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 March 31, ~~2020~~2021


☐			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 Incorporated

(Exact name of registrant as specified in its charter)

Kentucky

61-0156015

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

600 North Hurstbourne Parkway, Suite 400

Louisville,

Kentucky

40222

(Address of Principal Executive Offices)

(Zip Code)

(502) 636-4400

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, No Par Value	CHDN	The 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 April ~~15, 2020~~7, 2021 was ~~39,434,743~~38,520,526 shares.

CHURCHILL DOWNS INCORPORATED

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, ~~2020~~2021


	Part I-FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Comprehensive Income (Loss)~~Income~~ for the three months ended ~~March~~Mar ch 31 ~~2020 and 2019~~, 202 1 and 2020	3
	Condensed Consolidated Balance Sheets at March 31 ~~31, 20~~, 202 201 and December 31, ~~201~~20920	4
	Condensed Consolidated Statements of Shareholders' Equity for the three months ended March 31 ~~2020~~, 202 1 and ~~201~~20920	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31 ~~2020~~, 202 1 and ~~2019~~2020	6
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2725
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4236
Item 4.	Controls and Procedures	4237

	Part II-OTHER INFORMATION
Item 1.	Legal Proceedings	4438
Item 1A.	Risk Factors	4640
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4841
Item 3.	Defaults Upon Senior Securities	4941
Item 4.	Mine Safety Disclosures	4941
Item 5.	Other Information	4941
Item 6.	Exhibits	4942
	Signatures	5043

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ~~INCOME~~

(Unaudited)

Three Months Ended March 31,
(in millions, except per common share data) 2020 2019
Net revenue:
Churchill Downs $ 23.5 $ 21.0
Online Wagering 67.3 63.1
Gaming 147.6 168.8
All Other 14.5 12.5
Total net revenue 252.9 265.4
Operating expense:
Churchill Downs 26.6 23.4
Online Wagering 50.1 45.1
Gaming 124.8 125.0
All Other 21.1 15.5
Selling, general and administrative expense 24.1 24.9
Impairment of intangible assets 17.5 —
Transaction expense, net 0.3 3.5
Total operating expense 264.5 237.4
Operating (loss) income (11.6) 28.0
Other income (expense):
Interest expense, net (19.3) (13.7)
Equity in (loss) income of unconsolidated affiliates (3.3) 4.1
Total other expense (22.6) (9.6)
(Loss) income from continuing operations before provision for income taxes (34.2) 18.4
Income tax benefit (provision) 11.6 (6.5)
(Loss) income from continuing operations, net of tax (22.6) 11.9
Loss from discontinued operations, net of tax (0.9) (0.3)
Net (loss) income (23.5) 11.6
Net loss attributable to noncontrolling interest (0.1) —
Net (loss) income and comprehensive (loss) income attributable to CDI $ (23.4) $ 11.6
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 data - basic $ (0.59) $ 0.29
Net (loss) income per common share data - diluted:
Continuing operations $ (0.57) $ 0.30
Discontinued operations $ (0.02) $ (0.01)
Net (loss) income per common share data - diluted $ (0.59) $ 0.29
Weighted average shares outstanding:
Basic 39.7 40.4
Diluted 39.7 40.6


	Three Months Ended March 31,
(in millions, except per common share data)	2021		2020
Net revenue:
Live and Historical Racing	$	63.2	$	28.1
TwinSpires	99.7		69.1
Gaming	152.0		145.9
All Other	9.4		9.8
Total net revenue	324.3		252.9
Operating expense:
Live and Historical Racing	54.7		33.1
TwinSpires	73.0		50.8
Gaming	106.3		124.1
All Other	13.3		14.6
Selling, general and administrative expense	30.2		24.1
Impairment of intangible assets	0		17.5
Transaction expense, net	0.1		0.3
Total operating expense	277.6		264.5
Operating income (loss)	46.7		(11.6)
Other income (expense):
Interest expense, net	(19.4)		(19.3)
Equity in income (loss) of unconsolidated affiliates	24.9		(3.3)
Miscellaneous, net	0.1		0
Total other income (expense)	5.6		(22.6)
Income (loss) from continuing operations before provision for income taxes	52.3		(34.2)
Income tax (provision) benefit	(16.2)		11.6
Income (loss) from continuing operations, net of tax	36.1		(22.6)
Loss from discontinued operations, net of tax	0		(0.9)
Net income (loss)	36.1		(23.5)
Net loss attributable to noncontrolling interest	0		(0.1)
Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated	$	36.1	$	(23.4)

Net income (loss) per common share data - basic:
Continuing operations	$	0.93	$	(0.57)
Discontinued operations	$	0	$	(0.02)
Net income (loss) per common share data - basic	$	0.93	$	(0.59)

Net income (loss) per common share data - diluted:
Continuing operations	$	0.91	$	(0.57)
Discontinued operations	$	0	$	(0.02)
Net income (loss) per common share data - diluted	$	0.91	$	(0.59)

Weighted average shares outstanding:
Basic	39.0		39.7
Diluted	39.6		39.7

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in millions) March 31, 2020 December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents $ 700.9 $ 96.2
Restricted cash 43.6 46.3
Accounts receivable, net 36.5 37.3
Income taxes receivable 25.2 14.5
Other current assets 36.8 26.9
Total current assets 843.0 221.2
Property and equipment, net 990.8 937.3
Investment in and advances to unconsolidated affiliates 630.0 634.5
Goodwill 367.1 367.1
Other intangible assets, net 351.1 369.8
Other assets 21.8 21.1
Total assets $ 3,203.8 $ 2,551.0
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80.6 $ 57.8
Accrued expenses and other current liabilities 161.4 173.4
Current deferred revenue 98.1 42.5
Current maturities of long-term debt 4.0 4.0
Dividends payable — 23.5
Total current liabilities 344.1 301.2
Long-term debt, net of current maturities and loan origination fees 1,071.6 384.0
Notes payable, net of debt issuance costs 1,086.3 1,085.9
Non-current deferred revenue 16.7 16.7
Deferred income taxes 210.9 212.8
Other liabilities 38.6 39.4
Total liabilities 2,768.2 2,040.0
Commitments and contingencies
Shareholders' equity:
Preferred stock — —
Common stock — —
Retained earnings 433.9 509.2
Accumulated other comprehensive loss (0.9) (0.9)
Total Churchill Downs Incorporated shareholders' equity 433.0 508.3
Noncontrolling interest 2.6 2.7
Total shareholders' equity 435.6 511.0
Total liabilities and shareholders' equity $ 3,203.8 $ 2,551.0


(in millions)	March 31, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	147.7	$	67.4
Restricted cash	48.0		53.6
Accounts receivable, net	45.3		36.5
Income taxes receivable	69.4		49.4
Other current assets	36.4		28.2
Total current assets	346.8		235.1
Property and equipment, net	1,068.7		1,082.1
Investment in and advances to unconsolidated affiliates	633.7		630.6
Goodwill	366.8		366.8
Other intangible assets, net	349.4		350.6
Other assets	21.7		21.2
Total assets	$	2,787.1	$	2,686.4

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	74.7	$	70.7
Accrued expenses and other current liabilities	171.0		167.8
Current deferred revenue	52.5		32.8
Current maturities of long-term debt	7.0		4.0
Dividends payable	0		24.9
Current liabilities of discontinued operations	0		124.0
Total current liabilities	305.2		424.2
Long-term debt, net of current maturities and loan origination fees	672.9		530.5
Notes payable, net of debt issuance costs	1,291.4		1,087.8
Non-current deferred revenue	18.4		17.1
Deferred income taxes	248.8		213.9
Other liabilities	48.2		45.8
Total liabilities	2,584.9		2,319.3
Commitments and contingencies	0		0
Shareholders' equity:
Preferred stock	0		0
Common stock	1.7		18.2
Retained earnings	201.4		349.8
Accumulated other comprehensive loss	(0.9)		(0.9)
Total shareholders' equity	202.2		367.1
Total liabilities and shareholders' equity	$	2,787.1	$	2,686.4

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)


	Three Months Ended March 31, 2021
	Common Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Shareholders' Equity
(in millions, except per common share data)	Shares	Amount
Balance, December 31, 2020	39.5	$	18.2	$	349.8	$	(0.9)	$	0	$	367.1
Net income				36.1						36.1
Issuance of common stock	0.1									0
Repurchase of common stock	(1.0)	(22.0)		(171.9)						(193.9)
Taxes paid related to net share settlement of stock awards	(0.1)			(12.6)						(12.6)

Stock-based compensation		5.5								5.5

Balance, March 31, 2021	38.5	$	1.7	$	201.4	$	(0.9)	$	0	$	202.2

Three Months Ended March 31, 2020
Common Stock Retained
Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shareholders' Equity
(in millions, except per common share data) Shares Amount
Balance, December 31, 2019 39.7 $ — $ 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 compensation 4.3 4.3
Adoption of ASC 326 (0.5) (0.5)
Balance, March 31, 2020 39.4 $ — $ 433.9 $ (0.9) $ 2.6 $ 435.6

Three Months Ended March 31, 2019
Common Stock Retained
Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shareholders' Equity
(in millions, except per common share data) Shares Amount
Balance, December 31, 2018 40.4 $ — $ 474.2 $ (0.9) $ — $ 473.3
Net income 11.6 11.6
Issuance of common stock 0.1 — —
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 forfeitures 0.1 — —
Stock-based compensation 4.7 4.7
Adoption of ASC 842 (0.3) (0.3)
Other 0.2 0.2
Balance, March 31, 2019 40.2 $ — $ 457.8 $ (0.9) $ — $ 456.9


	Three Months Ended March 31, 2020
	Common Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Shareholders' Equity
(in millions, except per common share data)	Shares	Amount
Balance, December 31, 2019	39.7	$	0	$	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 compensation		4.3								4.3
Adoption of ASC 326				(0.5)						(0.5)
Balance, March 31, 2020	39.4	$	0	$	433.9	$	(0.9)	$	2.6	$	435.6

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended March 31,
(in millions) 2020 2019
Cash flows from operating activities:
Net (loss) income $ (23.5) $ 11.6
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 22.0 20.8
Distributions from unconsolidated affiliates 1.3 6.0
Equity in loss (income) of unconsolidated affiliates 3.3 (4.1)
Stock-based compensation 4.3 4.7
Deferred income taxes (1.9) 6.4
Impairment of intangible assets 17.5 —
Amortization of operating lease assets 1.2 —
Other 0.9 0.4
Changes in operating assets and liabilities, net of business acquisitions and dispositions:
Income taxes (10.7) 0.3
Deferred revenue 53.4 46.2
Other assets and liabilities (24.3) (22.0)
Net cash provided by operating activities 43.5 70.3
Cash flows from investing activities:
Capital maintenance expenditures (9.0) (13.9)
Capital project expenditures (39.3) (14.2)
Acquisition of businesses, net of cash acquired — (171.3)
Investments in and advances to unconsolidated affiliates — (409.8)
Other — (9.9)
Net cash used in investing activities (48.3) (619.1)
Cash flows from financing activities:
Proceeds from borrowings under long-term debt obligations 719.8 1,231.9
Repayments of borrowings under long-term debt obligations (32.4) (632.9)
Payment of dividends (23.4) (22.2)
Repurchase of common stock (28.4) (26.5)
Cash settlement of stock awards (12.7) —
Taxes paid related to net share settlement of stock awards (15.1) (7.6)
Debt issuance costs (0.9) (7.5)
Other (0.1) (2.3)
Net cash provided by financing activities 606.8 532.9
Net increase in cash, cash equivalents and restricted cash 602.0 (15.9)
Cash, cash equivalents and restricted cash, beginning of period 142.5 173.3
Cash, cash equivalents and restricted cash, end of period $ 744.5 $ 157.4


	Three Months Ended March 31,
(in millions)	2021		2020
Cash flows from operating activities:
Net income (loss)	$	36.1	$	(23.5)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	26.0		22.0
Distributions from unconsolidated affiliates	22.0		1.3
Equity in (income) loss of unconsolidated affiliates	(24.9)		3.3
Stock-based compensation	5.5		4.3
Deferred income taxes	5.7		(1.9)
Impairment of intangible assets	0		17.5
Amortization of operating lease assets	0.2		1.2
Other	1.2		0.9
Changes in operating assets and liabilities:
Income taxes	9.2		(10.7)
Deferred revenue	21.0		53.4
Current liabilities of discontinued operations	(124.0)		0
Other assets and liabilities	2.2		(24.3)
Net cash (used in) provided by operating activities	(19.8)		43.5
Cash flows from investing activities:
Capital maintenance expenditures	(4.7)		(9.0)
Capital project expenditures	(7.6)		(39.3)





Net cash used in investing activities	(12.3)		(48.3)
Cash flows from financing activities:
Proceeds from borrowings under long-term debt obligations	780.8		719.8
Repayments of borrowings under long-term debt obligations	(425.7)		(32.4)
Payment of dividends	(24.8)		(23.4)
Repurchase of common stock	(193.9)		(28.4)
Cash settlement of stock awards	0		(12.7)
Taxes paid related to net share settlement of stock awards	(12.6)		(15.1)
Debt issuance costs	(5.8)		(0.9)
Change in bank overdraft	(12.8)		0
Other	1.6		(0.1)
Net cash provided by financing activities	106.8		606.8
Net increase in cash, cash equivalents and restricted cash	74.7		602.0
Cash, cash equivalents and restricted cash, beginning of period	121.0		142.5
Cash, cash equivalents and restricted cash, end of period	$	195.7	$	744.5

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)


		Three Months Ended March 31,							Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		(in millions)	2021		2020
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	16.6	$	18.8	Interest	$	15.4	$	16.6
Income taxes	Income taxes	0.5		0.5		Income taxes	0.1		0.5
Schedule of non-cash investing and financing activities:	Schedule of non-cash investing and financing activities:					Schedule of non-cash investing and financing activities:
Deferred tax liability assumed from equity investment		$	—	$	103.2
Property and equipment additions included in accounts payable and accrued expenses	Property and equipment additions included in accounts payable and accrued expenses	36.5		3.7		Property and equipment additions included in accounts payable and accrued expenses	4.2		36.5
Repurchase 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 MARCH 31, ~~2020~~2021

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, ~~2019~~2020 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, ~~2019.~~2020.

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.

We conduct our business through ~~three~~3 reportable segments: ~~Churchill Downs, Online Wagering,~~Live and Historical Racing, TwinSpires, and Gaming. We aggregate our other businesses as well as certain corporate operations, and other immaterial joint ventures, in All Other. We report net revenue and operating expense associated with these reportable segments in the accompanying condensed consolidated statements of comprehensive ~~income.~~income (loss).

~~Recent Developments Regarding~~Segments

During the first quarter of 2021, we updated our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources. Our internal management reporting changed primarily due to the continued growth from Oak Grove Racing, Gaming & Hotel ("Oak Grove") and Turfway Park, which opened its annex historical racing machine ("HRM") facility, Newport Racing & Gaming ("Newport"), in October 2020, which resulted in our chief operating decision maker's decision to include Oak Grove, Turfway Park and Newport in the new Live and Historical Racing segment. The Live and Historical Racing segment now includes Churchill Downs Racetrack, Derby City Gaming, Oak Grove, Turfway Park, and Newport. We also realigned our retail sports betting results at our wholly-owned casinos from our Gaming segment to our TwinSpires segment. As a result of this realignment, our operating segments that meet the requirements to be disclosed separately as reportable segments are: Live and Historical Racing, TwinSpires, and Gaming. We conduct our business through these reportable segments and report net revenue and operating expense associated with these reportable segments in our condensed consolidated statements of comprehensive income (loss). The prior year results in the accompanying condensed consolidated statements of comprehensive income (loss) were reclassified to conform to this presentation.

Impact of COVID-19 Pandemic

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~~March 2020, the World Health ~~Organization. The U.S. Secretary of Health and Human Services has also~~Organization 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~~outbreak a global pandemic. The COVID-19 ~~including shelter-in-place orders, social distancing measures,~~global pandemic has resulted in travel ~~bans and restrictions,~~limitations and business and government shutdowns which have ~~already resulted in~~had significant negative economic impacts in the United States and in relation to our business. Although vaccines are now available, distribution is currently limited and there can be no assurance that these vaccines will be successful in ending the COVID-19 global pandemic. The long-term impact of COVID-19 on the ~~United States~~U.S. and world economies and continuing impact on our business remains uncertain, the duration and scope of which cannot currently be predicted.

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~~our properties ~~effective as of the following dates:~~

~~Churchill Downs~~

•~~Simulcast operations at Churchill Downs Racetrack on~~in 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~~

~~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 announced the temporary furlough of employees at its wholly-owned and managed 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 temporary 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~~In 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 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 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.

~~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~~began to reopen our properties with patron restrictions and gaming limitations. NaN property temporarily suspended operations again in July 2020 and reopened in August 2020, and 3 properties temporarily suspended operations again in December 2020 and reopened in January 2021. As 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~~Company reopened these properties, certain employees have returned to work while others remain on temporary furlough due to the ~~third quarter of~~capacity restrictions at these properties. The Company provided health, dental, vision and life insurance benefits to furloughed employees through July 31, 2020 byand during the ~~continued~~subsequent property 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.periods.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~Acquisitions~~As 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 to acquire approximately 42% of Midwest Gaming from affiliates and co-investors of Clairvest Group Inc. ("Clairvest") and members of High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC and Casino Investors, LLC ("Casino Investors") for cash consideration of approximately $406.6 million and $3.5 million of certain transaction costs and working capital adjustments (the "Sale Transaction"). Following the closing of the Sale Transaction, the parties completed a recapitalization transaction on March 6, 2019 (the "Recapitalization"), pursuant to which Midwest Gaming used approximately $300.0 million in proceeds from amended and extended credit facilities to redeem, on a pro rata basis, additional Midwest Gaming units held by High Plaines and Casino Investors. As a result of the Recapitalization, the Company's ownership of Midwest Gaming increased to 61.3%. High Plaines retained ownership of 36.0% of Midwest Gaming and Casino Investors retained ownership of 2.7% of Midwest Gaming.

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

~~Refer to Note 14, Investments in and Advances to Unconsolidated Affiliates, for further information on the Midwest Gaming transactions.~~

~~Turfway Park Acquisition~~

The Company completed the 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 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~~31, 2021, all of our ~~live racing business at Churchill Downs Racetrack, revenue and~~properties were reopened with certain 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.restrictions.

~~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~~

~~Churchill Downs Incorporated~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

2. RECENT ACCOUNTING PRONOUNCEMENTS

~~Recent Accounting Pronouncement -~~ Adopted on January 1, ~~2020~~2021

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,~~December 2019, the FASB issued ASU ~~No. 2017-04, Intangibles - Goodwill and Other:~~2019-12, Income Taxes (Topic 740): Simplifying the ~~Test~~Accounting for ~~Goodwill Impairment. This new guidance~~Income Taxes, which simplifies the accounting for ~~goodwill impairments~~income taxes by removing ~~step two from~~certain exceptions to the ~~goodwill impairment test. Instead, if the carrying amount~~general principles in ASC Topic 740, Income Taxes. The amendments also improve consistent application 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,~~and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for public business entities for fiscal years and interim periods beginning after December 15, 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~~ASU did not have a material impact on our business.

Effective after 2021

~~3. SIGNIFICANT ACCOUNTING POLICIES~~

~~Except for~~In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to applying the guidance on contract modifications, hedge accounting, and other transactions, to simplify the accounting ~~policy~~ for transitioning from the ~~allowance for doubtful accounts receivable described below, which~~London Interbank Offered Rate (LIBOR), and other interbank offered rates expected to be discontinued, to alternative reference rates. The guidance was ~~updated as a result of our~~effective upon issuance; if elected, it is to be applied prospectively through December 31, 2022. We are currently evaluating the effect the adoption of ~~ASC 326 on January 1, 2020, as described in Note 2, Recent Accounting Pronouncements, there~~this new accounting standard will 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 results of operations, 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.condition, and cash flows.

~~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~~

~~Churchill Downs Incorporated~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

5.3. 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"~~("Aristocrat"), a Nevada corporation, an indirect, ~~wholly owned~~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~~Aristocrat 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 Big Fish Games ~~segment~~business and the related Big Fish Transaction meet the criteria for discontinued operation presentation. The condensed consolidated statements of comprehensive income (loss) and the notes to condensed consolidated 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.

Kater and Thimmegowda Settlement

On May 22, 2020, we entered into an agreement in principle to settle Cheryl Kater v. Churchill Downs Incorporated and Manasa Thimmegowda v. Big Fish Games, Inc. (collectively, the "Kater and Thimmegowda Litigation"). The $124.0 million settlement was paid on March 25, 2021.

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:~~income (loss):

Three Months Ended March 31,
(in millions) 2020 2019
Net revenue $ — $ —
Selling, general and administrative expense 1.2 0.4
Loss from discontinued operations before provision for income taxes (1.2) (0.4)
Income tax benefit 0.3 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 Downs Online Wagering Gaming All Other Total
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, 2020 December 31, 2019
(in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Definite-lived intangible assets $ 31.3 $ (16.2) $ 15.1 $ 31.3 $ (15.0) $ 16.3
Indefinite-lived intangible assets 336.0 353.5
Total $ 351.1 $ 369.8

~~Refer to Note 7, Asset Impairment, for further information regarding our goodwill and other intangible assets.~~


	Three Months Ended March 31,
(in millions)	2021		2020
Net revenue	$	0	$	0

Selling, general and administrative expense	0		1.2
Loss from discontinued operations before provision for income taxes	0		(1.2)
Income tax benefit	0		0.3
Loss from discontinued operations, net of tax	$	0	$	(0.9)

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

129

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)

7.4. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill was $366.8 million as of March 31, 2021 and December 31, 2020.

Other intangible assets are comprised of the following:


	March 31, 2021						December 31, 2020
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Definite-lived intangible assets	$	31.2	$	(17.8)	$	13.4	$	31.2	$	(16.6)	$	14.6
Indefinite-lived intangible assets					336.0						336.0
Total					$	349.4					$	350.6

Refer to Note 5, Asset Impairment, for information regarding intangible asset impairments recognized during the first quarter of 2020.

5. 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~~the Company's intangible assets, goodwill, or property and equipment, were impaired ("Trigger Event"), or if there were any other than temporary impairments of our equity investments. Factors considered in this evaluation included, among other things, the amount of the fair value over carrying value from the annual impairment testing performed as of April 1, 2019, changes in carrying values, changes in discount rates, and the impact of temporary property closures due to the COVID-19 global pandemic on cash flows. Because Presque Isle Downs and Casino (“Presque Isle”) was acquired in 2019, we did not expect the estimated fair value and the carry value to be significantly different. 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.~~global pandemic.

The initial fair value of Presque Isle gaming rights in the first quarter of 2019 was determined using the Greenfield Method, which is an income approach methodology that calculates the present value based on a projected cash flow stream. This method assumes that the Presque Isle gaming rights provide the opportunity to develop a casino and online wagering platform in a specified region, and that the present value of the projected cash flows are a result of the realization of advantages contained in these rights. Under this methodology, the acquirer is expected to absorb all start-up costs, as well as incur all expenses pertaining to the acquisition ~~and/~~and / or the creation of all tangible and intangible assets. The estimated future revenue, operating expenses, start-up costs, and discount rate were the primary inputs in the valuation.

Based on the Trigger Event, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated the projected cash flow stream. As a result, the $77.6 million carrying value of the Presque Isle gaming rights exceeded the fair value of $62.6 million and the Company recognized an impairment of $15.0 million in first quarter of 2020 for ~~its~~the Presque Isle gaming rights ($12.5 million related to ~~the~~the Gaming ~~segment~~segment and $2.5 million related to the ~~Online Wagering~~TwinSpires segment).

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

Based on the Trigger Event, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated projected cash flow stream. As a result, the Company recognized an impairment of $2.5 million in the first quarter of 2020 for ~~its~~the Presque Isle trademark.

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

In accordance with Accounting Standards Codification 350, Intangibles - Goodwill and Other, the Company performed ~~its~~the impairment testing of the Presque Isle gaming rights and trademark prior to testing Presque Isle goodwill. Based on the Trigger Event, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated project cash


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			10


Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

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

8.6. INCOME TAXES

The Company’s effective income tax rate for the three months ended March 31, 2021 was higher than the U.S. federal statutory rate of 21.0% primarily resulting from state income taxes, non-deductible officer’s compensation, and an increase to our unrecognized tax benefits due to an extension of the statute of limitations for certain tax positions. This expense was partially offset by tax benefits resulting from year-to-date tax deductions from vesting of restricted stock compensation in excess of book deductions.

The Company’s effective income tax rate for the three months ended 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 from year-to-date vesting of restricted stock compensation 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 $2.8 million of future income tax expenses recognized from the re-measurement of our net deferred tax liabilities based on an increase in income attributable to states with higher tax rates compared to the prior year quarter, as well as state income taxes and certain non-deductible expenses for purposes of income taxes. This expense was partially offset by tax benefits resulting from tax deductions in excess of book deductions related to vesting of restricted stock units.deductions.

9.7. 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~~

~~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~~We have approximately $147.1 million of repurchase authority remaining under this program at March 31, 2021, based on trade date. There were 0 repurchases of our common stock under our October 2018 stock repurchase program for the three months ended March 31, ~~2020, we~~2021. We repurchased 235,590 shares of our common stock under the October 2018 stock repurchase program at an aggregate purchase price of $27.9 million based on trade ~~date. We had approximately $147.1 million~~date for the three months ended March 31, 2020.

On February 1, 2021, the Company entered into an agreement (the “Stock Repurchase Agreement”) with an affiliate of The Duchossois Group, Inc. (“TDG”) to repurchase ~~authority~~1,000,000 shares of the Company’s common stock for $193.94 per share in a privately negotiated transaction. The aggregate purchase price was $193.9 million. The Stock Repurchase Agreement contains customary representations, warranties and covenants of the parties.

The repurchase of shares of common stock from TDG pursuant to the Stock Repurchase Agreement was approved by the Company's Board of Directors separately from, and did not reduce the authorized amount remaining under, ~~this program at March 31, 2020, based on trade date.~~the existing common stock repurchase program. The Company repurchased the shares using available cash and borrowings under the Revolver.

~~10.~~8. STOCK-BASED COMPENSATION PLANS

We have stock-based employee compensation plans with awards outstanding under the Churchill Downs Incorporated 2016 Omnibus Stock Incentive Plan (the "2016 Plan") and the Executive Long-Term Incentive Compensation Plan, which was adopted pursuant to the 2016 Plan. Our total stock-based compensation expense, which includes expenses related to restricted stock awards ("RSAs"), restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and stock options associated with our employee stock purchase plan was $5.5 million for the three months ended March 31, 2021 and $4.3 million for the three months ended March 31, ~~2020 and $4.7 million for the three months ended March 31, 2019.~~2020.

During the three months ended March 31, ~~2020,~~2021, the Company awarded RSUs to employees and RSUs and PSUs to certain named executive officers ("NEOs"). The vesting criteria for the PSU awards granted in ~~2020~~2021 were based on a ~~three-year~~three-year service period with ~~two~~2 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~~is determined using the Monte Carlo valuation methodology, which factors in the value of the TSR market condition when determining the grant date fair value of the PSU. Compensation cost for each PSU is recognized during the performance and service period based on the probable achievement of the two performance criteria. The PSUs are converted into shares of our common stock at the time the PSU award value is finalized.

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 RSUs and PSUs granted during 2020 is presented below (units in thousands):~~

Grant Year Award Type Number of Units Awarded Vesting Terms
2020 RSU 44
Vest equally over three service periods ending in 2021, 2022, and 2023
2020 RSU 37
Vest equally over three service periods ending in 2020, 2021, and 2022
2020 PSU 37
Three year performance and service period ending in 2022

~~11. DEBT~~

~~Credit Agreement~~

On March 16, 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 the Company’s term loan facility on December 27, 2024. Previously, the maturity date of the revolving credit facility 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 Revolver.~~

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

1411

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)

A summary of the RSUs and PSUs granted during 2021 is presented below (units in thousands):

Grant Year

Award Type

Number of Units Awarded (1)

Vesting Terms

2021

RSU

Vest equally over three service periods ending in 2024

2021

PSU

Three year performance and service period ending in 2023

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

9. DEBT

Credit Agreement

On ~~March 16, 2020,~~December 27, 2017, we ~~borrowed $675.4~~entered into a senior secured credit agreement (as amended, the "Credit Agreement") with a syndicate of lenders. The Credit Agreement provides for a $700.0 million ~~on our Revolver to provide the Company with additional financial flexibility, which provided the Company with $700.9~~senior secured revolving credit facility due 2022 (the "Revolver") and a $400.0 million ~~of cash and cash equivalents as of March 31, 2020. The Company was in compliance with all applicable covenants~~senior secured term loan B due 2024 (the "Term Loan B"). Included in the maximum borrowing of $700.0 million under the Revolver is a letter of credit sub facility not to exceed $50.0 million and a swing line commitment up to a maximum principal amount of $50.0 million. The Credit Agreement ~~at March 31, 2020.~~is collateralized by substantially all of the wholly-owned assets of the Company.

On April 28, 2020, the Company entered into a Second Amendment to ~~its~~the Credit Agreement, which (i) provides for a financial covenant relief period through the date on which the Company delivers ~~its~~the Company's quarterly financial statements and compliance certificate for the fiscal quarter ending June 30, 2021, subject to certain exceptions (the “Financial Covenant Relief Period”), (ii) 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~~On February 1, 2021, the Company entered into the Third Amendment to the Credit Agreement to increase the restricted payments capacity during the Financial Covenant Relief Period from $26.0 million to $226.0 million to accommodate a share repurchase from an affiliate of TDG. Refer to Note 7, Shareholders' Equity, for information regarding this transaction.

On March 17, 2021, the Company ~~will not~~entered into the Incremental Joinder Agreement No. 1 (the "Joinder") to its Credit Agreement which provided $300.0 million in New Term Loan Commitments ("Term Loan B-1") as a new tranche of term loans under the existing Credit Agreement (as conformed to recognize the new loan), and carries a maturity date of March 17, 2028. The Term Loan B-1 bears interest at LIBOR plus 200 basis points and requires quarterly payments of 0.25% of the original $300.0 million balance. The Term Loan B-1 may be ~~required~~subject to ~~comply~~additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the Credit Agreement. The Company capitalized $3.4 million of debt issuance costs associated with ~~its existing consolidated total secured~~the Joinder which are being amortized as interest expense over the 7 year term of the Term Loan B-1.

The interest rate on the Revolver on March 31, 2021 was LIBOR plus 175 points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of March 31, 2021. The Term Loan B and Term Loan B-1 bear interest at LIBOR plus 200 basis points.

Although the Company was not required to meet the Company’s financial ~~covenant~~covenants under the Credit Agreement on March 31, 2021 (as a result of the Second Amendment), the Company was compliant with all applicable covenants on March 31, 2021.

2028 Senior Notes Second Supplemental Indenture

On March 17, 2021, the Company completed an offering of $200.0 million in aggregate principal amount of 4.75% Senior Unsecured Notes that mature on January 15, 2028 (the "Additional 2028 Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The Additional 2028 Notes were offered under the indenture dated as of December 27, 2017, governing the $500.0 million aggregate principal amount of 4.75% Senior Unsecured Notes due 2028 ("Existing 2028 Notes") and form a part of the same series for purposes of the indenture. In connection with the offering, we capitalized $3.3 million of debt issuance costs which are being amortized as interest expense over the term of the Additional 2028 Notes. Upon completion of this offering, the aggregate principal amount of outstanding of the Existing 2028 Notes, together with the Additional 2028 Notes (collectively the "2028 Senior Notes") is $700.0 million.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			12


Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Notes will vote as one class under the indenture governing the 2028 Senior Notes. The 3.25% premium will be amortized through interest expense, net over the term of the Additional 2028 Notes.

The Company used the net proceeds from the Additional 2028 Notes and the ~~interest coverage ratio financial covenant.~~ Term Loan B-1 (i) to repay indebtedness outstanding under our Revolving Credit Facility, (ii) to fund related transaction fees and expenses and (iii) for working capital and other general corporate purposes.

The Company ~~has agreed~~may redeem some or all of the Additional 2028 Notes at any time prior to January 15, 2023, at a ~~minimum liquidity financial covenant that requires~~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 Additional 2028 Notes at redemption prices set forth in the 2028 Offering Memorandum.

In connection with the issuance of the Additional 2028 Notes, the Company and ~~its restricted subsidiaries~~the 2028 Guarantors entered into a Registration Rights Agreement to ~~maintain liquidity of at least $150.0 million during~~register any 2028 Senior Notes under the ~~Financial Covenant Relief Period.~~Securities Act for resale that are not freely tradable 366 days from March 17, 2021.

~~12.~~10. REVENUE FROM CONTRACTS WITH CUSTOMERS

Performance Obligations

As of March 31, ~~2020,~~2021, the ~~Churchill Downs~~Live and Historical Racing segment had remaining performance obligations on contracts with a duration greater than one year ~~with~~of an aggregate transaction price of ~~$167.5~~$136.0 million. The revenue we expect to recognize on these remaining performance obligations is ~~$47.5~~$32.5 million for the remainder of ~~2020, $37.1~~2021, $37.8 million in ~~2021, $31.7~~2022, $23.3 million in ~~2022,~~2023, and the remainder thereafter.

As of March 31, ~~2020,~~2021, our remaining performance obligations in segments other than ~~Churchill Downs~~Live and Historical Racing were not material.

Contract Assets and Contract Liabilities

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, contract assets were not material.

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, contract liabilities were ~~$119.0~~$74.3 million and ~~$63.1~~$53.7 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~~Live and Historical Racing segment and the increase was primarily due to cash payments received for unfulfilled performance obligations. We recognized $2.6 million of revenue during the three months ended March 31, 2021 that was included in the contract liabilities balance at December 31, 2020. We recognized $3.8 million of revenue during the three months ended March 31, 2020 that was included in the contract liabilities balance at December 31, 2019. ~~We recognized $2.7 million of revenue during the three months ended March 31, 2019 that was included in the contract liabilities balance at December 31, 2018.~~

Disaggregation of Revenue

In Note ~~18,~~16, Segment Information, the Company has included its disaggregated revenue disclosures as follows:

•For the ~~Churchill Downs~~Live and Historical Racing segment, revenue is disaggregated between ~~Churchill Downs Racetrack~~racing facilities and ~~Derby City Gaming~~HRM facilities given that ~~Churchill Downs Racetrack's~~our racing facilities revenues primarily revolve around live racing events while ~~Derby City Gaming's~~our HRM facilities revenues primarily revolve around historical racing events. This segment is also disaggregated by location given the geographic economic factors that affect the revenue of service offerings. Within the ~~Churchill Downs~~Live and Historical racing segment, revenue is further disaggregated between live and simulcast racing, historical racing, racing event-related services, and other services.

•For the ~~Online Wagering~~TwinSpires segment, revenue is disaggregated between ~~TwinSpires~~Horse Racing and ~~online sports betting~~Sports and ~~iGaming business~~Casino given that ~~TwinSpires'~~Horse Racing revenue is primarily related to online pari-mutuel wagering on live race events while ~~online sports betting~~Sports and ~~iGaming~~Casino revenue relates to casino gaming service offerings. ~~Online sports betting and iGaming service offerings are currently nominal.~~ Within the ~~Online Wagering~~TwinSpires 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.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

1513

~~Churchill Downs Incorporated~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~13.~~11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

(in millions) March 31, 2020 December 31, 2019
Account wagering deposits liability $ 32.7 $ 28.9
Accrued interest 22.1 19.7
Purses payable 15.2 19.9
Accrued salaries and related benefits 11.2 29.2
Other 80.2 75.7
Total $ 161.4 $ 173.4


(in millions)	March 31, 2021		December 31, 2020
Account wagering deposits liability	$	40.9	$	38.1
Accrued interest	23.8		19.2
Purses payable	14.7		18.5
Accrued salaries and related benefits	14.1		19.6
Other	77.5		72.4
Total	$	171.0	$	167.8

~~14.~~12. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

~~Midwest~~Investments in and advances to unconsolidated affiliates as of March 31, 2021 and December 31, 2020 primarily consisted of a 61.3% interest in Rivers Casino Des Plaines ("Rivers Des Plaines"), a 50% interest in Miami Valley Gaming and Racing ("MVG"), and 2 other immaterial joint ventures.

~~On March 5, 2019, the Company completed the Sale Transaction to acquire approximately 42% of Midwest Gaming, the parent company~~Rivers Des Plaines

The ownership of Rivers Des Plaines ~~for cash consideration of approximately $406.6 million and $3.5 million of certain transaction costs and working capital adjustments. Following the closing~~is comprised of the ~~Sale Transaction,~~following: (1) 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 byCompany owns 61.3%; (2) High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC, owns 36.0%, and ~~Casino Investors. As a result of the Recapitalization, the Company's ownership of Midwest Gaming increased to 61.3%. High Plaines retained ownership of 36.0% of Midwest Gaming and~~(3) Casino Investors, ~~retained ownership of~~LLC owns 2.7% ~~of Midwest Gaming.~~

~~A new limited liability company agreement was entered into by the members of Midwest Gaming as a result of the change in ownership structure. Under the new limited liability company agreement, both~~. Both the Company and High Plaines have participating rights over ~~Midwest Gaming,~~Rivers Des Plaines, and both must consent to ~~Midwest Gaming's~~ operating, investing and financing decisions. As a result, we account for ~~Midwest Gaming~~Rivers Des Plaines using the equity method.

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. As of March 31, ~~2020,~~2021, the net aggregate basis difference between the Company’s investment in ~~Midwest Gaming~~Rivers Des Plaines and the amounts of the underlying equity in net assets was ~~$834.0~~$833.1 million.

~~Summarized Financial Results for our Unconsolidated Affiliates~~

~~Summarized below are the financial results for our unconsolidated affiliates.~~Our investment in Rivers Des Plaines was $523.1 million and $519.0 million as of March 31, 2021 and December 31, 2020, respectively. The ~~summarized income statement information~~Company received distributions from Rivers Des Plaines of $12.0 million and $1.3 million for the three months ended March 31, 2021 and 2020, respectively.

Miami Valley Gaming

Delaware North Companies Gaming & Entertainment Inc. ("DNC") owns the remaining 50% interest in MVG. Since both we and ~~2019~~DNC have participating rights over MVG, and ~~summarized balance sheet information~~both must consent to MVG's operating, investing and financing decisions, we account for MVG using the equity method.

Our investment in MVG was $109.3 million and $110.7 million as of March 31, ~~2020~~2021 and December 31, ~~2019 includes~~2020, respectively. The Company received distributions from MVG of $10.0 million for the ~~following equity investments: MVG, Rivers Des Plaines from~~three months ended March 31, 2021. There were 0 distributions for the ~~transaction date of~~three months ended March ~~5, 2019, and two other immaterial joint ventures.~~31, 2020.

Three Months Ended March 31,
(in millions) 2020 2019
Net revenue $ 137.8 $ 89.5
Operating and SG&A expense 100.8 61.0
Depreciation and amortization 4.2 2.2
Total operating expense 105.0 63.2
Operating income 32.8 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 MARCH 31, ~~2020~~2021

1614


Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Summarized Financial Results for our Unconsolidated Affiliates

Summarized below are the financial results for our unconsolidated affiliates.


	Three Months Ended March 31,
(in millions)		2021		2020
Net revenue		$	138.7	$	137.8

Operating and SG&A expense		85.6		100.8
Depreciation and amortization		4.3		4.2
Total operating expense		89.9		105.0
Operating income		48.8		32.8
Interest and other, net		(4.6)		(35.8)
Net income (loss)		$	44.2	$	(3.0)


(in millions)	March 31, 2021		December 31, 2020
Assets
Current assets	$	87.7	$	132.8
Property and equipment, net	265.7		267.5
Other assets, net	246.5		244.9
Total assets	$	599.9	$	645.2
Liabilities and Members' Deficit
Current liabilities	$	122.1	$	133.5
Long-term debt	722.0		753.5
Other liabilities	35.6		42.3
Members' deficit	(279.8)		(284.1)
Total liabilities and members' deficit	$	599.9	$	645.2


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			15

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in millions) March 31, 2020 December 31, 2019
Assets
Current assets $ 126.6 $ 64.0
Property and equipment, net 273.1 256.1
Other assets, net 246.0 240.1
Total assets $ 645.7 $ 560.2
Liabilities and Members' Deficit
Current liabilities $ 112.7 $ 73.3
Long-term debt 775.6 745.0
Other liabilities 41.8 20.6
Members' deficit (284.4) (278.7)
Total liabilities and members' deficit $ 645.7 $ 560.2

~~15.~~13. 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%~~2028 Senior Notes ~~due 2028 (the "2028 Senior Notes")~~ and ~~5.375%~~5.500% Senior Notes due 2027 ~~("2027~~(the "2027 Senior Notes") are estimated based on unadjusted quoted prices for identical or similar liabilities in markets that are not active and as such are Level 2 measurements. The fair values of the Company's ~~$400.0 million Senior Secured~~ Term Loan B, ~~(the "Term~~Term Loan ~~B")~~B-1, and Revolver under the Credit Agreement approximate the gross carrying value of the variable rate debt and as such are Level 2 measurements.

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

~~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 Amount Fair Value Level 1 Level 2 Level 3
Financial assets:
Restricted cash $ 43.6 $ 43.6 $ 43.6 $ — $ —
Financial liabilities:
Term Loan B 387.2 391.0 — 391.0 —
Revolver 688.4 688.4 — 688.4 —
2027 Senior Notes 592.3 558.0 — 558.0 —
2028 Senior Notes 494.0 435.0 — 435.0 —
December 31, 2019
(in millions) Carrying Amount Fair Value Level 1 Level 2 Level 3
Financial assets:
Restricted cash $ 46.3 $ 46.3 $ 46.3 $ — $ —
Financial liabilities:
Term Loan B 388.0 392.0 — 392.0 —
2027 Senior Notes 592.0 636.0 — 636.0 —
2028 Senior Notes 493.9 515.2 — 515.2 —


	March 31, 2021
(in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Restricted cash	$	48.0	$	48.0	$	48.0	$	0	$	0
Financial liabilities:
Term Loan B	384.0		387.0		0		387.0		0
Term Loan B-1	295.9		300.0		0		300.0		0
2027 Senior Notes	593.4		625.9		0		625.9		0
2028 Senior Notes	698.0		724.4		0		724.4		0

	December 31, 2020
(in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Restricted cash	$	53.6	$	53.6	$	53.6	$	0	$	0
Financial liabilities:
Term Loan B	384.8		388.0		0		388.0		0
Revolver	149.7		149.7		0		149.7		0
2027 Senior Notes	593.2		635.2		0		635.2		0
2028 Senior Notes	494.6		526.9		0		526.9		0

~~16.~~14. 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


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			16


Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

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~~15. NET INCOME PER COMMON SHARE COMPUTATIONS

The following is a ~~notice from~~reconciliation of 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 regulatorynumerator and ~~court approval. If approved,~~denominator of 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.net income per common share computations:


	Three Months Ended March 31,
(in millions, except per share data)	2021		2020
Numerator for basic net income (loss) per common share:
Net income (loss) from continuing operations	$	36.1	$	(22.6)
Net loss attributable to noncontrolling interest	0		(0.1)
Net income (loss) from continuing operations, net of loss attributable to noncontrolling interests	36.1		(22.5)
Net loss from discontinued operations	0		(0.9)
Numerator for basic net income (loss) per common share	$	36.1	$	(23.4)
Numerator for diluted net income (loss) from continuing operations per common share	$	36.1	$	(22.5)
Numerator for diluted net income (loss) per common share	$	36.1	$	(23.4)

Denominator for net income (loss) per common share:
Basic	39.0		39.7
Plus dilutive effect of stock awards	0.6		0
Diluted	39.6		39.7

Net income (loss) per common share data:
Basic
Continuing operations	$	0.93	$	(0.57)
Discontinued operations	$	0	$	(0.02)
Net income (loss) per common share - basic	$	0.93	$	(0.59)

Diluted
Continuing operations	$	0.91	$	(0.57)
Discontinued operations	$	0	$	(0.02)
Net income (loss) per common share - diluted	$	0.91	$	(0.59)

Anti-dilutive stock awards excluded from the calculation of diluted shares	0		0.5

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

1817

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~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) 2020 2019
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:
Basic 39.7 40.4
Plus dilutive effect of stock awards — 0.2
Diluted 39.7 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 shares 0.5 —

~~18.~~16. SEGMENT INFORMATION

We manage our operations through 3 reportable segments:

•~~Churchill Downs~~Live and Historical Racing

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

Churchill Downs Racetrack is the home of the~~The~~ Kentucky Derby and conducts live racing during the year. Derby City Gaming is a historical racing machine facility that operates under the Churchill Downs pari-mutuel racing license at its ancillary training facility in Louisville, Kentucky. Oak Grove conducts live harness racing during the year and operates a HRM facility under its pari-mutuel racing license. Turfway Park conducts live racing during the year, and Newport is an ancillary HRM facility that operates under the Turfway Park pari-mutuel racing license.

~~Churchill Downs Racetrack~~Our Live and ~~Derby City Gaming~~Historical Racing properties earn commissions primarily from pari-mutuel wagering on live ~~races at Churchill Downs~~ and on historical ~~races at Derby City Gaming;~~races; simulcast fees earned from other wagering sites; admissions, personal seat licenses, sponsorships, television rights, and other miscellaneous services (collectively "racing event-related services"), as well as food and beverage services.

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

~~Churchill Downs Incorporated~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

•~~Online Wagering~~TwinSpires

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

TwinSpires Horse Racing operates ~~our~~the online horse racing wagering business onfor TwinSpires.com, BetAmerica.com, and other ~~Company~~white-label platforms; facilitates high dollar wagering by international customers ~~("Velocity")~~(through Velocity); and provides the Bloodstock Research Information Services platform for horse racing statistical ~~data generated by our information business that provides data and processing services to the equine industry ("Brisnet").~~data.

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

Our TwinSpires Sports and Casino business operates our sports betting and casino iGaming platform in multiple states. The Company launched its mobile sports betting app in Michigan in January 2021 and Tennessee in March 2021. The TwinSpires Sports and Casino business includes the mobile and online sports betting and casino results and the results of our 6 retail sportsbooks, which include our wholly-owned properties at Harlow’s Casino Resort and Spa (“Harlow’s”), Presque Isle, and Riverwalk Casino Hotel (“Riverwalk”), as well as in Colorado, Indiana and Michigan which utilize a third party's casino license.

•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~~video lottery terminals ("VLTs") and 200 table games located in 8 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 ~~VSI~~Video Services, LLC ("VSI") (collectively, "Fair Grounds and VSI")

◦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

◦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~~ Rivers Des Plaines

◦50% equity investment in MVG


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			18


Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

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

•~~Oak Grove Racing and Gaming~~

•~~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.~~income (loss). 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;

◦~~Calder racing exit costs;~~ and

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

•Stock-based compensation expense;

•~~Midwest Gaming's~~Rivers Des Plaines' 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~~

~~Churchill Downs Incorporated~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

◦–~~Recapitalization~~Legal reserves and transaction costs;

•Asset impairments;

•~~Gain on Ocean Downs/Saratoga Transaction;~~

•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.~~income (loss).

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

2119

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)


	Three Months Ended March 31,
(in millions)	2021		2020
Net revenue from external customers:
Live and Historical Racing:
Churchill Downs Racetrack	$	2.0	$	1.9
Derby City Gaming	32.9		21.6
Oak Grove	19.4		0
Turfway Park	4.5		4.6
Newport	4.4		0
Total Live and Historical Racing	63.2		28.1
TwinSpires:
Horse Racing	92.7		66.6
Sports and Casino	7.0		2.5
Total TwinSpires	99.7		69.1
Gaming:
Fair Grounds and VSI	38.3		31.6
Presque Isle	23.8		27.0
Calder	20.9		21.8
Oxford	15.7		20.1
Ocean Downs	20.0		14.8
Riverwalk	14.4		12.0
Harlow’s	14.0		11.3
Lady Luck Nemacolin	4.9		7.3
Total Gaming	152.0		145.9
All Other	9.4		9.8
Net revenue from external customers	$	324.3	$	252.9

Three Months Ended March 31,
(in millions) 2020 2019
Net revenue from external customers:
Churchill Downs:
Churchill Downs Racetrack $ 1.9 $ 2.3
Derby City Gaming 21.6 18.7
Total Churchill Downs 23.5 21.0
Online Wagering:
TwinSpires 66.6 63.0
Online Sports Betting and iGaming 0.7 0.1
Total Online Wagering 67.3 63.1
Gaming:
Fair Grounds and VSI 31.6 37.5
Presque Isle 27.6 29.7
Calder 21.8 25.4
Oxford 20.1 23.9
Ocean Downs 14.8 18.4
Riverwalk 12.7 16.3
Harlow’s 11.7 15.3
Lady Luck Nemacolin 7.3 2.3
Total Gaming 147.6 168.8
All Other 14.5 12.5
Net revenue from external customers $ 252.9 $ 265.4

Three Months Ended March 31,
(in millions) 2020 2019
Intercompany net revenue:
Churchill Downs $ 0.3 $ 0.4
Online Wagering 0.4 0.3
Gaming 1.5 1.3
All Other 3.0 2.2
Eliminations (5.2) (4.2)
Intercompany net revenue $ — $ —


	Three Months Ended March 31,
(in millions)	2021		2020
Intercompany net revenue:
Live and Historical Racing	$	1.5	$	1.0
TwinSpires	0.4		0.3
Gaming	2.0		1.5
All Other	2.7		2.4
Eliminations	(6.6)		(5.2)
Intercompany net revenue	$	0	$	0

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

2220

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)


	Three Months Ended March 31, 2021
(in millions)	Live and Historical Racing		TwinSpires		Gaming		Total Segments		All Other		Total
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing	$	5.9	$	89.2	$	11.7	$	106.8	$	5.1	$	111.9
Historical racing(a)	52.9		0		0		52.9		0		52.9
Racing event-related services	0		0		0.7		0.7		0		0.7
Gaming(a)	0		7.0		132.5		139.5		0		139.5
Other(a)	4.4		3.5		7.1		15.0		4.3		19.3
Total	$	63.2	$	99.7	$	152.0	$	314.9	$	9.4	$	324.3

Three Months Ended March 31, 2020
(in millions) Churchill Downs Online Wagering Gaming Total Segments All Other Total
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																							Three Months Ended March 31, 2020
(in millions)	(in millions)	Churchill Downs		Online Wagering		Gaming		Total Segments		All Other		Total		(in millions)	Live and Historical Racing		TwinSpires		Gaming		Total Segments		All Other		Total
Net revenue from external customers	Net revenue from external customers													Net revenue from external customers
Pari-mutuel:	Pari-mutuel:													Pari-mutuel:
Live and simulcast racing	Live and simulcast racing	$	1.4	$	60.5	$	12.2	$	74.1	$	7.5	$	81.6	Live and simulcast racing	$	5.2	$	63.9	$	9.9	$	79.0	$	5.7	$	84.7
Historical racing^(a)	Historical racing^(a)	17.7		—		—		17.7		—		17.7		Historical racing(a)	20.4		0		0		20.4		0		20.4
Racing event-related services	Racing event-related services	—		—		1.5		1.5		—		1.5		Racing event-related services	0		0		1.3		1.3		0.1		1.4
Gaming^(a)	Gaming^(a)	—		0.1		146.6		146.7		—		146.7		Gaming(a)	0		2.5		119.8		122.3		0		122.3
Other(a)	Other(a)	1.9		2.5		8.5		12.9		5.0		17.9		Other(a)	2.5		2.7		14.9		20.1		4.0		24.1
Total	Total	$	21.0	$	63.1	$	168.8	$	252.9	$	12.5	$	265.4	Total	$	28.1	$	69.1	$	145.9	$	243.1	$	9.8	$	252.9

(a) Food and beverage, hotel, and other services furnished to customers for free as an inducement to ~~gamble~~wager or through the redemption of our customers' loyalty points are recorded at ~~their~~the estimated standalone selling prices in Other revenue with a corresponding offset recorded as a reduction in historical pari-mutuel revenue for HRMs or gaming revenue for our casino properties. These amounts were $3.7 million for the three months ended March 31, 2021 and $7.6 million for the three months ended March 31, ~~2020 and $7.8 million for the three months ended March 31, 2019.~~2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

2321

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Adjusted EBITDA by segment is comprised of the following:


	Three Months Ended March 31, 2021
(in millions)	Live and Historical Racing		TwinSpires		Gaming
Net revenue	$	64.7	$	100.1	$	154.0

Taxes and purses	(20.0)		(6.4)		(59.3)
Marketing and advertising	(2.1)		(8.5)		(1.4)
Salaries and benefits	(10.0)		(3.1)		(19.9)
Content expense	(0.6)		(46.5)		(1.0)
Selling, general and administrative expense	(3.0)		(2.2)		(6.0)
Other operating expense	(10.7)		(10.9)		(15.5)
Other income	0		0		31.5
Adjusted EBITDA	$	18.3	$	22.5	$	82.4

Three Months Ended March 31, 2020
(in millions) Churchill Downs Online Wagering Gaming
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 March 31, 2019
(in millions) Churchill Downs Online Wagering Gaming
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 March 31, 2020
(in millions)	Live and Historical Racing		TwinSpires		Gaming
Net revenue	$	29.1	$	69.4	$	147.4

Taxes and purses	(9.5)		(4.3)		(58.7)
Marketing and advertising	(1.2)		(3.5)		(5.3)
Salaries and benefits	(7.2)		(3.5)		(29.5)
Content expense	(0.7)		(32.6)		(1.0)
Selling, general and administrative expense	(1.7)		(1.4)		(6.7)
Other operating expense	(7.8)		(8.1)		(19.5)
Other income	0		0		21.2
Adjusted EBITDA	$	1.0	$	16.0	$	47.9

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

2422

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Three Months Ended March 31,
(in millions) 2020 2019
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 interest 0.1 —
Net (loss) income before noncontrolling interest (23.5) 11.6
Loss from discontinued operations, net of tax 0.9 0.3
(Loss) income from continuing operations, net of tax (22.6) 11.9
Additions:
Depreciation and amortization 22.0 20.8
Interest expense 19.3 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 expense 1.7 1.3
Impairment of intangible assets 17.5 —
Transaction expense, net 0.3 3.5
Other income, expense:
Interest, depreciation and amortization expense related to equity investments 9.5 3.5
Changes in fair value of Midwest Gaming's interest rate swaps 14.9 4.3
Midwest Gaming's recapitalization and transactions costs — 3.9
Total adjustments to EBITDA 48.2 21.7
Adjusted EBITDA $ 55.3 $ 74.6
Adjusted EBITDA by segment:
Churchill Downs $ 1.9 $ 1.4
Online Wagering 15.0 16.9
Gaming 49.0 64.8
Total segment Adjusted EBITDA 65.9 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 March 31,							Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		(in millions)	2021		2020
Reconciliation of Comprehensive Income (Loss) to Adjusted EBITDA:						Reconciliation of Comprehensive Income (Loss) to Adjusted EBITDA:

Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated						Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated	$	36.1	$	(23.4)
Net loss attributable to noncontrolling interest						Net loss attributable to noncontrolling interest	0		0.1
Net income (loss) before noncontrolling interest						Net income (loss) before noncontrolling interest	36.1		(23.5)
Loss from discontinued operations, net of tax						Loss from discontinued operations, net of tax	0		0.9
Income (loss) from continuing operations, net of tax						Income (loss) from continuing operations, net of tax	36.1		(22.6)

Additions:						Additions:
Depreciation and amortization						Depreciation and amortization	26.0		22.0
Interest expense						Interest expense	19.4		19.3
Income tax provision (benefit)						Income tax provision (benefit)	16.2		(11.6)
EBITDA						EBITDA	$	97.7	$	7.1

Adjustments to EBITDA:						Adjustments to EBITDA:
Selling, general and administrative:						Selling, general and administrative:
Stock-based compensation expense						Stock-based compensation expense	$	5.5	$	4.3

Pre-opening expense and other expense						Pre-opening expense and other expense	0.6		1.7
Impairment of intangible assets						Impairment of intangible assets	0		17.5
Transaction expense, net						Transaction expense, net	0.1		0.3
Other income, expense:						Other income, expense:
Interest, depreciation and amortization expense related to equity investments						Interest, depreciation and amortization expense related to equity investments	9.6		9.5
Changes in fair value of Rivers Des Plaines' interest rate swaps						Changes in fair value of Rivers Des Plaines' interest rate swaps	(4.2)		14.9
Rivers Des Plaines' legal reserves and transaction costs						Rivers Des Plaines' legal reserves and transaction costs	1.3		0

Total adjustments to EBITDA						Total adjustments to EBITDA	12.9		48.2
Adjusted EBITDA						Adjusted EBITDA	$	110.6	$	55.3

Adjusted EBITDA by segment:						Adjusted EBITDA by segment:
Live and Historical Racing						Live and Historical Racing	$	18.3	$	1.0
TwinSpires						TwinSpires	22.5		16.0
Gaming	Gaming	$	(3.3)	$	4.1	Gaming	82.4		47.9
Total segment Adjusted EBITDA						Total segment Adjusted EBITDA	123.2		64.9
All Other						All Other	(12.6)		(9.6)
Total Adjusted EBITDA						Total Adjusted EBITDA	$	110.6	$	55.3

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

2523

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The table below presents ~~total asset~~ information ~~for each~~about equity in income (loss) of unconsolidated affiliates included in our reported segments:


	Three Months Ended March 31,
(in millions)	2021		2020
Gaming	$	24.9	$	(3.3)

As noted in Note 1, Description of Business, we updated our segments and moved our Oak Grove, Turfway Park and Newport businesses into the Live and Historical Racing segment with Churchill Downs Racetrack and Derby City Gaming. As a result, we moved $196.4 million of assets from Oak Grove, $52.1 million of assets from Turfway Park, and $37.9 million from Newport from All Other segment assets to the Live and Historical Racing segment at December 31, 2020. As noted in Note 9, Debt, as a result of our ~~segments:~~proceeds received from the Term Loan B-1 and Additional 2028 Notes, our All Other total assets increased $99.8 million at March 31, 2021 compared to December 31, 2020, which was primarily an increase in cash and cash equivalents. There were no other significant changes in our segment assets at March 31, 2021 compared to December 31, 2020.

(in millions) March 31, 2020 December 31, 2019
Total assets:
Churchill Downs $ 369.1 $ 370.3
Online Wagering 243.7 241.5
Gaming 940.3 1,030.1
Total segment assets 1,553.1 1,641.9
All Other 1,650.7 909.1
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) 2020 2019
Capital expenditures:
Churchill Downs $ 12.1 $ 9.6
Online Wagering 3.6 11.5
Gaming 3.3 2.5
Total segment capital expenditures 19.0 23.6
All Other 29.3 4.5
Total capital expenditures $ 48.3 $ 28.1


	Three Months Ended March 31,
(in millions)	2021		2020
Capital expenditures, net:
Live and Historical Racing	$	7.8	$	39.7
TwinSpires	2.3		3.5
Gaming	1.6		3.3
Total segment capital expenditures	11.7		46.5
All Other	0.6		1.8
Total capital expenditures	$	12.3	$	48.3

~~19.~~17. SUBSEQUENT EVENT

~~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~~As of 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”~~this filing, there were no subsequent events that may impact our disclosures 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’scondensed consolidated 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.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

2624

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains various “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), which provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this report are made pursuant to the Act. The reader is cautioned that such forward-looking statements are based on information available at the time ~~and/~~and / or management’s good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date that the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “seek,” “should,” “will,” and similar words, although some forward-looking statements are expressed differently.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include the following:

•the impact of the novel coronavirus (COVID-19) pandemic and related economic matters on our results of operations, financial conditions and prospects;

•the occurrence of extraordinary events, such as terrorist attacks, public health threats, civil unrest, and inclement weather;

•the effect of economic conditions on our consumers' confidence and discretionary spending or our access to credit;

•additional or increased taxes and fees;

•~~public perceptions or lack~~the impact of ~~confidence~~significant competition, and the expectation the competition levels will increase;

•changes in ~~the integrity of our business or any deterioration in our reputation;~~consumer preferences, attendance, wagering, and sponsorships;

•loss of key or highly skilled personnel;

•~~restrictions~~lack of confidence in the integrity of our core businesses or any deterioration in our ~~debt facilities limiting our flexibility to operate our business;~~reputation;

•~~general~~ risks ~~related to real estate ownership, including fluctuations in market values~~associated with equity investments, strategic alliances and ~~environmental regulations;~~

•~~catastrophic events and system failures disrupting our operations;~~

•~~online security risk, including cyber-security breaches;~~other third-party agreements;

•inability to ~~recover under our insurance policies for damages sustained at our properties~~respond to rapid technological changes in ~~the event of inclement weather and casualty events;~~a timely manner;

•~~increases in insurance costs~~concentration and evolution of slot machine manufacturing and other technology conditions that could impose additional costs;

•inability to ~~obtain similar insurance coverage in the future;~~negotiate agreements with industry constituents, including horsemen and other racetracks;

•inability to successfully expand our TwinSpires Sports and Casino business and effectively compete;

•inability to identify and complete expansion, acquisition ~~expansion~~ or divestiture projects, on time, on budget or as planned;

•difficulty in integrating recent or future acquisitions into our operations;

•costs and uncertainties relating to the development of new venues and expansion of existing facilities;

•general risks ~~associated with equity investments, strategic alliances~~related to real estate ownership and ~~other third-party agreements;~~significant expenditures, including fluctuations in market values and environmental regulations;

•~~inability to respond to rapid technological changes in a timely manner;~~reliance on our technology services and catastrophic events and system failures disrupting our operations;

•~~inadvertent infringement~~online security risk, including cyber-security breaches, or loss or misuse of ~~the intellectual property~~our stored information as a result of ~~others;~~a breach, including customers’ personal information, could lead to government enforcement actions or other litigation;

•~~inability~~personal injury litigation related to ~~protect~~injuries occurring at our ~~own intellectual property rights;~~racetracks;

•compliance with the Foreign Corrupt Practices Act or applicable money-laundering regulations;

•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;~~work stoppages and labor issues;

•risks related to pending or future legal proceedings and other actions;

•~~inability to negotiate agreements with industry constituents, including horsemen~~highly regulated operations 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 ofcould adversely affect our ~~racing operations;~~

•~~increased competition in the horse racing~~ business;

•~~difficulty in attracting a sufficient number of horses and trainers for full field horse races;~~

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

•~~our inability to utilize and provide totalizator services;~~

•~~changes in regulatory environment of our online horse racing wagering business;~~

•~~a reduction in the number of people wagering on live horse races;~~

•~~increased competition~~restrictions in our ~~online horse racing wagering~~debt facilities limiting our flexibility to operate our 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~~the financial ratios and ~~online wagering products;~~

•~~increased competition~~other covenants in our ~~casino business;~~

•~~changes in regulatory environment of our casino business;~~

•~~concentration and evolution of slot machine manufacturing~~debt facilities and other ~~technology conditions that could impose additional costs;~~indebtedness; and

•increase in our insurance costs, or obtain similar insurance coverage in the future, and inability to ~~collect gaming receivables from~~recover under our insurance policies for damages sustained at our properties in the ~~customers to whom we extend credit.~~event of inclement weather and casualty events.

The following information is unaudited. Tabular dollars are in millions, except per share amounts. All per share amounts assume dilution unless otherwise noted. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, 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 MARCH 31, ~~2020~~2021

2825

Our Business

Executive Overview

~~We are~~Churchill Downs Incorporated (the "Company") is an industry-leading racing, online wagering and gaming entertainment company anchored by our iconic flagship event, - ~~The~~the Kentucky ~~Derby~~.Derby. We own and operate ~~Derby City Gaming, a~~three pari-mutuel gaming entertainment venues with approximately 3,050 historical racing ~~machine~~machines ("~~HRM"~~HRMs") ~~facility~~ in ~~Louisville,~~ Kentucky. We also own and operate TwinSpires, one of the largest and most profitable online wagering platforms for horse racing, ~~wagering platform~~sports and iGaming in the U.S.~~, TwinSpires.com,~~ and we ~~operate sports betting and iGaming through our BetAmerica platform in multiple states.~~have seven retail sportsbooks. We are also a leader in brick-and-mortar casino gaming in eight states with approximately 11,000 slot machines and video lottery terminals ("VLTs") and 200 table ~~games in eight states.~~games. We were organized as a Kentucky corporation in 1928, and our principal executive offices are located in Louisville, Kentucky.

~~Recent Developments Regarding~~Segments

Impact of COVID-19 Pandemic

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~~March 2020, the World Health ~~Organization. The U.S. Secretary of Health and Human Services has also~~Organization 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~~outbreak a global pandemic. The COVID-19 ~~including shelter-in-place orders, social distancing measures,~~global pandemic has resulted in travel ~~bans and restrictions,~~limitations and business and government shutdowns which have ~~already resulted in~~had significant negative economic impacts ~~globally~~in the United States and in relation to our business. Although vaccines are now available, distribution is currently limited and there can be no assurance that these vaccines will be successful in ending the COVID-19 global pandemic. The long-term impact of COVID-19 on the ~~United States~~U.S. and world economies and continuing impact on our business 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.~~

~~Churchill Downs~~

•~~Simulcast operations at Churchill Downs Racetrack on~~in 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~~

~~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~~In 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~~

~~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~~began to reopen our properties with patron restrictions and gaming limitations. One property temporarily suspended operations again in July 2020 and reopened in August 2020, and three properties temporarily suspended operations again in December 2020 and reopened in January 2021. As 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~~Company reopened these properties, certain employees have returned to work while others remain on temporary furlough due to the ~~third quarter~~capacity restrictions at these properties. The Company provided health, dental, vision and life insurance benefits to furloughed employees through July 31, 2020 and during the subsequent property closure periods.

As 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, meetMarch 31, 2021, all of our ~~financial commitments, 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,properties 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~~

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 its Presque Isle gaming rights intangible asset and an impairment of $2.5 million for its Presque Isle trademark intangible asset.

~~Segments~~

~~We manage our operations 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 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 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 the equine industry ("Brisnet").

~~Our sports betting and iGaming business includes the online BetAmerica sports betting and casino gaming operations.~~

•~~Gaming~~

~~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 Rivers Des Plaines in Des Plaines, Illinois~~

◦~~50% equity investment in MVG~~

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

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

•~~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.~~

~~Acquisitions of Presque Isle and Lady Luck Nemacolin~~

~~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, the parent company of Rivers Des Plaines in Des Plaines, Illinois to acquire approximately 42% of Midwest Gaming from affiliates and co-investors of Clairvest Group Inc. ("Clairvest") and members of High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC and Casino Investors, LLC ("Casino Investors") for cash consideration of approximately $406.6 million and $3.5 million of certain transaction costs and working capital adjustments (the "Sale Transaction"). Following the closing of the Sale Transaction, the parties completed a recapitalization transaction on March 6, 2019 (the "Recapitalization"), pursuant to which Midwest Gaming used approximately $300.0 million in proceeds from amended and extended credit facilities to redeem, on a pro rata basis, additional Midwest Gaming units held by High Plaines and Casino Investors. As a result of the Recapitalization, the Company's ownership of Midwest Gaming increased to 61.3%. High Plaines retained ownership of 36.0% of Midwest Gaming and Casino Investors retained ownership of 2.7% of Midwest Gaming.

~~Turfway Park Acquisition~~

Of the $46.0 million total consideration, $36.0 million, less $0.9 million of working capital and purchase price adjustments, was accounted for as a business combination. The remaining $10.0 million was paid to Hard Rock for the assignment of the purchase and sale agreement rights and was accounted for separately from the business combination as an intangible asset and was amortized through expense in the fourth quarter of 2019.restrictions.

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~~2021

3226

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;

◦~~Calder racing exit costs;~~ and

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

•Stock-based compensation expense;

•~~Midwest Gaming's~~Rivers Des Plaines' impact on our investments in unconsolidated affiliates from:

◦–The impact of changes in fair value of interest rate swaps; and

◦–~~Recapitalization~~Legal reserves and transaction costs;

•Asset impairments;

•~~Gain on Ocean Downs/Saratoga Transaction;~~

•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.~~income (loss). 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,~~Live and Historical Racing, TwinSpires, and Gaming segments, as well as our other operations, are subject to regulation under the laws and regulations of each of the jurisdictions in which we operate. The ownership, operation and management of our businesses and properties are also subject to legislative actions at both the federal and state level. There have been no material changes with respect to ~~Government Regulations~~our regulatory and ~~Legislative Changes~~legislative activities disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Consolidated Financial Results

The following table reflects our net revenue, operating income (loss), net income (loss), Adjusted EBITDA, and certain other financial information:

Three Months Ended March 31,
(in millions) 2020 2019 Change
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 EBITDA 55.3 74.6 (19.3)


	Three Months Ended March 31,
(in millions)	2021			2020			Change
Net revenue	$	324.3		$	252.9		$	71.4
Operating income (loss)	46.7			(11.6)			58.3
Operating income (loss) margin	14		%	(5)		%
Net income (loss) from continuing operations	$	36.1		$	(22.6)		$	58.7
Net income (loss) attributable to Churchill Downs Incorporated	36.1			(23.4)			59.5
Adjusted EBITDA	110.6			55.3			55.3

Three Months Ended March 31, ~~2020,~~2021, Compared to Three Months Ended March 31, ~~2019~~2020

•Net revenue ~~decreased $12.5~~increased $71.4 million ~~driven by a $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~~$35.1 million increase from ~~Online Wagering~~Live and Historical Racing driven primarily from Derby City Gaming and the opening of Oak Grove in September 2020, a $30.6 million increase from TwinSpires due to an increase in handle, and ~~active players,~~ a ~~$2.5~~$6.1 million increase from ~~Churchill Downs primarily~~Gaming due to ~~Derby City Gaming's continued growth, and~~the temporary suspension of operations in March 2020. Partially offsetting these increases was $0.4 million from All Other.

•Operating income (loss) increased $58.3 million due to a ~~$2.0~~$23.9 million increase from ~~All Other primarily~~Gaming due to increased operating efficiencies and the temporary closure of our Gaming properties in March 2020; a ~~full~~$17.5 million non-cash intangible asset impairment from the first quarter of ~~results from~~2020 that did not recur in the ~~Turfway Park Acquisition.~~first quarter of 2021; a $13.5 million

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

3327

•~~Operating (loss) income decreased $39.6~~increase from Live and Historical Racing primarily related to the Oak Grove HRM facility opening in September 2020 and increased operating efficiencies and the increase in net revenue at Derby City Gaming; an $8.4 million ~~due to a $21.0 million decrease~~increase from ~~Gaming~~TwinSpires primarily due to the ~~temporary closure of all Gaming properties;~~increase in handle; a ~~$17.5~~$0.9 million ~~non-cash impairment of the Presque Isle gaming rights and trademark intangible assets; a $3.6 million decrease~~increase from All Other primarily from increased operating efficiencies at Arlington; and a $0.2 million increase from other sources. Partially offsetting these increases was a $6.1 million increase in selling, general and administrative expenses primarily due to an increase in accrued bonuses in the ~~unfavorable results from a full~~current quarter of operations at Turfway Park and lower totalisator equipment sales at United Tote; a $0.8 million decrease 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 temporary suspension of ~~simulcast~~ operations ~~at Churchill Downs Racetrack and temporary closure of Derby City Gaming. Partially offsetting these decreases were a $3.2 million decrease~~ in transaction expense from 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 $0.8 million decrease in selling, general and administrative expense related to salaries and related benefits.March 2020.

•Net income (loss) ~~income~~ from continuing operations ~~decreased $34.5~~increased $58.7 million. The following items impacted comparability of the Company's first quarter of ~~2020~~2021 net income from continuing operations 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~~$14.0 million after-tax expense ~~increase~~decrease related to our equity portion of the non-cash change in the fair value of ~~Midwest Gaming's~~Rivers Des Plaines' interest rate ~~swaps. Partially offsetting these increases was~~swaps; a ~~$3.1~~$12.0 million non-cash after-tax ~~decrease of~~impact related to our ~~equity portion of Midwest Gaming's recapitalization and transaction costs in~~intangible asset impairment from the first quarter of ~~2019~~2020 that did not recur in the ~~current year quarter; a $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;~~2021; and a ~~$2.7~~$1.0 million after-tax decrease in expenses related to lower transaction, pre-opening and other expenses. Partially offsetting these decreases was a $0.9 million after-tax increase in Rivers Des Plaines' legal reserves and transaction costs. Excluding these items, net income (loss) from continuing operations ~~decreased $23.5~~increased $32.6 million primarily due to a ~~$20.2~~$33.4 million after-tax ~~decrease~~increase driven by the results of our operations and equity income from our unconsolidated affiliates, ~~and~~partially offset by a ~~$3.3~~$0.8 million after-tax increase in interest expense associated with higher outstanding debt balances.

•Net income (loss) ~~income~~ attributable to Churchill Downs Incorporated ~~decreased $35.0~~increased $59.5 million due to a ~~$34.5~~$58.7 million ~~decrease~~increase in net income from continuing operations discussed above and a ~~$0.6~~$0.9 million ~~increase~~decrease in net loss from discontinued operations, partially offset by a $0.1 million ~~increase from our~~decrease in net loss attributable to our noncontrolling interest.

•Adjusted EBITDA ~~decreased $19.3~~increased $55.3 million driven by a ~~$15.8~~$34.5 million ~~decrease~~increase from Gaming primarily due to the ~~temporary closure~~increased operating efficiencies at our wholly-owned properties and equity investments; a $17.3 million increase from Live and Historical Racing primarily due to the opening of ~~all of our Gaming properties, a $1.9 decrease from Online Wagering from~~Oak Grove HRM facility in September 2020 and increased ~~marketing spend and costs associated with the continued build-out of our online sports betting and iGaming operations, partially offset by an increase~~operating efficiencies at ~~TwinSpires from increased handle and active players,~~Derby City Gaming; and a ~~$2.1~~$6.5 million increase from TwinSpires primarily due to the increase in handle. Partially offsetting these increases was a $3.0 million decrease from All Other due to lower totalisator equipment sales in the first quarter of 2020 compared to the prior year quarter for United Tote and unfavorable results from a full quarter of operations at 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.~~increased accrued bonuses at Corporate.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

3428

Financial Results by Segment

Net Revenue by Segment

The following table presents net revenue for our segments, including intercompany revenue:

Three Months Ended March 31,
(in millions) 2020 2019 Change
Churchill Downs:
Churchill Downs Racetrack $ 2.2 $ 2.7 $ (0.5)
Derby City Gaming 21.6 18.7 2.9
Total Churchill Downs 23.8 21.4 2.4
Online Wagering:
TwinSpires 67.0 63.3 3.7
Online Sports Betting and iGaming 0.7 0.1 0.6
Total Online Wagering 67.7 63.4 4.3
Gaming:
Fair Grounds and VSI 33.1 38.8 (5.7)
Presque Isle 27.6 29.7 (2.1)
Calder 21.8 25.4 (3.6)
Oxford 20.1 23.9 (3.8)
Ocean Downs 14.8 18.4 (3.6)
Riverwalk 12.7 16.3 (3.6)
Harlow's 11.7 15.3 (3.6)
Lady Luck Nemacolin 7.3 2.3 5.0
Total Gaming 149.1 170.1 (21.0)
All Other 17.5 14.7 2.8
Eliminations (5.2) (4.2) (1.0)
Net Revenue $ 252.9 $ 265.4 $ (12.5)


	Three Months Ended March 31,
(in millions)	2021		2020		Change
Live and Historical Racing:
Churchill Downs Racetrack	$	2.6	$	2.2	$	0.4
Derby City Gaming	32.9		21.6		11.3
Oak Grove	19.4		—		19.4
Turfway Park	5.4		5.3		0.1
Newport	4.4		—		4.4
Total Live and Historical Racing	64.7		29.1		35.6
TwinSpires:
Horse Racing	93.1		67.0		26.1
Sports and Casino	7.0		2.4		4.6
Total TwinSpires	100.1		69.4		30.7
Gaming:
Fair Grounds Slots and VSI	40.3		33.0		7.3
Presque Isle	23.8		27.0		(3.2)
Calder	20.9		21.8		(0.9)
Ocean Downs	20.0		14.8		5.2
Oxford	15.7		20.1		(4.4)
Riverwalk	14.4		12.0		2.4
Harlow's	14.0		11.4		2.6
Lady Luck Nemacolin	4.9		7.3		(2.4)
Total Gaming	154.0		147.4		6.6
All Other	12.1		12.2		(0.1)
Eliminations	(6.6)		(5.2)		(1.4)
Net Revenue	$	324.3	$	252.9	$	71.4

Three Months Ended March 31, ~~2020,~~2021, Compared to Three Months Ended March 31, ~~2019~~2020

•~~Churchill Downs~~Live and Historical Racing revenue increased ~~$2.4~~$35.6 million ~~primarily~~ due to a ~~$2.9~~$19.4 million increase ~~from~~at Oak Grove as a result of the opening of the HRM facility in September 2020 and the hotel in October 2020; an $11.3 million increase at Derby City ~~Gaming's continued growth compared to the prior year quarter prior to the temporary closure of the facility. Partially offsetting the increase was a $0.5 million decrease at Churchill Downs Racetrack~~Gaming primarily due to the temporary suspension of ~~simulcasting~~ operations. and the completion of their second outdoor patio which added an additional 225 HRMs in September 2020; a $4.4 million increase at Newport due to the opening in October 2020; and a $0.5 million increase from other sources.

•~~Online Wagering~~TwinSpires revenue increased ~~$4.3~~$30.7 million from the prior year quarter primarily due to a ~~$3.7~~$26.1 million increase ~~at TwinSpires. U.S. thoroughbred industry~~from Horse Racing and a $4.6 million increase from Sports and Casino. Horse Racing net revenue increased as a result of an increase in handle ~~decreased 1.0% during the first quarter~~ of ~~2020 compared to the prior year quarter. Although horse racing content for wagering decreased, TwinSpires handle grew 8.3% during the first quarter of 2020~~$113.3 million, or 34.3%, compared to the prior year quarter due to the continued shift from wagering at brick-and-mortar locations to online wagering. Sports and Casino net revenues increased as a result of our ~~customers wagered more on the content that was available. Active players increased 11.6% for~~expansion in additional states since the first quarter of 2020 ~~compared to the prior year quarter while net revenue per active player declined 3.5%. Our 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~~marketing and New Jersey for the first quarter of 2020 compared to the prior year quarter. Sports betting net revenue growth was impacted by the suspension of all major U.S. and international sporting events beginning in mid-February 2020.promotional activities.

•Gaming revenue ~~decreased $21.0 million primarily due to the temporary closure of all of our Gaming properties and the loss of revenue at each property.~~

•~~All Other revenue~~ increased ~~$2.8~~$6.6 million primarily due to a ~~$5.3~~$7.3 million increase ~~from the Turfway Park Acquisition in October 2019. Partially offsetting this~~at Fair Grounds and VSI, a $5.2 million increase ~~was~~at Ocean Downs, and a ~~$1.8~~$5.0 million ~~decrease~~increase at ~~Arlington due to~~our Mississippi properties, all of which resulted from the temporary suspension of operations ~~at our OTBs and simulcast operations and~~in March 2020. Partially offsetting these increases were a ~~$0.7~~$4.4 million decrease at ~~United Tote due to lower totalisator equipment sales compared to the prior year quarter.~~Oxford, a $3.2 million decrease at Presque Isle, a $2.4 million decrease at Lady Luck Nemacolin, and a $0.9 million decrease at Calder, all of which resulted from certain operating restrictions.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

3529

Consolidated Operating Expense

The following table is a summary of our consolidated operating expense:

Three Months Ended March 31,
(in millions) 2020 2019 Change
Taxes and purses $ 75.7 $ 78.2 $ (2.5)
Salaries and benefits 45.4 36.8 8.6
Content expense 31.5 32.1 (0.6)
Selling, general and administrative expense 24.1 24.9 (0.8)
Depreciation and amortization 22.0 20.8 1.2
Marketing and advertising 9.8 7.2 2.6
Transaction expense, net 0.3 3.5 (3.2)
Impairment of intangible assets 17.5 — 17.5
Other operating expense 38.2 33.9 4.3
Total expense $ 264.5 $ 237.4 $ 27.1


	Three Months Ended March 31,
(in millions)	2021		2020		Change
Taxes and purses	$	88.9	$	75.7	$	13.2
Content expense	43.1		30.9		12.2
Salaries and benefits	37.2		45.4		(8.2)
Selling, general and administrative expense	30.2		24.1		6.1
Depreciation and amortization	26.0		22.0		4.0
Marketing and advertising	12.1		9.8		2.3
Transaction expense, net	0.1		0.3		(0.2)
Impairment of intangible assets	—		17.5		(17.5)
Other operating expense	40.0		38.8		1.2
Total expense	$	277.6	$	264.5	$	13.1

Three Months Ended March 31, ~~2020,~~2021, Compared to Three Months Ended March 31, ~~2019~~2020

Significant items affecting comparability of consolidated operating expense include:

•Taxes and purses ~~decreased $2.5~~increased $13.2 million driven by the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020, as well as the temporary ~~closure~~suspension of ~~all~~ operations ~~at our Gaming properties~~during March 2020.

•Content expense increased $12.2 million primarily due to an increase in certain host fees and source market fees for the ~~related decrease in net revenue.~~TwinSpires Horse Racing business.

•Salaries and benefits expense ~~increased $8.6~~decreased $8.2 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 an increase associated with our online sports betting and iGaming business compared to the prior year quarter. Also included in salaries and benefits expense are $3.8 million of provisional wage and benefits continuation expenses related to COVID-19.

•~~Content expense decreased $0.6 million primarily due to a decrease in~~increased operational efficiencies at certain ~~host fees for TwinSpires.~~properties.

•Selling, general and administrative expense ~~decreased $0.8~~increased $6.1 million driven primarily from ~~a reduction~~an increase in our accrued ~~bonuses.~~bonuses in the current year quarter compared to the prior year quarter due to the temporary suspension of operations in March 2020.

•Depreciation and amortization ~~expense~~ increased ~~$1.2~~$4.0 million primarily driven by ~~capital expenditures placed into service for Churchill Downs Racetrack,~~ the ~~Lady Luck Nemacolin Transaction,~~opening of the Oak Grove HRM facility in September 2020 and ~~the Turfway Park Acquisition.~~Newport in October 2020.

•Marketing and advertising expense increased ~~$2.6~~$2.3 million primarily due to increased marketing by our ~~online sports betting~~TwinSpires segment, partially offset by reduced marketing and ~~iGaming operations.~~

•Transaction expense, net was nominal in first quarter of 2020. In the first quarter of 2019, transaction expense, net was related to the Presque Isle and Lady Luck Nemacolin Transactions closing in the first quarter of 2019.advertising at our Gaming properties.

•Impairment of intangible assets ~~increased~~decreased $17.5 million ~~driven by a $15.0 million non-cash~~due to the first quarter of 2020 impairment ~~charge related to Presque Isle's gaming rights and a $2.5 million non-cash impairment charge related to Presque Isle's trademark.~~that did not recur in the current year quarter.

•Other operating expenses include maintenance, utilities, food and beverage costs, property taxes, insurance, and other operating expenses. Other operating expense increased ~~$4.3~~$1.2 million primarily driven by the ~~Turfway Park Acquisition and the Presque Isle and Lady Luck Nemacolin Transactions~~temporary suspension of operations at our properties in ~~2019.~~March 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

3630

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 March 31,											Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		Change		(in millions)	2021		2020		Change
Churchill Downs		$	1.9	$	1.4	$	0.5
Online Wagering		15.0		16.9		(1.9)
Live and Historical Racing								Live and Historical Racing	$	18.3	$	1.0	$	17.3
TwinSpires								TwinSpires	22.5		16.0		6.5
Gaming	Gaming	49.0		64.8		(15.8)		Gaming	82.4		47.9		34.5
Total Segment Adjusted EBITDA	Total Segment Adjusted EBITDA	65.9		83.1		(17.2)		Total Segment Adjusted EBITDA	123.2		64.9		58.3
All Other	All Other	(10.6)		(8.5)		(2.1)		All Other	(12.6)		(9.6)		(3.0)
Total Adjusted EBITDA	Total Adjusted EBITDA	$	55.3	$	74.6	$	(19.3)	Total Adjusted EBITDA	$	110.6	$	55.3	$	55.3

Three Months Ended March 31, ~~2020,~~2021, Compared to Three Months Ended March 31, ~~2019~~2020

•~~Churchill Downs~~Live and Historical Racing Adjusted EBITDA increased ~~$0.5~~$17.3 million due to a ~~$1.7~~$8.9 million increase from Derby City Gaming due to the increase in ~~net~~ revenue, ~~partially offset by~~increased operating efficiencies, and the temporary closure of the property in March 2020; a ~~$1.2~~$6.6 million ~~decrease from~~increase at Oak Grove due to the opening of the Oak Grove HRM facility in September 2020; a $0.8 million increase at Turfway Park due to an increase in handle; a $0.7 million increase at Newport due to the opening of the Newport facility in October 2020; and a $0.3 million increase at Churchill Downs Racetrack primarily due to ~~higher salaries and related benefits as well as our~~the temporary suspension of ~~simulcast operations.~~operations in March 2020.

•~~Online Wagering~~TwinSpires Adjusted EBITDA ~~decreased $1.9~~increased $6.5 million primarily due to a ~~$4.1 million decrease from increased marketing spend and costs associated with the continued build-out of our online sports betting and iGaming operations, partially offset by a $2.2~~$9.9 million increase from ~~TwinSpires~~Horse Racing due to an increase in handle, partially offset by a $3.4 million increase in the loss from our Sports and ~~active players.~~Casino business due to increased marketing and promotional activities.

•Gaming Adjusted EBITDA ~~decreased $15.8~~increased $34.5 million driven by a ~~$21.2~~$24.1 million ~~decrease~~increase at our wholly-owned Gaming properties and a $10.4 million increase from ~~the decrease in net revenue from~~our equity investments, both of which were due to increased operating efficiencies and 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~~properties in ~~first quarter of 2020 at Rivers Des Plaines, partially offset by temporary closures of our equity investment properties.~~March 2020.

•All Other Adjusted EBITDA decreased ~~$2.1~~$3.0 million ~~primarily~~driven by a $4.4 million increase in accrued bonuses at Corporate compared to prior year where accrued bonuses were reduced as a result of the temporary suspension of operations in March 2020. Partially offsetting this decrease was a $1.4 million increase from ~~a $1.2 million decrease from United Tote~~Arlington due to ~~lower totalisator equipment sales~~increased operating efficiencies and the temporary suspension of operations in ~~first quarter~~March 2020.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			31

Reconciliation of ~~2020 compared~~Comprehensive Income (Loss) to Adjusted EBITDA


	Three Months Ended March 31,
(in millions)	2021		2020		Change
Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated	$	36.1	$	(23.4)	$	59.5
Net loss attributable to noncontrolling interest	—		0.1		(0.1)
Net income (loss) before noncontrolling interest	36.1		(23.5)		59.6
Loss from discontinued operations, net of tax	—		0.9		(0.9)
Income (loss) from continuing operations, net of tax	36.1		(22.6)		58.7

Additions:
Depreciation and amortization	26.0		22.0		4.0
Interest expense	19.4		19.3		0.1
Income tax provision (benefit)	16.2		(11.6)		27.8
EBITDA	$	97.7	$	7.1	$	90.6

Adjustments to EBITDA:
Selling, general and administrative:
Stock-based compensation expense	$	5.5	$	4.3	$	1.2


Pre-opening expense and other expense	0.6		1.7		(1.1)
Impairment of intangible assets	—		17.5		(17.5)
Transaction expense, net	0.1		0.3		(0.2)
Other income, expense:
Interest, depreciation and amortization expense related to equity investments	9.6		9.5		0.1
Changes in fair value of Rivers Des Plaines' interest rate swaps	(4.2)		14.9		(19.1)
Rivers Des Plaines' legal reserves and transactions costs	1.3		—		1.3

Total adjustments to EBITDA	12.9		48.2		(35.3)
Adjusted EBITDA	$	110.6	$	55.3	$	55.3

Consolidated Balance Sheet

The following table is a summary of our overall financial position:


(in millions)	March 31, 2021		December 31, 2020		Change
Total assets	$	2,787.1	$	2,686.4	$	100.7
Total liabilities	$	2,584.9	$	2,319.3	$	265.6
Total shareholders' equity	$	202.2	$	367.1	$	(164.9)

Significant items affecting the comparability of our condensed consolidated balance sheets include:

•Total assets increased $100.7 million driven by a $80.3 million increase in cash and cash equivalents primarily due to the ~~prior year quarter,~~ net proceeds from the new Term Loan B-1 and Additional 2028 Notes; a ~~$0.9~~$20.0 million ~~decrease~~increase in income taxes receivable primarily due to ~~unfavorable results from~~ the ~~first full quarter~~payment of ~~racing operations at Turfway Park,~~the Kater and ~~a $0.5~~Thimmegowda litigation settlements; an $8.8 million ~~decrease from~~increase in accounts receivable, net primarily due to sponsorships related to the 2021 Kentucky Derby and Oaks; and an $8.2 million increase in other ~~sources.~~current assets driven by an increase in prepaid insurance related to our annual renewals. Partially offsetting these ~~decreases~~increases was a ~~$0.5~~$13.4 decrease in property and equipment primarily due to depreciation expense for the current quarter and a $3.2 million decrease in all other assets.

•Total liabilities increased $265.6 million primarily driven by a $203.6 million increase ~~at our corporate operations~~in notes payable due to proceeds from our Additional 2028 Notes; a ~~reduction~~$142.4 million increase in ~~accrued bonuses.~~

long-term debt due to proceeds from the new Term Loan B-1 under our Credit Agreement; a $34.9 million increase in deferred income taxes primarily driven by the payment of the Kater and Thimmegowda litigation settlements; a $19.7 million increase in current deferred revenue primarily due to advance sales associated with the 2021 Kentucky Derby and Oaks tickets and sponsorships; and a $13.9 million increase in all other liabilities. Partially offsetting these increases were a $124.0 million decrease in

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

3732

~~Reconciliation~~current liabilities of ~~Comprehensive (Loss) Income to Adjusted EBITDA~~

Three Months Ended March 31,
(in millions) 2020 2019 Change
Net (loss) income and comprehensive (loss) income attributable to CDI $ (23.4) $ 11.6 $ (35.0)
Net loss attributable to noncontrolling interest 0.1 — 0.1
Net (loss) income before noncontrolling interest (23.5) 11.6 (35.1)
Loss from discontinued operations, net of tax 0.9 0.3 0.6
(Loss) income from continuing operations, net of tax (22.6) 11.9 (34.5)
Additions:
Depreciation and amortization 22.0 20.8 1.2
Interest expense 19.3 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 expense 1.7 1.3 0.4
Impairment of intangible assets 17.5 — 17.5
Transaction expense, net 0.3 3.5 (3.2)
Other income, expense:
Interest, depreciation and amortization expense related to equity investments 9.5 3.5 6.0
Changes in fair value of Midwest Gaming's interest rate swaps 14.9 4.3 10.6
Midwest Gaming's recapitalization and transactions costs — 3.9 (3.9)
Total adjustments to EBITDA 48.2 21.7 26.5
Adjusted EBITDA $ 55.3 $ 74.6 $ (19.3)

~~Consolidated Balance Sheet~~

~~The following table is a summary of our overall financial position:~~

(in millions) March 31, 2020 December 31, 2019 Change
Total assets $ 3,203.8 $ 2,551.0 $ 652.8
Total liabilities $ 2,768.2 $ 2,040.0 $ 728.2
Total shareholders' equity $ 435.6 $ 511.0 $ (75.4)

~~Significant items affecting the comparability of our condensed consolidated balance sheets include:~~

•Total assets increased $652.8 million driven by a $604.7 million increase in cash and cash equivalents primarily due to borrowings under our Credit Agreement; a $53.5 million increase in property and equipment, net primarilydiscontinued operations due to the ~~construction~~payments of ~~Oak Grove;~~the Kater and Thimmegowda litigation settlements and a $13.3 million increase in all other assets. Partially offsetting these increases were a decrease in other 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 $728.2 million primarily driven by a $687.6 million increase in long-term debt, net primarily due to borrowings under our Credit Agreement; a $55.6 million increase in deferred revenue due to advanced sales associated with the 2020 Kentucky Derby and Oaks; and a $22.8 million increase in accounts payable primarily due to the construction of Oak Grove. Partially offsetting these increases were a $23.5$24.9 million decrease in dividends payable

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

due to the payment of our annual dividends in January 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.2020.

•Total shareholders’ equity decreased ~~$75.4~~$164.9 million driven by ~~$23.5 million net loss attributable to Churchill Downs Incorporated for the quarter, $27.9~~$193.9 million in repurchases of common stock ~~$15.1~~and $12.6 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~~were a ~~$3.8~~$36.1 million increase from ~~all other equity components.~~current year net income and a $5.5 million increase from stock-based compensation.

Liquidity and Capital Resources

The following table is a summary of our liquidity and cash flows:


(in millions)	(in millions)	Three Months Ended March 31,											(in millions)	Three Months Ended March 31,
Cash flows from:	Cash flows from:	2020		2019		Change		Cash flows from:	2021		2020			Change
Operating activities	Operating activities	$	43.5	$	70.3	$	(26.8)	Operating activities	$	(19.8)	$	43.5		$	(63.3)
Investing activities	Investing activities	$	(48.3)	$	(619.1)	$	570.8	Investing activities	$	(12.3)	$	(48.3)		$	36.0
Financing activities	Financing activities	$	606.8	$	532.9	$	73.9	Financing activities	$	106.8	$	606.8		$	(500.0)

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.

Three Months Ended March 31, ~~2020,~~2021, Compared to the Three Months Ended March 31, ~~2019~~2020

•Cash ~~provided by~~flows from operating activities decreased ~~$26.8~~$63.3 million driven by a ~~$22.1~~$124.0 million decrease from the payment of the Kater and Thimmegowda litigation settlements and a $32.4 million decrease in ~~operating (loss) income~~deferred revenue related to ~~continuing operations, net of~~advance ticket and sponsorship for the ~~$17.5~~2021 Kentucky Derby and Oaks. Partially offsetting these decreases were a $58.3 million ~~non-cash impairment of Presque Isle's intangible assets,~~increase in operating income, a $20.7 million increase in distributions from unconsolidated affiliates, and a ~~$4.7~~$14.1 million ~~decrease~~increase from all other operating activities.

•Cash used in investing activities decreased ~~$570.8~~$36.0 million driven by a ~~$409.8~~$31.7 million decrease in investments in and advances to unconsolidated affiliates related to our equity investment in Midwest Gaming in the first quarter of 2019, a $171.3 million decrease due to the Presque Isle Transaction in the first quarter of 2019, and a $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~~due to reduced capital project spending in the ~~construction of Oak Grove.~~current year quarter compared to prior year and a $4.3 million decrease in capital maintenance expenditures.

•Cash provided by financing activities ~~increased $73.9~~decreased $500.0 million primarily driven by a ~~$88.4~~$332.3 million ~~increase~~decrease in net borrowings from long-term debt, ~~partially offset by~~ a ~~$14.5~~$165.5 million increase in common stock repurchases, and a $2.2 million decrease from all other financing activities.

~~Credit Facilities and Indebtedness~~

~~The following table presents our debt outstanding and debt issuance costs:~~

(in millions) March 31, 2020 December 31, 2019 Change
Term Loan B due 2024 $ 391.0 $ 392.0 $ (1.0)
Revolver 688.4 — 688.4
2027 Senior Notes 600.0 600.0 —
2028 Senior Notes 500.0 500.0 —
Total debt 2,179.4 1,492.0 687.4
Current maturities of long-term debt 4.0 4.0 —
Total debt, net of current maturities 2,175.4 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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2020~~2021

3933

Credit Facilities and Indebtedness

The following table presents our debt outstanding:


(in millions)	March 31, 2021		December 31, 2020		Change
Term Loan B due 2024	$	387.0	$	388.0	$	(1.0)
Term Loan B-1 due 2028	300.0		—		300.0
Revolver	—		149.7		(149.7)
2027 Senior Notes	600.0		600.0		—
2028 Senior Notes	700.0		500.0		200.0
Total debt	1,987.0		1,637.7		349.3
Current maturities of long-term debt	7.0		4.0		3.0
Total debt, net of current maturities	1,980.0		1,633.7		346.3
Issuance costs, net of premiums and discounts	(15.7)		(15.4)		(0.3)
Total debt, net of current maturities	$	1,964.3	$	1,618.3	$	346.0

Credit Agreement

On December 27, 2017, we entered into the Credit Agreement (as defined below) with a syndicate of lenders. The Credit Agreement provides for a $700.0 million senior secured 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 "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 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 Credit Agreement contains certain customary affirmative and negative covenants, which include limitations on liens, investments, indebtedness, dispositions, mergers and acquisitions, the making of restricted payments, changes in the nature of business, changes in fiscal year, and transactions with affiliates. The Credit Agreement also contains financial covenants providing for the maintenance of a maximum consolidated secured net leverage ratio and maintenance of a minimum consolidated interest coverage ratio. The Company was in compliance with all applicable covenants in the Credit Agreement at March 31, 2020. At March 31, 2020, the financial ratios under our Credit Agreement were as follows:


	~~Actual~~	~~Requirement~~
~~Interest coverage ratio~~	~~4.8 to 1.0~~	~~> 2.5 to 1.0~~
~~Consolidated total secured net leverage ratio~~	~~2.3 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 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 March 31, 2020, the Company's commitment fee rate was 0.20%.

As a result of the Company's 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 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.

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

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.

On March 17, 2021, the Company ~~will not~~entered into the Incremental Joinder Agreement No. 1 (the "Joinder") to its Credit Agreement which provided $300.00 million in New Term Loan Commitments ("Term Loan B-1") as a new tranche of term loans under the existing Credit Agreement (as conformed to recognize the new loan), and carries a maturity date of March 17, 2028. The Term Loan B-1 bears interest at LIBOR plus 2 basis points and requires quarterly payments of 0.25% of the original $300.0 million balance. The Term Loan B-1 may be ~~required~~subject to ~~comply~~additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the Credit Agreement. The Company capitalized $3.4 million of debt issuance costs associated with ~~its existing~~the Joinder which are being amortized as interest expense over the 7 year term of the Term Loan B-1.

The interest rate on the Revolver on March 31, 2021 was LIBOR plus 2 points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of March 31, 2021. The Term Loan B and Term Loan B-1 bear interest at LIBOR plus 2 basis points.

The Credit Agreement contains certain customary affirmative and negative covenants, which include limitations on liens, investments, indebtedness, dispositions, mergers and acquisitions, the making of restricted payments, changes in the nature of business, changes in fiscal year, and transactions with affiliates. The Credit Agreement also contains financial covenants providing for the maintenance of a maximum consolidated ~~total~~ secured net leverage ratio ~~financial covenant~~ and ~~the~~maintenance of a minimum consolidated interest coverage ~~ratio financial covenant. The Company has agreed to a minimum liquidity financial covenant that requires~~ratio.

Although the Company ~~and its restricted subsidiaries~~was not required to ~~maintain liquidity~~meet the Company’s financial covenants under the Credit Agreement on March 31, 2021 (as a result of ~~at least $150.0 million during~~ the ~~Financial Covenant Relief Period.~~Second Amendment), the Company was compliant with all applicable covenants on March 31, 2021.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			34

2027 Senior Notes

On March 25, 2019, we completed an offering of $600.0 million in aggregate principal amount of 5.50% Senior Unsecured Notes that mature on April 1, 2027 (the "2027 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 2027 Senior Notes were issued at par, with interest payable on April 1^st and October 1^st of each year, commencing on October 1, 2019. The Company used the net proceeds from the offering to repay our outstanding balance on the Revolver portion of our Credit Agreement. In connection with the offering, we capitalized $8.9 million of debt issuance costs which are being amortized as interest expense over the term of the 2027 Senior Notes.

The 2027 Senior Notes were issued pursuant to an indenture, dated March 25, 2019 (the "2027 Indenture"), among the Company, certain subsidiaries of the Company as guarantors (the ~~"Guarantors"~~"2027 Guarantors"), and U.S. Bank National Association, as trustee. The Company may redeem some or all of the 2027 Senior Notes at any time 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 2027 Guarantors entered into a Registration Rights Agreement to register any 2027 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from March 25, 2019.

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"~~"2028 Guarantors"), and U.S. Bank National Association, as trustee. The Company may redeem some or all of the 2028 Senior Notes at any time prior to January 15, 2023, at a price equal to 100% of the principal amount of the 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~~

In connection with the issuance of the 2028 Senior Notes, the Company and the 2028 Guarantors entered into a Registration Rights Agreement to register any 2028 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from December 27, 2017.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			35

capitalized $3.3 million of debt issuance costs which are being amortized as interest expense over the term of the Additional 2028 Notes. Upon completion of this offering, the aggregate principal amount of outstanding of the Existing 2028 Notes, together with the Additional 2028 Notes (collectively the "2028 Senior Notes") is $700 million.

The Additional 2028 Notes were issued at 103.25% of the principal amount, plus interest deemed to have accrued from January 15, 2021, with interest payable on January 15th and July 15th of each year, commencing on July 15, 2021. The 2028 Senior Notes will vote as one class under the indenture governing the 2028 Senior Notes. The 3.25% premium will be amortized through interest expense, net over the term of the Additional 2028 Notes.

The Company used the net proceeds from the Additional 2028 Notes and the Term Loan B-1 (i) to repay indebtedness outstanding under our Revolving Credit Facility, (ii) to fund related transaction fees and expenses and (iii) for working capital and other general corporate purposes.

The Company may redeem some or all of the Additional 2028 Notes at any time 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 Additional 2028 Notes at redemption prices set forth in the 2028 Offering Memorandum.

In connection with the issuance of the Additional 2028 Notes, the Company and the 2028 Guarantors entered into a Registration Rights Agreement to register any 2028 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from March 17, 2021.

Contractual Obligations

Our commitments to make future payments as of March 31, ~~2020,~~2021, are estimated as follows:

(in millions) April 1 to December 31, 2020 2021-2022 2023-2024 Thereafter Total
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 Revolver 14.3 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 Notes 33.0 66.0 66.0 82.5 247.5
Interest on 2028 Senior Notes 11.9 47.5 47.5 83.1 190.0
Operating leases 6.3 10.8 8.4 10.0 35.5
Total $ 76.6 $ 191.3 $ 560.4 $ 1,967.9 $ 2,796.2


(in millions)	April 1 to December 31, 2021		2022-2023		2024-2025		Thereafter		Total
Term Loan B	$	3.0	$	8.0	$	376.0	$	—	$	387.0
Interest on Term Loan B(1)	6.2		16.4		8.0		—		30.6
Term Loan B-1	2.2		6.0		6.0		285.8		300.0
Interest on Term Loan B-1(1)	5.1		12.7		12.5		13.4		43.7
2027 Senior Notes	—		—		—		600.0		600.0
2028 Senior Notes	—		—		—		700.0		700.0
Interest on 2027 Senior Notes	33.0		66.0		66.0		49.5		214.5
Interest on 2028 Senior Notes	16.6		66.5		66.5		83.1		232.7
Operating leases	4.5		9.2		8.0		5.7		27.4
Minimum Guarantees(2)	4.0		19.0		19.0		13.2		55.2
Total	$	74.6	$	203.8	$	562.0	$	1,750.7	$	2,591.1

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of ~~2.73%~~2.12% which was the rate in place as of March 31, ~~2020.~~2021.

(2) Includes the maximum estimated exposure where we are contractually obligated to make future minimum payments.

As of March 31, ~~2020,~~2021, we had approximately ~~$1.8~~$4.6 million of tax liabilities related to unrecognized tax benefits.

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, including the impact of the COVID-19 global 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' disposable


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			36

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, and our online wagering sites ~~and/~~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 March 31, ~~2020,~~2021, we had ~~$1,079.4~~$687.0 million outstanding under our 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 ~~$7.1~~$4.8 million.

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~~

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 March 31, ~~2020.~~2021. 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 MARCH 31, ~~2020~~2021

4337

PART II. OTHER INFORMATION

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, ~~2019,~~2020, 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 ~~16,~~14, Contingencies, to our condensed consolidated financial statements, for further information.

Kater Class Action Suit

On April 17, 2015, ~~a purported class action styled~~the Cheryl Kater v. Churchill Downs Incorporated class action lawsuit (the "Kater ~~litigation"~~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. The 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"~~Aristocrat"), 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.~~Aristocrat (the "Stock Purchase Agreement"). Pursuant to the terms of the Stock Purchase Agreement, the Company agreed to indemnify ~~the Purchaser~~Aristocrat for the losses and expenses associated with the Kater ~~litigation~~Litigation for Big Fish Games, which is referred to in the Stock Purchase Agreement as the "Primary Specified Litigation."

~~On March 28, 2018,~~After the ~~United States~~Washington District Court dismissed the case with prejudice on November 19, 2015, the U.S. 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 petition for rehearing en banc filed by the Company~~ on ~~May 11,~~March 28, 2018. ~~On July 20, 2018, the Company filed a motion to compel arbitration in the Washington District Court, which was denied on November 2, 2018.~~

The complaint was amended on March 20, 2019, to add Big Fish Games as a party and to assert claims on behalf of an additional plaintiff, Suzie Kelly.

On May ~~10, 2019,~~22, 2020, the parties entered into an agreement in principle to settle the Kater litigation and the Thimmegowda litigation (as defined below). Under the terms of the settlement, which has been approved by the court: (i) a total of $155.0 million was paid into a settlement fund. The Company paid $124.0 million of the settlement; Aristocrat paid $31.0 million of the settlement; (ii) all members of the nationwide settlement class who do not exclude themselves will release all claims relating to the subject matter of the lawsuits; and (iii) Aristocrat has agreed to specifically release the Company ~~filed an answer as~~of any and all indemnification obligations under the Stock Purchase Agreement arising from or related to the Kater Litigation and Thimmegowda Litigation, including any claims ~~asserted by plaintiff Kater, and joined~~of diminution of value of Big Fish Games ~~in moving to compel arbitration as to all~~and any 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~~any person who opts out of the ~~motion to compel arbitration.~~ proposed class settlement.

On August ~~21, 2019,~~31, 2020, the Washington District Court ~~partially~~ granted the parties' 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.for preliminary approval. 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 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,~~14, 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~~for final approval of 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.action settlement agreement. 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~~entered an order granting final approval of class action settlement 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 the plaintiffs' allegations and requests for relief.

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

February 11, 2021. The Company’s settlement contribution was made on March 25, 2021.

Thimmegowda Class Action Suit

On February 11, 2019, ~~a purported class action styled~~the Manasa Thimmegowda v. Big Fish Games, ~~Purchaser, Aristocrat Leisure Limited, and the Company,~~Inc. class action lawsuit (the "Thimmegowda Litigation") 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~~22, 2020, the ~~defendants moved~~parties entered into an agreement in principle to ~~compel arbitration of~~settle the ~~claims,~~Kater and Thimmegowda Litigations. The agreement in principle with respect to the ~~Company,~~Thimmegowda Litigation is described above, under the ~~Purchaser and Aristocrat Leisure Limited also moved to dismiss the action for lack of personal jurisdiction.~~"Kater Class Action Suit." On ~~June 13, 2019, defendants moved to stay discovery pending resolution of those motions. On September 12, 2019,~~August 31, 2020, the Washington District Court ~~ordered that~~granted the ~~case would be stayed entirely, pending the United States Court of Appeals~~parties' motion 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.~~preliminary approval. 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,~~14, 2020, ~~while the case was stayed, and before completing discovery and before resolution of motions to compel arbitration,~~ plaintiffs filed a motion for final approval of class action settlement agreement. The Washington District Court entered an order granting final approval of class action settlement on February 11, 2021. The Company’s settlement contribution was made on March 25, 2021.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			38

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 (the "KHRC" and together with the ~~District~~Kentucky racetracks, the "Joint Petitioners") sought a declaration from the Franklin Circuit Court (the "Court") that: (i) the KHRC’s historical racing regulations are valid under Kentucky law, and (ii) operating historical racing machines ("HRMs") pursuant to a license issued by KHRC would not run afoul of any criminal gaming statutes. The Family Trust Foundation of Kentucky, Inc. (the "Family Foundation") intervened, and the 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 Court’s decision that the regulations are valid under Kentucky law, but remanded the case to the Court to ~~certify~~determine whether operation of HRMs that were licensed during the pendency of the litigation constitute pari-mutuel wagering. The Court held a ~~class~~trial during the week of January 8, 2018 to determine whether the games from one of the HRM manufacturers (Encore/Exacta) are pari-mutuel, and the Court set a post-trial briefing schedule for ~~injunctive relief~~the parties. The Court ordered, on August 24, 2017, that this pending litigation directly involves only the HRMs presently in use and any future HRMs proposed by the Company would not be included in the pending case. On October 24, 2018, the Court ruled that the HRMs 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. On September 24, 2020, the Kentucky Supreme Court issued an opinion reversing the Court’s opinion. On November 9, 2020, the KHRC and certain other defendants filed petitions for rehearing which was rejected by the Court.

On February 22, 2021, the Governor of the Commonwealth of Kentucky signed into law Senate Bill 120 which creates a ~~preliminary injunction prohibiting~~statutory definition of pari-mutuel wagering that includes historical horse racing approved by the ~~sale~~KHRC and addresses the Supreme Court of ~~virtual casino chips or coins or other virtual tokens or credits from within Washington or~~Kentucky's opinion. On remand, the Court entered final judgment on March 17, 2021, holding that the Exacta system is not a form of pari-mutuel wagering under the laws that were in effect at the time of the Kentucky Supreme Court’s September 24, 2020, opinion. The Court also held that (i) the final judgment would not be applied retroactively because the associations were authorized and permitted to ~~individuals located in Washington. The District~~operate the Exacta system by the KHRC, and (ii) any prospective application of the final judgment would be subject to Senate Bill 120. On April 7, 2021, the Court denied various motions challenging the final judgment, including motions to intervene and a motion to alter, amend, or vacate filed by the Family Foundation. The Court reaffirmed its interpretation that ~~motion without prejudice orally on March 4, 2020.~~the final judgment would not be applied retroactively and also refused to extend the final judgment to apply to games other than the Exacta system. On April ~~10,~~16, 2021, the Family Foundation filed a notice of appeal of the final judgment. The Company does not use the Exacta system in any of its historical racing machine facilities in Kentucky and does not believe that any further rulings in this case will impact its ability to operate HRM facilities in Kentucky.

Lassiter v. Kentucky Downs, LLC, et al.

On December 18, 2020, ~~the defendants~~Robert and Patricia Lassiter filed ~~renewed motions to compel arbitration~~a complaint against Kentucky Downs, LLC, Keeneland Association, Inc., Turfway Park, LLC, Players Bluegrass Downs, LLC, Appalachian Racing, LLC, Ellis Park Race Course, Inc., The Lexington Trots Breeders Association, Inc., and Churchill Downs Incorporated (“Defendants”). Plaintiffs allege that Defendants’ HRMs constitute illegal gambling and assert that they can recover for their losses and the losses of all patrons at those facilities with HRMs over a five-year period under Kentucky Revised Statutes 372.010. The Company filed a ~~renewed~~ motion to dismiss ~~asserting lack of personal jurisdiction.~~on March 31, 2021. The Company ~~is working~~intends to ~~vigorously~~ defend this matter vigorously and believes that there are meritorious legal and factual defenses against ~~plaintiff’s~~the plaintiffs' allegations and requests for relief.

~~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 Circuit Court, Commonwealth of Kentucky. Petitioners are appealing the vote of the Kentucky Horse Racing Commission, which awarded WKY Development, LLC, our joint venture with 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'~~Horsemen's 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, LLC (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 jockeys that have 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 specifically since 2008. The petition alleged that Churchill Downs Louisiana Horseracing, LLC and Churchill Downs Louisiana Video Poker Company, LLC ("Fair Grounds Defendants") have collected certain monies through video draw poker devices that constitute monies earned for 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 August 14, 2014, the plaintiffs filed an amendment to their petition naming the Horsemen’s Benevolent and


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			39

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 suit, 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 supervisory 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~~

Court of Appeals, which reversed the Louisiana Racing Commission’s ruling and remanded 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 the Louisiana Supreme 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 result, the Company established an accrual 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 approval 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 actions to be taken by class members. A fairness hearing with the District Court relating to the 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~~allocates 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. On June 13, 2020, the legislation addressed in the settlement agreement was passed by the legislature and signed into law by the Governor of Louisiana. 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~~approval. After the parties entered into the settlement, legal counsel for six objecting plaintiffs filed an amended petition with the District Court. After a hearing on July 20, 2020, the District Court dismissed the amended petition. The objecting plaintiffs filed a notice of their intention to seek a writ with the Louisiana Court of Appeals for the Fourth Circuit related to the dismissal of the amended petition, which was denied. The fairness hearing with the District Court relating to the terms of the settlement agreement occurred on October 7, 2020, and November 17, 2020, and the ~~passage~~parties have submitted post-trial briefing and proposed final judgments. Objecting plaintiffs have filed a notice of ~~certain legislation.~~appeal of the February 2020 Order appointing class counsel certifying a class for settlement purposes. On January 28, 2021, the District Court issued a Final Order and Judgement approving the settlement. The objectors filed a notice of appeal of the January 28, 2021 Final Order and Judgment. That appeal has been consolidated with the earlier-filed appeal of the February 2020 order appointing class counsel and certifying a class for settlement purposes.

ITEM 1A. RISK FACTORS

~~The following description include an addition~~There have been no material changes with respect to our risk factors ~~and an update to a risk factor previously~~ disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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 MARCH 31, ~~2020~~2021

4640

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~~

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

Issuer Purchases of Common Stock

The following table provides information with respect to shares of common stock that we repurchased during the quarter ended March 31, ~~2020:~~

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⁾
1/1/20-1/31/20 57,514

$ 141.57 57,385 $ 166.9
2/1/20-2/29/20 75,640

151.01 55,025 158.8
3/1/20-3/31/20 123,218

94.90 123,180 147.1
Total 256,372 $ 121.92 235,590
2021:


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)
01/01/21-01/31/21	2,442	$	211.90	—	$	147.1
02/01/21-02/28/21	1,056,319	194.96		—	147.1
03/01/21-03/31/21	176	236.89		—	147.1
Total	1,058,937	$	195.01	—

(1)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 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.

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
			41

ITEM 6. EXHIBITS

Number

Description

By Reference To

44.1

~~Description~~Second Supplemental Indenture dated as of March 17, 2021, among Churchill Downs Incorporated, the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934*Guarantors party thereto, and U.S. Bank National Association, as trustee.

Exhibit 4.1 to Current Report on Form 8-K filed March 18, 2021

~~10.1~~4.2

~~First Amendment to Credit~~Registration Rights Agreement dated March ~~16, 2020,~~17, 2021, by and among Churchill Downs Incorporated, the ~~subsidiary guarantors~~Guarantors and the representatives of the initial purchasers.

Exhibit 4.2 to Current Report on Form 8-K filed March 18, 2021

10.1(a)

Incremental Joinder Agreement No. 1 among Churchill Downs Incorporated, the credit parties party thereto, the ~~lenders~~Lenders party thereto and JPMorgan Chase Bank, N.A., ~~and PNC Bank, National Association~~as agent, dated March 17, 2021.

Exhibit 10.1 to Current Report on Form 8-K filed March ~~16, 2020~~18, 2021

10.1(b)

Stock Repurchase Agreement, dated February 1, 2021, between Churchill Downs Incorporated and CDI Holdings, LLC

Exhibit 10.1 to Current Report on Form 8-K filed February 2, 2021

10.2

~~Second~~Third Amendment to Credit Agreement, dated ~~April 28, 2020,~~February 1, 2021, among Churchill Downs Incorporated, the subsidiary guarantors ~~party thereto,~~and the lenders ~~party~~parties thereto, and JPMorgan Chase Bank, N.A.~~, and PNC Bank, National Association~~

Exhibit ~~10.1~~10.2 to Current Report on Form 8-K filed ~~April 29, 2020~~February 2, 2021

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*

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.INS

XBRL 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.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover 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 MARCH 31, ~~2020~~2021

4942

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



April ~~29, 2020~~21, 2021			/s/ William C. Carstanjen
			William C. Carstanjen
			Chief Executive Officer
			(Principal Executive Officer)



April ~~29, 2020~~21, 2021			/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 MARCH 31, ~~2020~~2021

5043


(in millions)	March 31, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	700.9	$	96.2
Restricted cash	43.6		46.3
Accounts receivable, net	36.5		37.3
Income taxes receivable	25.2		14.5
Other current assets	36.8		26.9
Total current assets	843.0		221.2
Property and equipment, net	990.8		937.3
Investment in and advances to unconsolidated affiliates	630.0		634.5
Goodwill	367.1		367.1
Other intangible assets, net	351.1		369.8
Other assets	21.8		21.1
Total assets	$	3,203.8	$	2,551.0

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	80.6	$	57.8
Accrued expenses and other current liabilities	161.4		173.4
Current deferred revenue	98.1		42.5
Current maturities of long-term debt	4.0		4.0
Dividends payable	—		23.5
Total current liabilities	344.1		301.2
Long-term debt, net of current maturities and loan origination fees	1,071.6		384.0
Notes payable, net of debt issuance costs	1,086.3		1,085.9
Non-current deferred revenue	16.7		16.7
Deferred income taxes	210.9		212.8
Other liabilities	38.6		39.4
Total liabilities	2,768.2		2,040.0
Commitments and contingencies
Shareholders' equity:
Preferred stock	—		—
Common stock	—		—
Retained earnings	433.9		509.2
Accumulated other comprehensive loss	(0.9)		(0.9)
Total Churchill Downs Incorporated shareholders' equity	433.0		508.3
Noncontrolling interest	2.6		2.7
Total shareholders' equity	435.6		511.0
Total liabilities and shareholders' equity	$	3,203.8	$	2,551.0


(in millions)	April 1 to December 31, 2020		2021-2022		2023-2024		Thereafter		Total
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 Revolver	14.3		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 Notes	33.0		66.0		66.0		82.5		247.5
Interest on 2028 Senior Notes	11.9		47.5		47.5		83.1		190.0
Operating leases	6.3		10.8		8.4		10.0		35.5
Total	$	76.6	$	191.3	$	560.4	$	1,967.9	$	2,796.2