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, ~~2022~~2023


☐			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 ~~13, 2022~~19, 2023 was ~~38,025,490~~37,433,763 shares.

CHURCHILL DOWNS INCORPORATED

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, ~~2022~~2023


	Part I-FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022	3
	Condensed Consolidated Balance Sheets at March 31, ~~2022~~2023 and December 31, ~~2021~~2022	4
	Condensed Consolidated Statements of Shareholders' Equity for th e the three months ended March 31, ~~2022~~2023 and ~~2021~~2022	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022	6
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2426
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37

	Part II-OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	3938
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	4039
Item 6.	Exhibits	40
	Signatures	41


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended March 31,			Three Months Ended March 31,
(in millions, except per common share data)	(in millions, except per common share data)		2022			2021		(in millions, except per common share data)	2023		2022
Net revenue:	Net revenue:							Net revenue:
Live and Historical Racing	Live and Historical Racing		$	86.0		$	63.2	Live and Historical Racing	$	214.4	$	86.0
TwinSpires	TwinSpires		100.3			103.5		TwinSpires	94.8		100.3
Gaming	Gaming		177.3			152.0		Gaming	250.0		177.3
All Other	All Other		0.5			5.6		All Other	0.3		0.5
Total net revenue	Total net revenue		364.1			324.3		Total net revenue	559.5		364.1
Operating expense:	Operating expense:							Operating expense:
Live and Historical Racing	Live and Historical Racing		67.7			54.7		Live and Historical Racing	143.3		67.7
TwinSpires	TwinSpires		74.9			77.5		TwinSpires	65.7		74.9
Gaming	Gaming		125.2			106.3		Gaming	173.5		125.2
All Other	All Other		3.1			8.8		All Other	5.0		3.1
Selling, general and administrative expense	Selling, general and administrative expense		35.9			30.2		Selling, general and administrative expense	52.3		35.9
Asset impairments	Asset impairments		4.9			—		Asset impairments	—		4.9
Transaction expense, net	Transaction expense, net		5.0			0.1		Transaction expense, net	(0.2)		5.0
Total operating expense	Total operating expense		316.7			277.6		Total operating expense	439.6		316.7
Operating income	Operating income		47.4			46.7		Operating income	119.9		47.4
Other income (expense):	Other income (expense):							Other income (expense):
Interest expense, net	Interest expense, net		(21.3)			(19.4)		Interest expense, net	(64.7)		(21.3)
Equity in income of unconsolidated affiliates	Equity in income of unconsolidated affiliates		32.5			24.9		Equity in income of unconsolidated affiliates	38.3		32.5
Gain on sale of Arlington								Gain on sale of Arlington	114.0		—
Miscellaneous, net	Miscellaneous, net		—			0.1		Miscellaneous, net	1.4		—
Total other income (expense)			11.2			5.6
Total other income								Total other income	89.0		11.2
Income from operations before provision for income taxes	Income from operations before provision for income taxes		58.6			52.3		Income from operations before provision for income taxes	208.9		58.6
Income tax provision	Income tax provision		(16.5)			(16.2)		Income tax provision	(53.2)		(16.5)
Net income	Net income		$	42.1		$	36.1	Net income	$	155.7	$	42.1

Net income per common share data:	Net income per common share data:							Net income per common share data:
Basic net income	Basic net income		$	1.10		$	0.93	Basic net income	$	4.14	$	1.10

Diluted net income	Diluted net income		$	1.08		$	0.91	Diluted net income	$	4.09	$	1.08

Weighted average shares outstanding:	Weighted average shares outstanding:							Weighted average shares outstanding:
Basic	Basic		38.3			39.0		Basic	37.6		38.3
Diluted	Diluted		38.8			39.6		Diluted	38.1		38.8

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


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			3

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in millions)	(in millions)	March 31, 2022		December 31, 2021		(in millions)	March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	294.5	$	291.3	Cash and cash equivalents	$	173.9	$	129.8
Restricted cash	Restricted cash	65.5		64.3		Restricted cash	63.5		74.9
Accounts receivable, net	Accounts receivable, net	46.0		42.3		Accounts receivable, net	74.0		81.5
Income taxes receivable	Income taxes receivable	59.8		66.0		Income taxes receivable	—		14.0
Other current assets	Other current assets	54.5		37.6		Other current assets	66.1		44.3
Total current assets	Total current assets	520.3		501.5		Total current assets	377.5		344.5
Property and equipment, net	Property and equipment, net	1,035.8		994.9		Property and equipment, net	2,095.4		1,978.3
Investment in and advances to unconsolidated affiliates	Investment in and advances to unconsolidated affiliates	655.5		663.6		Investment in and advances to unconsolidated affiliates	651.9		659.4
Goodwill	Goodwill	366.8		366.8		Goodwill	724.1		723.8
Other intangible assets, net	Other intangible assets, net	351.9		348.1		Other intangible assets, net	2,390.6		2,391.8
Other assets	Other assets	18.8		18.9		Other assets	34.0		27.0
Long-term assets held for sale	Long-term assets held for sale	87.8		87.8		Long-term assets held for sale	—		82.0
Total assets	Total assets	$	3,036.9	$	2,981.6	Total assets	$	6,273.5	$	6,206.8

LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	96.9	$	81.6	Accounts payable	$	145.3	$	145.5
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	224.3		232.6		Accrued expenses and other current liabilities	348.2		361.0
Income taxes payable						Income taxes payable	7.6		2.1
Current deferred revenue	Current deferred revenue	104.0		47.7		Current deferred revenue	120.8		39.0
Current maturities of long-term debt	Current maturities of long-term debt	7.0		7.0		Current maturities of long-term debt	72.0		47.0
Dividends payable	Dividends payable	—		26.1		Dividends payable	0.5		27.0

Total current liabilities	Total current liabilities	432.2		395.0		Total current liabilities	694.4		621.6
Long-term debt, net of current maturities and loan origination fees	Long-term debt, net of current maturities and loan origination fees	667.2		668.6		Long-term debt, net of current maturities and loan origination fees	1,872.8		2,081.6
Notes payable, net of debt issuance costs	Notes payable, net of debt issuance costs	1,292.7		1,292.4		Notes payable, net of debt issuance costs	2,477.9		2,477.1
Non-current deferred revenue	Non-current deferred revenue	13.3		13.3		Non-current deferred revenue	11.8		11.8
Deferred income taxes	Deferred income taxes	263.1		252.9		Deferred income taxes	374.0		340.8
Other liabilities	Other liabilities	50.6		52.6		Other liabilities	138.4		122.4
Total liabilities	Total liabilities	2,719.1		2,674.8		Total liabilities	5,569.3		5,655.3
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies
Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Preferred stock	Preferred stock	—		—		Preferred stock	—		—
Common stock	Common stock	—		—		Common stock	4.7		—
Retained earnings	Retained earnings	318.7		307.7		Retained earnings	700.4		552.4
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(0.9)		(0.9)		Accumulated other comprehensive loss	(0.9)		(0.9)
Total shareholders' equity	Total shareholders' equity	317.8		306.8		Total shareholders' equity	704.2		551.5
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	3,036.9	$	2,981.6	Total liabilities and shareholders' equity	$	6,273.5	$	6,206.8

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


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			4

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)


																	Common Stock					Retained Earnings				Accumulated Other Comprehensive Loss					Total Shareholders' Equity
(in millions)																(in millions)	Shares			Amount										Total Shareholders' Equity
Balance, December 31, 2022																Balance, December 31, 2022	37.4			$	—			$	552.4			$	(0.9)				$	551.5
Net income																Net income						155.7									155.7
		Common Stock			Retained Earnings				Accumulated Other Comprehensive Loss					Total Shareholders' Equity
(in millions, except per common share data)		Shares	Amount										Total Shareholders' Equity
Balance, December 31, 2021		38.1	$	—			$	307.7			$	(0.9)						$	306.8
Net income					42.1									42.1
Issuance of common stock		0.1
Repurchase of common stock	Repurchase of common stock	(0.1)	(7.0)		(18.0)									(25.0)		Repurchase of common stock				(3.9)		3.9									—
Taxes paid related to net share settlement of stock awards	Taxes paid related to net share settlement of stock awards	(0.1)			(13.1)									(13.1)		Taxes paid related to net share settlement of stock awards						(11.3)									(11.3)
Stock-based compensation	Stock-based compensation		7.0											7.0		Stock-based compensation				8.6		—									8.6

Balance, March 31, 2022		38.0	$	—	$	318.7			$	(0.9)				$	317.8
Other																Other						(0.3)									(0.3)
Balance, March 31, 2023																Balance, March 31, 2023	37.4			$	4.7	$	700.4			$	(0.9)				$	704.2


		Common Stock			Retained Earnings				Accumulated Other Comprehensive Loss					Total Shareholders' Equity			Common Stock					Retained Earnings			Accumulated Other Comprehensive Loss					Total Shareholders' Equity
(in millions, except per common share data)		Shares	Amount										Total Shareholders' Equity
Balance, December 31, 2020		39.5	$	18.2			$	349.8			$	(0.9)						$	367.1
(in millions)																(in millions)	Shares			Amount				Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
Balance, December 31, 2021																Balance, December 31, 2021	38.1			$	—							$	306.8
Net income	Net income				36.1									36.1		Net income						42.1										42.1
Issuance of common stock	Issuance of common stock	0.1												—		Issuance of common stock	0.1													—
Repurchase of common stock	Repurchase of common stock	(1.0)	(22.0)		(171.9)									(193.9)		Repurchase of common stock	(0.1)			(7.0)		(18.0)								(25.0)
Taxes paid related to net share settlement of stock awards	Taxes paid related to net share settlement of stock awards	(0.1)			(12.6)									(12.6)		Taxes paid related to net share settlement of stock awards	(0.1)					(13.1)								(13.1)
Stock-based compensation	Stock-based compensation		5.5											5.5		Stock-based compensation				7.0										7.0

Balance, March 31, 2021		38.5	$	1.7	$	201.4			$	(0.9)				$	202.2
Balance, March 31, 2022																Balance, March 31, 2022	38.0			$	—	$	318.7		$	(0.9)				$	317.8

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


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			5

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
(in millions)	(in millions)	2022		2021		(in millions)	2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	42.1	$	36.1	Net income	$	155.7	$	42.1

Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	25.1		26.0		Depreciation and amortization	37.9		25.1
Distributions from unconsolidated affiliates	Distributions from unconsolidated affiliates	40.6		22.0		Distributions from unconsolidated affiliates	45.8		40.6
Equity in income of unconsolidated affiliates	Equity in income of unconsolidated affiliates	(32.5)		(24.9)		Equity in income of unconsolidated affiliates	(38.3)		(32.5)
Stock-based compensation	Stock-based compensation	7.0		5.5		Stock-based compensation	8.6		7.0
Deferred income taxes	Deferred income taxes	10.2		5.7		Deferred income taxes	33.2		10.2
Asset impairments	Asset impairments	4.9		—		Asset impairments	—		4.9
Amortization of operating lease assets	Amortization of operating lease assets	1.3		0.2		Amortization of operating lease assets	2.2		1.3
Gain on sale of Arlington						Gain on sale of Arlington	(114.0)		—
Other	Other	1.2		1.2		Other	0.8		1.2
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Income taxes	Income taxes	6.4		9.2		Income taxes	19.9		6.4
Deferred revenue	Deferred revenue	56.3		21.0		Deferred revenue	81.8		56.3
Other assets and liabilities	Other assets and liabilities	(27.4)		2.2		Other assets and liabilities	(17.7)		(27.4)
Net cash provided by operating activities	Net cash provided by operating activities	135.2		104.2		Net cash provided by operating activities	215.9		135.2
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital maintenance expenditures	Capital maintenance expenditures	(10.0)		(4.7)		Capital maintenance expenditures	(11.8)		(10.0)
Capital project expenditures	Capital project expenditures	(45.5)		(7.6)		Capital project expenditures	(122.9)		(45.5)

Proceeds from sale of Arlington						Proceeds from sale of Arlington	195.7		—
Other	Other	(7.3)		—		Other	(6.5)		(7.3)
Net cash used in investing activities		(62.8)		(12.3)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	54.5		(62.8)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from borrowings under long-term debt obligations	Proceeds from borrowings under long-term debt obligations	—		780.8		Proceeds from borrowings under long-term debt obligations	615.5		—
Repayments of borrowings under long-term debt obligations	Repayments of borrowings under long-term debt obligations	(1.8)		(425.7)		Repayments of borrowings under long-term debt obligations	(797.5)		(1.8)
Payment of dividends	Payment of dividends	(25.7)		(24.8)		Payment of dividends	(26.7)		(25.7)
Repurchase of common stock	Repurchase of common stock	(24.3)		(193.9)		Repurchase of common stock	(0.5)		(24.3)

Taxes paid related to net share settlement of stock awards	Taxes paid related to net share settlement of stock awards	(13.1)		(12.6)		Taxes paid related to net share settlement of stock awards	(11.3)		(13.1)
Debt issuance costs	Debt issuance costs	—		(5.8)		Debt issuance costs	(2.5)		—
Change in bank overdraft	Change in bank overdraft	(3.0)		(12.8)		Change in bank overdraft	(14.2)		(3.0)
Other	Other	(0.1)		1.6		Other	(0.5)		(0.1)
Net cash (used in) provided by financing activities		(68.0)		106.8
Cash flows from discontinued operations:
Operating activities of discontinued operations		—		(124.0)
Net cash used in financing activities						Net cash used in financing activities	(237.7)		(68.0)

Net increase in cash, cash equivalents and restricted cash	Net increase in cash, cash equivalents and restricted cash	4.4		74.7		Net increase in cash, cash equivalents and restricted cash	32.7		4.4
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	355.6		121.0		Cash, cash equivalents and restricted cash, beginning of period	204.7		355.6
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	360.0	$	195.7	Cash, cash equivalents and restricted cash, end of period	$	237.4	$	360.0

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


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			6

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)	2022		2021		(in millions)	2023		2022
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	20.7	$	15.4
Income taxes		0.1		0.1
Cash paid for interest						Cash paid for interest	$	55.5	$	20.7
Cash paid for income taxes						Cash paid for income taxes	0.8		0.1
Cash received from income tax refunds						Cash received from income tax refunds	0.7		—
Schedule of non-cash operating, investing and financing activities:	Schedule of non-cash operating, investing and financing activities:					Schedule of non-cash operating, investing and financing activities:

Property and equipment additions included in accounts payable and accrued expenses	Property and equipment additions included in accounts payable and accrued expenses	$	29.9	$	4.2	Property and equipment additions included in accounts payable and accrued expenses	$	54.2	$	29.9
Debt issuance costs included in accrued expense and other current liabilities	Debt issuance costs included in accrued expense and other current liabilities	3.2		—		Debt issuance costs included in accrued expense and other current liabilities	0.7		3.2
Right-of-use assets obtained in exchange for lease obligations in operating leases	Right-of-use assets obtained in exchange for lease obligations in operating leases	0.9		—		Right-of-use assets obtained in exchange for lease obligations in operating leases	0.5		0.9
Right-of-use assets obtained in exchange for lease obligations in finance leases						Right-of-use assets obtained in exchange for lease obligations in finance leases	23.6		—
Repurchase of common stock included in accrued expense and other current liabilities	Repurchase of common stock included in accrued expense and other current liabilities	0.7		—		Repurchase of common stock included in accrued expense and other current liabilities	—		0.7

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


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			7


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

1. DESCRIPTION OF BUSINESS

Basis of Presentation

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, ~~2021 condensed consolidated balance sheet~~2022 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, ~~2021.~~2022.

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 3three reportable segments: 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~~Condensed Consolidated Statements of ~~comprehensive income.~~Comprehensive Income.

~~Segments~~Arlington sale

On February 15, 2023, we closed on the sale of the Arlington International Racecourse property ("Arlington") located in Arlington Heights, Illinois. We sold 326-acres to the Chicago Bears for $197.2 million. For more information, refer to Note 4, Dispositions.

Acquisition of Peninsula Pacific Entertainment

~~During~~On November 1, 2022, the ~~first quarter~~Company completed the acquisition of substantially all of the assets of Peninsula Pacific Entertainment LLC ("P2E") with a base purchase price of $2.75 billion ("P2E Transaction") subject to working capital and other purchase price adjustments.The P2E assets acquired included Colonial Downs Racetrack ("Colonial Downs") and six Historical Racing Machine ("HRM") entertainment venues in Virginia, del Lago Resort & Casino in New York ("del Lago"), and Hard Rock Hotel & Casino in Iowa ("Hard Rock Sioux City"), as well as the development rights for the Dumfries and Emporia HRM facilities in Virginia, up to five additional HRM entertainment venues in Virginia, and the potential for ONE Casino and Resort in Virginia in collaboration with Urban One.

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

Acquisitions of Chasers Poker Room and Ellis Park

On September 2, 2022, the Company completed the acquisition of Chasers Poker Room ("Chasers") in Salem, New Hampshire (the "Chasers Transaction"). As part of the transaction, we made an initial payment to the sellers for rights to operate the poker room and to build an HRM venue. Additional payments will be made once all necessary permits are obtained, and the planned historical racing entertainment venue is opened. The Company plans to develop an expanded charitable gaming facility in Salem to accommodate HRMs and table games.

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

Refer to Note 3, Acquisitions for further information on the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources. Our chief operating decision maker decided to include the results of our United Tote business in the TwinSpires segment as we evolve our strategy to integrate the United Tote offering with TwinSpires Horse Racing, which we believe will create additional business to business revenue opportunities. Results of our United Tote business were previously included in our All Other segment. The prior year results were reclassified to conform to this presentation.transaction.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The COVID-19 global pandemic has resulted in travel limitations and business and government shutdowns which have had significant negative economic impacts in the United States and in relation to our business. Although vaccines are now available, we cannot predict the duration of the COVID-19 global pandemic. The extent to which the COVID-19 pandemic, including the emergence of variant strains, will continue to impact the Company remains uncertain and will depend on many factors that are not within our control. We will continue to monitor for new developments related to the pandemic and assess these developments to maintain continuity in our operations.

Exit of the Direct Online Sports and Casino Business

~~On February 24, 2022 the~~The Company ~~announced plans to exit~~has exited the direct online Sports and Casino ~~business.~~ business in every state except for Arizona.The Company ~~will~~plans to maintain its retail Sports operations and ~~pursue monetization~~has monetized two of its online market access licenses.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			8


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

2. RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements - ~~Effective~~effective in ~~2022~~2023 or ~~Thereafter~~thereafter

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, and ~~simplifies~~to simplify the accounting for transitioning from the London Interbank Offered Rate ~~(LIBOR)~~("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon ~~issuance and if elected, will~~issuance. In December 2022, the FASB deferred the date for which this guidance can be applied ~~prospectively through~~from December 31, ~~2022. We are currently evaluating~~2022 to December 31, 2024. The use of LIBOR was phased out at the ~~effect~~end of 2021, although the ~~adoption~~phase-out of ~~this new accounting standard~~U.S. dollar LIBOR for existing agreements has been delayed until June 2023. The Company will complete the transition of its financing from LIBOR to the Secured Overnight Financing Rate ("SOFR") by June 30, 2023. These transition activities will not have a material impact on ~~our results of operations,~~the Company’s financial ~~condition, and cash flows.~~statements.

3. ~~NATURAL DISASTER~~ACQUISITIONS

Chasers Poker Room

On September 2, 2022, the Company completed the Chasers Transaction which was treated as an asset acquisition because substantially all the value of the gross assets acquired was concentrated in the gaming rights. The Company made an initial payment at closing and recorded a liability for the remaining payments due on a future date. In ~~August 2021, Hurricane Ida caused damage~~conjunction with the acquisition, the Company recorded an $82.2 million gaming rights intangible asset which represented its fair value at the date of acquisition.

The fair value of the gaming rights acquired in the Chasers Transaction was determined using the Greenfield Method, which is an income approach methodology that calculates the present value of the gaming rights intangible asset based on a projected cash flow stream. This method assumes that the gaming rights intangible asset provides the opportunity to ~~portions~~develop a gaming or historical racing facility in a specified region, and that the present value of ~~Louisiana, including Fair Grounds Race Course & Slots,~~the projected cash flows is a result of the realization of advantages contained in these rights. Under this methodology, the acquirer is expected to absorb all start-up costs, as well as incur all expenses pertaining to the acquisition and/or the creation of all tangible and ~~15 off-track betting facilities ("OTBs") owned by Video Services, LLC ("VSI") (collectively, "Fair Grounds~~intangible assets. The estimated future revenue, future operating expenses, start-up costs, and ~~VSI"). NaN OTBs remain closed.~~discount rate were the primary inputs in the valuation. The gaming rights intangible asset was assigned an indefinite useful life based on the Company's expected use of the asset and determination that no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of the gaming rights.

Ellis Park

On September 26, 2022, the Company completed the Ellis Park Transaction for total consideration of $79.0 million in cash, plus $3.5 million in working capital and other preliminary purchase price adjustments. The fair values of the Ellis Park Transaction were based upon preliminary valuations. Estimates and assumptions used in such valuations are subject to change, which could be significant, within the measurement period up to one year from the acquisition date. The areas of the preliminary valuations that are not yet finalized relate to the amounts for income taxes, working capital adjustments and the final amount of residual goodwill. The Company expects to continue to obtain information to assist in determining fair values of net assets acquired at the acquisition date during the measurement period. The preliminary fair values of the assets acquired and liabilities assumed, net of cash acquired of $1.4 million, at the date of acquisition were as follows: property and equipment of $19.3 million, indefinite-lived gaming rights of $47.4 million, indefinite-lived trademark of $3.6 million, goodwill of $9.5 million, and net working capital of $1.3 million.

The Company ~~carries property~~has not included other disclosures regarding the Chasers or Ellis Park Transactions as these transactions are immaterial to our business.

P2E Transaction

On November 1, 2022, the Company completed the acquisition of substantially all the assets of P2E for preliminary purchase consideration of $2,835.9 million, net of cash acquired. The P2E assets acquired included Colonial Downs and ~~casualty insurance,~~six HRM entertainment venues in Virginia, del Lago in New York, and Hard Rock Sioux City in Iowa, as well as ~~business interruption insurance subject~~the development rights for Dumfries and Emporia HRM facilities in Virginia, up to ~~certain deductibles. During~~five additional HRM entertainment venues in Virginia, and the ~~first quarter~~potential for ONE Casino & Resort in Virginia in collaboration with Urban One.

The following table summarizes the preliminary fair value of ~~2022,~~ the ~~Company incurred $2.3~~assets acquired and liabilities assumed, net of cash acquired of $126.4 million, as of ~~operating expenses related to ongoing recovery and~~November 1, 2022:


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			89


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


(in millions)	Total
Accounts receivable, net	$	9.8
Other current assets	7.2
Property and equipment	611.2
Goodwill	347.8
Other intangible assets	1,941.5
Deferred taxes	20.8
Other assets	16.0
Total assets acquired	$	2,954.3

Accounts payable	4.0
Accrued expenses and other current liabilities	96.9
Other liabilities assumed	17.5
Total liabilities assumed	$	118.4
Net assets acquired (net of cash)	$	2,835.9

maintenance efforts and received $0.3 million from our insurance carriers. Through March 31, 2022, the Company has received $3.0 million in insurance recoveries from our insurance carriers and has an insurance recovery receivable of $4.6 million as of March 31, 2022. The Company is currently working with its insurance carriers to finalize its claim. We continue to assess damages and insurance coverage, and we currently do not expect our losses to exceed the applicable insurance recoveries.

~~4. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE~~

~~Discontinued Operations~~

On January 9, 2018, the Company completed the sale of its mobile gaming subsidiary, Big Fish Games, Inc. ("Big Fish Games"). The Big Fish Games business met the criteria for discontinued operation presentation. The condensed consolidated statements of cash flows reflect Big Fish Games as discontinued operations for all periods presented. The Company previously reported combined continuing and discontinued operations in our condensed consolidated statement of cash flows. The Company now separates continuing from discontinued operations in our condensed consolidated statement of cash flows. The prior year results were reclassified to conform to the current period presentation.

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

~~Assets Held for Sale~~

~~On September 29, 2021, the Company announced an agreement to sell the 326-acre property in Arlington Heights, Illinois (the "Arlington Property"), to the Chicago Bears for $197.2 million. The closing~~fair value of the ~~sale~~intangible assets consists of the ~~Arlington Property is subject to~~following:


(in millions)	Fair Value Recognized
Gaming rights	$	1,865.6
Trademark	75.9
Total intangible assets	$	1,941.5

Current assets and current liabilities were valued at the ~~satisfaction of various closing conditions~~existing carrying values, as these items are short term in nature and ~~the Company anticipates closing the sale~~represent management's estimated fair value of the ~~Arlington Property in early 2023.~~respective items at November 1, 2022.

The ~~Company has classified certain assets of Arlington International Racecourse ("Arlington") totaling $81.5 million as held for sale as of March 31, 2022~~property and ~~December 31, 2021, on the accompanying condensed consolidated balance sheets. Arlington’s operations~~equipment acquired primarily relates to land, buildings, equipment, and ~~assets are included in All Other in our consolidated results.~~

~~On November 22, 2021, the Company announced an agreement to sell 115.7 acres of land near Calder Casino~~furniture and ~~Racing ("Calder") for $291.0 million or approximately $2.5 million per acre to Link Logistics Real Estate, a Blackstone portfolio company.~~fixtures. The ~~closing of the sale~~fair value of the land was determined using the market approach and the fair values of the remaining property and equipment were primarily determined using the cost replacement method which is ~~subject~~based on replacement or reproduction costs of the assets.

The fair value of the gaming rights was determined using the Greenfield Method, which is an income approach methodology that calculates the present value of the overall business enterprise based on a projected cash flow stream. This method assumes that the gaming rights intangible assets provide the opportunity to develop a casino or historical racing facility in a specified region, and that the present value of the projected cash flows are a result of the realization of advantages contained in these rights. Under this methodology, the acquirer is expected to absorb all start-up costs, as well as incur all expenses pertaining to the ~~satisfaction~~acquisition and/or the creation of ~~various closing conditions.~~all tangible and intangible assets. The ~~Company anticipates closing~~estimated future revenue and operating expenses, start-up costs, and discount rates were the ~~sale~~primary assumptions and estimates in the valuation of the ~~land~~gaming rights. The gaming rights intangible assets were assigned an indefinite useful life based on the Company's expected use of the assets and determination that no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of the gaming rights.

The trademark intangible assets were valued using the relief-from-royalty method of the income approach, which estimates the fair value of the intangible assets by discounting the fair value of the hypothetical royalty payments a market participant would be willing to pay to enjoy the benefits of the assets. The estimated future revenue, royalty rates, and discount rates were the primary assumptions and estimates in the ~~second quarter~~valuation of ~~2022.~~

~~As of March 31, 2022 and December 31, 2021,~~ the ~~Company has classified certain assets of Calder totaling $6.3 million as held for sale~~trademarks. The trademarks were assigned an indefinite useful life based on the ~~accompanying condensed consolidated balance sheets. Calder's operations and assets are included in Gaming in our consolidated results.~~

~~5. GOODWILL AND OTHER INTANGIBLE ASSETS~~Company’s intention to keep the trademarks for an indefinite period of time.

Goodwill of $347.8 million was ~~$366.8~~recognized due to the expected contribution of P2E to the Company's overall business strategy. The goodwill was assigned to the Gaming segment in the amount of $129.1 million asand to the Live and Historical Racing segment in the amount of ~~March 31, 2022~~$218.7 million and ~~December 31, 2021.~~

~~Other intangible assets are comprised of the following:~~

March 31, 2022 December 31, 2021
(in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Definite-lived intangible assets $ 31.2 $ (20.3) $ 10.9 $ 31.2 $ (19.1) $ 12.1
Indefinite-lived intangible assets 341.0 336.0
Total $ 351.9 $ 348.1

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


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			910


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

Estimates and assumptions used in such valuations are subject to change, which could be significant, within the measurement period up to one year from the acquisition date. The preliminary purchase consideration is subject to adjustment upon finalization of customary post-closing adjustments related to working capital. The primary areas of the preliminary valuation that are not yet finalized relate to the fair values of amounts for income taxes, property and equipment, intangible assets, adjustments to working capital, and the final amount of residual goodwill. The Company expects to continue to obtain information to assist in determining fair values of net assets acquired at the acquisition date during the measurement period.

~~6. ASSET IMPAIRMENTS~~The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the P2E Transaction had occurred as of January 1, 2021. The unaudited pro forma financial information is not necessarily indicative of either future results of operations or results of operations that might have been achieved had the acquisition been consummated as of January 1, 2021.


(in millions)	Three months ended March 31, 2022
Net revenue	$	512.9
Net income	$	41.3

4. DISPOSITIONS

2023 Disposition

On February ~~24, 2022,~~15, 2023, we closed on the ~~Company announced plans~~sale of the Arlington property in Arlington Heights, Illinois, to ~~exit~~ the ~~direct online Sports~~Chicago Bears for $197.2 million. We received net proceeds of $195.7 million for the 326-acres and ~~Casino business.~~recognized a gain of $114.0 million on the sale, which is included in other income in the accompanying Condensed Consolidated Statements of Comprehensive Income. The Company ~~will maintain its retail Sports~~has classified certain assets of Arlington totaling $82.0 million as held for sale as of December 31, 2022 on the accompanying Condensed Consolidated Balance Sheets. Arlington’s operations and ~~pursue monetization~~assets are included in All Other in our consolidated results.

The Company executed a forward like-kind exchange transaction by purchasing certain property as part of ~~its online market access licenses. During~~ the ~~quarter ended~~P2E Transaction for $197.2 million, which qualified as an Internal Revenue Code §1031 transaction. An exchange accommodation titleholder ("EAT"), a type of variable interest entity, was used to facilitate this reverse like-kind exchange. The Company determined that it is the primary beneficiary of the EAT, thus the property held by the EAT has been consolidated and recorded in Property and equipment, net on the Condensed Consolidated Balance Sheets.

As of March 31, 2022, the Company evaluated whether this planned exit would indicate it is more likely than not that any of the Company’s intangible assets, long-lived assets, current assets or property and equipment, were impaired (“Trigger Event”). Based on the Company’s evaluation, the Company concluded that a Trigger Event occurred related to certain TwinSpires assets. As a result,2023, the Company recorded a ~~$4.9~~$27.8 million ~~non-cash impairment charge~~deferred tax liability related to ~~certain assets in~~ the ~~TwinSpires segment.~~Arlington sale on the Condensed Consolidated Balance Sheets.

7.5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill, by segment, is composed of the following:


(in millions)	Live and Historical		TwinSpires		Gaming		All Other		Total
Balances as of December 31, 2022	$	280.3	$	152.2	$	290.3	$	1.0	$	723.8
Adjustments	0.3		—		—		—		0.3
Balances as of March 31, 2023	$	280.6	$	152.2	$	290.3	$	1.0	$	724.1

Other intangible assets are comprised of the following:


	March 31, 2023						December 31, 2022
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Definite-lived intangible assets	$	31.0	$	(22.6)	$	8.4	$	31.0	$	(21.4)	$	9.6
Indefinite-lived intangible assets					2,382.2						2,382.2
Total					$	2,390.6					$	2,391.8


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			11


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

6. INCOME TAXES

The Company’s effective income tax rate for the three months ended March 31, 2023 was higher than the U.S. federal statutory rate of 21.0% primarily resulting from state income taxes and non-deductible officer’s compensation.

The Company’s effective income tax rate for the three months ended March 31, 2022 was higher than the U.S. federal statutory rate of 21.0% primarily resulting from state income taxes and non-deductible officer’s compensation. 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, 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.

8.7. SHAREHOLDERS’ EQUITY

Stock Repurchase Programs

On October 30, 2018, the Board of Directors of the Company approved a common stock repurchase program of up to $300.0 million ("2018 Stock Repurchase Program"). The 2018 Stock Repurchase Program was in effect until September 29, 2021 and had unused authorization of $97.9 million.

On September 29, 2021, the Board of Directors of the Company approved a common stock repurchase program of up to $500.0 million ("2021 Stock Repurchase Program"). The 2021 Stock Repurchase Program includes and is not in addition to any unspent amount remaining under the prior 2018 Stock ~~Purchase~~Repurchase Program authorization. Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The repurchase program has no time limit and may be suspended or discontinued at any time. We had approximately ~~$420.6~~$270.2 million of repurchase authority remaining under the 2021 Stock Repurchase Program at March 31, ~~2022,~~2023, based on trade date.

Three Months Ended March 31,
(in millions, except share data) 2022 2021
Repurchase Program Shares Aggregate Purchase Price Shares Aggregate Purchase Price
2021 Stock Repurchase Program 116,863 $ 25.0 — $ —

~~As of March 31, 2022, we had $0.7 million accrued for~~We repurchased the ~~future cash settlement of executed repurchases of our common stock and no accrual as of March 31, 2021.~~

~~The Duchossois Group Share Repurchase~~

~~On February 1,~~following shares under the 2021 the Company entered into an agreement (the "Stock Repurchase Agreement") with an affiliate of The Duchossois Group, Inc. ("TDG") to repurchase 1,000,000 shares of the Company’s common stock for $193.94 per share in a privately negotiated transaction for an aggregate purchase price of $193.9 million. The repurchase of shares of common stock from TDG pursuant to the Stock Repurchase ~~Agreement was approved by the Company's Board of Directors separately from, and did not reduce the authorized amount remaining under, the existing common stock repurchase program.~~Program:


	Three Months Ended March 31,
(in millions, except share data)	2023			2022
Repurchase Program	Shares	Aggregate Purchase Price		Shares	Aggregate Purchase Price
2021 Stock Repurchase Program	—	$	—	116,863	$	25.0

9.8. 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, restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and stock options associated with our employee stock purchase plan was $8.6 million for the three months ended March 31, 2023 and $7.0 million for the three months ended March 31, 2022.

During the three months ended March 31, 2023, the Company awarded RSUs to employees, RSUs and PSUs to certain named executive officers ("NEOs"), and RSUs to directors. The vesting criteria for the PSU awards granted in 2023 were based on a three-year service period with two performance conditions and a market condition related to relative total shareholder return ("TSR") consistent with prior year grants. The total compensation cost we will recognize under the PSUs is determined using the Monte Carlo valuation methodology, which factors in the value of the TSR market condition when determining the grant date fair value of the PSU. Compensation cost for each PSU is recognized during the performance and service period based on the probable achievement of the two performance criteria. The PSUs are converted into shares of our common stock at the time the PSU award value is finalized.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			1012


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

adopted pursuant to the 2016 Plan. Our total stock-based compensation expense, which includes expenses related to restricted stock awards, restricted stock unit awards ("RSUs"), performance share unit awards, and stock options associated with our employee stock purchase plan was $7.0 million for the three months ended March 31, 2022 and $5.5 million for the three months ended March 31, 2021.

~~During the three months ended March 31, 2022, the Company awarded RSUs to employees and certain named executive officers ("NEOs").~~

A summary of the RSUs and PSUs granted during ~~2022~~2023 is presented below (units in thousands):

Grant Year

Award Type

Number of Units Awarded

Vesting Terms

Grant Year

Award Type

Number of Units Awarded(1)

Vesting Terms

2022

RSU

Vest equally over three service periods ending in 2025

2023

RSU

Vest equally over three service periods ending in 2026

2023

PSU

Three-year performance and service period ending in 2025

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

~~10.~~9. DEBT

The following table presents our total debt outstanding:


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

Term Loan B due 2024	$	379.0	$	380.0
Term Loan B-1 due 2028	294.0		294.7
Term Loan A due 2027	1,283.8		800.0
Revolver	—		664.1
2027 Senior Notes	600.0		600.0
2028 Senior Notes	700.0		700.0
2030 Senior Notes	1,200.0		1,200.0
Total debt	4,456.8		4,638.8
Current maturities of long-term debt	(72.0)		(47.0)
Unamortized premium and deferred finance charges	(34.1)		(33.1)
Total debt, net of current maturities and costs	$	4,350.7	$	4,558.7

Credit Agreement

~~On December 27, 2017, we entered into a~~At March 31, 2023, the Company’s senior secured credit ~~agreement~~facility (as amended from time to time, the ~~"Credit~~“Credit Agreement") ~~with~~consisted of a ~~syndicate of lenders. The Credit Agreement provides for a $700.0 million senior secured~~$1.2 billion revolving credit facility ~~due 2024~~ (the "Revolver") ~~and a~~, $400.0 million senior secured term loan B due 2024 (the "Term Loan B")~~. Included in the maximum borrowing of $700.0~~, $300.0 million ~~under the Revolver is a letter of credit sub facility not to exceed $50.0~~senior secured term loan B-1 due 2028 (the "Term Loan B-1"), $1.3 billion senior secured term loan A due 2027 (the "Term Loan A"), and $100.0 million ~~and a~~ swing line ~~commitment up to a maximum principal amount of $50.0 million. The Credit Agreement is collateralized by substantially all of the wholly-owned assets of the Company.~~

~~On April 28, 2020, the Company entered into a Second Amendment~~commitment. Certain amendments to the Credit Agreement ~~(the "Second Amendment"), which (i) provided for a financial covenant relief period through the date on which the Company delivered the Company's quarterly financial statements~~entered into during 2022 and ~~compliance certificate for the fiscal quarter ended June 30, 2021, subject to certain exceptions (the "Financial Covenant Relief Period"), (ii)~~2023, respectively, are described below.

On April 13, 2022, we amended the definition of "Consolidated EBITDA" in the Credit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extended certain deadlines and made certain other amendments to the Company’s financial reporting obligations, (iv) placed certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amended the definitions of "Material Adverse Effect" and "License Revocation" in the Credit Agreement to ~~take into consideration COVID-19.~~

~~On February 1, 2021,~~extend the ~~Company entered into the Third Amendment~~maturity date of its Revolver to ~~the Credit Agreement~~April 13, 2027, to increase the ~~restricted payments capacity during~~commitments under the ~~Financial Covenant Relief Period~~existing revolving credit facility from ~~$26.0~~$700.0 million to ~~$226.0~~$1.2 billion, and to increase the swing line commitment from $50.0 million to ~~accommodate a share repurchase from an affiliate~~$100.0 million. This amendment also provided for the senior secured Term Loan A due April 13, 2027 in the amount of ~~TDG.~~$800.0 million, which was drawn on November 1, 2022 as part of the financing for the P2E Transaction. Refer to Note ~~8, Shareholders' Equity,~~3, Acquisitions for more information regarding ~~this transaction.~~

~~On March 17, 2021,~~ the Company entered into the Incremental Joinder Agreement No. 1 (the "Joinder") to its Credit Agreement which provided $300.0 million in New Term Loan Commitments ("Term Loan B-1") as a new tranche of term loans under the existing Credit Agreement (as conformed to recognize the new loan), and carries a maturity date of March 17, 2028. The Term Loan B-1 bears interest at LIBOR plus 200 basis points and requires quarterly payments of 0.25% of the original $300.0 million balance. The Term Loan B-1 may be subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the Credit Agreement.P2E Transaction. The Company capitalized ~~$3.5~~$3.2 million of debt issuance costs associated with the ~~Joinder~~Revolver commitment increase and $6.4 million of debt issuance costs associated with the Term Loan A which are being amortized as interest expense over the ~~7-year term~~5-year term.

On February 24, 2023, we amended our Credit Agreement to increase the loans under the existing Term Loan A due 2027 from $800.0 million to $1.3 billion and made certain other changes to the existing credit agreement. The Company used the net proceeds from the borrowings under the increased Term Loan A to repay outstanding loans under its Revolver, pay related transaction fees and expenses and for general corporate purposes. The Company capitalized $2.5 million of debt issuance costs associated with the increased Term Loan A which are being amortized as interest expense over the remainder of the ~~Term Loan B-1.~~5-year term.

The ~~interest rate~~Company is required to pay a commitment fee on the unused portion of the Revolver ~~on March 31, 2022 was LIBOR plus 137.5 basis points~~as determined by a pricing grid based on the consolidated total net secured leverage ratio of the Company. For the period ended March 31, 2023, the Company's commitment fee rate was 0.25%.

The Revolver ~~pricing grid in the Second Amendment~~ and Term Loan A bear interest at SOFR plus 10 basis points, plus a variable applicable margin which is determined by the Company's net leverage ~~ratio as~~ratio. As of March 31, ~~2022.~~2023, that applicable margin was 150 basis points. The Term Loan B and Term Loan B-1 bear interest at LIBOR plus 200 basis points.

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

~~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 $3.4 million of debt issuance costs which are being amortized as interest expense over the term of the Additional


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			1113


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

The phase-out of LIBOR in existing debt agreements is set for June 30, 2023.The Credit Agreement includes a general process for establishing an alternative reference rate to the extent LIBOR is phased out. The Company will complete the transition of its financing from LIBOR to SOFR by June 30, 2023. These transition activities will not have a material impact on the Company’s financial statements.

2027 Senior Notes

~~2028 Notes. Upon completion~~As of ~~this offering, the~~March 31, 2023, we had $600.0 million in aggregate principal amount ~~outstanding~~ of ~~the Existing 2028 Notes, together with the Additional 2028 Notes (collectively the "2028~~5.500% senior unsecured notes that mature on April 1, 2027 (the "2027 Senior Notes")~~, is $700.0 million.~~

. The ~~Additional 2028~~2027 Senior Notes were issued at ~~103.25%~~par in a private offering to qualified institutional buyers, with interest payable in arrears on April 1st and October 1st of each year, commencing on October 1, 2019. The Company may redeem some or all of the 2027 Senior Notes at redemption prices set forth in the 2027 Indenture.

2028 Senior Notes

As of March 31, 2023, we had a total of $700.0 million in aggregate principal amount ~~plus interest deemed to have accrued from~~of 4.750% senior unsecured notes (collectively, the “2028 Senior Notes”) maturing on January 15, ~~2021,~~2028. The 2028 Senior Notes consist of $500.0 million notes issued at par and $200.0 million notes issued at 103.25%. The 2028 Senior Notes were issued in a private offering to qualified institutional buyers, with interest payable in arrears 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.~~2018. The 3.25% premium ~~will be~~is being amortized through interest expense, net over the term of the ~~Additional 2028 Notes.~~

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

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

2030 Senior Notes

As of March 31, 2023, we had $1.2 billion in aggregate principal amount of 5.750% senior unsecured notes that mature on April 13, 2030 (the "2030 Senior Notes"). The 2030 Senior Notes were issued at par in a private offering to qualified institutional buyers, with interest payable in arrears on April 1st and October 1st of each year, commencing on October 1, 2022. In connection with the offering, we capitalized $18.3 million of debt issuance costs which are being amortized as interest expense over the term of the ~~Additional 2028 Notes,~~2030 Senior Notes. The Company held the net proceeds of this transaction of $1.2 billion in escrow until the proceeds were utilized to complete the P2E Transaction on November 1, 2022. The Company ~~and~~may redeem some or all the ~~2028 Guarantors entered into a Registration Rights Agreement to register any 2028~~2030 Senior Notes ~~under~~at redemption prices set forth in the ~~Securities Act for resale that are not freely tradable 366 days from March 17, 2021.~~

~~Refer to Note 18, Subsequent Event, for information regarding the Company's April 2022 financing transactions.~~2030 Indenture.

~~11.~~10. REVENUE FROM CONTRACTS WITH CUSTOMERS

Performance Obligations

As of March 31, ~~2022,~~2023, our Live and Historical Racing segment had remaining performance obligations on contracts with a duration greater than one year relating to television rights, sponsorships, personal seat licenses, and admissions, with an aggregate transaction price of ~~$114.3~~$172.7 million. The revenue we expect to recognize on these remaining performance obligations is ~~$41.6~~$50.2 million for the remainder of ~~2022, $30.1~~2023, $47.5 million in ~~2023, $22.0~~2024, $36.8 million in ~~2024,~~2025, and the remainder thereafter.

As of March 31, ~~2022,~~2023, our remaining performance obligations on contracts with a duration greater than one year in segments other than Live and Historical Racing were not material.

Contract Assets and Contract Liabilities

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, contract assets were not material.

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, contract liabilities were ~~$121.3~~$140.7 million and ~~$64.9~~$58.7 million, respectively, which are included in current deferred revenue, non-current deferred revenue, and accrued expense in the accompanying ~~condensed consolidated balance sheets.~~Condensed Consolidated Balance Sheets. Contract liabilities primarily relate to the Live and Historical Racing segment and the increase was primarily due to cash payments received for unfulfilled performance obligations. We recognized $3.6 million of revenue during the three months ended March 31, 2023, which was included in the contract liabilities balance at December 31, 2022. We recognized $3.2 million of revenue during the three months ended March 31, 2022, which was included in the contract liabilities balance at December 31, 2021. ~~We recognized $2.6 million of revenue during the three months ended March 31, 2021, which was included in the contract liabilities balance at December 31, 2020.~~

Disaggregation of Revenue

~~In Note 17, Segment Information, the~~The Company has included its disaggregated revenue disclosures as follows:

•For the Live and Historical Racing segment, revenue is disaggregated between Churchill Downs Racetrack and historical racing ~~facilities and HRM facilities~~properties given that our racing facilities revenues primarily revolve around live racing events while our ~~HRM facilities~~historical racing properties revenues primarily revolve around historical ~~racing events.~~racing. This segment is also disaggregated by location given the geographic economic factors that affect the revenue of service offerings. Within the Live and


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			14


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

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

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

•For the Gaming segment, revenue is disaggregated by location given the geographic economic factors that affect the revenue of ~~Gaming~~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. The tables below present net revenue from external customers and intercompany revenue from each of our segments:


	Three Months Ended March 31,
(in millions)	2023		2022
Net revenue from external customers:
Live and Historical Racing:
Churchill Downs Racetrack	$	2.4	$	2.0
Louisville	44.0		42.8
Northern Kentucky	26.3		10.8
Southwestern Kentucky	36.5		30.4
Western Kentucky	4.8		—
Virginia	97.7		—
New Hampshire	2.7		—
Total Live and Historical Racing	$	214.4	$	86.0

TwinSpires:	$	94.8	$	100.3

Gaming:
Florida	$	26.1	$	27.0
Iowa	24.5		—
Louisiana	44.1		41.5
Maine	27.7		26.8
Maryland	23.3		21.3
Mississippi	27.5		27.5
New York	44.5		—
Pennsylvania	32.3		33.2
Total Gaming	$	250.0	$	177.3
All Other	0.3		0.5
Net revenue from external customers	$	559.5	$	364.1

Intercompany net revenues:
Live and Historical Racing	$	1.4	$	1.2
TwinSpires	1.6		1.1
Gaming	1.5		1.9
All Other	0.2		—
Eliminations	(4.7)		(4.2)
Intercompany net revenue	$	—	$	—


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			1215


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

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


	Three Months Ended March 31, 2023
(in millions)	Live and Historical Racing		TwinSpires		Gaming		Total Segments		All Other		Total
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing	$	11.0	$	79.4	$	11.6	$	102.0	$	—	$	102.0
Historical racing(a)	185.3		—		6.0		191.3		—		191.3
Racing event-related services	1.0		—		1.9		2.9		—		2.9
Gaming(a)	2.6		4.4		205.5		212.5		—		212.5
Other(a)	14.5		11.0		25.0		50.5		0.3		50.8
Total	$	214.4	$	94.8	$	250.0	$	559.2	$	0.3	$	559.5

~~12. ACCRUED EXPENSES AND~~


	Three Months Ended March 31, 2022
(in millions)	Live and Historical Racing		TwinSpires		Gaming		Total Segments		All Other		Total
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing	$	5.6	$	81.5	$	12.9	$	100.0	$	—	$	100.0
Historical racing(a)	73.6		—		—		73.6		—		73.6
Racing event-related services	0.5		—		0.4		0.9		—		0.9
Gaming(a)	—		10.3		150.9		161.2		—		161.2
Other(a)	6.3		8.5		13.1		27.9		0.5		28.4
Total	$	86.0	$	100.3	$	177.3	$	363.6	$	0.5	$	364.1

(a)Food and beverage, hotel, and other services furnished to customers for free as an inducement to wager or through the redemption of our customers' loyalty points are recorded at the estimated standalone selling prices in Other revenue with a corresponding offset recorded as a reduction in historical racing pari-mutuel revenue for HRMs or gaming revenue for our casino properties. These amounts were $12.1 million for the three months ended March 31, 2023 and $7.0 million for the three months ended March 31, 2022.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			16


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

11. OTHER ~~CURRENT LIABILITIES~~BALANCE SHEET ITEMS

Accounts receivable, net

Accounts receivable is comprised of the following:


(in millions)	March 31, 2023		December 31, 2022
Trade receivables	$	13.2	$	12.5
Simulcast and online wagering receivables	45.0		54.1
Other receivables	20.7		20.6
	78.9		87.2
Allowance for doubtful accounts	(4.9)		(5.7)
Total	$	74.0	$	81.5

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:


(in millions)	(in millions)	March 31, 2022		December 31, 2021		(in millions)	March 31, 2023		December 31, 2022
Account wagering deposits liability	Account wagering deposits liability	$	55.0	$	47.5	Account wagering deposits liability	$	50.7	$	57.8
Accrued salaries and related benefits						Accrued salaries and related benefits	18.8		39.6
Purses payable	Purses payable	26.1		28.6		Purses payable	41.3		46.1
Accrued salaries and related benefits		19.4		39.9
Accrued interest	Accrued interest	23.8		23.9		Accrued interest	58.3		47.8
Accrued fixed assets						Accrued fixed assets	43.6		39.5
Accrued gaming liabilities						Accrued gaming liabilities	26.5		26.3
Other	Other	100.0		92.7		Other	109.0		103.9
Total	Total	$	224.3	$	232.6	Total	$	348.2	$	361.0

~~13.~~12. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Investments in and advances to unconsolidated affiliates as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 primarily consisted of a 61.3% interest in Rivers Casino Des Plaines ("Rivers Des Plaines"), a 50% interest in Miami Valley Gaming and Racing ("MVG"), and other immaterial joint ventures.

Rivers Des Plaines

The ownership of Rivers Des Plaines is comprised of the following: (1) the Company owns 61.3%, (2) High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC, owns 36.0%, and (3) Casino Investors, LLC owns 2.7%. Both the Company and High Plaines have participating rights over Rivers Des Plaines, and both must consent to operating, investing and financing decisions. As a result, we account for Rivers Des Plaines using the equity method. As of March 31, ~~2022,~~2023, the net aggregate basis difference between the Company’s investment in Rivers Des Plaines and the amounts of the underlying equity in net assets was ~~$832.0~~$832.4 million.

Our investment in Rivers Des Plaines was ~~$547.8~~$537.9 million and ~~$554.8~~$544.9 million as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The Company received distributions from Rivers Des Plaines of ~~$30.5~~$33.8 million and ~~$12.0~~$30.5 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

Miami Valley Gaming

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

Our investment in MVG was ~~$107.7~~$113.9 million and ~~$108.7~~$114.4 million as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The Company received distributions from MVG of $12.0 million and $10.0 million for the three months ended March 31, 2023 and 2022, ~~and 2021.~~

~~Summarized Financial Results for our Unconsolidated Affiliates~~

~~Summarized below are the financial results for our unconsolidated affiliates.~~

Three Months Ended March 31,
(in millions) 2022 2021
Net revenue $ 177.2 $ 138.7
Operating and SG&A expense 118.2 85.6
Depreciation and amortization 5.3 4.3
Total operating expense 123.5 89.9
Operating income 53.7 48.8
Interest and other, net 4.1 (4.6)
Net income $ 57.8 $ 44.2
respectively.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			1317


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

Summarized Financial Results for our Unconsolidated Affiliates

(in millions) March 31, 2022 December 31, 2021
Assets
Current assets $ 96.8 $ 96.0
Property and equipment, net 336.4 312.3
Other assets, net 263.5 264.1
Total assets $ 696.7 $ 672.4
Liabilities and Members' Deficit
Current liabilities $ 128.6 $ 95.3
Long-term debt 807.4 786.9
Other liabilities 3.6 20.6
Members' deficit (242.9) (230.4)
Total liabilities and members' deficit $ 696.7 $ 672.4
Summarized below are the financial results for our unconsolidated affiliates.


	Three Months Ended March 31,
(in millions)	2023		2022
Net revenue	$	220.6	$	177.2

Operating and SG&A expense	137.2		118.2
Depreciation and amortization	5.7		5.3
Total operating expense	142.9		123.5
Operating income	77.7		53.7
Interest and other, net	(10.9)		4.1
Net income	$	66.8	$	57.8


(in millions)	March 31, 2023		December 31, 2022
Assets
Current assets	$	103.2	$	91.0
Property and equipment, net	343.9		345.7
Other assets, net	264.4		265.0
Total assets	$	711.5	$	701.7
Liabilities and Members' Deficit
Current liabilities	$	121.8	$	97.9
Long-term debt	838.0		838.6
Other liabilities	0.2		0.2
Members' deficit	(248.5)		(235.0)
Total liabilities and members' deficit	$	711.5	$	701.7

~~14.~~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 money market and 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 2030 Senior Notes, 2028 Senior Notes, and ~~5.50%~~2027 Senior Notes ~~due 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 Term Loan B, Term Loan B-1, Term Loan A, and Revolver under the Credit Agreement approximate the gross carrying value of the variable rate debt and as such are Level 2 measurements.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			1418


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, 2022											March 31, 2023
(in millions)	(in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		(in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:	Financial assets:											Financial assets:
Restricted cash	Restricted cash	$	65.5	$	65.5	$	65.5	$	—	$	—	Restricted cash	$	63.5	$	63.5	$	63.5	$	—	$	—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Term Loan B	Term Loan B	$	380.8	$	383.0	$	—	$	383.0	$	—	Term Loan B	$	377.6	$	379.0	$	—	$	379.0	$	—
Term Loan B-1	Term Loan B-1	293.4		297.0		—		297.0		—		Term Loan B-1	291.0		294.0		—		294.0		—
Term Loan A												Term Loan A	1,276.1		1,283.8		—		1,283.8		—
Revolver												Revolver	—		—		—		—		—
2027 Senior Notes	2027 Senior Notes	594.5		605.3		—		605.3		—		2027 Senior Notes	595.6		585.8		—		585.8		—
2028 Senior Notes	2028 Senior Notes	698.2		679.0		—		679.0		—		2028 Senior Notes	698.5		653.6		—		653.6		—

2030 Senior Notes												2030 Senior Notes	1,183.7		1,155.2		—		1,155.2		—

		December 31, 2021											December 31, 2022
(in millions)	(in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		(in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:	Financial assets:											Financial assets:
Restricted cash	Restricted cash	$	64.3	$	64.3	$	64.3	$	—	$	—	Restricted cash	$	74.9	$	74.9	$	74.9	$	—	$	—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Term Loan B	Term Loan B	$	381.6	$	384.0	$	—	$	384.0	$	—	Term Loan B	$	378.4	$	380.0	$	—	$	380.0	$	—
Term Loan B-1	Term Loan B-1	294.0		297.8		—		297.8		—		Term Loan B-1	291.6		294.8		—		294.8		—
Term Loan A												Term Loan A	794.5		800.0		—		800.0		—
Revolver												Revolver	664.1		664.1		—		664.1		—
2027 Senior Notes	2027 Senior Notes	594.3		619.5		—		619.5		—		2027 Senior Notes	595.3		574.5		—		574.5		—
2028 Senior Notes	2028 Senior Notes	698.1		724.5		—		724.5		—		2028 Senior Notes	698.4		626.5		—		626.5		—
2030 Senior Notes												2030 Senior Notes	1,183.4		1,079.4		—		1,079.4		—

~~15.~~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.

We review all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in the early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated. 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.

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


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			19


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

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

15. 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)	2023		2022
Numerator for basic and diluted net income per common share:
Net income	$	155.7	$	42.1

Denominator for net income per common share:
Basic	37.6		38.3
Plus dilutive effect of stock awards	0.5		0.5
Diluted	38.1		38.8

Net income per common share data:

Basic net income	$	4.14	$	1.10


Diluted net income	$	4.09	$	1.08

16. SEGMENT INFORMATION

We manage our operations through three reportable segments: Live and Historical Racing, TwinSpires, and Gaming. Our operating segments reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources.

•Live and Historical Racing

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

Our Live and Historical Racing properties earn commissions primarily from pari-mutuel wagering on live and historical races; simulcast fees earned from other wagering sites, fees from racing event-related services including admissions, personal seat licenses, sponsorships, television rights, and other miscellaneous services, and revenue from food and beverage services.

•TwinSpires

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

TwinSpires Horse Racing operates the online horse racing wagering business for TwinSpires.com, BetAmerica.com, and other white-label platforms; facilitates high dollar wagering by international customers; and provides the Bloodstock Research Information Services platform for horse racing statistical data.

TwinSpires Sports and Casino includes retail and online sports betting and online casino operations.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			1520


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

~~16. 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) 2022 2021
Numerator for basic and diluted net income per common share:
Net income $ 42.1 $ 36.1
Denominator for net income per common share:
Basic 38.3 39.0
Plus dilutive effect of stock awards 0.5 0.6
Diluted 38.8 39.6
Net income per common share data:
Basic net income $ 1.10 $ 0.93
Diluted net income $ 1.08 $ 0.91

~~17. SEGMENT INFORMATION~~

~~We manage our operations through 3 reportable segments:~~

•~~Live and Historical Racing~~

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

~~Churchill Downs Racetrack is the home of theKentucky Derbyand~~conducts live racing during the year. Derby City Gaming is an historical racing machine ("HRM") 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.

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

•~~TwinSpires~~

~~The TwinSpires segment includes the revenue and expenses for the online horse racing and the retail and online Sports and Casino business.~~

TwinSpires Horse Racing operates online horse racing wagering for TwinSpires.com, BetAmerica.com, and other white-label platforms; facilitates high dollar wagering by international customers (through Velocity); and provides the Bloodstock Research Information Services platform for horse racing statistical data. Also included in TwinSpires Horse Racing is our United Tote business which provides totalisator services to patrons who wager on horse races.

Our TwinSpires Sports and Casino business includes the results of our nine retail sportsbooks at our wholly-owned properties and our casino platform in Pennsylvania.Rivers Des Plaines retail and online ~~sports~~BetRivers sportsbook and ~~casino gaming operations.~~MVG sportsbook results are included in the Gaming segment.

~~Our TwinSpires Sports and Casino business operates our sports betting and casino iGaming platform in multiple states.~~ The TwinSpires Sports and Casino business includes the mobile and online sports betting and casino results and the results of 8 of our retail sportsbooks, which include our wholly-owned properties at Harlow’s Casino Resort and Spa ("Harlow’s"), Presque Isle, Riverwalk Casino Hotel (“Riverwalk”), and Ocean Downs Casino and Racetrack ("Ocean Downs"), as well as in Arizona, Colorado, Indiana and Michigan which utilize a third party's casino license. On February 24, 2022 the Company ~~announced its plans to exit~~exited the direct online Sports and Casino business in every state except Arizona.

United Tote manufactures and ~~pursue monetization of its online market access licenses.~~operates pari-mutuel wagering systems for racetracks, off-track betting facilities ("OTBs") and other pari-mutuel wagering businesses. United Tote provides totalisator services which accumulate wagers, calculate payoffs and displays wagering data to patrons who wager on horse races. United Tote has contracts to provide totalisator services to third-party racetracks, OTBs and other pari-mutuel wagering businesses and also provides these services at our facilities.

•Gaming


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			16


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

The Gaming segment includes revenue and expenses for the casino properties and associated racetrack ~~or jai alai~~ facilities which support the casino ~~license.~~license as applicable. The Gaming segment has approximately ~~11,000~~13,980 slot machines and video lottery terminals ("VLTs") and ~~200~~358 table games located in 8ten states.

The Gaming segment revenue and ~~Adjusted EBITDA~~expenses includes the following properties:

◦•Florida - Calder Casino ("Calder")

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

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

◦▪~~Harlow’s~~Maryland - Ocean Downs Casino & Racetrack ("Ocean Downs")

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

▪Mississippi

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

•Riverwalk Casino Hotel ("Riverwalk")

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

▪Pennsylvania

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

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

◦~~Ocean Downs~~

◦~~Oxford Casino and Hotel ("Oxford")~~

◦~~Presque Isle~~

◦~~Riverwalk~~

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

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

◦•Ohio - 50% equity investment in MVG

The Gaming segment generates revenue and expenses from slot machines, table games, VLTs, video poker, ~~retail sports betting,~~HRMs, 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~~Arlington as well as certain corporate operations, and other immaterial joint ventures in ~~"All Other"~~All Other to reconcile to consolidated ~~results:~~results.

•~~Arlington~~

•~~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. 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, disposition, and ~~land~~property sale related charges;

–Direct online Sports and Casino business exit costs; and


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			21


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

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

•Stock-based compensation expense;

•Rivers Des Plaines' impact on our investments in unconsolidated affiliates from:

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

–Legal reserves and transaction costs;

•Asset impairments;

•Gain on property sales;

•Legal reserves;

•Pre-opening expense; and

•Other charges, recoveries, and expenses

As of December 31, 2021, Arlington ceased racing and simulcast operations ~~given~~and the ~~pending sale of the~~ property was sold on February 15, 2023 to the Chicago Bears. Arlington's ~~operating loss~~results in ~~the current year quarter was~~2022 and 2023 are treated as an adjustment to EBITDA and isare included in ~~Other~~other expenses, net in the Reconciliation of Comprehensive Income to Adjusted ~~EBITDA.~~EBITDA.

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


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			17


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

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~~Consolidated Statements of Comprehensive Income (Loss).

The tables below present net revenue from external customers, Adjusted EBITDA by segment and reconciles comprehensive ~~income.~~income to Adjusted EBITDA:

Net revenue by segment is comprised of the following:


	Three Months Ended March 31,
(in millions)	2023		2022
Live and Historical Racing	$	214.4	$	86.0
TwinSpires	94.8		100.3
Gaming	250.0		177.3
All Other	0.3		0.5
Net Revenue	$	559.5	$	364.1


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			22


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

Adjusted EBITDA by segment is comprised of the following:


	Three Months Ended March 31, 2023
(in millions)	Live and Historical Racing		TwinSpires		Gaming
Revenues	$	215.8	$	96.3	$	251.6

Taxes and purses	(56.5)		(5.0)		(83.6)
Marketing and advertising	(8.2)		(1.4)		(8.6)
Salaries and benefits	(21.8)		(6.2)		(34.5)
Content expense	(1.5)		(43.0)		(1.8)
Selling, general and administrative expense	(8.7)		(2.3)		(12.2)
Other operating expense	(37.0)		(10.0)		(30.0)
Other income	—		1.0		48.6
Adjusted EBITDA	$	82.1	$	29.4	$	129.5


	Three Months Ended March 31, 2022
(in millions)	Live and Historical Racing		TwinSpires		Gaming
Revenues	$	87.2	$	101.4	$	179.2

Taxes and purses	(26.8)		(7.5)		(67.3)
Marketing and advertising	(2.9)		(5.1)		(3.5)
Salaries and benefits	(10.9)		(6.7)		(23.9)
Content expense	(0.6)		(43.1)		(1.5)
Selling, general and administrative expense	(3.3)		(2.6)		(6.6)
Other operating expense	(14.8)		(12.3)		(20.0)
Other income	—		—		34.7
Adjusted EBITDA	$	27.9	$	24.1	$	91.1


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			1823


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

~~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~~is comprised of ~~comprehensive income to Adjusted EBITDA:~~the following:

Three Months Ended March 31,
(in millions) 2022 2021
Net revenue from external customers:
Live and Historical Racing:
Churchill Downs Racetrack $ 2.0 $ 2.0
Derby City Gaming 42.8 32.9
Oak Grove 30.4 19.4
Turfway Park 4.5 4.5
Newport 6.3 4.4
Total Live and Historical Racing 86.0 63.2
TwinSpires:
Horse Racing 90.0 96.5
Sports and Casino 10.3 7.0
Total TwinSpires 100.3 103.5
Gaming:
Fair Grounds and VSI 41.5 38.3
Presque Isle 27.2 23.8
Ocean Downs 21.3 20.0
Calder 27.0 20.9
Oxford 26.8 15.7
Riverwalk 14.4 14.4
Harlow’s 13.1 14.0
Lady Luck Nemacolin 6.0 4.9
Total Gaming 177.3 152.0
All Other 0.5 5.6
Net revenue from external customers $ 364.1 $ 324.3


	Three Months Ended March 31,
(in millions)		2023		2022
Reconciliation of Comprehensive Income to Adjusted EBITDA:

Net income and comprehensive income		$	155.7	$	42.1

Additions:
Depreciation and amortization		37.9		25.1
Interest expense		64.7		21.3
Income tax provision		53.2		16.5
EBITDA		$	311.5	$	105.0

Adjustments to EBITDA:
Stock-based compensation expense		$	8.6	$	7.0

Pre-opening expense		3.2		2.1
Other expenses, net		3.7		2.5
Asset impairments		—		4.9
Transaction expense, net		(0.2)		5.0
Other income, expense:
Interest, depreciation and amortization expense related to equity investments		9.8		11.1
Changes in fair value of Rivers Des Plaines' interest rate swaps		—		(10.4)
Rivers Des Plaines' legal reserves and transaction costs		—		0.3
Other charges and recoveries, net		0.3		1.0
Gain on sale of Arlington		(114.0)		—
Total adjustments to EBITDA		(88.6)		23.5
Adjusted EBITDA		$	222.9	$	128.5

Adjusted EBITDA by segment:
Live and Historical Racing		$	82.1	$	27.9
TwinSpires		29.4		24.1
Gaming		129.5		91.1
Total segment Adjusted EBITDA		241.0		143.1
All Other		(18.1)		(14.6)
Total Adjusted EBITDA		$	222.9	$	128.5

Three Months Ended March 31,
(in millions) 2022 2021
Intercompany net revenue:
Live and Historical Racing $ 1.2 $ 1.5
TwinSpires 1.1 1.5
Gaming 1.9 2.0
All Other — 1.6
Eliminations (4.2) (6.6)
Intercompany net revenue $ — $ —


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			1924


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

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

Three Months Ended March 31, 2022
(in millions) Live and Historical Racing TwinSpires Gaming Total Segments All Other Total
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing $ 5.6 $ 81.5 $ 12.9 $ 100.0 $ — $ 100.0
Historical racing(a)
73.6 — — 73.6 — 73.6
Racing event-related services 0.5 — 0.4 0.9 — 0.9
Gaming(a)
— 10.3 150.9 161.2 — 161.2
Other(a)
6.3 8.5 13.1 27.9 0.5 28.4
Total $ 86.0 $ 100.3 $ 177.3 $ 363.6 $ 0.5 $ 364.1


(in millions)	March 31, 2023		December 31, 2022
Total assets:
Live and Historical Racing	$	3,440.5	$	3,345.4
TwinSpires	279.6		287.9
Gaming	1,818.5		1,824.2
Total segment assets	5,538.6		5,457.5
All Other	734.9		749.3
Total assets	$	6,273.5	$	6,206.8

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 — — 52.9 — 52.9
Racing event-related services — — 0.7 0.7 — 0.7
Gaming(a)
— 7.0 132.5 139.5 — 139.5
Other(a)
4.4 7.3 7.1 18.8 0.5 19.3
Total $ 63.2 $ 103.5 $ 152.0 $ 318.7 $ 5.6 $ 324.3
The table below presents total capital expenditures for each of our segments:


	Three Months Ended March 31,
(in millions)	2023		2022
Capital expenditures:
Live and Historical Racing	$	108.4	$	44.5
TwinSpires	3.0		3.1
Gaming	20.7		7.5
Total segment capital expenditures	132.1		55.1
All Other	2.6		0.4
Total capital expenditures	$	134.7	$	55.5

~~(a) Food~~

17. SUBSEQUENT EVENTS

2031 Senior Notes

On April 25, 2023, the Company completed an offering of $600.0 million in aggregate principal amount of 6.750% senior unsecured notes that mature on April 25, 2031 ("2031 Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and ~~beverage, hotel,~~to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The Company used a portion of the net proceeds from the offering to repay indebtedness outstanding under its Term Loan B Facility due 2024 and to fund related transaction fees and expenses, and intends to use the remainder of the proceeds for working capital and other ~~services furnished~~general corporate purposes.

The 2031 Notes were issued at 100% of the principal amount, plus interest deemed to ~~customers~~have accrued from April 25, 2023, with interest payable in arrears on May 1 and November 1 of each year, commencing on November 1, 2023. The 2031 Notes will vote as one class under the indenture governing the 2031 Senior Notes. The Company may redeem some or all of the 2031 Notes at any time prior to April 25, 2025, at redemption prices set forth in the 2031 Offering Memorandum.

In connection with the issuance of the 2031 Notes, the Company and the guarantors of the 2031 Notes entered into a Registration Rights Agreement to register any 2031 Notes under the Securities Act for ~~free as an inducement~~resale that are not freely tradable 366 days from April 25, 2023.

Two for One Stock Split

At its regularly scheduled meeting held April 25, 2023, the Board of Directors of the Company approved a two-for-one stock split of the Company's common stock and a proportionate increase in the number of its authorized shares of common. The Company expects the additional shares to ~~wager or through~~be distributed on May 19, 2023, and the ~~redemption of our customers' loyalty points are recorded~~stock to begin trading at the estimated standalone selling prices in Other revenue with a corresponding offset recorded as a reduction in historical Pari-mutuel revenue for HRMs or Gaming revenue for our casino properties. These amounts were $7.0 million for the three months ended March 31, 2022 and $3.7 million for the three months ended March 31, 2021.

split-adjusted price starting on May 22, 2023.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			20


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

~~Adjusted EBITDA by segment is comprised of the following:~~
Three Months Ended March 31, 2022
(in millions) Live and Historical Racing TwinSpires Gaming
Net revenue $ 87.2 $ 101.4 $ 179.2
Taxes and purses (26.8) (7.5) (67.3)
Marketing and advertising (2.9) (5.1) (3.5)
Salaries and benefits (10.9) (6.7) (23.9)
Content expense (0.6) (43.1) (1.5)
Selling, general and administrative expense (3.3) (2.6) (6.6)
Other operating expense (14.8) (12.3) (20.0)
Other income — — 34.7
Adjusted EBITDA $ 27.9 $ 24.1 $ 91.1

Three Months Ended March 31, 2021
(in millions) Live and Historical Racing TwinSpires Gaming
Net revenue $ 64.7 $ 105.0 $ 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) (6.2) (19.9)
Content expense (0.6) (46.5) (1.0)
Selling, general and administrative expense (3.0) (2.6) (6.0)
Other operating expense (10.7) (11.7) (15.5)
Other income — — 31.5
Adjusted EBITDA $ 18.3 $ 23.1 $ 82.4


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			21


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

Three Months Ended March 31,
(in millions) 2022 2021
Reconciliation of Comprehensive Income to Adjusted EBITDA:
Net income and comprehensive income $ 42.1 $ 36.1
Additions:
Depreciation and amortization 25.1 26.0
Interest expense 21.3 19.4
Income tax provision 16.5 16.2
EBITDA $ 105.0 $ 97.7
Adjustments to EBITDA:
Stock-based compensation expense $ 7.0 $ 5.5
Pre-opening expense 2.1 0.6
Other expenses, net 2.5 —
Asset impairments 4.9 —
Transaction expense, net 5.0 0.1
Other income, expense:
Interest, depreciation and amortization expense related to equity investments 11.1 9.6
Changes in fair value of Rivers Des Plaines' interest rate swaps (10.4) (4.2)
Rivers Des Plaines' legal reserves and transaction costs 0.3 1.3
Other charges 1.0 —
Total adjustments to EBITDA 23.5 12.9
Adjusted EBITDA $ 128.5 $ 110.6
Adjusted EBITDA by segment:
Live and Historical Racing $ 27.9 $ 18.3
TwinSpires 24.1 23.1
Gaming 91.1 82.4
Total segment Adjusted EBITDA 143.1 123.8
All Other (14.6) (13.2)
Total Adjusted EBITDA $ 128.5 $ 110.6

~~The table below presents information about equity in income of unconsolidated affiliates included in our reported segments:~~
Three Months Ended March 31,
(in millions) 2022 2021
Gaming $ 32.5 $ 24.9


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			22


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

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

(in millions) March 31, 2022 December 31, 2021
Total assets:
Live and Historical Racing $ 719.0 $ 682.7
TwinSpires 286.0 289.6
Gaming 1,003.3 1,003.3
Total segment assets 2,008.3 1,975.6
All Other 1,028.6 1,006.0
Total assets $ 3,036.9 $ 2,981.6

~~The table below presents total capital expenditures for each of our segments:~~
Three Months Ended March 31,
(in millions) 2022 2021
Capital expenditures, net:
Live and Historical Racing $ 44.5 $ 7.8
TwinSpires 3.1 2.4
Gaming 7.5 1.6
Total segment capital expenditures 55.1 11.8
All Other 0.4 0.5
Total capital expenditures $ 55.5 $ 12.3

~~18. SUBSEQUENT EVENT~~

~~April 2022 Financing Transactions~~

On April 13, 2022, the Company announced an amendment of its senior secured credit agreement (the “Credit Agreement Amendment”) to extend the maturity date of its existing revolving credit facility to 2027 and to increase the commitments under the existing revolving credit facility from $700 million to $1,200 million. The Credit Agreement Amendment also provides for a senior secured delayed draw term loan A credit facility due 2027 in the amount of $800 million (the “Delayed Draw Term Loan A”) and makes certain other changes to its existing credit agreement. The interest rate applicable to borrowings on the Revolver and Delayed Draw Term Loan A will be secured financing overnight rate ("SFOR")-based plus a spread, determined by the Company’s and guarantors' leverage ratio. The Company also successfully closed into escrow the previously announced offering of $1,200 million in aggregate principal amount of 5.750% senior notes due 2030.


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			2325

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 / 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:~~following :

•the ~~receipt~~occurrence of ~~regulatory approvals~~extraordinary events, such as terrorist attacks, public health threats, civil unrest, and inclement weather, including as a result of climate change;

•the effect of economic conditions on ~~terms desired~~our consumers' confidence and discretionary spending or ~~anticipated, unanticipated difficulties~~our access to credit, including the impact of inflation;

•additional or ~~expenditures relating to our proposed transactions, including, without limitation, difficulties that result in the failure to realize expected synergies, efficiencies~~increased taxes and cost savings from the proposed transactions within the expected time period (if at all), our ability to obtain financing on the anticipated terms and schedule, disruptions of our or Peninsula Pacific Entertainment LLC's ("P2E") current plans, operations and relationships with customers and suppliers caused by the announcement and pendency of the proposed transaction, our and P2E’s ability to consummate a sale-leaseback transaction with respect to the Hard Rock Sioux City on terms desired or anticipated;fees;

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

•lack of confidence in the ~~occurrence~~integrity of ~~extraordinary events, such as terrorist attacks, public health threats, civil unrest, and inclement weather;~~our core businesses or any deterioration in our reputation;

•loss of key or highly skilled personnel, as well as general disruptions in the ~~effect of economic conditions on our consumers' confidence and discretionary spending or our access to credit;~~general labor market;

•~~additional~~inability to successfully focus on market access and retail operations for our TwinSpires Sports and Casino business and effectively compete;

•online security risk, including cyber-security breaches, or ~~increased taxes and fees;~~loss or misuse of our stored information as a result of a breach, including customers’ personal information, could lead to government enforcement actions or other litigation;

•the impact of significant competition, and the expectation the competition levels will increase;

•changes in consumer preferences, attendance, wagering, and sponsorships;

•~~loss of key or highly skilled personnel;~~

•~~lack of confidence in the integrity of our core businesses or any deterioration in our reputation;~~

•risks associated with equity investments, strategic alliances and other third-party agreements;

•inability to respond to rapid technological changes in a timely manner;

•concentration and evolution of slot machine and historical racing machine ("HRM") manufacturing and other technology conditions that could impose additional costs;

•~~inability~~failure to ~~negotiate~~enter into or maintain agreements with industry constituents, including horsemen and other racetracks;

•inability to successfully focus on market access and retail operations for our TwinSpires Sports and Casino business and effectively compete; online security risk, including cyber-security breaches, or loss or misuse of our stored information as a result of a breach;

•reliance on our technology services and catastrophic events and system failures disrupting our operations;

•inability to identify, complete, or fully realize the benefits of, our proposed acquisitions, divestitures, development of new venues or the expansion of existing facilities on time, on budget, or as planned;

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

•cost overruns and other uncertainties associated with the development of new venues and the expansion of existing facilities;

•general risks related to real estate ownership and significant expenditures, including ~~fluctuations in market values and~~risks related to environmental ~~regulations;~~liabilities;


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			26

•~~reliance on our technology services and catastrophic events and system failures disrupting our operations;~~

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

•personal injury litigation related to injuries occurring at our 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;

•work stoppages and labor issues;


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			24

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

•highly regulated operations and changes in the regulatory environment could adversely affect our business;

•restrictions in our debt facilities limiting our flexibility to operate our business;

•failure to comply with the financial ratios and other covenants in our debt facilities and other indebtedness;

•increase to interest rates (due to inflation or otherwise);

•disruptions in the credit markets or changes to our credit ratings may adversely affect our business; ~~and~~

•increase in our insurance costs, or obtain similar insurance coverage in the future, and inability to recover under our insurance policies for damages sustained at our properties in the event of inclement weather and casualty ~~events.~~events; and

•other factors described in our most recent Annual Report on Form 10-K and in other filings we make with the Securities and Exchange Commission.

We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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, ~~2021,~~2022, 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, 2022~~
			25

~~Our Business~~

~~Executive Overview~~

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

~~Segments~~

During the first quarter of 2022, we updated our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources. Our chief operating decision maker decided to include the results of our United Tote business in the TwinSpires segment as we evolve our strategy to integrate the United Tote offering with TwinSpires Horse Racing, which we believe will create additional business to business revenue opportunities. Results of our United Tote business were previously included in our All Other segment. The prior year results were reclassified to conform to this presentation.

~~P2E Acquisition~~

On February 18, 2022, the Company entered into a definitive purchase agreement to acquire substantially all of the assets of Peninsula Pacific Entertainment LLC ("P2E") for total consideration of $2.485 billion (the "P2E Purchase Agreement") (collectively, the "P2E Transaction"). The P2E Purchase Agreement contemplates the acquisition by the Company of the following properties: Colonial Downs Racetrack in New Kent, Virginia ("Colonial Downs"), six historical racing entertainment venues across Virginia, del Lago Resort & Casino ("del Lago") in Waterloo, New York, and the operations of Hard Rock Hotel & Casino in Sioux City, Iowa (“Hard Rock Sioux City”).

The P2E Transaction is dependent on customary closing conditions, including the Company obtaining approvals from the Virginia Racing Commission, the New York State Gaming Commission, and the Iowa Racing and Gaming Commission. The transaction is expected to close by the end of 2022.

Either the Company or P2E may terminate the P2E Purchase Agreement if the closing has not occurred prior to the date that is nine months after signing the P2E Purchase Agreement (such date being November 18, 2022), subject to the ability of either party to elect to extend such date for an additional four months in certain circumstances. If certain required regulatory approvals are not obtained and the P2E Purchase Agreement is terminated, the Company may have to pay a Regulatory Termination Fee of up to $137.5 million.

~~April 2022 Financing Transactions~~

On April 13, 2022, the Company announced an amendment of its senior secured credit agreement (the “Credit Agreement Amendment”) to extend the maturity date of its existing revolving credit facility to 2027 and to increase the commitments under the existing revolving credit facility from $700 million to $1,200 million. The Credit Agreement Amendment also provides for a senior secured delayed draw term loan A credit facility due 2027 in the amount of $800 million (the “Delayed Draw Term Loan A”) and makes certain other changes to the credit agreement. The interest rate applicable to borrowings on the Revolver and Delayed Draw Term Loan A will be secured financing overnight rate-based plus a spread, determined by the Company’s total net leverage ratio. The Company also successfully closed into escrow the previously announced offering of $1,200 million in aggregate principal amount of 5.750% senior notes due 2030.

~~Chasers Poker Room Acquisition~~

On March 22, 2022, the Company entered into a definitive purchase agreement to acquire Chasers Poker Room ("Chasers") in Salem, New Hampshire. Chasers is a charitable gaming facility located approximately 30 miles from Boston, Massachusetts, that offers poker and a variety of table games. Following the closing of the acquisition, the Company plans to develop an expanded charitable gaming facility in Salem to accommodate historical racing machines. The Company expects the total investment in Salem, inclusive of the Chasers purchase price to be approximately $150 million. The transaction is expected to close during the second quarter of 2022.

~~Impact of COVID-19 Pandemic~~


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			2627

~~economic impacts~~Our Business

Churchill Downs Incorporated ("CDI" or the "Company") has been creating extraordinary entertainment experiences for nearly 150 years, beginning with the Company’s most iconic and enduring asset, the Kentucky Derby. Headquartered in Louisville, Kentucky, CDI has expanded through the ~~United States~~development of live and historical racing entertainment venues, the growth of the TwinSpires horse racing online wagering business and the operation and development of regional casino gaming properties.

We conduct our business through three reportable segments: Live and Historical Racing, TwinSpires, and Gaming. We aggregate our other businesses as well as certain corporate operations, and other immaterial joint ventures, in ~~relation~~All Other. For additional information about our segments, refer to Note 16 - Segment Information, to our ~~business. Although vaccines are now available,~~Condensed Consolidated Financial Statements.

Arlington sale

On February 15, 2023, we ~~cannot predict~~closed on the ~~duration~~sale of the Arlington property in Arlington Heights, Illinois. We sold 326-acres to the Chicago Bears for $197.2 million. The net proceeds of $195.7 million were used to pay down the outstanding balance amount on our Revolver that was drawn on to fund the acquisition of substantially all the assets of Peninsula Pacific Entertainment ("P2E").

Financing Transactions

On February 24, 2023, we entered into an incremental joinder to our senior secured credit agreement to increase the loans under the existing Term Loan A credit facility due 2027 by $500.0 million. This joinder increases the existing Term Loan A credit facility due 2027 from $800.0 million to $1.3 billion and makes certain other changes to the existing credit agreement. The Company used the net proceeds from the borrowings under the increased Term Loan A to repay outstanding loans under its senior secured revolving credit facility, pay related transaction fees and expenses and for general corporate purposes.

On April 25, 2023, we completed an offering of $600.0 million in aggregate principal amount of 6.750% senior unsecured notes that mature in 2031. The Company used a portion of the net proceeds from the offering to repay indebtedness outstanding under its Term Loan B Facility due 2024 and to fund related transaction fees and expenses, and intends to use the remainder of the proceeds for working capital and other general corporate purposes.

Transactions Update

On August 11, 2022, we entered into an agreement to sell 49% of United Tote, a wholly-owned subsidiary of the Company to NYRA Content Management Solutions, LLC, a subsidiary of the New York Racing Association. The transaction is subject to usual and customary closing conditions, including applicable regulatory notices and approvals, and is expected to close during the first half of 2023.

On December 19, 2022, the Company announced that it entered into a definitive agreement under which we would acquire all the outstanding equity interests of Exacta Systems, LLC ("Exacta") for total consideration of $250.0 million in cash (the "Exacta Transaction"). The Exacta Transaction is subject to certain working capital and other purchase price adjustments and is expected to close during 2023.

Impact of the COVID-19 ~~global pandemic.~~ Global Pandemic

The extent to which the COVID-19 pandemic, including the emergence of variant strains, will continue to impact the Company remains uncertain and will depend on many factors that are not within our control. We will continue to monitor for new developments related to the pandemic and assess these developments to maintain continuity in our operations.

~~Asset Impairment~~

On February 24, 2022, the Company announced its plans to exit the direct online sports betting and iGaming business and pursue monetization of its online market access licenses. During the quarter ended March 31, 2022, the Company evaluated whether this planned exit would indicate it is more likely than not that any of the Company’s intangible assets, long-lived assets, current assets or property and equipment, were impaired (“Trigger Event”). Based on the Company’s evaluation, the Company concluded that a Trigger Event occurred related to certain TwinSpires assets. As a result, the Company recorded a $4.9 million non-cash impairment charge related to certain assets in the TwinSpires segment.

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 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, ~~operating~~or more meaningful than, net income ~~as an indicator of performance, as an alternative to cash flows from operating activities~~(as determined in accordance with GAAP) as a measure of ~~liquidity, or as an alternative to any other measure provided in accordance with GAAP.~~our operating results.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			28

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, disposition, and ~~land~~property sale related charges;

•–Direct online Sports and Casino business exit costs; and

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

•Stock-based compensation expense;

•Rivers Des Plaines' impact on our investments in unconsolidated affiliates from:

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

–Legal reserves and transaction costs;

•Asset impairments;

•Gain on property sales;

•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~~Condensed Consolidated Statements of ~~comprehensive income. Refer to~~Comprehensive Income. See the ~~reconciliation~~Reconciliation of ~~comprehensive income~~Comprehensive Income to Adjusted EBITDA included in this section for additional information.


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			27

Governmental Regulations and Legislative Changes

We are subject to various federal, state and international laws and regulations that affect our businesses. The ownership, operation and management of our 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~~The following update on our regulatory and legislative ~~activities disclosed~~actions should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022, including Part I - Item 1, "Business" for a discussion of regulatory and legislative changes.

Specific State Gaming Regulations

Kentucky

In 2023, the Kentucky General Assembly passed a bill to authorize the Kentucky Horse Racing Commission to regulate sports betting. Only licensed racetracks and their extensions can operate retail sports betting. Each track is allowed to contract with up to three providers to carryout online or retail sports betting.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			29

Consolidated Financial Results

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


		Three Months Ended March 31,								Three Months Ended March 31,
(in millions)	(in millions)	2022			2021			Change			(in millions)	2023			2022			Change
Net revenue	Net revenue	$	364.1		$	324.3		$	39.8		Net revenue	$	559.5		$	364.1		$	195.4
Operating income	Operating income	47.4			46.7			0.7			Operating income	119.9			47.4			72.5
Operating income margin	Operating income margin	13		%	14		%				Operating income margin	21		%	13		%

Net income	Net income	42.1			36.1			6.0			Net income	155.7			42.1			113.6
Adjusted EBITDA	Adjusted EBITDA	128.5			110.6			17.9			Adjusted EBITDA	222.9			128.5			94.4

Three Months Ended March 31, ~~2022,~~2023, Compared to Three Months Ended March 31, ~~2021~~2022

•Net revenue increased ~~$39.8~~$195.4 million due to a $25.3 million increase from Gaming primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter; a $22.8 million increase from Live and Historical Racing due to capacity restrictions at the Oak Grove HRM facility and Derby City Gaming in the prior year quarter and overall continued growth in the businesses. Partially offsetting these increases were a $5.1 million decrease in revenue from All Other primarily driven by the cessation of racing and simulcast operations at Arlington at the end of 2021 and a decrease of $3.2 million f~~rom TwinSpires~~ driven by a ~~decrease in Horse Racing handle partially offset by an increase in Sports and Casino due to our expansion in additional states during 2021.~~

•~~Operating income increased $0.7 million due to a $9.8~~$128.4 million increase from Live and Historical Racing primarily due to ~~an increase~~revenue attributable to the properties acquired in ~~net revenue;~~the P2E, Ellis Park and Chasers Transactions, the opening of Turfway Park in September 2022 and continued growth at our Oak Grove property and a ~~$6.4~~$72.7 million increase from Gaming primarily due to our New York and Iowa properties acquired in the ~~increase in net revenue as a result of capacity restrictions on patrons and gaming during the prior year quarter; and a $0.6 million increase from All Other.~~P2E Transaction. Partially offsetting these increases ~~were~~was a ~~$5.7~~$5.5 million ~~increase~~decrease in ~~selling, general and administrative expenses~~TwinSpires primarily due to ~~an increase~~a decrease in ~~employee benefits as well as an increase in legal fees, a $4.9 million increase in transaction expenses driven by the P2E Transaction, a $4.9 asset impairment related to TwinSpires Sports and Casino~~Horse Racing as a ~~result~~higher portion of our patrons returned to wagering at brick-and-mortar facilities instead of wagering online, the ~~decision to~~ exit ~~the~~of our direct online Sports and Casino business in the first quarter of 2022 and a ~~$0.6~~decrease in All Other of $0.2 million.

•Operating income increased $72.5 million ~~decrease at TwinSpires.~~primarily due to a $52.8 million increase in Live and Historical Racing incremental revenue from the P2E properties acquired in Virginia, and a $24.4 million increase in Gaming driven by the P2E acquired properties in New York and Iowa, decreased transaction and impairment costs of $10.1 million, and an increase in TwinSpires of $3.7 million as a result of the exit of our direct online Sports and Casino business. Partially offsetting these increases was a $16.4 million increase in corporate general and administrative expenses driven by the acquisition of P2E and $2.1 million increase in All Other operating income.

•Net income increased ~~$6.0~~$113.6 million. The following items impacted comparability of the Company's ~~first quarter of 2022~~ net income from continuing operations for the three months ended March 31, 2023 compared to three months ended March 31, 2022: a $86.2 million after tax gain on the ~~prior year's first quarter:~~sale of the Arlington property, partially offset by a ~~$6.3~~$1.2 million after-tax net increase in ~~expenses~~adjustments related to our unconsolidated affiliates, transaction, pre-opening and other ~~expenses, net, and a $3.5 million after-tax impairment charge driven by the decision to exit the direct online Sports and Casino business,~~ ~~and $0.7 million of other charges primarily related to our equity portion of Miami Valley Gaming's after-tax non-cash impairment charge related to prior expansion plans.~~ Partially offsetting these increases were a $4.5 million after tax benefit increase related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps and a $0.7 million after tax decrease in Rivers Des Plaines' legal reserves and transaction costs.expenses. Excluding these items, net income increased ~~$11.3~~$28.6 million primarily due to a ~~$12.9~~$60.5 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates, partially offset by a ~~$1.6~~$31.9 million after-tax increase in interest expense associated with higher outstanding debt balances.

•Adjusted EBITDA increased ~~$17.9~~$94.4 million driven by a ~~$9.6~~$54.2 million increase from Live and Historical Racing ~~primarily due an increase~~attributable to the properties acquired in ~~net revenue,~~the P2E, Ellis Park and Chasers Transactions, a ~~$8.7~~$38.4 million increase from Gaming ~~primarily due to certain capacity restrictions on patrons~~driven by the P2E properties acquired in New York and ~~gaming during the prior year quarter,~~Iowa, and a ~~$1.0~~$5.3 million increase from TwinSpires, partially offset by $3.5 million decrease from All Other.

Revenue by Segment

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


	Three Months Ended March 31,				Change
(in millions)	2023		2022
Live and Historical Racing	$	215.8	$	87.2	$	128.6
TwinSpires	96.3		101.4		(5.1)
Gaming	251.6		179.2		72.4
All Other	0.3		0.5		(0.2)
Eliminations	(4.5)		(4.2)		(0.3)
Net Revenue	$	559.5	$	364.1	$	195.4


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			30

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

•Live and Historical Racing revenue increased $128.6 million due to a $97.7 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $15.6 million increase due to the opening of Turfway Park in Northern Kentucky in September 2022, a $7.5 million increase attributable to properties acquired in the Ellis Park and Chasers Transactions, a $6.2 million increase from our Oak Grove property in Southwestern Kentucky, a $1.2 million increase from our Derby City Gaming property in Louisville, and a $0.4 million increase from Churchill Downs Racetrack.

•TwinSpires revenue decreased $5.1 million primarily due to the decision to exit the direct online Sports and Casino business in the first quarter of 2022 which was partially offset by incremental revenue from United Tote.

•Gaming revenue increased $72.4 million primarily due to a ~~decrease~~$69.0 million increase attributable to the New York and Iowa properties acquired in ~~marketing~~the P2E Transaction. Gaming revenue also increased $5.1 million collectively from our properties in Louisiana, Maryland, and ~~promotional activities,~~Maine, partially offset by a decline of $1.7 million from our properties in ~~TwinSpires Horse Racing~~Florida and Pennsylvania.

Consolidated Operating Expense

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


	Three Months Ended March 31,				Change
(in millions)	2023		2022
Taxes and purses	$	145.5	$	101.6	$	43.9
Salaries and benefits	62.9		42.3		20.6
Content expense	42.4		41.3		1.1
Selling, general and administrative expense	52.3		35.9		16.4
Depreciation and amortization	37.9		25.1		12.8
Marketing and advertising	18.0		11.5		6.5
Transaction expense, net	(0.2)		5.0		(5.2)
Asset impairments	—		4.9		(4.9)
Other operating expense	80.8		49.1		31.7
Total expense	$	439.6	$	316.7	$	122.9

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

Significant items affecting comparability of consolidated operating expense include:

•Taxes and purses, salaries and benefits, selling, general and administrative, marketing and advertising, depreciation and amortization, and other operating expenses increased due to the P2E, Ellis Park and Chasers Transactions, as well as the opening of Turfway Park in September of 2022.

•Transaction expenses decreased ~~handle.~~ ~~Partially offsetting these increases was a $1.4~~$5.2 million ~~decrease from All Other primarily~~ due to ~~an increase in Corporate expenses offset by an increase at Arlington, as operations expenses incurred in~~ the ~~previous year~~2022 P2E Transaction.

•Asset impairments decreased $4.9 million due to the first quarter 2022 impairment related to the decision to exit the direct online Sports and Casino business which did not recur.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			28

~~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) 2022 2021 Change
Live and Historical Racing:
Churchill Downs Racetrack $ 2.5 $ 2.6 $ (0.1)
Derby City Gaming 42.8 32.9 9.9
Oak Grove 30.4 19.4 11.0
Newport 6.3 4.4 1.9
Turfway Park 5.2 5.4 (0.2)
Total Live and Historical Racing 87.2 64.7 22.5
TwinSpires:
Horse Racing 91.1 98.0 (6.9)
Sports and Casino 10.3 7.0 3.3
Total TwinSpires 101.4 105.0 (3.6)
Gaming:
Fair Grounds and VSI 43.4 40.3 3.1
Presque Isle 27.2 23.8 3.4
Calder 27.0 20.9 6.1
Ocean Downs 21.3 20.0 1.3
Oxford 26.8 15.7 11.1
Riverwalk 14.4 14.4 —
Harlow's 13.1 14.0 (0.9)
Lady Luck Nemacolin 6.0 4.9 1.1
Total Gaming 179.2 154.0 25.2
All Other 0.5 7.2 (6.7)
Eliminations (4.2) (6.6) 2.4
Net Revenue $ 364.1 $ 324.3 $ 39.8

~~Three Months Ended March~~ 31 ~~2022, Compared to Three Months Ended March 31, 2021~~

•Live and Historical Racing revenue increased $22.5 million due primarily to an $11.0 million increase at Oak Grove, a $9.9 million increase from Derby City Gaming, and a $1.9 million increase from Newport. Oak Grove and Derby City Gaming reflected the benefit of the elimination of the operating restrictions that were in place during the first quarter of 2021 and overall continued growth in the businesses.

•TwinSpires revenue decreased $3.6 million from the prior year quarter primarily due to a $6.9 million decrease from Horse Racing that was partially offset by a $3.3 million increase from Sports and Casino. Horse Racing net revenue decreased as a portion of our patrons returned to wagering at brick-and-mortar facilities in the current quarter instead of wagering online. Sports and Casino net revenue increased as a result of our expansion in additional states during 2021.

•Gaming revenue increased $25.2 million primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter that were no longer in place at Oxford, Calder, and Presque Isle.

•~~All Other revenue decreased $6.7 million primarily as a result of Arlington ceasing racing and simulcast operations at the end of 2021.~~


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			29

~~Consolidated Operating Expense~~

~~The following table is a summary of our consolidated operating expense:~~
Three Months Ended March 31,
(in millions) 2022 2021 Change
Taxes and purses $ 101.6 $ 88.9 $ 12.7
Salaries and benefits 42.3 37.2 5.1
Content expense 41.3 43.1 (1.8)
Selling, general and administrative expense 35.9 30.2 5.7
Depreciation and amortization 25.1 26.0 (0.9)
Marketing and advertising 11.5 12.1 (0.6)
Transaction expense, net 5.0 0.1 4.9
Asset impairments 4.9 — 4.9
Other operating expense 49.1 40.0 9.1
Total expense $ 316.7 $ 277.6 $ 39.1

~~Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021~~

~~Significant items affecting comparability of consolidated operating expense include:~~

•~~Taxes and purses increased $12.7 million primarily driven by the increase in net revenue by our wholly-owned gaming and HRM properties.~~

•~~Salaries and benefits expense increased $5.1 million driven by the capacity restrictions at our gaming properties in the prior year quarter.~~

•~~Content expense decreased $1.8 million primarily due to a decrease in online simulcast host fees in the TwinSpires Horse Racing business.~~

•~~Selling, general and administrative expense increased $5.7 million driven primarily from an increase in employee benefits as well as an increase in legal fees.~~

•~~Depreciation and amortization decreased $0.9 million primarily driven by the assets held for sale at Arlington.~~

•Marketing and advertising expense decreased $0.6 million primarily due to decreased marketing by our TwinSpires Sports and Casino business due to the decision to exit the direct online Sports and Casino business. This decrease was partially offset by increased marketing spend at our gaming properties.

•~~Transaction expense, net increased $4.9 million primarily due to increased legal and professional expenses related to the P2E Transaction.~~

•~~Asset impairments increased $4.9 million due to a non-cash impairment charge related to the Company's plan to exit the direct online Sports and Casino business.~~

•Other operating expenses include maintenance, utilities, food and beverage costs, property taxes, insurance, and other operating expenses. Other operating expense increased $9.1 million primarily driven by significant increases in property insurance, food and beverage costs, and preparation for the running of the 148th Kentucky Oaks and Derby.


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			30

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 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.


		Three Months Ended March 31,						Three Months Ended March 31,		Change
(in millions)	(in millions)	2022		2021		Change			(in millions)			2022		Change
Live and Historical Racing	Live and Historical Racing	$	27.9	$	18.3	$	9.6		Live and Historical Racing	$	82.1	$	27.9
TwinSpires	TwinSpires	24.1		23.1		1.0			TwinSpires	29.4		24.1		5.3
Gaming	Gaming	91.1		82.4		8.7			Gaming	129.5		91.1		38.4
Total Segment Adjusted EBITDA	Total Segment Adjusted EBITDA	143.1		123.8		19.3			Total Segment Adjusted EBITDA	241.0		143.1		97.9
All Other	All Other	(14.6)		(13.2)		(1.4)			All Other	(18.1)		(14.6)		(3.5)
Total Adjusted EBITDA	Total Adjusted EBITDA	$	128.5	$	110.6	$	17.9		Total Adjusted EBITDA	$	222.9	$	128.5	$	94.4

Three Months Ended March 31, ~~2022,~~2023, Compared to Three Months Ended March 31, ~~2021~~2022

•Live and Historical Racing Adjusted EBITDA increased ~~$9.6~~$54.2 million due to a ~~$5.3~~$46.8 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $4.5 million increase due to continued growth at our Oak Grove property in Southwestern Kentucky, and a ~~$5.2~~$2.5 million increase ~~at Derby City Gaming, and a $0.7 million increase at Newport from the increase in net revenue. Partially offsetting these increases was a $1.2 million decrease at Churchill Downs Racetrack~~ due to the ~~timing~~opening of ~~Derby Week expenses and~~Turfway Park in Northern Kentucky in September 2022. The remaining properties contributed a $0.4 million ~~decrease from higher expenses at Turfway Park.~~increase in Adjusted EBITDA..

•TwinSpires Adjusted EBITDA increased ~~$1.0~~$5.3 million primarily due to ~~a $3.7 million increase from our~~the decision to exit the direct online Sports and Casino business ~~due~~in the first quarter of 2022 and incremental revenue from TwinSpires business to ~~decreased marketing~~business agreements, partially offset by higher content related expenses and ~~promotional activities and a $0.6 million increase at United Tote. Partially offsetting these increases was a decrease from Horse Racing of $3.3 million due to the reduction~~advance deposit wagering taxes in ~~net revenue.~~certain jurisdictions.

•Gaming Adjusted EBITDA increased ~~$8.7~~$38.4 million driven by a ~~$5.6~~$26.5 million increase ~~at our wholly-owned Gaming~~attributable to the New York and Iowa properties ~~due to increased net revenue and~~acquired in the P2E Transaction, a ~~$3.1~~$13.5 million increase from our equity investments, ~~both of which were due to certain capacity restrictions on patrons~~ and ~~gaming during the prior year quarter.~~a $0.9 million increase from our properties in Maine, Maryland, and Louisiana. Partially offsetting these increases was a $2.5 million decrease from our properties in Pennsylvania, Florida, and Mississippi.

•All Other Adjusted EBITDA decreased ~~$1.4~~$3.5 million driven primarily by ~~a $2.6 million increase in~~increased corporate compensation related expenses and legal fees and the timing of other Corporate expenses that was partially offset by a $1.2 million decrease in the Arlington operating loss in the current year quarter compared to the prior year quarter as a result of Arlington ceasing racing and simulcast operations at the end of 2021. We are excluding Arlington's operating results from Adjusted EBITDA in 2022 pending the sale of the property to the Chicago Bears.

fees.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			3132

Reconciliation of Comprehensive Income to Adjusted EBITDA


		Three Months Ended March 31,			Three Months Ended March 31,						Change
(in millions)	(in millions)		2022			2021		Change		(in millions)			2022		Change
Net income and comprehensive income	Net income and comprehensive income		$	42.1		$	36.1	$	6.0	Net income and comprehensive income	$	155.7	$	42.1

Additions:	Additions:									Additions:
Depreciation and amortization	Depreciation and amortization		25.1			26.0		(0.9)		Depreciation and amortization	37.9		25.1		12.8
Interest expense	Interest expense		21.3			19.4		1.9		Interest expense	64.7		21.3		43.4
Income tax provision	Income tax provision		16.5			16.2		0.3		Income tax provision	53.2		16.5		36.7
EBITDA	EBITDA		$	105.0		$	97.7	$	7.3	EBITDA	$	311.5	$	105.0	$	206.5

Adjustments to EBITDA:	Adjustments to EBITDA:									Adjustments to EBITDA:
Stock-based compensation expense	Stock-based compensation expense		$	7.0		$	5.5	$	1.5	Stock-based compensation expense	$	8.6	$	7.0	$	1.6

Pre-opening expense	Pre-opening expense		2.1			0.6		1.5		Pre-opening expense	3.2		2.1		1.1
Other expense, net	Other expense, net		2.5			—		2.5		Other expense, net	3.7		2.5		1.2
Asset impairments	Asset impairments		4.9			—		4.9		Asset impairments	—		4.9		(4.9)
Transaction expense, net	Transaction expense, net		5.0			0.1		4.9		Transaction expense, net	(0.2)		5.0		(5.2)
Other income, expense:	Other income, expense:									Other income, expense:
Interest, depreciation and amortization expense related to equity investments	Interest, depreciation and amortization expense related to equity investments		11.1			9.6		1.5		Interest, depreciation and amortization expense related to equity investments	9.8		11.1		(1.3)
Changes in fair value of Rivers Des Plaines' interest rate swaps	Changes in fair value of Rivers Des Plaines' interest rate swaps		(10.4)			(4.2)		(6.2)		Changes in fair value of Rivers Des Plaines' interest rate swaps	—		(10.4)		10.4
Rivers Des Plaines' legal reserves and transactions costs	Rivers Des Plaines' legal reserves and transactions costs		0.3			1.3		(1.0)		Rivers Des Plaines' legal reserves and transactions costs	—		0.3		(0.3)
Other charges	Other charges		1.0			—		1.0		Other charges	0.3		1.0		(0.7)
Gain on sale of Arlington										Gain on sale of Arlington	(114.0)		—		(114.0)
Total adjustments to EBITDA	Total adjustments to EBITDA		23.5			12.9		10.6		Total adjustments to EBITDA	(88.6)		23.5		(112.1)
Adjusted EBITDA	Adjusted EBITDA		$	128.5		$	110.6	$	17.9	Adjusted EBITDA	$	222.9	$	128.5	$	94.4

Consolidated Balance Sheet

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


(in millions)	(in millions)	March 31, 2022		December 31, 2021		Change		(in millions)	March 31, 2023		December 31, 2022		Change
Total assets	Total assets	$	3,036.9	$	2,981.6	$	55.3	Total assets	$	6,273.5	$	6,206.8	$	66.7
Total liabilities	Total liabilities	$	2,719.1	$	2,674.8	$	44.3	Total liabilities	5,569.3		5,655.3		(86.0)
Total shareholders' equity	Total shareholders' equity	$	317.8	$	306.8	$	11.0	Total shareholders' equity	704.2		551.5		152.7

Significant items affecting the comparability of our ~~condensed consolidated balance sheets~~Condensed Consolidated Balance Sheets include:

•Total assets increased ~~$55.3~~$66.7 million ~~driven by a $40.9 million increase in property and equipment~~primarily driven by capital expenditures, ~~at Churchill Downs Racetrack, Turfway Park,~~increased cash and ~~Derby City Gaming;~~ ~~a $16.9 million increase in~~cash equivalents and increased other current assets driven by an increase in prepaid insurance; and a $11.8 million increase in all other assets. Partially offsetting these increases was an $8.1 million decrease in investments in and advances to unconsolidated affiliates driven by distributions received from Rivers Des Plaines and MVG; and a $6.2 million decrease in income tax receivable driveninsurance, partially offset by the ~~current year quarter income tax provision.~~sale of our Arlington property.

•Total liabilities ~~increased $44.3~~decreased $86.0 million primarily driven by a $56.3 million increase in current deferred revenue due to advance sales associated with the 148th Kentucky Oaks and Derby tickets and sponsorships; a $15.3 million increase in accounts payable driven by timingnet pay down of payments; and a $10.5 increase in all other liabilities. Partially offsetting these increases were a $26.1 million decrease in dividends payable due to the payment of our annual dividends; and a $11.7 million decrease in accrued expenses and other liabilities.long-term debt.

•Total shareholders’ equity increased ~~$11.0~~$152.7 million driven by ~~a $42.1 million increase from~~increased current year net income and ~~$7.0 million from~~ stock-based compensation. ~~Partially offsetting this increase were $25.0 million in repurchases~~

Liquidity and Capital Resources

The following table is a summary of ~~common stock~~our liquidity and ~~$13.1 million in taxes paid related to net share settlement of stock awards.~~cash flows:


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			3233


(in millions)	Three Months Ended March 31,				Change
Cash flows from:	2023		2022
Operating activities	$	215.9	$	135.2	$	80.7
Investing activities	54.5		(62.8)		117.3
Financing activities	(237.7)		(68.0)		(169.7)

~~Liquidity and Capital Resources~~

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

(in millions) Three Months Ended March 31,
Cash flows from: 2022 2021 Change
Operating activities $ 135.2 $ 104.2 $ 31.0
Investing activities $ (62.8) $ (12.3) $ (50.5)
Financing activities $ (68.0) $ 106.8 $ (174.8)

Three Months Ended March 31, ~~2022,~~2023, Compared to the Three Months Ended March 31, ~~2021~~2022

•Cash flows from operating activities increased ~~$31.0~~$80.7 million driven by a ~~$35.3~~$77.7 million increase in ~~current deferred revenue mainly due to advance sales associated with the 148th Kentucky Oaks~~operating income and ~~Derby tickets and sponsorships, an $18.6 million increase in~~ distributions from unconsolidated affiliates, ~~and~~ a ~~$0.7~~$25.5 million increase in ~~operating income. Partially offsetting these increases was a $23.6~~deferred revenue due to advanced sales for the 2023 Kentucky Derby, and $12.3 million decrease ~~from~~in cash used for working capital and all ~~other operating activities.~~other. These were partially offset by $34.8 million increased interest paid in 2023. We anticipate that cash flows from operations over the next twelve months will be adequate to fund our business operations and capital expenditures.

•Cash ~~used in~~flows from investing activities increased ~~$50.5~~$117.3 million driven by ~~a $37.9~~the $195.7 million proceeds from the Arlington sale, partially offset by an increase in capital project expenditures in 2023 primarily at Churchill Downs Racetrack and ~~Turfway Park, a $5.3 million increase~~for the Dumfries project in ~~capital maintenance expenditures and a $7.3 million increase from all other investing activities.~~Virginia.

•Cash ~~provided by~~flows from financing activities decreased ~~$174.8~~$169.7 million primarily driven by a ~~$356.9~~$182.0 million ~~decrease~~net pay down of long-term debt in ~~net borrowings from long-term debt.~~ ~~Partially offsetting this decrease was~~ ~~a $169.6 million increase in common~~2023, partially offset by stock ~~repurchases and a $12.5 million decrease from all other financing activities.~~repurchased during 2022.

~~Capital Expenditures~~

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.

We have announced several project capital investments, ~~during the past year,~~ including the following: Churchill Downs Racetrack ~~Homestretch Club~~First Turn Experience and the ~~Turn I Experience,~~Paddock Project, the Derby City Gaming Expansion and Hotel, Derby City Gaming Downtown, ~~Turfway~~the Ellis Park HRM ~~Facility and Grandstand,~~facility in Owensboro, Kentucky, the ~~Queen of~~ Terre Haute Casino Resort in Virgo County, Indiana, a New Hampshire HRM Facility, the Virginia HRM entertainment venues in Dumfries and Emporia, and HRMs in our Louisiana ~~HRMs.~~OTBs. We currently ~~estimate that we will spend between $300 million and $350 million for~~expect our project capital to be approximately $575 to $675 million in ~~2022,~~2023, although this amount may vary significantly based on the timing of work completed, unanticipated delays, and timing of payments to third parties.

Common Stock Repurchase Program

On September 29, 2021, the Board of Directors of the Company approved a common stock repurchase program of up to $500.0 million (“("2021 Stock Repurchase ~~Program”~~Program"). The 2021 Stock Repurchase Program includes and is not in addition to the unspent amount remaining under the prior 2018 Stock Purchase Program authorization. Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The repurchase program has no time limit and may be suspended or discontinued at any time. We ~~have approximately $420.6~~had $270.2 million of repurchase authority remaining under ~~the 2021 Stock Repurchase Program at~~this program on March 31, ~~2022, based on trade date.~~2023.

Credit Facilities and Indebtedness

The following table presents our debt outstanding:


(in millions)	March 31, 2023		December 31, 2022		Change
Revolver	$	—	$	664.1	$	(664.1)
Term Loan B due 2024	379.0		380.0		(1.0)
Term Loan B-1 due 2028	294.0		294.7		(0.7)
Term Loan A due 2027	1,283.8		800.0		483.8
2027 Senior Notes	600.0		600.0		—
2028 Senior Notes	700.0		700.0		—
2030 Senior Notes	1,200.0		1,200.0		—
Total debt	4,456.8		4,638.8		(182.0)
Current maturities of long-term debt	(72.0)		(47.0)		(25.0)
Total debt, net of current maturities	4,384.8		4,591.8		(207.0)
Issuance costs, net of premiums and discounts	(34.1)		(33.1)		(1.0)
Net debt	$	4,350.7	$	4,558.7	$	(208.0)


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			3334

Credit ~~Facilities and Indebtedness~~

~~The following table presents our debt outstanding:~~
(in millions) March 31, 2022 December 31, 2021 Change
Term Loan B due 2024 $ 383.0 $ 384.0 $ (1.0)
Term Loan B-1 due 2028 297.0 297.8 (0.8)
Revolver — — —
2027 Senior Notes 600.0 600.0 —
2028 Senior Notes 700.0 700.0 —
Total debt 1,980.0 1,981.8 (1.8)
Current maturities of long-term debt 7.0 7.0 —
Total debt, net of current maturities 1,973.0 1,974.8 (1.8)
Issuance costs, net of premiums and discounts (13.1) (13.8) 0.7
Net debt $ 1,959.9 $ 1,961.0 $ (1.1)

~~Credit~~ Agreement

~~On December 27, 2017, we entered into a~~At March 31, 2023, the Company’s senior secured credit ~~agreement~~facility (as amended from time to time, the ~~"Credit~~“Credit Agreement") ~~with~~consisted of a ~~syndicate of lenders. The Credit Agreement provides for a $700.0~~$1.2 billion revolving credit facility (the "Revolver"), $400.0 million senior secured ~~revolving credit facility due 2024 (the "Revolver") and a $400.0 million Senior Secured Term Loan~~term loan B due 2024 (the "Term Loan B")~~. Included in the maximum borrowing of $700.0~~, $300.0 million ~~under the Revolver is a letter of credit sub facility not to exceed $50.0~~senior secured term loan B-1 due 2028 (the "Term Loan B-1"), $1.3 billion senior secured term loan A due 2027 (the "Term Loan A"), and $100.0 million ~~and a~~ swing line ~~commitment up to a maximum principal amount of $50.0 million. The Credit Agreement is collateralized by substantially all of the wholly-owned assets of the Company.~~

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

~~On February 1, 2021, the Company~~ entered into ~~the Third Amendment to the Credit Agreement to increase the restricted payments capacity~~ during the Financial Covenant Relief Period from $26.0 million to $226.0 million to accommodate a share repurchase from an affiliate of TDG. Refer to Note 8, Shareholders' Equity, of the Notes to the Condensed Consolidated Financial Statements for information regarding this transaction.

On March 17, 2021, the Company entered into the Incremental Joinder Agreement No. 1 (the "Joinder") to its Credit Agreement which provided $300.0 million in New Term Loan Commitments ("Term Loan B-1") as a new tranche of term loans under the existing Credit Agreement (as conformed to recognize the new loan),2022 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 subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the Credit Agreement. The Company capitalized $3.5 million of debt issuance costs associated with the Joinder which2023, respectively, are ~~being amortized as interest expense over the 7-year term of the Term Loan B-1.~~described below.

On April 13, 2022, ~~the Company entered into~~we amended the Credit Agreement ~~Amendment~~ to extend the maturity date of ~~our existing revolving credit facility~~its Revolver to April 13, 2027, ~~and~~ to increase the commitments under the existing revolving credit facility from ~~$700~~$700.0 million to ~~$1,200~~$1.2 billion, and to increase the swing line commitment from $50.0 million to $100.0 million. ~~The Credit Agreement Amendment~~This amendment also ~~provides~~provided for the ~~Delayed Draw~~senior secured Term Loan A ~~credit facility~~ due April 13, 2027 in the amount of ~~$800 million.~~$800.0 million, which was drawn on November 1, 2022 as part of the financing for the P2E Transaction. Refer to Note 3, Acquisitions to our Condensed Consolidated Financial Statements, for further information regarding the P2E Transaction. The ~~interest rate applicable to borrowings on~~Company capitalized $3.2 million of debt issuance costs associated with the Revolver commitment increase and ~~Delayed Draw~~$6.4 million of debt issuance costs associated with the Term Loan A ~~will be SOFR-based plus~~which are being amortized as interest expense over the 5-year term.

The Company is required to pay a ~~spread,~~commitment fee on the unused portion of the Revolver as determined by ~~the Company’s and the guarantors’ leverage ratio.~~

~~The interest rate on the Revolver on March 31, 2022 was LIBOR plus 138 basis points~~a pricing grid based on the consolidated total net secured leverage ratio of the Company. For the period ended March 31, 2023, the Company's commitment fee rate was 0.25%.

The phase-out of LIBOR in existing debt agreements is set for June 30, 2023.The Credit Agreement ~~contains certain customary affirmative~~includes a general process for establishing an alternative reference rate to the extent LIBOR is phased out. The Company will complete the transition of its financing from LIBOR to SOFR by June 30, 2023. These transition activities will not have a material impact on the Company’s financial statements.

2027 Senior Notes

As of March 31, 2023, we had $600.0 million in aggregate principal amount of 5.500% senior unsecured notes that mature on April 1, 2027 (the "2027 Senior Notes"). The 2027 Senior Notes were issued at par in a private offering to qualified institutional buyers, with interest payable in arrears on April 1st and ~~negative covenants, which include limitations~~October 1st of each year, commencing on ~~liens, investments, indebtedness, dispositions, mergers and acquisitions,~~October 1, 2019. The Company may redeem some or all of the ~~making of restricted payments, changes~~2027 Senior Notes at redemption prices set forth in the ~~nature~~2027 Indenture.

2028 Senior Notes

As of March 31, 2023, we had a total of $700.0 million in aggregate principal amount of 4.750% senior unsecured notes (collectively, the “2028 Senior Notes”) maturing on January 15, 2028. The 2028 Senior Notes consist of $500.0 million notes issued at par and $200.0 million notes issued at 103.25%. The 2028 Senior Notes were issued in a private offering to qualified institutional buyers, with interest payable in arrears on January 15th and July 15th of each year, commencing on July 15, 2018. The 3.25% premium is being amortized through interest expense, net over the term of the notes. The Company may redeem some or all the 2028 Senior Notes at redemption prices set forth in the 2028 Indenture.

2030 Senior Notes

As of March 31, 2023, we had $1.2 billion in aggregate principal amount of 5.750% senior unsecured notes that mature on April 13, 2030 (the "2030 Senior Notes"). The 2030 Senior Notes were issued at par in a private offering to qualified institutional buyers, with interest payable in arrears on April 1st and October 1st of each year, commencing on October 1, 2022. In connection with the offering, we capitalized $18.3 million of debt issuance costs which are being amortized as interest expense over the term of the 2030 Senior Notes. The Company held the net proceeds of this transaction of $1.2 billion in escrow until the proceeds were utilized to complete the P2E Transaction on November 1, 2022. The Company may redeem some or all the 2030 Senior Notes at redemption prices set forth in the 2030 Indenture.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			3435

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.

~~Actual~~

~~Requirement~~

~~Interest coverage ratio~~

~~6.92 to 1.0~~

~~> 2.5 to 1.0~~

~~Consolidated total secured net leverage ratio~~

~~0.52 to 1.0~~

~~< 4.0 to 1.0~~

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

The Term Loan B requires quarterly payments of 0.25% of the original $400.0 million balance, or $1.0 million per quarter. The Term Loan B may be subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the 2017 Credit Agreement. The Company is required to pay a commitment fee on the unused portion of the Revolver determined by a pricing grid based on the consolidated total net leverage ratio of the Company. For the period ended March 31, 2022, the Company's commitment fee rate was 0.20%.

~~2027~~2031 Senior Notes

On ~~March~~April 25, ~~2019, we~~2023, the Company completed an offering of $600.0 million in aggregate principal amount of ~~5.50%~~6.750% Senior Unsecured Notes that mature on April 1, 2027 (the "2027 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 2027 Senior Notes were issued at par, with interest payable on April 1st ~~and October 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 "2027 Guarantors"), and U.S. Bank National Association, as trustee. The Company may redeem some or all of the 2027 Senior Notes at any time at redemption prices set forth in the 2027 Indenture. The terms of the 2027 Indenture, among other things, limit the ability of the Company to: (i) incur additional debt and issue preferred stock; (ii) pay dividends or make other restricted payments; (iii) make certain investments; (iv) create liens; (v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments; (vi) sell assets; (vii) merge or consolidate with other entities; and (viii) enter into transactions with affiliates.

~~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 "Existing 2028 Senior~~2031 ("2031 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 ~~Existing 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 a portion of the net proceeds from the offering to repay ~~a portion of our $600.0 million 5.375% Senior Unsecured Notes. In connection with~~indebtedness outstanding under its Term Loan B Facility due 2024 and to fund related transaction fees and expenses, and intends to use the ~~offering, we capitalized $7.7 million of debt issuance costs which are being amortized as interest expense over the term~~remainder of the ~~Existing 2028 Senior Notes.~~proceeds for working capital and other general corporate purposes.

The Existing 2028 Senior Notes were issued pursuant to an indenture, dated December 27, 2017 (the "2028 Indenture"), among the Company, certain subsidiaries of the Company as guarantors (the "2028 Guarantors"), and U.S. Bank National Association, as trustee. The Company may redeem some or all of the Existing 2028 Senior Notes at any time at redemption prices set forth in the 2028 Indenture. The terms of the 2028 Indenture, among other things, limit the ability of the Company to: (i) incur additional debt and issue preferred stock; (ii) pay dividends or make other restricted payments; (iii) make certain investments; (iv) create liens; (v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments; (vi) sell assets; (vii) merge or consolidate with other entities; and (viii) enter into transactions with affiliates.

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 Existing 2028 Senior Notes and form a part of the same series for purposes of the indenture. In connection with the offering, we capitalized $3.4 million of debt issuance costs which are being amortized as interest expense over the term of the Additional 2028 Notes. Upon completion of this offering, the aggregate principal amount


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			35

~~outstanding of the Existing 2028 Notes, together with the Additional 2028 Notes (collectively the "2028 Senior Notes") is $700 million.~~

~~The Additional 2028~~2031 Notes were issued at ~~103.25%~~100% of the principal amount, plus interest deemed to have accrued from ~~January 15, 2021,~~April 25, 2023, with interest payable in arrears on ~~January 15th~~May 1 and ~~July 15th~~November 1 of each year, commencing on ~~July 15, 2021.~~November 1, 2023. The ~~2028 Senior~~2031 Notes will vote as one class under the indenture governing the ~~2028~~2031 Senior Notes. ~~The 3.25% premium will be amortized through interest expense, net over the term of the Additional 2028 Notes.~~

The Company may redeem some or all of the ~~Additional 2028~~2031 Notes at any time asprior to April 25, 2025, at redemption prices set forth in the ~~2028~~2031 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, ~~2022,~~2023, are estimated as follows:


(in millions)	(in millions)	2022		2023-2024		2025-2026		Thereafter		Total		(in millions)	2023		2024-2025		2026-2027		Thereafter		Total
Term Loan A												Term Loan A	48.8		130.0		1,105.0		—		$	1,283.8
Interest on Term Loan A(1)												Interest on Term Loan A(1)	62.1		153.3		89.3		—		304.7
Term Loan B	Term Loan B	$	3.0	$	380.0	$	—	$	—	$	383.0	Term Loan B	3.0		376.0		—		—		379.0
Interest on Term Loan B(1)	Interest on Term Loan B(1)	6.1		15.9		—		—		22.0		Interest on Term Loan B(1)	19.8		25.8		—		—		45.6
Term Loan B-1	Term Loan B-1	2.3		6.0		6.0		282.7		297.0		Term Loan B-1	2.3		6.0		6.0		279.7		294.0
Interest on Term Loan B-1(1)	Interest on Term Loan B-1(1)	4.8		12.6		12.3		7.3		37.0		Interest on Term Loan B-1(1)	15.3		40.2		39.3		4.1		98.9
Revolver												Revolver	—		—		—		—		—
Interest on Revolver												Interest on Revolver	—		—		—		—		—
2027 Senior Notes	2027 Senior Notes	—		—		—		600.0		600.0		2027 Senior Notes	—		—		600.0		—		600.0
2028 Senior Notes	2028 Senior Notes	—		—		—		700.0		700.0		2028 Senior Notes	—		—		—		700.0		700.0
2030 Senior Notes												2030 Senior Notes	—		—		—		1,200.0		1,200.0
Interest on 2027 Senior Notes	Interest on 2027 Senior Notes	33.0		66.0		66.0		16.5		181.5		Interest on 2027 Senior Notes	33.0		66.0		49.5		—		148.5
Interest on 2028 Senior Notes	Interest on 2028 Senior Notes	16.6		66.5		66.5		49.9		199.5		Interest on 2028 Senior Notes	16.6		66.5		66.5		16.6		166.2
Interest on 2030 Senior Notes												Interest on 2030 Senior Notes	69.0		138.0		138.0		175.0		520.0
Operating and Finance Leases	Operating and Finance Leases	5.3		12.9		11.6		16.0		45.8		Operating and Finance Leases	4.5		10.7		7.5		7.0		29.7
Minimum Guarantees(2)		5.1		4.6		3.6		4.7		18.0
All other												All other	2.5		5.2		5.0		11.6		24.3
Total	Total	$	76.2	$	564.5	$	166.0	$	1,677.1	$	2,483.8	Total	$	276.9	$	1,017.7	$	2,106.1	$	2,394.0	$	5,794.7

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of ~~2.21%~~6.56% which was the rate in place as of March 31, ~~2022.~~

~~(2) Includes the maximum estimated exposure where we are contractually obligated to make future minimum payments.~~2023.

As of March 31, ~~2022,~~2023, we had approximately ~~$3.9~~$5.2 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, inflation, unemployment levels and other changes in the economy. Demand for entertainment and leisure activities is sensitive to consumers’ disposable incomes, which can be adversely affected by economic conditions and unemployment levels. This could result in fewer patrons visiting our racetracks, gaming and wagering facilities, and online wagering sites and/or may impact our customers’ ability to wager with the same frequency and to maintain wagering levels.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2022~~2023
			36

Interest rate and credit risk

Our primary exposure to market risk relates to changes in interest rates. On March 31, ~~2022,~~2023, we had ~~$680.0 million~~$2.0 billion outstanding under our Credit Agreement, ~~related to Term Loans B/B-1,~~ which ~~bear~~bears interest at LIBOR and SOFR based 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 the LIBOR or SOFR rate would reduce net income and cash flows from operating activities by ~~$4.9~~$14.2 million. The phase-out of LIBOR for existing debit agreements is ~~anticipated to be phased out by the end of~~set for June 30, 2023.The Credit Agreement ~~Amendment establishes SOFR as an alternative rate (other than for the Term Loans B/B1, for which~~includes a general process for establishing an alternative reference rate to the extent LIBOR is ~~provided).~~phased out. The ~~impact~~Company is in the process of ~~the use of~~transitioning its financing from LIBOR to alternative reference ~~rates is~~rates. These transition activities are not expected to have a material impact on ~~our exposure to interest rate risk at this time.~~the Company’s financial statements.

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.

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, ~~2022.~~2023. 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, ~~2022~~2023
			37

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The following descriptions include updates since the filing of our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, relating to the proceedings involving the Company. In addition to the matters described below, we are also involved in ordinary routine litigation matters which are incidental to our business. Refer to Note ~~15,~~14, Contingencies, to our ~~condensed consolidated financial statements,~~Condensed Consolidated Financial Statements, for further information.

~~Lassiter v. Kentucky Downs, LLC, et al.~~

On December 18, 2020, Robert and Patricia Lassiter filed 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 motion to dismiss on March 31, 2021. On August 30, 2021, plaintiffs filed a Chapter 13 Bankruptcy Petition with the Western District of Kentucky, and filed a notice of automatic stay in the matter pending against the Company. The Company’s motion to dismiss was remanded because of the automatic stay, which has ended. On February 9, 2022, the Company filed a motion for oral argument on the motions to dismiss. The court granted that motion and oral argument is scheduled for May 11, 2022. The Company intends to defend this matter vigorously and believes that there are meritorious legal and factual defenses against the plaintiffs' allegations and requests for relief.

~~Louisiana 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 ("Fair Grounds") 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. The Louisiana Fourth Circuit Court of Appeals reversed the Louisiana Racing Commission's previous ruling that the plaintiffs did not have standing and remanded the matter to the Louisiana Racing Commission for further proceedings on June 13, 2018.

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. 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 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. Objecting plaintiffs have filed a notice of appeal of the February 2020 Order appointing class counsel and 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. On December 22, 2021, the Fourth Circuit Court of Appeal entered an order affirming the orders of the District Court and approving the settlement. On January 7, 2022, the Fourth Circuit Court of Appeal denied the objectors’ motion for remand and application for rehearing. On February 6, 2022, the objectors filed a writ of certiorari with the Louisiana Supreme Court, which was denied on April 12, 2022.


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			38

Bob Baffert and Bob Baffert Racing Stables, Inc. v. Churchill Downs Incorporated, Bill Carstanjen and Alex Rankin

On February 28, 2022, plaintiffs Bob Baffert and Bob Baffert Racing Stables, Inc. filed a complaint and motion for preliminary injunction against Churchill Downs Incorporated, its Chief Executive Officer Bill Carstanjen, and its Chairman of the Board of Directors Alex Rankin in the U.S. District Court for the Western District of Kentucky, arising out of the Company’s decision to suspend Mr. Baffert from entering horses trained by him at any Company-owned racetrack for a period of two years. The Company’s two-year suspension of Mr. Baffert came after Baffert-trained horse, Medina Spirit, finished first in the ~~147~~th147th running of the Kentucky Derby but subsequently tested positive for betamethasone, a banned race-day substance. Plaintiffs allege that the Company’s decisions to suspend Mr. Baffert from racing at any Company-owned racetrack and to prohibit horses trained by him (or any other suspended trainer) from accumulating Derby-qualifying points were unlawful. Plaintiffs assert claims for (i) violation of the due process clause, (ii) unlawful exclusion, (iii) violations of the federal antitrust laws, (iv) tortious interference with contract, and (v) tortious interference with prospective business advantage.

In addition to and separate from the Company’s suspension of Mr. Baffert, on February 21, 2022, the Kentucky Horse Racing Commission ~~(“KHRC”~~("KHRC") Board of Stewards suspended Mr. Baffert from racing in Kentucky for 90 days and issued a fine to him. The KHRC rejected Mr. Baffert’s requests to stay the suspension. Mr. Baffert unsuccessfully sought judicial intervention relieving him from the KHRC suspension. On March 21, 2022, the Franklin County Circuit Court concluded Mr. Baffert was not entitled to a stay of the KHRC suspension and that he had not satisfied a single element required for a temporary injunction of the KHRC suspension. This decision was affirmed by the Kentucky Court of Appeals on April 1, 2022 in an order denying Mr. Baffert’s motion for emergency relief. After the Kentucky Court of Appeals allowed the KHRC’s 90-day suspension of Mr. Baffert to stand, plaintiffs voluntarily withdrew their motion for preliminary injunction against the Company without prejudice.

On May 2, 2022, the Defendants filed a motion to dismiss plaintiffs’ complaint. Plaintiffs filed a renewed motion for preliminary injunction on December 15, 2022. On February 17, 2023, the Court issued a memorandum opinion and order granting the Company’s motion to dismiss in part, allowing a portion of the due process claim to remain. In the same order, the Court denied Plaintiffs’ motion for preliminary injunction, concluding that Plaintiff had not established irreparable injury and was not likely to succeed on the merits of the remaining claim. On March 14, 2023, the Defendants filed a motion for summary judgment on the remaining claim. The Company, Mr. Carstanjen, and Mr. Rankin intend to defend this matter vigorously and believe that there are meritorious legal and factual defenses against plaintiffs' allegations and requests for relief.

ITEM 1A. RISK FACTORS

There have been no material changes ~~with respect~~ to our risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			38

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, ~~2022:~~2023:
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)
January 2022 —

$ — — $ 445.6
February 2022 58,600

223.98 — 445.6
March 2022 116,975

213.91 116,863 420.6
Total 175,575 $ 217.27 116,863


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)
January 2023	574	$	245.64	—	$	270.2
February 2023	45,398	248.57		—	270.2
March 2023	73	247.65		—	270.2
Total	46,045	$	248.53	—

(1)On September 29, 2021, the Board of Directors of the Company approved a common stock repurchase program of up to $500.0 million. The 2021 ~~stock repurchase program~~Stock Repurchase Program includes and is not in addition to the unspent amount remaining under the prior 2018 ~~stock purchase program~~Stock Repurchase Program authorization. The repurchase program has no time limit and may be suspended or discontinued at any time.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022~~
			39

ITEM 5. OTHER INFORMATION

None.


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
			39

ITEM 6. EXHIBITS

Number

Description

By reference to:

~~2.1~~10.01

~~Purchase~~Incremental Joinder Agreement No. 2, dated ~~as of~~ February ~~18, 2022~~24, 2023, by and ~~between Peninsula Pacific Entertainment Intermediate Holdings LLC and~~among Churchill Downs Incorporated, the credit parties party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as agent

Exhibit ~~2.1~~10.01 to Current Report on Form 8-K filed on February ~~22, 2022~~24, 2023

~~4.1~~10.02

~~Indenture,~~Fifth Amendment to Credit Agreement, dated ~~April 13, 2022,~~March 20, 2023, by and ~~between CDI Escrow Issuer, Inc. and U.S. Bank National Association as trustee~~

~~Exhibit 4.1 to Current Report on Form 8-K filed April 14, 2022~~

~~10.~~1

~~Registration Rights Agreement, dated April 13, 2022, by and between CDI Escrow Issuer, Inc. and J.P. Morgan Securities LLC, as representative of the initial purchasers~~

~~Exhibit 4.2 to Current Report on Form 8-K filed April 14, 2022~~

~~10.~~2

~~Memorandum of Understanding By and Between Austin W. Miller and~~among Churchill Downs Incorporated, ~~dated February 10, 2022~~the other credit parties party hereto and JP Morgan Chase Bank N.A., as agent*

~~Exhibit 10.1 to Current Report on Form 8-K filed February 10, 2022~~

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~~Document*

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document*

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document*

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase ~~Document~~Document*

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document~~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, ~~2022~~2023
			40

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 ~~27, 2022~~26, 2023			/s/ William C. Carstanjen
			William C. Carstanjen
			Chief Executive Officer
			(Principal Executive Officer)



April ~~27, 2022~~26, 2023			/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, ~~2022~~2023
			41


	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		—		—		52.9		—		52.9
Racing event-related services	—		—		0.7		0.7		—		0.7
Gaming(a)	—		7.0		132.5		139.5		—		139.5
Other(a)	4.4		7.3		7.1		18.8		0.5		19.3
Total	$	63.2	$	103.5	$	152.0	$	318.7	$	5.6	$	324.3