net revenue; an $11.7unfavorable results from a full quarter of operations at Turfway Park and lower totalisator equipment sales at United Tote; a $0.8 million increasedecrease from Online Wagering for costs associated with our online sports betting and iGaming operations; and a $0.7 million decrease from Churchill Downs primarily due to the openingtemporary suspension of simulcast operations at Churchill Downs Racetrack and temporary closure of Derby City Gaming andGaming. Partially offsetting these decreases were a successful Kentucky Derby and Oaks week driven by increased ticket sales for reserved seating, sponsorship growth, and handle at Churchill Downs Racetrack; and a $1.5$3.2 million decrease in transaction expense net. Partially offsetting these increases werefrom the first quarter 2019 closings of the Presque Isle and Lady Luck Nemacolin Transactions that did not recur in the current year quarter and a $7.0$0.8 million increasedecrease in selling, general and administrative expenses driven by the Presque Isle, Lady Luck Nemacolinexpense related to salaries and Ocean Downs/Saratoga Transactions, and the Derby City Gaming opening, as well as an increase in stock-based compensation, a $0.6 million decrease from the Online Wagering segment for costs associated with the continued build-out of our online sports betting and iGaming operations and the first quarter of 2019 launch in New Jersey, and a $0.2 million decrease from other sources.related benefits.
•Net (loss) income from continuing operations increased $5.1decreased $34.5 million. The following items impacted comparability of the Company's secondfirst quarter of 20192020 net income from continuing operations: (1) $5.8operations compared to the prior year quarter: a $12.0 million non-cash after-tax impact related to our impairment of the Presque Isle intangible assets and a $7.6 million after-tax impact ofexpense increase related to our equity portion of Midwest Gaming'sthe non-cash change in fair value related toof Midwest Gaming's interest rate swaps; and (2) $0.6swaps. Partially offsetting these increases was a $3.1 million after-tax impactdecrease of our equity portion of Midwest Gaming's recapitalization and transaction costs. Partially offsetting these increases were (3) a $1.1 million after-tax decreasecosts in expenses related to lower transaction, pre-opening and other expenses; and (4) a $0.6 million non-cash tax benefit related to the re-measurement of our net deferred tax liabilities from changes in state enacted rates. Excluding these items, net income from continuing operations increased $9.8 million primarily due to a $16.7 million after-tax increase driven by the results of our operations and equity income from our unconsolidated affiliates, partially offset by a $6.9 million after-tax increase in interest expense associated with higher outstanding debt balances.
Net income increased $4.0 million due to a $5.1 million increase in net income from continuing operations discussed above, partially offset by a $1.1 million increase in net loss from discontinued operations.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
37

Adjusted EBITDA increased $40.5 million driven by a $30.4 million increase from the Gaming segment primarily due to the Presque Isle, Midwest Gaming, and Ocean Downs/Saratoga Transactions, as well as strong performances of our wholly-owned Gaming properties and our equity investment in MVG, a $13.9 million increase from the Churchill Downs segment primarily due to the opening of Derby City Gaming and a successful Kentucky Derby and Oaks week driven by increased ticket sales for reserved seating, sponsorship growth, and handle at Churchill Downs Racetrack. Partially offsetting these increases were a $2.1 million decrease from the Online Wagering segment for costs associated with the continued build-out of our online sports betting and iGaming operations and the first quarter of 2019 launch in New Jersey, and a $1.7 million decrease from All Other mainly due to increased salaries and related benefits at the corporate level.
Six Months Ended June 30, 2019, Compared to Six Months Ended June 30, 2018
Net revenue increased $174.1 million driven by a $127.2 million increase from the Gaming segment primarily due to the Presque Isle, Lady Luck Nemacolin and Ocean Downs/Saratoga Transactions, as well as growth at our other gaming properties, and a $47.9 million increase from Churchill Downs primarily due to the opening of Derby City Gaming and a successful Kentucky Derby and Oaks week driven by increased ticket sales for reserved seating, sponsorship growth, and record handle at Churchill Downs Racetrack. Partially offsetting these increases was a $1.0 million decrease from other sources.
Operating income increased $28.1 million driven by a $26.3 million increase from Gaming primarily driven by the increase in net revenue, and a $17.2 million increase from Churchill Downs primarily due to the opening of Derby City Gaming and a successful Kentucky Derby and Oaks week driven by increased ticket sales for reserved seating, sponsorship growth, and record handle at Churchill Downs Racetrack. Partially offsetting these increases were a $13.5 million increase in selling, general and administrative expenses driven by the Presque Isle, Lady Luck Nemacolin and Ocean Downs/Saratoga Transactions, and the Derby City Gaming opening, as well as an increase in stock-based compensation, a $1.8 decreasethat did not recur in the Online Wagering segment for costs associated with the continued build-out of our online sports betting and iGaming operations and the first quarter of 2019 launch in New Jersey, andcurrent year quarter; a $0.1 million decrease from other sources.
Net income from continuing operations increased $2.9 million. The following items impacted comparability of the Company's six months ended June 30, 2019 net income from continuing operations: (1) $9.1 million after-tax impact of our equity portion of Midwest Gaming's non-cash change in fair value related to interest rate swaps; (2) $3.5 million after-tax impact of our equity portion of Midwest Gaming's recapitalization and transaction costs; (3) $2.2$2.8 million non-cash tax impact related to the re-measurement of our net deferred tax liabilities in the first quarter of 2019 that did not recur in the current year quarter based on an increase in revenue related to states with higher tax rates compared to the prior year period;rates; and (4) a $1.3$2.7 million after-tax increasedecrease in expenses related to lower transaction, pre-opening and other expenses. Excluding these items, net income from continuing operations increased $19.0decreased $23.5 million primarily due to a $28.8$20.2 million after-tax increasedecrease driven by the results of our operations and equity income from our unconsolidated affiliates partially offset byand a $9.8$3.3 million after-tax increase in interest expense associated with higher outstanding debt balances.
•Net (loss) income attributable to Churchill Downs Incorporated decreased $166.4$35.0 million due to a $2.9$34.5 million increasedecrease in net income from continuing operations discussed above and a $0.6 million increase in net loss from discontinued operations, partially offset by a $169.3$0.1 million decrease inincrease from our net income from discontinued operations driven by the $168.3 million after-tax gain on the sale of Big Fish Games in January 2018.loss attributable to our noncontrolling interest.
•Adjusted EBITDA increased $65.9decreased $19.3 million driven by a $48.8$15.8 million increasedecrease from the Gaming segment primarily due to the Presque Isle, Midwest Gaming, and Ocean Downs/Saratoga Transactions, as well as strong performancestemporary closure of all of our wholly-owned Gaming properties, and our equity investment in MVG, and a $21.3 million increase from the Churchill Downs segment primarily due to the opening of Derby City Gaming in September 2018 and a successful Kentucky Derby and Oaks week driven by increased ticket sales for reserved seating, sponsorship growth, and record handle at Churchill Downs Racetrack. Partially offsetting these increases were a $3.1 million$1.9 decrease from the Online Wagering segment forfrom increased marketing spend and costs associated with the continued build-out of our online sports betting and iGaming operations, partially offset by an increase at TwinSpires from increased handle and the first quarter of 2019 launch in New Jersey,active players, and a $1.1$2.1 million decrease from All Other mainly due to increased salarieslower totalisator equipment sales in the first quarter of 2020 compared to the prior year quarter for United Tote and related benefitsunfavorable results from a full quarter of operations at the corporate level.

Turfway Park. Partially offsetting these decreases was a $0.5 million increase from our Churchill Downs segment primarily due to Derby City Gaming from continued growth of its business.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
3834

Financial Results by Segment
Net Revenue by Segment
The following table presents net revenue for our segments, including intercompany revenue:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
(in millions)2019 2018 Change 2019 2018 Change(in millions)20202019Change
Churchill Downs:           Churchill Downs:
Churchill Downs Racetrack$171.9
 $164.3
 $7.6
 $174.6
 $166.6
 $8.0
Churchill Downs Racetrack$2.2  $2.7  $(0.5) 
Derby City Gaming21.2
 —
 21.2
 39.9
 —
 39.9
Derby City Gaming21.6  18.7  2.9  
Total Churchill Downs193.1
 164.3
 28.8
 214.5
 166.6
 47.9
Total Churchill Downs23.8  21.4  2.4  
Online Wagering:           Online Wagering:
TwinSpires95.9
 94.1
 1.8
 159.2
 157.7
 1.5
TwinSpires67.0  63.3  3.7  
Online Sports Betting and iGaming0.1
 —
 0.1
 0.2
 —
 0.2
Online Sports Betting and iGaming0.7  0.1  0.6  
Total Online Wagering96.0
 94.1
 1.9
 159.4
 157.7
 1.7
Total Online Wagering67.7  63.4  4.3  
Gaming:    

     

Gaming:
Fair Grounds and VSI30.9
 29.6
 1.3
 69.7
 65.0
 4.7
Fair Grounds and VSI33.1  38.8  (5.7) 
Presque Isle37.3
 —
 37.3
 67.0
 —
 67.0
Presque Isle27.6  29.7  (2.1) 
Calder25.6
 26.0
 (0.4) 51.0
 50.9
 0.1
Calder21.8  25.4  (3.6) 
Oxford26.3
 26.2
 0.1
 50.2
 50.4
 (0.2)Oxford20.1  23.9  (3.8) 
Ocean Downs21.9
 —
 21.9
 40.3
 —
 40.3
Ocean Downs14.8  18.4  (3.6) 
Riverwalk14.2
 13.6
 0.6
 30.5
 28.0
 2.5
Riverwalk12.7  16.3  (3.6) 
Harlow's13.3
 12.5
 0.8
 28.6
 25.8
 2.8
Harlow's11.7  15.3  (3.6) 
Lady Luck Nemacolin8.3
 —
 8.3
 10.6
 —
 10.6
Lady Luck Nemacolin7.3  2.3  5.0  
Saratoga—
 0.3
 (0.3) —
 0.6
 (0.6)
Total Gaming177.8
 108.2
 69.6
 347.9
 220.7
 127.2
Total Gaming149.1  170.1  (21.0) 
All Other25.4
 26.3
 (0.9) 40.1
 41.3
 (1.2)All Other17.5  14.7  2.8  
Eliminations(14.9) (13.5) (1.4) (19.1) (17.6) (1.5)Eliminations(5.2) (4.2) (1.0) 
Net Revenue$477.4
 $379.4
 $98.0
 $742.8
 $568.7
 $174.1
Net Revenue$252.9  $265.4  $(12.5) 
Three Months Ended June 30, 2019,March 31, 2020, Compared to Three Months Ended June 30, 2018March 31, 2019
•Churchill Downs revenue increased $28.8$2.4 million primarily due to a $21.2$2.9 million increase from the opening of Derby City Gaming in September 2018 andGaming's continued growth compared to the prior year quarter prior to the temporary closure of the facility. Partially offsetting the increase was a $7.6$0.5 million increasedecrease at Churchill Downs Racetrack primarily due to a successful Kentucky Derby and Oaks week driven by increased ticket sales for reserved seating, sponsorship growth, and record handle.the temporary suspension of simulcasting operations.
•Online Wagering revenue increased $1.9$4.3 million from the prior year quarter primarily due to a $3.7 million increase at TwinSpires. U.S. thoroughbred industry handle decreased 1.0% during the first quarter of 2020 compared to the prior year quarter. Although horse racing content for wagering decreased, TwinSpires which experienced an increasehandle grew 8.3% during the first quarter of 18.8% in active2020 compared to the prior year quarter as our customers wagered more on the content that was available. Active players increased 11.6% for the first quarter of 2020 compared to the prior year quarter while net revenue per active player declined 12.7%3.5%. Handle grew 3.7% during the second quarter of 2019Our online sports betting and iGaming net revenues increased $0.6 million compared to the prior year quarter primarily due to a full quarter of iGaming results in Pennsylvania and New Jersey for the first quarter of 2020 compared to a 3.0% decrease for the U.S. thoroughbred industry. Industry handleprior year quarter. Sports betting net revenue growth was impacted by the absencesuspension of a possible Triple Crown horseall major U.S. and international sporting events beginning in the Preakness and Belmont Stakes and limited field sizes in California in the second quarter of 2019.mid-February 2020.
•Gaming revenue increased $69.6decreased $21.0 million driven by a $37.3 million increaseprimarily due to the Presque Isle Transaction, a $21.9 million increase due to the Ocean Downs/Saratoga Transaction, an $8.3 million increase due to the Lady Luck Nemacolin Transaction, a $1.4 million increase from our Mississippi properties primarily due to higher attendance driven by the openingtemporary closure of all of our retail BetAmerica Sportsbooks,Gaming properties and a $1.3 million increasethe loss of revenue at Fair Grounds and VSI primarily due to two additional off-track betting and video poker facilities and successful marketing and promotional activities. Partially offsetting these increases was a $0.6 million decrease from other sources.each property.
•All Other revenue decreased $0.9increased $2.8 million primarily due to a decrease$5.3 million increase from the Turfway Park Acquisition in handleOctober 2019. Partially offsetting this increase was a $1.8 million decrease at Arlington from inclement weather duringdue to the second quartertemporary suspension of 2019operations at our OTBs and simulcast operations and a $0.7 million decrease at United Tote due to lower totalisator equipment sales compared to the prior year.

year quarter.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
39

Six Months Ended June 30, 2019, Compared to Six Months Ended June 30, 2018
Churchill Downs revenue increased $47.9 million primarily due to a $39.9 million increase from the opening of Derby City Gaming and an $8.0 million increase at Churchill Downs Racetrack, primarily due to a successful Kentucky Derby and Oaks week driven by increased ticket sales for reserved seating, sponsorship growth, and record handle.
Online Wagering revenue increased $1.7 million primarily due to a $1.5 million increase from TwinSpires. Active players grew 17.9% while net revenue per active player declined 13.3%. Handle grew 2.3% during the six months ended June 30, 2019 compared to the prior year, and compared to a 3.2% decrease for the U.S. thoroughbred industry. Industry handle was impacted by the absence of a possible Triple Crown horse in the Preakness and Belmont Stakes, and the impact in California of race date cancellations in the first quarter of 2019 and limited field sizes in the second quarter of 2019.
Gaming revenue increased $127.2 million driven by a $67.0 million increase due to the Presque Isle Transaction, a $40.3 million increase due to the Ocean Downs/Saratoga Transaction, a $10.6 million increase due to the Lady Luck Nemacolin Transaction, a $5.3 million increase from our Mississippi properties primarily due to higher attendance driven by the opening of our retail BetAmerica Sportsbooks, and a $4.7 million increase at Fair Grounds and VSI primarily due to two additional off-track betting and video poker facilities, successful marketing and promotional activities and increased handle. Partially offsetting these increases was a $0.7 million decrease primarily from the loss of Saratoga revenue as a result of the disposition of our equity ownership in August 2018.
All Other revenue decreased $1.2 million primarily due to a decrease in handle at Arlington from inclement weather during the six months ended June 30, 2019 compared to the prior year.

MARCH 31, 2020
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
4035

Consolidated Operating Expense
The following table is a summary of our consolidated operating expense:
Three Months Ended March 31,
(in millions)20202019Change
Taxes and purses$75.7  $78.2  $(2.5) 
Salaries and benefits45.4  36.8  8.6  
Content expense31.5  32.1  (0.6) 
Selling, general and administrative expense24.1  24.9  (0.8) 
Depreciation and amortization22.0  20.8  1.2  
Marketing and advertising9.8  7.2  2.6  
Transaction expense, net0.3  3.5  (3.2) 
Impairment of intangible assets17.5  —  17.5  
Other operating expense38.2  33.9  4.3  
Total expense$264.5  $237.4  $27.1  
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2019 2018 Change 2019 2018 Change
Taxes and purses$113.1
 $72.4
 $40.7
 $191.3
 $118.5
 $72.8
Salaries and benefits47.5
 34.9
 12.6
 84.3
 62.3
 22.0
Content expense41.8
 41.7
 0.1
 73.9
 73.7
 0.2
Selling, general and administrative expense30.1
 23.1
 7.0
 55.0
 41.5
 13.5
Depreciation and amortization21.5
 15.3
 6.2
 42.3
 29.1
 13.2
Marketing and advertising13.7
 10.2
 3.5
 20.9
 14.9
 6.0
Transaction expense, net0.6
 2.1
 (1.5) 4.1
 3.5
 0.6
Other operating expense52.7
 43.1
 9.6
 86.6
 68.9
 17.7
Total expense$321.0
 $242.8
 $78.2
 $558.4
 $412.4
 $146.0
Three Months Ended June 30, 2019,March 31, 2020, Compared to Three Months Ended June 30, 2018March 31, 2019
Significant items affecting comparability of consolidated operating expense include:
•Taxes and purses increased $40.7decreased $2.5 million driven by a $32.3 million increase fromthe temporary closure of all operations at our Gaming segment primarily associated withproperties and the Presque Isle, Lady Luck Nemacolin, and Ocean Downs/Saratoga Transactions, and an $8.7 million increase primarily driven by the opening of Derby City Gaming. These increases were partially offset by a $0.3 millionrelated decrease from other sources.in net revenue.
•Salaries and benefits expense increased $12.6$8.6 million driven primarily by additional personnel costs and related benefits from the Presque Isle and Lady Luck Nemacolin Transactions, as well as the Turfway Park Acquisition, and Ocean Downs/Saratoga Transactions,an increase associated with our online sports betting and iGaming business compared to the openingprior year quarter. Also included in salaries and benefits expense are $3.8 million of Derby City Gaming.provisional wage and benefits continuation expenses related to COVID-19.
•Content expense decreased $0.6 million primarily due to a decrease in certain host fees for TwinSpires.
•Selling, general and administrative expense increased $7.0decreased $0.8 million primarily from an increasea reduction in salaries and related benefits, and stock-based compensation.accrued bonuses.
•Depreciation and amortization expense increased $6.2$1.2 million primarily driven by the Presque Isle, Lady Luck Nemacolin, and Ocean Downs/Saratoga Transactions, the opening of Derby City Gaming, and capital expenditures placed into service for Churchill Downs Racetrack.Racetrack, the Lady Luck Nemacolin Transaction, and the Turfway Park Acquisition.
•Marketing and advertising expense increased $3.5$2.6 million primarily from the opening of Derby City Gaming, the Presque Isle, Lady Luck Nemacolin, and Ocean Downs/Saratoga Transactions, an increase in marketing spend for our TwinSpires business, and start-up related costs fordue to our online sports betting and iGaming operations.
•Transaction expense, net decreased $1.5 million primarily duewas nominal in first quarter of 2020. In the first quarter of 2019, transaction expense, net was related to increased expenses associated with announced transactionsthe Presque Isle and Lady Luck Nemacolin Transactions closing in the first quarter of 2018 that did not recur in the second quarter2019.
•Impairment of 2019.intangible assets increased $17.5 million driven by a $15.0 million non-cash impairment charge related to Presque Isle's gaming rights and a $2.5 million non-cash impairment charge related to Presque Isle's trademark.
•Other operating expenses include maintenance, utilities, food and beverage costs, property taxes, insurance, and other operating expenses. Other operating expense increased $9.6$4.3 million primarily driven by the Turfway Park Acquisition and the Presque Isle and Lady Luck Nemacolin and Ocean Downs/Saratoga Transactions and the opening of Derby City Gaming.
Six Months Ended June 30, 2019, Compared to Six Months Ended June 30, 2018
Significant items affecting comparability of consolidated operating expense include:
Taxes and purses increased $72.8 million driven by a $58.0 million increase from our Gaming segment primarily associated with the Presque Isle, Lady Luck Nemacolin, and Ocean Downs/Saratoga Transactions, and a $15.1 million increase primarily driven by the opening of Derby City Gaming. These increases were partially offset by a $0.3 million decrease from other sources.
Salaries and benefits expense increased $22.0 million driven primarily by additional personnel costs and related benefits from the Presque Isle, Lady Luck Nemacolin, and Ocean Downs/Saratoga Transactions, and the opening of Derby City Gaming.
Selling, general and administrative expense increased $13.5 million primarily from an increase in salaries and related

2019.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
4136

benefits, and stock-based compensation.

Depreciation and amortization expense increased $13.2 million primarily driven by the Presque Isle, Lady Luck Nemacolin, and Ocean Downs/Saratoga Transactions, the opening of Derby City Gaming, and capital expenditures placed into service for Churchill Downs Racetrack.
Marketing and advertising expense increased $6.0 million primarily from the opening of Derby City Gaming, the Presque Isle, Lady Luck Nemacolin, and Ocean Downs/Saratoga Transactions, an increase in marketing spend for our TwinSpires business, and start-up related costs for our online sports betting and iGaming operations.
Transaction expense, net increased $0.6 million primarily due to the Presque Isle and Lady Luck Nemacolin Transactions.
Other operating expenses include maintenance, utilities, food and beverage costs, property taxes, and other operating expenses. Other operating expense increased $17.7 million primarily driven by the Presque Isle, Lady Luck Nemacolin, and Ocean Downs/Saratoga Transactions, the opening of Derby City Gaming, and the sports betting and iGaming operations.
Adjusted EBITDA
We believe that the use of Adjusted EBITDA as a key performance measure of the results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA is a supplemental measure of our performance that is not required by or presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results.
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
(in millions)2019 2018 Change 2019 2018 Change(in millions)20202019Change
Churchill Downs$121.9
 $107.9
 $14.0
 $123.3
 $101.9
 $21.4
Churchill Downs$1.9  $1.4  $0.5  
Online Wagering22.2
 24.4
 (2.2) 39.1
 42.3
 (3.2)Online Wagering15.0  16.9  (1.9) 
Gaming76.1
 45.7
 30.4
 140.9
 92.1
 48.8
Gaming49.0  64.8  (15.8) 
Total Segment Adjusted EBITDA220.2
 178.0
 42.2
 303.3
 236.3
 67.0
Total Segment Adjusted EBITDA65.9  83.1  (17.2) 
All Other(5.2) (3.5) (1.7) (13.7) (12.6) (1.1)All Other(10.6) (8.5) (2.1) 
Total Adjusted EBITDA$215.0
 $174.5
 $40.5
 $289.6
 $223.7
 $65.9
Total Adjusted EBITDA$55.3  $74.6  $(19.3) 
Three Months Ended June 30, 2019,March 31, 2020, Compared to Three Months Ended June 30, 2018March 31, 2019
•Churchill Downs Adjusted EBITDA increased $14.0$0.5 million due to an $8.8a $1.7 million increase from the opening of Derby City Gaming due to the increase in September 2018 andnet revenue, partially offset by a $5.2$1.2 million increasedecrease from Churchill Downs Racetrack primarily due to a successful Kentucky Derbyhigher salaries and Oaks week driven by increased ticket sales for reserved seating, sponsorship growth, and record handle.related benefits as well as our temporary suspension of simulcast operations.
•Online Wagering Adjusted EBITDA decreased $2.2$1.9 million primarily due toa $4.1 million decrease from increased marketing spend and costs associated with the continued build-out of our online sports betting and iGaming operations, and the first quarter of 2019 launch in New Jersey, andpartially offset by a $2.2 million increase from TwinSpires due to an increase in marketing spend for our TwinSpires business.handle and active players.
•Gaming Adjusted EBITDA increased $30.4decreased $15.8 million driven by a $27.7$21.2 million decrease at our wholly-owned Gaming properties from the decrease in net revenue from the temporary closure of all of our Gaming properties. This decrease was partially offset by a $5.4 million increase from our equity investments primarily from a full quarter of results in first quarter of 2020 at Rivers Des Plaines, partially offset by temporary closures of our equity investment in Midwest Gaming and the Presque Isle and Lady Luck Nemacolin Transactions;properties.
•All Other Adjusted EBITDA decreased $2.1 million primarily from a $1.0$1.2 million increasedecrease from our Mississippi properties primarilyUnited Tote due to higher attendance driven bylower totalisator equipment sales in first quarter of 2020 compared to the opening of our retail BetAmerica Sportsbooks;prior year quarter, a $0.9 million increase from our equity investment at MVG; a $0.6 million increase from Ocean Downsdecrease due to unfavorable results from the acquisitionfirst full quarter of the remaining 37.5% of Ocean Downs partially offset by the liquidation of our equity investments in Saratoga as a result of the Ocean Downs/Saratoga Transaction; a $0.6 million increase from Oxford due to successful marketing and promotional activities;racing operations at Turfway Park, and a $0.2$0.5 million increasedecrease from other sources. Partially offsetting these increasesdecreases was a $0.6$0.5 million decreaseincrease at Calder primarilyour corporate operations due to the May 2019 opening of the jai alai facility and associated operating costs.a reduction in accrued bonuses.
All Other Adjusted EBITDA decreased $1.7 million primarily from increased salaries and related benefits at the corporate level.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
42

Six Months Ended June 30, 2019, Compared to Six Months Ended June 30, 2018
Churchill Downs Adjusted EBITDA increased $21.4 million due to a $16.4 million increase from the opening of Derby City Gaming and a $5.0 million increase at Churchill Downs Racetrack, primarily due to a successful Kentucky Derby and Oaks week driven by increased ticket sales for reserved seating, sponsorship growth, and record handle.
Online Wagering Adjusted EBITDA decreased $3.2 million driven by a $3.0 million decrease due to costs associated with the continued build-out of our online sports betting and iGaming operations and the first quarter of 2019 launch in New Jersey. TwinSpires' Adjusted EBITDA decreased $0.2 million primarily due to an increase in marketing spend.
Gaming Adjusted EBITDA increased $48.8 million driven by a $40.8 million increase from our equity investment in Midwest Gaming and the Presque Isle and Lady Luck Nemacolin Transactions; a $3.4 million increase from our Mississippi properties primarily due to higher attendance driven by the opening of our retail BetAmerica Sportsbooks; a $2.2 million increase from Fair Grounds and VSI primarily due to two additional OTBs and video poker facilities, successful marketing and promotional activities, and increased handle; a $1.9 million increase from our equity investment at MVG; and a $1.6 million increase from Ocean Downs due the acquisition of the remaining 37.5% of Ocean Downs partially offset by the liquidation of our equity investments in Saratoga as a result of the Ocean Downs/Saratoga Transaction. Partially offsetting these increases was a $1.1 million decrease at Calder primarily due to the May 2019 opening of the jai alai facility and associated operating costs, and favorable insurance reserve adjustments in the prior year that did not recur in 2019.
All Other Adjusted EBITDA decreased $1.1 million primarily from a $2.0 million increase in salaries and related benefits at the corporate level and a $0.7 million decrease at Arlington due to decreased handle primarily related to inclement weather. Partially offsetting these decreases was a $1.6 million increase from United Tote primarily due to increased equipment sales and higher totalisator fees from new customers.

MARCH 31, 2020
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
4337

Reconciliation of Comprehensive (Loss) Income to Adjusted EBITDA
Three Months Ended March 31,
(in millions)20202019Change
Net (loss) income and comprehensive (loss) income attributable to CDI$(23.4) $11.6  $(35.0) 
Net loss attributable to noncontrolling interest0.1  —  0.1  
Net (loss) income before noncontrolling interest(23.5) 11.6  (35.1) 
Loss from discontinued operations, net of tax0.9  0.3  0.6  
(Loss) income from continuing operations, net of tax(22.6) 11.9  (34.5) 
Additions:
Depreciation and amortization22.0  20.8  1.2  
Interest expense19.3  13.7  5.6  
Income tax (benefit) provision(11.6) 6.5  (18.1) 
EBITDA$7.1  $52.9  $(45.8) 
Adjustments to EBITDA:
Selling, general and administrative:
Stock-based compensation expense$4.3  $4.7  $(0.4) 
Other charges—  0.5  (0.5) 
Pre-opening expense and other expense1.7  1.3  0.4  
Impairment of intangible assets17.5  —  17.5  
Transaction expense, net0.3  3.5  (3.2) 
Other income, expense:
Interest, depreciation and amortization expense related to equity investments9.5  3.5  6.0  
Changes in fair value of Midwest Gaming's interest rate swaps14.9  4.3  10.6  
Midwest Gaming's recapitalization and transactions costs—  3.9  (3.9) 
Total adjustments to EBITDA48.2  21.7  26.5  
Adjusted EBITDA$55.3  $74.6  $(19.3) 
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2019 2018 Change 2019 2018 Change
Comprehensive income$107.1
 $102.9
 $4.2
 $118.7
 $285.3
 $(166.6)
Foreign currency translation, net of tax—
 —
 —
 —
 (0.6) 0.6
Change in pension benefits, net of tax—
 0.2
 (0.2) —
 0.4
 (0.4)
Net income107.1
 103.1
 4.0
 118.7
 285.1
 (166.4)
Loss (income) from discontinued operations, net of tax1.2
 0.1
 1.1
 1.5
 (167.8) 169.3
Income from continuing operations, net of tax108.3
 103.2
 5.1
 120.2
 117.3
 2.9
            
Additions:           
Depreciation and amortization21.5
 15.3
 6.2
 42.3
 29.1
 13.2
Interest expense19.4
 9.7
 9.7
 33.1
 19.3
 13.8
Income tax provision38.6
 32.8
 5.8
 45.1
 35.4
 9.7
EBITDA$187.8
 $161.0
 $26.8
 $240.7
 $201.1
 $39.6
            
Adjustments to EBITDA:           
Selling, general and administrative:           
Stock-based compensation expense$7.4
 $6.4
 $1.0
 $12.1
 $9.2
 $2.9
Other charges—
 —
 —
 0.5
 —
 0.5
Pre-opening expense0.9
 0.7
 0.2
 2.2
 1.3
 0.9
Transaction expense, net0.6
 2.1
 (1.5) 4.1
 3.5
 0.6
Other income (expense):    

     

Interest, depreciation and amortization expense related to equity investments9.7
 4.3
 5.4
 13.2
 8.6
 4.6
Changes in fair value of Midwest Gaming's interest rate swaps7.9
 —
 7.9
 12.2
 —
 12.2
Midwest Gaming's recapitalization and transactions costs0.8
 —
 0.8
 4.7
 —
 4.7
Other(0.1) —
 (0.1) (0.1) —
 (0.1)
Total adjustments to EBITDA27.2

13.5
 13.7
 48.9
 22.6
 26.3
Adjusted EBITDA$215.0
 $174.5
 $40.5
 $289.6
 $223.7
 $65.9

Consolidated Balance Sheet
The following table is a summary of our overall financial position:
(in millions)June 30, 2019 December 31, 2018 Change(in millions)March 31, 2020December 31, 2019Change
Total assets$2,588.5
 $1,725.2
 $863.3
Total assets$3,203.8  $2,551.0  $652.8  
Total liabilities$2,035.2
 $1,251.9
 $783.3
Total liabilities$2,768.2  $2,040.0  $728.2  
Total shareholders' equity$553.3
 $473.3
 $80.0
Total shareholders' equity$435.6  $511.0  $(75.4) 
Significant items affecting the comparability of our condensed consolidated balance sheets include:
•Total assets increased $863.3$652.8 million driven by a $513.7 million increase in investments and advances to unconsolidated affiliates due to our equity investment in Midwest Gaming, a $122.5 million increase in property and equipment, net due to the Presque Isle Transaction and the implementation of ASC 842, a $90.7 million increase in other intangibles and a $25.8 million increase in goodwill both of which were primarily due to the Presque Isle Transaction, a $69.4$604.7 million increase in cash and cash equivalents primarily relateddue to borrowings under our Credit Agreement; a successful 2019 Kentucky Derby and Oaks week, and a $44.0

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
44

$53.5 million increase in accounts receivable,property and equipment, net primarily due to anthe construction of Oak Grove; and a $13.3 million increase in simulcast receivables.all other assets. Partially offsetting these increases waswere a $2.8 million decrease in all other assets.intangible assets, net of $18.7 million related to the $17.5 million impairment of Presque Isle's intangible assets and current quarter amortization of $1.2 million.
•Total liabilities increased $783.3$728.2 million primarily driven by a $591.9$687.6 million increase in notes payable,long-term debt, net of debt issuance costsprimarily due to the issuance of the 2027 Senior Notes (as defined below),borrowings under our Credit Agreement; a $121.7$55.6 million increase in deferred income taxesrevenue due primarily to our equity investment in Midwest Gaming,advanced sales associated with the 2020 Kentucky Derby and Oaks; and a $60.2$22.8 million increase in accounts payable primarily due to the timingconstruction of racing related and simulcast payments, a $23.1 million increase in other liabilities primarily due to the adoption of ASC 842, a $17.2 million increase in purses payable due to our spring and summer race meets, a $15.0 million increase in income taxes payable due to our current year income tax provision, and a $13.4 million increase in all other liabilities.Oak Grove. Partially offsetting these increases were a $36.7 million decrease in deferred revenue due to recognition of advance sales for the 2019 Kentucky Derby and Oaks and a $22.5$23.5 million decrease in dividends payable
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
38

due to the payment of our annual dividends in January 2019.2020, a $12.0 million decrease in accrued expense and other current liabilities primarily due to a decrease in accrued salaries and related benefits, and a $2.3 million decrease in all other liabilities.
•Total shareholders’ equity increased $80.0decreased $75.4 million driven by current year$23.5 million net income of $118.7 million and an increase of $4.3 million relatedloss attributable to other sources, partially offset by $43.0Churchill Downs Incorporated for the quarter, $27.9 million in repurchases of common stock.stock, $15.1 million in taxes paid related to net share settlement of stock awards, and $12.7 million in cash settlement for stock awards. Partially offsetting these decreases was a $3.8 million increase from all other equity components.
Liquidity and Capital Resources
The following table is a summary of our liquidity and cash flows:
(in millions)Six Months Ended June 30,(in millions)Three Months Ended March 31,
Cash flows from:2019 2018 ChangeCash flows from:20202019Change
Operating activities$214.3
 $162.3
 $52.0
Operating activities$43.5  $70.3  $(26.8) 
Investing activities$(653.9) $892.4
 $(1,546.3)Investing activities$(48.3) $(619.1) $570.8  
Financing activities$511.8
 $(844.9) $1,356.7
Financing activities$606.8  $532.9  $73.9  
Included in cash flows from investing activities are capital maintenance expenditures and capital project expenditures. Capital maintenance expenditures relate to the replacement of existing fixed assets with a useful life greater than one year that are obsolete, exhausted, or no longer cost effective to repair. Capital project expenditures represent fixed asset additions related to land or building improvements to new or existing assets or purchases of new (non-replacement) equipment or software related to specific projects deemed necessary expenditures.
SixThree Months Ended June 30, 2019,March 31, 2020, Compared to the SixThree Months Ended June 30, 2018March 31, 2019
•
Cash provided by operating activities increased $52.0decreased $26.8 million driven by a $28.1$22.1 million increasedecrease in operating (loss) income related to continuing operations, net of the $17.5 million non-cash impairment of Presque Isle's intangible assets, and a $22.4$4.7 million decrease in cash taxes paid, and a $16.6 million increase from all other operating activities, partially offset by a $15.1 million increase in cash paid for interest.activities.
•Cash used in investing activities increased $1,546.3decreased $570.8 million driven by a $970.7$409.8 million decrease in cash proceeds related to the Big Fish Transaction, a $410.1 million increase in investmentinvestments in and advances to unconsolidated affiliates related to our equity investment in Midwest Gaming andin the first quarter of 2019, a $172.1$171.3 million increasedecrease due to the Presque Isle Transaction partially offset byin the first quarter of 2019, and a $6.6$14.8 million decrease in cash used in all other investing activities. Partially offsetting these decreases was a $25.1 million increase in capital project expenditures primarily related to the construction of Oak Grove.
•Cash provided by financing activities increased $1,356.7$73.9 million primarily driven by a $600.0 million increase from the issuance of our 2027 Senior Notes, a $461.6 million decrease in share repurchases, a $242.1$88.4 million increase in net borrowings relating to our 2017 Credit Agreement (as defined below), a $58.2 decrease as a result of Big Fish Games deferred and earnout payments,from long-term debt, partially offset by a $5.2$14.5 million decrease from all other financing activities.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
45

Credit Facilities and Indebtedness
The following table presents our debt outstanding and debt issuance costs:
(in millions)March 31, 2020December 31, 2019Change
Term Loan B due 2024$391.0  $392.0  $(1.0) 
Revolver688.4  —  688.4  
2027 Senior Notes600.0  600.0  —  
2028 Senior Notes500.0  500.0  —  
Total debt2,179.4  1,492.0  687.4  
Current maturities of long-term debt4.0  4.0  —  
Total debt, net of current maturities2,175.4  1,488.0  687.4  
Issuance cost and fees(17.5) (18.1) 0.6  
Total debt, net of current maturities$2,157.9  $1,469.9  $688.0  
(in millions)June 30, 2019 December 31, 2018 Change
Term Loan B due 2024$394.0
 $396.0
 $(2.0)
2027 Senior Notes600.0
 —
 600.0
2028 Senior Notes500.0
 500.0
 —
Total debt1,494.0
 896.0
 598.0
Current maturities of long-term debt4.0
 4.0
 —
Total debt, net of current maturities1,490.0
 892.0
 598.0
Issuance cost and fees(19.5) (11.7) (7.8)
Total debt, net of current maturities$1,470.5
 $880.3
 $590.2
2017
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
39

Credit Agreement
On December 27, 2017, we entered into the 2017 Credit Agreement (as defined below) with a syndicate of lenders. The 2017 Credit Agreement replaced the 2014 Senior Secured Credit Agreement. The 2017 Credit Agreement provides a $700.0 million revolving credit facility (the "Revolver") and a $400.0 million Senior Secured Term Loan B (the "Term Loan B" and together with the Revolver, the "2017 Credit"Credit Agreement"). Included in the maximum borrowing of $700.0 million under the Revolver is a letter of credit sub facility not to exceed $50.0 million and a swing line commitment up to a maximum principal amount of $50.0 million. The 2017 Credit Amendment is secured by substantially all of the wholly-owned assets of the Company.
The Revolver bears interest at LIBOR plus a spread as determined by the Company's consolidated total net leverage ratio and the Term Loan B bears interest at LIBOR plus 200 basis points.
The 2017 Credit Agreement contains certain customary affirmative and negative covenants, which include limitations on liens, investments, indebtedness, dispositions, mergers and acquisitions, the making of restricted payments, changes in the nature of business, changes in fiscal year, and transactions with affiliates. The 2017 Credit Agreement also contains financial covenants providing for the maintenance of a maximum consolidated secured net leverage ratio and maintenance of a minimum consolidated interest coverage ratio. The Company was in compliance with all applicable covenants in the 2017 Credit Agreement at June 30, 2019.March 31, 2020. At June 30, 2019,March 31, 2020, the financial ratios under our 2017 Credit Agreement were as follows:
ActualRequirement
Interest coverage ratio7.14.8 to 1.0> 2.5 to 1.0
Consolidated total secured net leverage ratio0.52.3 to 1.0< 4.0 to 1.0
The Term Loan B requires quarterly payments of 0.25% of the original $400.0 million balance, or $1.0 million per quarter. The Term Loan B may be subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the 2017 Credit Agreement. The Company is required to pay a commitment fee on the unused portion of the Revolver determined by a pricing grid based on the consolidated total net leverage ratio of the Company. For the period ended June 30, 2019,March 31, 2020, the Company's commitment fee rate was 0.30%0.20%.
As a result of the Company's 2017 Credit Agreement, the Company capitalized $2.0 million of debt issuance costs associated with the Revolver which will be amortized as interest expense over 5 years. The Company also capitalized $5.4 million of deferred financing costs associated with the Term Loan B which will be amortized as interest expense over 7 years.
On March 16, 2020, the Company entered into a First Amendment (the “First Amendment”) to its Credit Agreement. The First Amendment extends the maturity for the Revolver to at least September 27, 2024, which is 91 days prior to the latest maturity date of the Company’s term loan facility on December 27, 2024. Previously, the maturity date of the Revolver was December 27, 2022.
The interest rates applicable to the Company’s borrowings under the Credit Agreement are LIBOR-based plus a spread, determined by the Company’s consolidated total net leverage ratio. The First Amendment, among other things, lowers the upper limit of the applied spreads with respect to revolving loans from 2.25% to 1.75% and for commitment fees with respect thereto from 0.35% to 0.30%, and generally offers a reduced pricing schedule for outstanding borrowings and commitment fees with respect to the Revolver across all other leverage pricing levels. The interest rates applicable to borrowings under the facilities are LIBOR-based plus a spread, determined by the Company’s consolidated total net leverage ratio. The First Amendment does not alter the Company’s borrowing capacity.
The Company capitalized $1.1 million of debt issuance costs associated with the First Amendment, which are amortized as interest expense over the remaining duration of the Credit Agreement.
On March 16, 2020, we borrowed $675.4 million on our Revolver to provide the Company with additional financial flexibility, which provided the Company with $700.9 million of cash and cash equivalents as of March 31, 2020. The Company was in compliance with all applicable covenants in the Credit Agreement at March 31, 2020.
On April 28, 2020, the Company entered into a Second Amendment to its Credit Agreement, which (i) provides for a financial covenant relief period through the date on which the Company delivers its quarterly financial statements and compliance certificate for the fiscal quarter ending June 30, 2021, subject to certain exceptions (the “Financial Covenant Relief Period”), (ii) amends the definition of “Consolidated EBITDA” in the Credit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extends certain deadlines and makes certain other amendments to the Company’s financial reporting obligations, (iv) places certain restrictions
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
40

on restricted payments during the Financial Covenant Relief Period, and (v) amends the definitions of “Material Adverse Effect” and “License Revocation” in the Credit Agreement to take into consideration COVID-19.
During the Financial Covenant Relief Period, the Company will not be required to comply with its existing consolidated total secured net leverage ratio financial covenant and the interest coverage ratio financial covenant. The Company has agreed to a minimum liquidity financial covenant that requires the Company and its restricted subsidiaries to maintain liquidity of at least $150.0 million during the Financial Covenant Relief Period.
2027 Senior Notes
On March 25, 2019, we completed an offering of $600.0 million in aggregate principal amount of 5.50% Senior Unsecured Notes that mature on April 1, 2027 (the "2027 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 2027 Senior Notes were issued at par, with interest payable on April 1st and October 1st of each year, commencing on October 1, 2019. The Company used the net proceeds from the offering to repay our outstanding balance on the Revolver portion of our 2017 Credit Agreement. In connection with the offering, we capitalized $9.0$8.9 million of debt issuance costs which are being amortized as interest expense over the term of the 2027 Senior Notes.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
46

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 "Guarantors"), and U.SU.S. Bank National Association, as trustee. The Company may redeem some or all of the 2027 Senior Notes at any time prior to April 1, 2022, at a price equal to 100% of the principal amount of the 2027 Senior Notes redeemed plus an applicable make-whole premium. On or after such date, the Company may redeem some or all of the 2027 Senior Notes at redemption prices set forth in the 2027 Indenture. In addition, at any time prior to April 1, 2022, the Company may redeem up to 40% of the aggregate principal amount of the 2027 Senior Notes at a redemption price equal to 105.50% of the principal amount thereof with the net cash proceeds of one or more equity offerings provided that certain conditions are met. The terms of the 2027 Indenture, among other things, limit the ability of the Company to: (i) incur additional debt and issue preferred stock; (ii) pay dividends or make other restricted payments; (iii) make certain investments; (iv) create liens; (v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments; (vi) sell assets; (vii) merge or consolidate with other entities; and (viii) enter into transactions with affiliates.
In connection with the issuance of the 2027 Senior Notes, the Company and the 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.
2028 Senior Notes
On December 27, 2017, we completed an offering of $500.0 million in aggregate principal amount of 4.75% Senior Unsecured Notes that mature on January 15, 2028 (the "2028 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 2028 Senior Notes were issued at par, with interest payable on January 15th and July 15th of each year, commencing on July 15, 2018. The Company used the net proceeds from the offering to repay a portion of our $600.0 million 5.375% Senior Unsecured Notes. In connection with the offering, we capitalized $7.7 million of debt issuance costs which are being amortized as interest expense over the term of the 2028 Senior Notes.
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 "Guarantors"), and U.S. Bank National Association, as trustee. The Company may redeem some or all of the 2028 Senior Notes at any time prior to January 15, 2023, at a price equal to 100% of the principal amount of the 2028 Senior Notes redeemed plus an applicable make-whole premium. On or after such date the Company may redeem some or all of the 2028 Senior Notes at redemption prices set forth in the 2028 Indenture. In addition, at any time prior to January 15, 2021, the Company may redeem up to 40% of the aggregate principal amount of the 2028 Senior Notes at a redemption price equal to 104.75% of the principal amount thereof with the net cash proceeds of one or more equity offerings provided that certain conditions are met. The terms of the 2028 Indenture, among other things, limit the ability of the Company to: (i) incur additional debt and issue preferred stock; (ii) pay dividends or make other restricted payments; (iii) make certain investments; (iv) create liens; (v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments; (vi) sell assets; (vii) merge or consolidate with other entities; and (viii) and enter into transactions with affiliates.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
41

In connection with the issuance of the 2028 Senior Notes, the Company and the 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 December 27, 2017.
Contractual Obligations
Our commitments to make future payments as of June 30, 2019,March 31, 2020, are estimated as follows:
 (in millions)April 1 to December 31, 20202021-20222023-2024ThereafterTotal
Term Loan B$3.0  $8.0  $380.0  $—  $391.0  
Interest on Term Loan B(1)
8.1  21.3  20.8  —  50.2  
Revolver—  —  —  688.4  688.4  
Interest on Revolver14.3  37.7  37.7  3.9  93.6  
2027 Senior Notes—  —  —  600.0  600.0  
2028 Senior Notes—  —  —  500.0  500.0  
Interest on 2027 Senior Notes33.0  66.0  66.0  82.5  247.5  
Interest on 2028 Senior Notes11.9  47.5  47.5  83.1  190.0  
Operating leases6.3  10.8  8.4  10.0  35.5  
Total$76.6  $191.3  $560.4  $1,967.9  $2,796.2  
 (in millions)July 1 to December 31, 2019 2020-2021 2022-2023 Thereafter Total
Term Loan B$2.0
 $8.0
 $8.0
 $376.0
 $394.0
Interest on Term Loan B(1)
8.9
 34.8
 34.0
 16.6
 94.3
2027 Senior Notes—
 —
 —
 600.0
 600.0
2028 Senior Notes—
 —
 —
 500.0
 500.0
Interest on 2027 Senior Notes17.1
 66.0
 66.0
 115.5
 264.6
Interest on 2028 Senior Notes—
 47.5
 47.5
 106.9
 201.9
Operating leases2.9
 9.7
 6.5
 11.2
 30.3
Total$30.9
 $166.0
 $162.0
 $1,726.2
 $2,085.1
(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 2.73% which was the rate in place as of March 31, 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
47

(1)Interest includes the estimated contractual payments under our 2017 Credit Agreement assuming no change in the weighted average borrowing rate of 4.41% which was the rate in place as of June 30, 2019.
As of June 30, 2019,March 31, 2020, we had approximately $2.9$1.8 million of tax liabilities related to unrecognized tax benefits.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks arising from adverse changes in:
•general economic trends; and
•interest rate and credit risk.
General economic trends
Our business is sensitive to consumer confidence and reductions in consumers' discretionary spending, which may result from challenging economic conditions, unemployment levels and other changes in the economy.economy, including the impact of the COVID-19 pandemic. The pandemic has resulted in and is expected to continue to result in significant disruptions in economic activity and financial markets. Demand for entertainment and leisure activities is sensitive to consumers’consumers' disposable incomes, which can be adversely affected by economic conditions and unemployment levels. This could result in fewer patrons visiting our racetracks, gaming and wagering facilities, our online wagering sites and/or may impact our customers’ ability to wager with the same frequency and to maintain wagering levels.
Interest rate and credit risk
Our primary exposure to market risk relates to changes in interest rates. At June 30, 2019,March 31, 2020, we had $394.0$1,079.4 million outstanding under our 2017 Credit Agreement, which bears interest at variable rates. We are exposed to market risk on variable rate debt due to potential adverse changes in these rates. Assuming the outstanding balance of the debt facility remains constant, a one-percentage point increase in our variable rate would reduce net income and cash flows from operating activities by $2.9$7.1 million.
ITEM 4.CONTROLS AND PROCEDURES
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports that we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
42

As required by the Securities and Exchange Commission Rule 13a-15(e), we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2019.March 31, 2020. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
48

PART II.OTHER INFORMATION43

PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
ITEM 1. LEGAL PROCEEDINGS
The following descriptions include updates and additions since the filing of our Annual Report on Form 10-K for the year ended December 31, 2018,2019, relating to the proceedings involving the Company. In addition to the matters described below, we are also involved in ordinary routine litigation matters which are incidental to our business. Refer to Note 15,16, Contingencies, to our condensed consolidated financial statements, for further information.
Kater Class Action Suit
On April 17, 2015, a purported class action styled Cheryl Kater v. Churchill Downs Incorporated (the "Kater litigation") was filed in the United States District Court for the Western District of Washington (the "Washington District Court") alleging, among other claims, that the Company’s "Big Fish Casino" operated by the Company’s then-wholly owned mobile gaming subsidiary Big Fish Games, Inc. ("Big Fish Games") violated Washington law, including the Washington Consumer Protection Act, by facilitating unlawful gambling through its virtual casino games (namely the slots, blackjack, poker, and roulette games offered through Big Fish Casino), and seeking, among other things, return of monies lost, reasonable attorney’s fees, treble damages, and injunctive relief. On November 19, 2015, the Washington District Court dismissed the case with prejudice and, on December 7, 2015, the plaintiff’s motion for reconsideration was denied. PlaintiffThe plaintiff filed a notice of appeal on January 5, 2016 to the United States Court of Appeals for the Ninth Circuit.
As previously disclosed, on January 9, 2018, the Company sold Big Fish Games to Aristocrat Technologies, Inc., a Nevada corporation (Purchaser)("Purchaser"), an indirect, wholly owned subsidiary of Aristocrat Leisure Limited, an Australian corporation, pursuant to the Stock Purchase Agreement, dated as of November 29, 2017, by and among the Company, Big Fish Games and the Purchaser. Pursuant to the terms of the Stock Purchase Agreement, the Company agreed to indemnify the Purchaser for the losses and expenses associated with the Kater litigation for Big Fish Games, which is referred to in the Stock Purchase Agreement as the "Primary Specified Litigation."
On February 6, 2018, oral arguments on plaintiff’s appeal of the dismissal of the Kater litigation took place before the United States Court of Appeals for the Ninth Circuit.  On March 28, 2018, the United States Court of Appeals for the Ninth Circuit reversed and remanded the Washington District Court’s dismissal of the complaint against the Company. On June 12, 2018, the United States Court of Appeals for the Ninth Circuit denied the Company’s Petitionpetition for Rehearing En Bancrehearing en banc filed by the Company on May 11, 2018. On July 13, 2018, the parties filed a Joint Status Report and Discovery Plan in the Washington District Court.  On July 20, 2018, the Company filed a Motionmotion to Compel Arbitrationcompel arbitration in the Washington District Court, which was denied on November 2, 2018.  The Company filed an Answer to Plaintiff's Complaint on November 16, 2018. 
The complaint was amended on March 20, 2019, to add Big Fish Games Inc., as a party and to assert claims on behalf of an additional plaintiff, Suzie Kelly. On May 10, 2019, the Company filed an answer as to the claims asserted by plaintiff Kater, and joined Big Fish Games in moving to compel arbitration as to all claims asserted by plaintiff Kelly. Big Fish Games also moved to compel arbitration against plaintiff Kater. On June 13, 2019, defendants moved to stay discovery pending resolution of the motion to compel arbitration. On August 21, 2019, the Washington District Court partially granted the motion and stayed discovery pending a ruling on the motions to compel arbitration against plaintiffs Kater and Kelly, except as to discovery requests plaintiff Kater served on the Company before amending the complaint. On September 12, 2019, the Washington District Court ordered that the case would be stayed entirely (except for the aforementioned discovery requests), pending the United States Court of Appeals for the Ninth Circuit’s ruling on arbitration issues raised in other cases which is still pending.may be relevant to the arguments raised in the pending motions to compel arbitration.
After the case was stayed, a dispute arose regarding communication between Big Fish Games and its users related to revised terms of use. On November 19, 2019, the District Court granted plaintiffs' motion relating to the communications pursuant to Federal Rule of Civil Procedure 23(d), and on December 19, 2019, the District Court approved a revised communication proposed by defendants. On February 20, 2020, while the case was stayed, and before completing discovery and before resolution of motions to compel arbitration, plaintiffs filed a motion with the District Court to certify a class for injunctive relief only and for a preliminary injunction prohibiting the sale of virtual casino chips or coins or other virtual tokens or credits from within Washington or to individuals located in Washington. The District Court denied that motion without prejudice orally on March 4, 2020. On April 10, 2020, the Company joined Big Fish Games in renewing its motion to compel arbitration in the Washington District Court as to all claims asserted by plaintiff Kelly, and Big Fish Games also renewed its motion to compel arbitration against plaintiff Kater in the Washington District Court on April 10, 2020. In accordance with the terms of the Stock Purchase Agreement, the Company is working closely with the Purchaser to vigorously defend this matter in both the Washington District Court and in any further appellate proceedings, and the Company believes that there are meritorious legal and factual defenses against plaintiff’sthe plaintiffs' allegations and requests for relief.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
44

Thimmegowda Class Action Suit
On February 11, 2019, a purported class action styled Manasa Thimmegowda v. Big Fish Games, Aristocrat Technologies Inc. (Purchaser),Purchaser, Aristocrat Leisure Limited, and Churchill Downs Inc.,the Company, was filed in the Washington District Court alleging, among other claims, that “Big Fish Casino,” which is operated by Big Fish Games, violated Washington law, including the Washington Consumer Protection Act, and seeking, among other things, return of monies lost, reasonable attorney’s fees, injunctive relief, and treble and punitive damages. On May 10, 2019, all of the defendants moved to compel arbitration of the claims, and the Company, the Purchaser and Aristocrat Leisure Limited also moved to dismiss the action for lack of personal jurisdiction. On June 13, 2019, defendants moved to stay discovery pending resolution of those motions. AllOn September 12, 2019, the Washington District Court ordered that the case would be stayed entirely, pending the United States Court of theseAppeals for the Ninth Circuit’s ruling on arbitration issues raised in other cases which may be relevant to the arguments raised in the pending motion to compel arbitration.
After the case was stayed, a dispute arose regarding communication between Big Fish Games and its users related to revised terms of use. On November 19, 2019, the District Court granted plaintiffs' motion relating to the communications pursuant to Federal Rule of Civil Procedure 23(d), and on December 19, 2019, the District Court approved a revised communication proposed by defendants. On February 20, 2020, while the case was stayed, and before completing discovery and before resolution of motions remain pending.to compel arbitration, plaintiffs filed a motion with the District Court to certify a class for injunctive relief only and for a preliminary injunction prohibiting the sale of virtual casino chips or coins or other virtual tokens or credits from within Washington or to individuals located in Washington. The District Court denied that motion without prejudice orally on March 4, 2020. On April 10, 2020, the defendants filed renewed motions to compel arbitration and the Company filed a renewed motion to dismiss asserting lack of personal jurisdiction. The Company is working to vigorously defend this matter, and believes that there are meritorious legal and factual defenses against plaintiff’s allegations and requests for relief.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
49

James Rivera, et al. v. Calder Race Course, Inc., et al.
On March 1, 2013, James Rivera, individually and by and through his wife and their children, filed a First Amended Complaint for Damages (as amended from time to time) styled James Rivera, et al. v. Calder Race Course, Inc., et al. in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, stemming from a spinal cord injury to Mr. Rivera when the horse he was exercising collapsed and died during a workout at Calder Race Course on November 25, 2008. The plaintiffs seek recovery of compensatory and punitive damages, interest and costs from defendants in connection with the injuries suffered by Mr. Rivera, but no specific amount of damages. The case has been set for trial in September 2019. The Company is vigorously defending this matter and believes that there are meritorious legal and factual defenses against plaintiffs' allegations and requests for relief.
The Kentucky Horse Racing Commission, et al. v. The Family Trust Foundation of Kentucky, Inc.
In 2010, all Kentucky racetracks and the Kentucky Horse Racing Commission ("KHRC" and, together with the Kentucky racetracks, the "Joint Petitioners") sought a declaration from the Franklin Circuit Court, Commonwealth of Kentucky (the "Franklin Court") that: (i) the KHRC’s historical racing regulations are valid under Kentucky law, and (ii) operating historical racing machines pursuant to a license issued by the KHRC would not run afoul of any criminal gaming statutes. The Family Trust Foundation of Kentucky, Inc. (the "Family Foundation") intervened, and the Franklin Court subsequently granted summary judgment to the Joint Petitioners holding that the KHRC's historical racing regulations are valid under Kentucky law. Following an appeal to the Kentucky Court of Appeals, in February 2014 the Supreme Court of Kentucky affirmed the Franklin Court’s decision that the regulations are valid under Kentucky law, but remanded the case to the Franklin Court to determine whether operation of historical racing machines that were licensed during the pendency of the litigation constitute pari-mutuel wagering.  The Franklin Court held a trial during the week of January 8, 2018 to determine whether the games from one of the historical racing machine manufacturers (Encore/Exacta) are pari-mutuel, and the Franklin Court set a post-trial briefing schedule for the parties. Although the Franklin Court ordered, on August 24, 2017, that this pending litigation only directly involves the historical racing machine games presently in use, and any future historical racing machine games proposed by the Company would not be included in the pending case, the ruling could impact how we design our future games and could affect the underlying economics and technology of historical racing machines. On October 24, 2018, the Franklin Court ruled that the historical racing machines in question (Encore/Exacta) are a pari-mutuel system of wagering legally permitted under Kentucky law.  In November 2018, the Family Foundation filed a notice of appeal and subsequently filed a motion to transfer the appeal directly to the Kentucky Supreme Court, which was granted in June 2019. The case is pending before the Kentucky Supreme Court.
Kentucky Downs, LLC, et al. v. Commonwealth of Kentucky, Public Protection Cabinet, Kentucky Horse Racing Commission, et al.
On January 4, 2019, Kentucky Downs, LLC and Kentucky Racing Acquisition, LLC (collectively, "Petitioners") filed a Petition for Review and Appeal of Approval of WKY Development, LLC License Application and Denial of Kentucky Downs, LLC License Application styled Kentucky Downs, LLC, et al. v. Commonwealth of Kentucky, Public Protection Cabinet, Kentucky Horse Racing Commission, et al. in the Franklin Court.Circuit Court, Commonwealth of Kentucky. Petitioners are appealing the vote of the KHRC,Kentucky Horse Racing Commission, which awarded WKY Development, LLC, our joint venture with Keeneland, Association, Inc. ("Keeneland"), a license to conduct live racing and pari-mutuel wagering in Christian County, Kentucky and denied Petitioners’ application for a license to conduct live racing and pari-mutuel wagering in Christian County, Kentucky. WKY Development, LLC is a joint venture owned 95% by the Company and 5% by Keeneland. In late 2019, the parties submitted briefs on threshold legal issues per a directive from the Franklin County Court and, thereafter, on February 27, 2020, Petitioners filed a voluntary motion to dismiss their appeal with prejudice. The Court granted that motion and dismissed the appeal with prejudice on April 8, 2020.
Louisiana Horsemens' Purses Class Action Suit
On April 21, 2014, John L. Soileau and other individuals filed a Petition for Declaratory Judgment, Permanent Injunction, and Damages-Class Action styled John L. Soileau, et. al. versus Churchill Downs Louisiana Horseracing, LLC, Churchill Downs Louisiana Video Poker Company, is vigorously defending this matterLLC (Suit No. 14-3873) in the Parish of Orleans Civil District Court, State of Louisiana (the "District Court"). The petition defined the "alleged plaintiff class" as quarter horse owners, trainers and believesjockeys that there are meritorious legalhave won purses at the "Fair Grounds Race Course & Slots" facility in New Orleans, Louisiana since the first effective date of La. R.S. 27:438 and factual defenses against Petitioners’ allegationsspecifically since 2008. The petition alleged that Churchill Downs Louisiana Horseracing, LLC and requestsChurchill Downs Louisiana Video Poker Company, LLC ("Fair Grounds Defendants") have collected certain monies through video draw poker devices that constitute monies earned for relief.purse supplements and all of those supplemental purse monies have been paid to thoroughbred horsemen during Fair Grounds’ live thoroughbred horse meets. La. R.S. 27:438 requires a portion of those supplemental purse monies to be paid to quarter-horse horsemen during Fair Grounds’ live quarter-horse meets. The petition requested that the District Court declare that Fair Grounds Defendants violated La. R.S. 27:438, issue a permanent and mandatory injunction ordering Fair Grounds Defendants to pay all future supplements due to the plaintiff class pursuant to La. R.S. 27:438, and to pay the plaintiff class such sums as it finds to reasonably represent the value of the sums due to the plaintiff class. On March 29, 2019, WKY Development, LLCAugust 14, 2014, the plaintiffs filed an Answeramendment to their petition naming the Horsemen’s Benevolent and Protective Association 1993, Inc. ("HBPA") as an additional defendant and alleging that HBPA is also liable to plaintiffs for the disputed purse funds. On October 9, 2014, HBPA and Fair Grounds Defendants filed exceptions to the Petitionsuit, including an exception of primary jurisdiction seeking referral to the Louisiana Racing Commission. By Judgment dated November 21, 2014, the District Court granted the exception of primary jurisdiction and referred the matter to the Louisiana Racing Commission. On January 26, 2015, the Louisiana Fourth Circuit Court of Appeals denied the plaintiffs’ request for Reviewsupervisory review of the Judgment. On August 24, 2015, the Louisiana Racing Commission ruled that the plaintiffs did not have standing or a right of action to pursue the case. The plaintiffs appealed this decision to the District Court, which affirmed the Louisiana Racing Commission’s ruling. The plaintiffs filed an appeal of the District Court’s decision with the Louisiana Fourth Circuit
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
45

Court of Appeals, which reversed the Louisiana Racing Commission’s ruling and Appealremanded the matter to the Louisiana Racing Commission for further proceedings on June 13, 2018. The Louisiana Fourth Circuit Court of Appeals denied the Fair Grounds Defendants’ Motion for Rehearing on July 12, 2018 and discovery is ongoing.
the Louisiana Environmental Protection Agency Non-Compliance Issue
On December 6, 2013, we receivedSupreme Court denied the Fair Grounds Defendants’ Writ of Certiorari seeking review of that decision on November 14, 2018. The parties had previously attempted to mediate the matter in October 2018, but were unsuccessful. Thereafter, the parties resumed informal settlement discussions, and, as a notice fromresult, the United States Environmental Protection Agency ("EPA") regarding alleged CAFO non-compliance at Fair Grounds. We haveCompany established an accrual pursuant to GAAP for an immaterial amount in the third quarter of 2019. The parties submitted a settlement agreement to the District Court on February 14, 2020, following the Louisiana Racing Commission’s approval to transfer the matter to the District Court for our expected future liability with respectapproval and administration of the settlement agreement on February 12, 2020. At a hearing on February 18, 2020, the District Court granted preliminary approval of the settlement agreement and set certain deadlines relating to a potential penalty we may eventuallyactions to be required to pay. We continue to have discussionstaken by class members. A fairness hearing with the EPADistrict Court relating to resolve the matter.terms of the settlement agreement was set for April 27, 2020, but has been postponed as a result of court closures due to the COVID-19 pandemic. The settlement agreement requires, among other items, the Fair Grounds Defendants to (i) pay a certain out-of-pocket amount that is within the amount for which we established an accrual in the third quarter of 2019, and (ii) support legislation that would allocate a specified amount of video poker purse funds to quarter horse purses for races at Fair Grounds with maximum annual payout caps that are not deemed material. The settlement includes a release of claims against the Fair Grounds Defendants in connection with the proceeding, although individual plaintiffs may opt-out. If there are opt-out claims in excess of $50,000, the settlement will be voided, unless the parties agree to stipulate otherwise. The settlement agreement is subject to certain conditions, including court approval and the passage of certain legislation.
ITEM 1A.RISK FACTORS
There have been no material changes with respectITEM 1A. RISK FACTORS
The following description include an addition to our risk factors and an update to a risk factor previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.

The current novel coronavirus (COVID-19) pandemic has adversely affected, and could continue to adversely affect our business, financial condition and financial results. Other major public health issues could adversely affect our business, financial condition and financial results in the future
In recent months, a new strain of coronavirus (COVID-19) has spread to many countries in the world, including the United States, and the outbreak has been declared a pandemic by the World Health Organization. The U.S. Secretary of Health and Human Services has also declared a public health emergency in the United States in response to the outbreak. Considerable uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent of and effectiveness of responses taken on international, national and local levels. However, measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, have already resulted in significant negative economic impacts in the United States and in relation to our business. The long-term impact of COVID-19 on the United States and world economies remains uncertain, the duration and scope of which cannot currently be predicted.
Our operating results depend, in large part, on revenues derived from customers visiting our casinos and racetracks. In March 2020, we announced the temporary closure of all of our wholly-owned gaming properties, certain wholly-owned racing operations, and the two casino properties related to our equity investments. Starting in mid-February, U.S. and international sporting events were cancelled, which reduced our sports betting options for our customers. Horse racing content for wagering on TwinSpires also decreased, although handle increased as our customers wagered more on the content that was available.
COVID-19 could result in continuing suspensions of operations at our casino and racetrack properties, and we cannot predict how soon our casino and racetrack properties will be able to return to customary operations. Our ability to return to our customary operations will depend, in part, on the actions of a number of governmental bodies over which we have no control. Once restrictions are lifted, it is unclear how quickly customers will return to our casinos and racetracks, which may be a function of continued concerns over safety and decreased consumer spending due to economic conditions, including job losses.
We have temporarily furloughed certain employees and implemented a Company-wide decrease in base salary for non-furloughed salaried employees. The Company continues to provide health, dental, vision and life insurance benefits to furloughed employees at our wholly-owned properties. We cannot predict such employees’ willingness to remain with the Company during such furlough or salary reduction until our regular operations are restored. These actions could prevent us from engaging in certain initiatives to improve the performance of our business, due to an insufficiency of workforce size or an insufficiency of certain required skills, and could prevent us from executing initiatives effectively, which could have an adverse effect on our financial results, business and prospects.
Our non-furloughed employees are primarily working from remote/work-at-home locations. An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk (including but not limited to cybersecurity risks) and may impair our ability to manage our business. We also outsource certain business activities to third
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
5046

parties. As a result, we rely upon the successful implementation and execution of the business continuity planning of such entities in the current environment. While we seek to monitor the business continuity activities of these third parties, successful implementation and execution of their business continuity strategies are largely outside our control. If one or more of the third parties to whom we outsource certain business activities experience operational failures or business disruption as a result of the impacts from the spread of COVID-19, or claim that they cannot perform, it may have negative effects on our business and financial condition.
Our liquidity and financial position could be negatively impacted if the current economic and workforce conditions continue for a significant period of time. In March 2020, we borrowed $675.4 million under our revolving credit facility pursuant to our Credit Agreement, in order to provide us with additional liquidity and financial flexibility. In April 2020, we entered into a Second Amendment to our Credit Agreement which, among other things, provides for a financial covenant relief period through the date on which we deliver our quarterly financial statements and compliance certificate for the fiscal quarter ending June 30, 2021, subject to certain exceptions. However, there can be no assurance that our current cash from operations, the funds drawn from our revolver and other potentials sources of cash will be sufficient for our operating needs and our capital projects. In such event, we may need to take further actions, including further cost-cutting, reductions in capital expenditures and other cost-saving measures.
We are currently following the recommendations of local and federal health authorities to minimize exposure risk for our various stakeholders, including employees. The full extent of the impact of COVID-19 on our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions required to contain COVID-19, the duration and spread of COVID-19 within the markets in which we operate, mandates and directives from federal, state and local authorities, the effect of COVID-19 on consumer confidence and spending and our ability to maintain a sufficient workforce. Further, if we do not respond appropriately to the pandemic, or if state and local authorities or customers do not perceive our response to be adequate, we could suffer damage to our reputation and our brand, which could adversely affect our business in the future.
The COVID-19 pandemic may also have the effect of heightening many of the other risks described in Part I, Item 1A, Risk Factors, of our 2019 Annual Report on Form 10-K.
Our business is subject to online security risk, including cyber-security breaches. Loss or misuse of our stored information as a result of such a breach, including customers’ personal information, could lead to government enforcement actions or other litigation, potential liability, or otherwise harm our business
We receive, process, store and use personal information and other customer and employee data by maintaining and transmitting customers’ personal and financial information, credit card settlements, credit card funds transmissions, mailing lists and reservations information. Our collection of such data is subject to extensive regulation by private groups, such as the payment card industry, as well as governmental authorities, including gaming authorities.
There are numerous federal, state and local laws regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other data, and such privacy laws and regulations continue to evolve. Many states have passed laws requiring notification to customers when there is a security breach for personal data, such as the 2002 amendment to California’s Information Practices Act, or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to implement. California has adopted the California Consumer Privacy Act of 2018 (the "CCPA"), which went into effect on January 1, 2020, providing California consumers greater control of the information collected, stored, and sold, and other states are considering similar legislation. The CCPA provides a private right of action (in addition to statutory damages) for California residents whose sensitive personal information was breached as a result of a business’s violation of its duty to reasonably secure such information. The costs of compliance with these laws may increase as a result of changes in interpretation or changes in law. Any failure on our part to comply with these laws or our privacy policies may subject us to significant liabilities, including governmental enforcement actions or litigation.
The systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including the systems and processes of third-party vendors that are designed to reduce the impact of a security breach at those vendors, may not be successful. For example, on March 27, 2020, SBTech, our third party sports betting and i-Gaming platform provider, temporarily disabled our BetAmerica websites in response to a cyberattack on SBTech’s servers. SBTech has since advised the Company that it has no reason to believe our customers’ data was accessed or exfiltrated, and the BetAmerica websites were back in normal operations on April 17, 2020. Although we do not anticipate any material impact on the Company as a result of this cyberattack, similar attacks may occur in the future. Interruptions in our services or a breach of a customer’s secure data could cause current or potential users to believe that our systems are unreliable, which could permanently harm our reputation and brand. These interruptions could also increase the burden on our engineering staff, which, in turn, could delay our introduction of new features and services on our websites and in our casinos. Such incidents could give rise to litigation or
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
47

investigations, remediation costs, monetary fines and other penalties, which could be significant. We attempt to protect against this risk with our property and business interruption insurance, which is designed to cover damage to or interruption of our systems, although there is no assurance that such insurance will be adequate to cover all potential losses.
Third-parties we work with, such as vendors, may violate applicable laws or our privacy policies, and such violations may also put our customers’ information at risk and could in turn have an adverse impact on our business. We are also subject to payment card association rules and obligations under each association’s contracts with payment card processors. Under these rules and obligations, if information is compromised, we could be liable to payment card issuers for the associated expense and penalties. If we fail to follow payment card industry security standards, even if no customer information is compromised, we could incur significant fines or experience a significant increase in payment card transaction costs.
Security breaches, computer malware and computer hacking attacks have become more prevalent in our industry, and hackers and data thieves are increasingly sophisticated and operate large-scale and complex automated attacks. Many companies, including ours, have been the targets of such attacks. Due to the COVID-19 pandemic, many of our employees are primarily working from remote/work-at-home locations, which many introduce heightened cybersecurity risks in our business. Any security breach caused by hacking which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could harm our business. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our network infrastructure to the satisfaction of our players may harm our reputation and our ability to retain existing players and attract new players.
The costs to eliminate or address the foregoing security threats and vulnerabilities before or after a cyber-incident could be significant. Our remediation efforts may not be successful and could result in interruptions, delays or cessation of service, and loss of existing or potential suppliers or customers. As threats related to cyber-attacks develop and grow, we may also find it necessary to make further investments to protect our data and infrastructure, which may impact our results of operations. We have insurance coverage for protection against cyber-attacks, which is designed to cover expenses around notification, credit monitoring, investigation, crisis management, public relations, and legal advice. This insurance coverage may not be sufficient to cover all possible claims, and we could suffer losses that could have a material adverse effect on our business.
Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Common Stock
The following table provides information with respect to shares of common stock that we repurchased during the quarter ended JuneMarch 31, 2020:
PeriodTotal Number of Shares PurchasedAverage Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in millions) (1)
1/1/20-1/31/2057,514  

$141.57  57,385  $166.9  
2/1/20-2/29/2075,640  

151.01  55,025  158.8  
3/1/20-3/31/20123,218  

94.90  123,180  147.1  
Total256,372  $121.92  235,590  
(1)On October 30, 2019:2018, the Board of Directors of the Company approved a new common stock repurchase program of up to $300.0 million. The new program replaces the prior $250.0 million program that was authorized in April 2017 and had unused authorization of $78.3 million. The repurchase program has no time limit and may be suspended or discontinued at any time.
Period Total Number of Shares Purchased Average Price Paid Per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
 
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in millions) (1)
4/1/19-4/30/19 75,998

$93.59
 75,998
 $235.9
5/1/19-5/31/19 102,830

97.18
 102,725
 225.9
6/1/19-6/30/19 8,885

100.77
 8,885
 225.0
Total 187,713
 $95.90
 187,608
 

(1)FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020On October 30, 2018, the Board of Directors of the Company approved a new common stock repurchase program of up to $300.0 million. The new program replaces the prior $250.0 million program that was authorized in April 2017 and had unused authorization of $78.3 million. The repurchase program has no time limit and may be suspended or discontinued at any time.
48

ITEM 3.DEFAULTS UPON SENIOR SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.MINE SAFETY DISCLOSURES
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
51

ITEM 6. EXHIBITS
ITEM 6.NumberEXHIBITSDescriptionBy Reference To
4
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934*
Number
10.1
DescriptionFirst Amendment to Credit Agreement, dated March 16, 2020, among Churchill Downs Incorporated, the subsidiary guarantors party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., and PNC Bank, National AssociationBy Reference ToExhibit 10.1 to Current Report on Form 8-K filed March 16, 2020
31(a)10.2
Second Amendment to Credit Agreement, dated April 28, 2020, among Churchill Downs Incorporated, the subsidiary guarantors party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., and PNC Bank, National AssociationExhibit 10.1 to Current Report on Form 8-K filed April 29, 2020
31(a)
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31(b)
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Rule 13a – 14(b))**
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (embedded as Inline XBRL and contained in Exhibit 101)
*filed herewith
**furnished herewith

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
5249

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CHURCHILL DOWNS INCORPORATED
CHURCHILL DOWNS INCORPORATED
April 29, 2020
July 31, 2019/s/ William C. Carstanjen
William C. Carstanjen
Chief Executive Officer
(Principal Executive Officer)
July 31, 2019April 29, 2020/s/ Marcia A. Dall
Marcia A. Dall
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
 

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020
5350