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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 September 30, 2023
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission file number 001-33998
Churchill Downs 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 Global Select Market

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 October 19, 2023 was 74,594,820 shares.

CHURCHILL DOWNS INCORPORATED
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2023

| Part I-FINANCIAL INFORMATION |
Item 1. | Financial Statements (Unaudited) |
| Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022 | 3
| Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022 | 4
| Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended September 30, 2023 and 2022 | 5
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 | 6
| Notes to Condensed Consolidated Financial Statements | 8
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 30
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 42
Item 4. | Controls and Procedures | 43
| Part II-OTHER INFORMATION |
Item 1. | Legal Proceedings | 44
Item 1A. | Risk Factors | 44
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 44
Item 3. | Defaults Upon Senior Securities | 44
Item 4. | Mine Safety Disclosures | 44
Item 5. | Other Information | 44
Item 6. | Exhibits | 45
| Signatures | 46

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 2 |

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions, except per common share data) | 2023 |  | 2022 |  | 2023 |  | 2022
Net revenue: |  |  |  |  |  |  |
Live and Historical Racing | $ | 219.5 |  |  | $ | 92.3 |  |  | $ | 818.9 |  |  | $ | 439.2 |
TwinSpires | 108.5 |  |  | 106.2 |  |  | 340.7 |  |  | 343.3 |
Gaming | 244.3 |  |  | 183.4 |  |  | 740.2 |  |  | 545.0 |
All Other | 0.2 |  |  | 1.2 |  |  | 0.7 |  |  | 2.2 |
Total net revenue | 572.5 |  |  | 383.1 |  |  | 1,900.5 |  |  | 1,329.7 |
Operating expense: |  |  |  |  |  |  |
Live and Historical Racing | 158.2 |  |  | 80.1 |  |  | 505.7 |  |  | 269.2 |
TwinSpires | 73.4 |  |  | 64.5 |  |  | 219.8 |  |  | 229.6 |
Gaming | 175.6 |  |  | 133.0 |  |  | 528.3 |  |  | 387.0 |
All Other | 1.3 |  |  | 2.9 |  |  | 12.0 |  |  | 8.8 |
Selling, general and administrative expense | 50.2 |  |  | 38.4 |  |  | 150.6 |  |  | 112.7 |
Asset impairments | — |  |  | — |  |  | 24.5 |  |  | 4.9 |
Transaction expense, net | 1.5 |  |  | 1.2 |  |  | 1.8 |  |  | 7.4 |
Total operating expense | 460.2 |  |  | 320.1 |  |  | 1,442.7 |  |  | 1,019.6 |
Operating income | 112.3 |  |  | 63.0 |  |  | 457.8 |  |  | 310.1 |
Other (expense) income: |  |  |  |  |  |  |
Interest expense, net | (67.9) |  |  | (36.2) |  |  | (197.8) |  |  | (92.6) |
Equity in income of unconsolidated affiliates | 33.3 |  |  | 42.4 |  |  | 110.4 |  |  | 115.4 |
Gain on sale of assets | — |  |  | — |  |  | 114.0 |  |  | 274.6 |
Miscellaneous, net | 4.1 |  |  | 4.2 |  |  | 5.5 |  |  | 4.4 |
Total other (expense) income | (30.5) |  |  | 10.4 |  |  | 32.1 |  |  | 301.8 |
Income from operations before provision for income taxes | 81.8 |  |  | 73.4 |  |  | 489.9 |  |  | 611.9 |
Income tax provision | (20.8) |  |  | (16.4) |  |  | (130.2) |  |  | (173.5) |
Net income | $ | 61.0 |  |  | $ | 57.0 |  |  | $ | 359.7 |  |  | $ | 438.4 |
Net income per common share data: |  |  |  |  |  |  |
Basic net income | $ | 0.81 |  |  | $ | 0.75 |  |  | $ | 4.78 |  |  | $ | 5.76 |
Diluted net income | $ | 0.79 |  |  | $ | 0.74 |  |  | $ | 4.69 |  |  | $ | 5.68 |
Weighted average shares outstanding: |  |  |  |  |  |  |
Basic | 75.2 |  |  | 75.6 |  |  | 75.3 |  |  | 76.1 |
Diluted | 77.1 |  |  | 76.7 |  |  | 76.7 |  |  | 77.2 |

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 3 |

CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(in millions) | September 30, 2023 |  | December 31, 2022
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 129.9 |  |  | $ | 129.8 |
Restricted cash | 63.3 |  |  | 74.9 |
Accounts receivable, net | 102.2 |  |  | 81.5 |
Income taxes receivable | 5.9 |  |  | 14.0 |
Other current assets | 69.3 |  |  | 44.3 |
Total current assets | 370.6 |  |  | 344.5 |
Property and equipment, net | 2,383.6 |  |  | 1,978.3 |
Investment in and advances to unconsolidated affiliates | 660.1 |  |  | 659.4 |
Goodwill | 899.9 |  |  | 723.8 |
Other intangible assets, net | 2,417.3 |  |  | 2,391.8 |
Other assets | 19.0 |  |  | 27.0 |
Long-term assets held for sale | — |  |  | 82.0 |
Total assets | $ | 6,750.5 |  |  | $ | 6,206.8 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 169.0 |  |  | $ | 145.5 |
Accrued expenses and other current liabilities | 401.4 |  |  | 363.1 |
Current deferred revenue | 30.5 |  |  | 39.0 |
Current maturities of long-term debt | 68.0 |  |  | 47.0 |
Dividends payable | 1.0 |  |  | 27.0 |
Total current liabilities | 669.9 |  |  | 621.6 |
Long-term debt, net of current maturities and loan origination fees | 1,585.0 |  |  | 2,081.6 |
Notes payable, net of debt issuance costs | 3,069.8 |  |  | 2,477.1 |
Non-current deferred revenue | 9.5 |  |  | 11.8 |
Deferred income taxes | 386.1 |  |  | 340.8 |
Other liabilities | 141.5 |  |  | 122.4 |
Total liabilities | 5,861.8 |  |  | 5,655.3 |
Commitments and contingencies |  |  |
Shareholders' equity: |  |  |
Preferred stock | — |  |  | — |
Common stock | — |  |  | — |
Retained earnings | 889.6 |  |  | 552.4 |
Accumulated other comprehensive loss | (0.9) |  |  | (0.9) |
Total shareholders' equity | 888.7 |  |  | 551.5 |
Total liabilities and shareholders' equity | $ | 6,750.5 |  |  | $ | 6,206.8 |

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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) | Shares |  | Amount |  |  |  |
Balance, December 31, 2022 | 74.8 |  | $ | — |  |  | $ | 552.4 |  |  | $ | (0.9) |  |  |  |  | $ | 551.5 |
Net income |  |  |  |  | 155.7 |  |  |  |  |  |  | 155.7 |
Issuance of common stock | 0.2 |  |  |  |  |  |  |  |  |  |  | — |
Taxes paid related to net share settlement of stock awards | (0.1) |  |  | (8.6) |  |  | (2.7) |  |  |  |  |  |  | (11.3) |
Stock-based compensation |  |  | 8.6 |  |  |  |  |  |  |  |  | 8.6 |
Other |  |  |  |  | (0.3) |  |  |  |  |  |  | (0.3) |
Balance, March 31, 2023 | 74.9 |  | — |  |  | 705.1 |  |  | (0.9) |  |  |  |  | 704.2 |
Net income |  |  |  |  | 143.0 |  |  |  |  |  |  | 143.0 |
Taxes paid related to net share settlement of stock awards |  |  | (0.1) |  |  |  |  |  |  |  |  | (0.1) |
Stock-based compensation |  |  | 8.1 |  |  |  |  |  |  |  |  | 8.1 |
Other |  |  |  |  | (1.4) |  |  |  |  |  |  | (1.4) |
Balance, June 30, 2023 | 74.9 |  | 8.0 |  |  | 846.7 |  |  | (0.9) |  |  |  |  | 853.8 |
Net income |  |  |  |  | 61.0 |  |  |  |  |  |  | 61.0 |
Issuance of common stock |  |  | 3.1 |  |  |  |  |  |  |  |  | 3.1 |
Repurchase of common stock | (0.3) |  |  | (19.2) |  |  | (18.1) |  |  |  |  |  |  | (37.3) |
Stock-based compensation |  |  | 8.1 |  |  |  |  |  |  |  |  | 8.1 |
Balance, September 30, 2023 | 74.6 |  | $ | — |  |  | $ | 889.6 |  |  | $ | (0.9) |  |  |  |  | $ | 888.7 |

| Common Stock |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  |  |  | Total Shareholders' Equity
(in millions) | Shares |  | Amount |  |  |  |
Balance, December 31, 2021 | 76.2 |  |  | $ | — |  |  | $ | 307.7 |  |  | $ | (0.9) |  |  |  |  | $ | 306.8 |
Net income |  |  |  |  | 42.1 |  |  |  |  |  |  | 42.1 |
Issuance of common stock | 0.2 |  |  |  |  |  |  |  |  |  |  | — |
Repurchase of common stock | (0.2) |  |  | (7.0) |  |  | (18.0) |  |  |  |  |  |  | (25.0) |
Taxes paid related to net share settlement of stock awards | (0.2) |  |  |  |  | (13.1) |  |  |  |  |  |  | (13.1) |
Stock-based compensation |  |  | 7.0 |  |  |  |  |  |  |  |  | 7.0 |
Balance, March 31, 2022 | 76.0 |  | — |  |  | 318.7 |  |  | (0.9) |  |  |  |  | 317.8 |
Net income |  |  |  |  | 339.3 |  |  |  |  |  |  | 339.3 |
Repurchase of common stock | (0.6) |  |  | (7.4) |  |  | (54.1) |  |  |  |  |  |  | (61.5) |
Taxes paid related to net share settlement of stock awards |  |  |  |  | (0.1) |  |  |  |  |  |  | (0.1) |
Stock-based compensation |  |  | 7.4 |  |  |  |  |  |  |  |  | 7.4 |
Balance, June 30, 2022 | 75.4 |  | — |  |  | 603.8 |  |  | (0.9) |  |  |  |  | 602.9 |
Net income |  |  |  |  | 57.0 |  |  |  |  |  |  | 57.0 |
Issuance of common stock |  |  | 2.7 |  |  |  |  |  |  |  |  | 2.7 |
Repurchase of common stock | (0.6) |  |  | (11.8) |  |  | (47.2) |  |  |  |  |  |  | (59.0) |
Stock-based compensation |  |  | 9.1 |  |  |  |  |  |  |  |  | 9.1 |
Balance, September 30, 2022 | 74.8 |  | $ | — |  |  | $ | 613.6 |  |  | $ | (0.9) |  |  |  |  | $ | 612.7 |

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 5 |

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

| Nine Months Ended September 30, |
(in millions) | 2023 |  | 2022 |
Cash flows from operating activities: |  |  |  |
Net income | $ | 359.7 |  |  | $ | 438.4 |  |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
Depreciation and amortization | 121.8 |  |  | 78.7 |  |
Distributions from unconsolidated affiliates | 126.6 |  |  | 117.9 |  |
Equity in income of unconsolidated affiliates | (110.4) |  |  | (115.4) |  |
Stock-based compensation | 24.8 |  |  | 23.5 |  |
Deferred income taxes | 45.3 |  |  | 26.7 |  |
Asset impairments | 24.5 |  |  | 4.9 |  |
Amortization of operating lease assets | 4.8 |  |  | 3.9 |  |
Gain on sale of assets | (114.0) |  |  | (274.6) |  |
Other | 6.5 |  |  | 5.8 |  |
Changes in operating assets and liabilities: |  |  |  |
Income taxes | 6.0 |  |  | 127.3 |  |
Deferred revenue | (10.8) |  |  | (34.6) |  |
Other assets and liabilities | 14.0 |  |  | 22.0 |  |
Net cash provided by operating activities | 498.8 |  |  | 424.5 |  |
Cash flows from investing activities: |  |  |  |
Capital maintenance expenditures | (52.4) |  |  | (37.1) |  |
Capital project expenditures | (445.7) |  |  | (226.6) |  |
Acquisition of businesses, net of cash acquired | (241.3) |  |  | (81.7) |  |
Acquisition of gaming rights, net of cash acquired | — |  |  | (33.3) |  |
Proceeds from sale of assets | 195.7 |  |  | 279.0 |  |
Other | (5.8) |  |  | (7.3) |  |
Net cash used in investing activities | (549.5) |  |  | (107.0) |  |
Cash flows from financing activities: |  |  |  |
Proceeds from borrowings under long-term debt obligations | 1,420.8 |  |  | 1,220.0 |  |
Repayments of borrowings under long-term debt obligations | (1,297.1) |  |  | (5.3) |  |
Payment of dividends | (26.8) |  |  | (25.7) |  |
Repurchase of common stock | (35.8) |  |  | (143.5) |  |
Taxes paid related to net share settlement of stock awards | (13.2) |  |  | (13.2) |  |
Debt issuance costs | (12.3) |  |  | (12.8) |  |
Change in bank overdraft | 1.4 |  |  | (1.8) |  |
Other | 1.7 |  |  | 2.4 |  |
Net cash provided by financing activities | 38.7 |  |  | 1,020.1 |  |
Cash flows from discontinued operations: |  |  |  |
Operating activities of discontinued operations | 0.5 |  |  | — |  |
Net (decrease) increase in cash, cash equivalents and restricted cash | (11.5) |  |  | 1,337.6 |  |
Cash, cash equivalents and restricted cash, beginning of period | 204.7 |  |  | 355.6 |  |
Cash, cash equivalents and restricted cash, end of period | $ | 193.2 |  |  | $ | 1,693.2 |  |

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 6 |

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

| Nine Months Ended September 30,
(in millions) | 2023 |  | 2022
Supplemental disclosures of cash flow information: |  |  |
Cash paid for interest | $ | 180.5 |  |  | $ | 66.4 |
Cash paid for income taxes | 78.9 |  |  | 53.9 |
Cash received from income tax refunds | 0.8 |  |  | 34.2 |
Schedule of non-cash operating, investing and financing activities: |  |  |
Deferred payment on gaming rights incurred during the period | $ | — |  |  | $ | 50.0 |
Property and equipment additions included in accounts payable and accrued expenses | 52.0 |  |  | 45.0 |
Deferred payments for acquisition of business included in other liabilities | 6.9 |  |  | — |
Right-of-use assets obtained in exchange for lease obligations in finance leases | 33.4 |  |  | 6.2 |

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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", "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, 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, 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 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 All Other. We report net revenue and operating expense associated with these reportable segments in the accompanying Condensed Consolidated Statements of Comprehensive Income.
Acquisition of Exacta Systems
On August 22, 2023, the Company completed its previously-announced acquisition of Exacta Systems, LLC ("Exacta"). Refer to Note 3, Acquisitions for further information on the transaction.
Stock Split
Effective May 22, 2023, the Company's common stock was split two-for-one (the "Stock Split") with a proportionate increase in the number of its authorized shares of common stock. All share and per-share amounts have been retroactively adjusted to reflect the effects of the Stock Split. Refer to Note 8, Shareholders' Equity for further information on the Stock Split.
Presque Isle Impairment
During the second quarter, we evaluated economic conditions subsequent to the date of our annual impairment assessment on April 1, 2023, including competition in the market and inflationary pressures, which increased during the second quarter of 2023, and impacted the performance and outlook of Presque Isle Downs and Casino ("Presque Isle"). As a result, the Company concluded that a trigger event for impairment testing occurred related to the Presque Isle gaming rights, trademark, and the reporting unit's goodwill at the end of the second quarter. Based on the 2023 trigger event, the Company evaluated and subsequently updated the projected cash flows and discount rate to reflect the current environment. As a result, the Company recognized a non-cash impairment charge of $24.5 million in the second quarter of 2023 for the Presque Isle gaming rights and trademark. Refer to Note 5, Asset Impairments for further information on the impairment.
Arlington Sale
On February 15, 2023, we closed on the sale of the Arlington International Racecourse property ("Arlington") located in Arlington Heights, Illinois. We sold 326-acres to the Chicago Bears for $197.2 million. Refer to Note 4, Dispositions for further information on the transaction.
Acquisition of Peninsula Pacific Entertainment
On November 1, 2022, the Company completed the acquisition of substantially all of the 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, Inc. ("Urban One"). Refer to Note 3, Acquisitions for further information on the transaction.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 8 |

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

Acquisitions of Ellis Park and Chasers Poker Room
On September 26, 2022, we 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 certain working capital and other purchase price adjustments (the "Ellis Park Transaction").
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 New Hampshire to accommodate HRMs and table games.
Refer to Note 3, Acquisitions for further information on the transactions.
Exit of the Direct Online Sports and Casino Business
On February 24, 2022 the Company announced plans to exit the direct online Sports and Casino business. The Company has exited the direct online Sports and Casino business in every state except for Arizona. The Company continues to operate retail sports betting at certain of its racetracks and HRM and gaming facilities.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements - effective in 2023 or thereafter
In March 2020, the Financial Accounting Standards Board ("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 to simplify the accounting for transitioning from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance. In December 2022, the FASB deferred the date for which this guidance can be applied from December 31, 2022 to December 31, 2024. The use of LIBOR was phased out at the end of 2021, although the phase-out of U.S. dollar LIBOR for existing agreements was delayed until June 2023. During the second quarter of 2023, the Company completed the transition of its financing from LIBOR to the Secured Overnight Financing Rate ("SOFR"). These transition activities did not have a material impact on the Company’s financial statements.
3. ACQUISITIONS
Exacta Systems
On August 22, 2023, the Company completed its previously-announced acquisition of Exacta for preliminary purchase consideration of $248.2 million, net of cash acquired, consisting of a $241.3 million cash payment and $6.9 million of deferred payments, which is payable over two years (the "Exacta Transaction"). The preliminary purchase consideration is subject to working capital and other purchase price adjustments. Exacta is a leading provider of technology to support historical horse racing (“HHR”) operations across the country. The Exacta Transaction is expected to enable the Company to realize significant and immediate synergies related to the Company’s Virginia operations. The Company also expects to realize additional operational improvements over time through the diversification of games available at its HRM facilities. Exacta will operate within the Company’s TwinSpires segment and will continue to service its growing portfolio of third-party HHR operators in Kentucky, Wyoming, and New Hampshire.
The Company recorded the fair values of the assets of the Exacta Transaction as of August 22, 2023 based upon preliminary valuations. Estimates and assumptions used in such valuations are subject to change, which could be significant, within the measurement period up to one year from the acquisition date. The areas of the preliminary valuations that are not yet finalized relate to the amounts for income taxes, property and equipment, inventory, intangible assets, adjustments to working capital, the final amount of residual goodwill, and final allocation of goodwill between segments. The residual goodwill will be allocated between the TwinSpires and the Live and Historical Racing segments based upon the projected future benefits to be realized as a result of the Exacta Transaction. The Company expects to continue to obtain information to assist in determining fair values of net assets acquired at the acquisition date during the measurement period.
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed, net of cash acquired of $1.8 million, as of August 22, 2023:

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 9 |

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

(in millions) | Total
Accounts receivable | $ | 9.0 |
Other current assets | 3.0 |
Property and equipment | 9.0 |
Goodwill | 177.1 |
Other intangible assets | 54.3 |
Other assets | 0.9 |
Total assets acquired | $ | 253.3 |
Accounts payable | 2.7 |
Accrued expenses and other current liabilities | 1.8 |
Other liabilities assumed | 0.6 |
Total liabilities assumed | 5.1 |
Net assets acquired (net of cash) | $ | 248.2 |

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

(in millions) | Fair Value Recognized |  | Weighted-Average Useful Life
Technology asset | $ | 23.9 |  |  | 7.0 years
Customer relationships | 21.3 |  |  | 15.0 years
Trademark | 8.7 |  |  | 10.0 years
Other | 0.4 |  |  | 5.0 years
Total intangible assets | $ | 54.3 |  |  |

Goodwill of $177.1 million related to the Exacta Transaction was recognized as of September 30, 2023, of which $95.9 million was preliminarily allocated to the Live and Historical Racing segment and $81.2 million was preliminarily allocated to the TwinSpires segment. The goodwill related to the Exacta Transaction is deductible for tax purposes.
P2E Transaction
On November 1, 2022, the Company completed the acquisition of substantially all the ass ets of P2E for preliminary purchase consideration of $2,835.9 million, net of cash acquired. The P2E assets acquired included Colonial Downs and six HRM entertainment venues in Virginia, del Lago in New York, and Hard Rock Sioux City in Iowa, as well as the development rights for Dumfries and Emporia HRM facilities in Virginia, up to five additional HRM entertainment venues in Virginia, and the potential for ONE Casino & Resort in Virginia in collaboration with Urban One.
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed, net of cash acquired of $126.4 million, as of November 1, 2022:

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 10 |

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

(in millions) | Total
Accounts receivable | $ | 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 |

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

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

Goodwill of $347.8 million was recognized due to the expected contribution of P2E to the Company's overall business strategy. The goodwill was assigned to the Gaming segment in the amount of $129.1 million and to the Live and Historical Racing segment in the amount of $218.7 million and is mostly deductible for tax purposes.
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 trademarks were assigned an indefinite useful life based on the Company’s intention to keep the trademarks for an indefinite period of time.
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. The primary areas of the preliminary valuation that are not yet finalized relate to the 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.
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 September 30, 2022 | Nine months ended September 30, 2022
Net revenue | $ | 552.9 |  | $ | 1,811.7 |
Net income | $ | 70.0 |  | $ | 471.4 |

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 11 |

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

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 purchase price adjustments. The fair values as of September 30, 2023 for the assets acquired and liabilities assumed, net of cash acquired of $1.4 million, at the date of acquisition are 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 $9.3 million, and net working capital of $1.5 million.
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 gaming rights. The Company made an initial payment at closing and recorded a liability for the remaining payments due on a future date. In conjunction with the acquisition, the Company recorded an $82.2 million indefinite-lived gaming rights intangible asset which represented its fair value at the date of acquisition.
Valuation Techniques
For these transactions any current assets and current liabilities were valued at the existing carrying values, as these items are short term in nature and represent management's estimated fair value of the respective items.
Property and equipment acquired primarily relates to land, buildings, equipment, and furniture and fixtures. The fair value of the land was determined using the market approach and the fair values of the remaining property and equipment were primarily determined using the cost replacement method which is based on replacement or reproduction costs of the assets.
The fair value of gaming rights was determined using the Greenfield Method, which is an income approach methodology that calculates the present value of the overall business enterprise based on a projected cash flow stream. This method assumes that the gaming rights intangible assets provide the opportunity to develop a casino or historical racing facility in a specified region, and that the present value of the projected cash flows are a result of the realization of advantages contained in these rights. Under this methodology, the acquirer is expected to absorb all start-up costs, as well as incur all expenses pertaining to the acquisition and/or the creation of all tangible and intangible assets. The estimated future revenue and operating expenses, start-up costs, and discount rates were the primary assumptions and estimates in the valuation of the gaming rights. The gaming rights intangible assets were assigned an indefinite useful life based on the Company's expected use of the assets and determination that no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of the gaming rights.
Trademark intangible assets were valued using the relief-from-royalty method of the income approach, which estimates the fair value of the intangible assets by discounting the fair value of the hypothetical royalty payments a market participant would be willing to pay to enjoy the benefits of the assets. The estimated future revenue, royalty rates, and discount rates were the primary assumptions and estimates in the valuation of the trademarks.
The Company has not included other disclosures regarding the Exacta, Chasers, or Ellis Park Transactions as these transactions are immaterial to our business.
4. DISPOSITIONS
Lady Luck Casino Nemacolin
On June 26, 2023, the Company's management agreement for Lady Luck Casino Nemacolin ("Lady Luck") in Farmington, Pennsylvania expired and was not renewed. The Company completed the sale of substantially all its assets at Lady Luck for an immaterial amount.
Arlington
On February 15, 2023, we closed on the sale of the Arlington property in Arlington Heights, Illinois, to the Chicago Bears for $197.2 million. We received net proceeds of $195.7 million for the 326-acres and recognized a gain of $114.0 million on the sale, which is included in other income in the accompanying Condensed Consolidated Statements of Comprehensive Income. Certain assets of Arlington totaling $82.0 million were classified held for sale as of December 31, 2022 on the accompanying Condensed Consolidated Balance Sheets. Arlington’s operations and assets are included in All Other in our consolidated results.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 12 |

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

The Company executed a forward like-kind exchange transaction by purchasing certain property as part of the P2E Transaction for $197.2 million, which qualified as an Internal Revenue Code §1031 transaction. An exchange accommodation titleholder ("EAT"), a type of variable interest entity, was used to facilitate this reverse like-kind exchange. The Company determined that it is the primary beneficiary of the EAT, thus the property held by the EAT has been consolidated and recorded in property and equipment, net on the Condensed Consolidated Balance Sheets.
As of September 30, 2023, the Company has a $27.8 million deferred tax liability related to the Arlington sale on the Condensed Consolidated Balance Sheets.
5. ASSET IMPAIRMENTS
Presque Isle Impairment
We performed our annual goodwill and indefinite-lived intangible assets impairment analysis for Presque Isle as of April 1, 2023. Based on the results of this analysis, no impairments for Presque Isle were identified. Subsequent to the annual test, we continued to evaluate economic conditions, including competition in the market and inflationary pressures, which increased during the second quarter of 2023, and impacted the performance and outlook of Presque Isle. As a result, the Company concluded that a trigger event for impairment testing occurred related to the Presque Isle gaming rights, trademark, and the reporting unit's goodwill at the end of the second quarter.
Based on the 2023 trigger event, the Company evaluated and subsequently updated the projected cash flows and discount rate to reflect the current environment. As a result, the Company recognized a non-cash impairment charge of $24.5 million in the second quarter of 2023 for the Presque Isle gaming rights and trademark, which are included in the Gaming segment. The fair value of the Presque Isle gaming rights was determined using the Greenfield Method, an income approach methodology that calculates the present value based on a projected cash flow stream. The fair value of the trademark was determined by using the relief-from-royalty method of the income approach.
The fair value of the Presque Isle reporting unit's goodwill was determined under the market and income valuation approaches using inputs primarily related to discounted projected cash flows and price multiples of comparable publicly traded companies. No impairment was recognized for the Presque Isle goodwill in 2023.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, by segment, is composed of the following:

(in millions) | Live and Historical Racing |  | TwinSpires |  | Gaming |  | All Other |  | Total
Balances as of December 31, 2022 | $ | 280.3 |  |  | $ | 152.2 |  |  | $ | 290.3 |  |  | $ | 1.0 |  |  | $ | 723.8 |
Additions | 95.9 |  |  | 81.2 |  |  | — |  |  | — |  |  | 177.1 |
Adjustments | — |  |  | — |  |  | — |  |  | (1.0) |  |  | (1.0) |
Balances as of September 30, 2023 | $ | 376.2 |  |  | $ | 233.4 |  |  | $ | 290.3 |  |  | $ | — |  |  | $ | 899.9 |

Goodwill of $177.1 million related to the Exacta Transaction was recognized as of September 30, 2023, of which $95.9 million was allocated to the Live and Historical Racing segment and $81.2 million was allocated to the TwinSpires segment. The goodwill related to the Exacta Transaction is deductible for tax purposes. Refer to Note 3, Acquisitions for further information on the transaction.
We performed our annual goodwill impairment analysis as of April 1, 2023, and no adjustment to the carrying value of goodwill was required. We assessed goodwill for impairment by performing qualitative or quantitative analyses for each reporting unit. We concluded that the fair values of our reporting units exceeded their carrying values, and therefore no impairments were identified.
Other intangible assets are comprised of the following:

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 13 |

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

| September 30, 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 | $ | 95.8 |  |  | $ | (25.6) |  |  | $ | 70.2 |  |  | $ | 31.0 |  |  | $ | (21.4) |  |  | $ | 9.6 |
Indefinite-lived intangible assets |  |  |  |  | 2,347.1 |  |  |  |  |  |  | 2,382.2 |
Total |  |  |  |  | $ | 2,417.3 |  |  |  |  |  |  | $ | 2,391.8 |

We established definite-lived intangible assets of $54.3 million for the technology asset, customer relationships, trademark and other intangibles related to the Exacta Transaction. Refer to Note 3, Acquisitions for further information on the transaction.
We performed our annual indefinite-lived intangible assets impairment analysis as of April 1, 2023. We assessed our indefinite-lived intangible assets for impairment by performing qualitative or quantitative analyses for each asset. Based on the results of these analyses, no indefinite-lived intangible asset impairments were identified in connection with our annual impairment testing.
Refer to Note 5, Asset Impairments, for information regarding the intangible asset impairment recognized during the second quarter of 2023.
7. INCOME TAXES
The Company’s effective income tax rate for the three months ended September 30, 2023 was higher than the U.S. federal statutory rate of 21.0% primarily resulting from state income taxes. The Company’s effective income tax rate for the nine months ended September 30, 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 September 30, 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, partially offset by tax benefits resulting from certain tax credits and incentives. The Company's effective income tax rate for the nine months ended September 30, 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.
8. SHAREHOLDERS' EQUITY
Stock Repurchase Programs
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"). 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. The Company repurchased $37.3 million of its common stock during the three months ended September 30, 2023 and had approximately $232.9 million of repurchase authority remaining under the 2021 Stock Repurchase Program at September 30, 2023, based on trade date.
We repurchased the following shares under the 2021 Stock Repurchase Program:

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions, except share data) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Repurchase Program |  | Shares | Aggregate Purchase Price |  | Shares | Aggregate Purchase Price |  | Shares | Aggregate Purchase Price |  | Shares | Aggregate Purchase Price
2021 Stock Repurchase Program (1) |  | 310,367 |  | $ | 37.3 |  |  | 577,562 |  | $ | 59.0 |  |  | 310,367 |  | $ | 37.3 |  |  | 1,454,396 |  | $ | 145.5 |

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 14 |

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

Stock Split
On April 25, 2023, the Company’s Board of Directors approved a two-for-one Stock Split and an amendment to the Company’s Articles of Incorporation to increase the number of shares of common stock the Company is authorized to issue from 150,000,000 shares, no par value, to 300,000,000 shares, no par value. This amendment to the Company’s Articles of Incorporation became effective on May 19, 2023 and our common stock began trading at the split-adjusted price on May 22, 2023. All share and per-share amounts in the Company’s consolidated financial statements and related notes have been retroactively adjusted to reflect the effects of the Stock Split.
9. STOCK-BASED COMPENSATION PLANS
We have stock-based employee compensation plans with awards outstanding under the Churchill Downs Incorporated 2016 Omnibus Stock Incentive Plan (the "2016 Plan") and the Executive Long-Term Incentive Compensation Plan, which was adopted pursuant to the 2016 Plan. Our total stock-based compensation expense, which includes expenses related to restricted stock awards ("RSAs"), restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and stock options associated with our employee stock purchase plan was $8.1 million and $24.8 million for the three and nine months ended September 30, 2023, and $9.1 million and $23.5 million for the three and nine months ended September 30, 2022, respectively.
During the nine months ended September 30, 2023, the Company awarded RSUs to employees, RSUs and PSUs to certain named executive officers ("NEOs"), and RSAs 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.
A summary of the RSAs, RSUs and PSUs granted during 2023 is presented below (units in thousands):

Grant Year |  | Award Type |  | Number of Units Awarded(1)(2) |  | Vesting Terms
2023 |  | RSU |  | 121 |  | Vest equally over three service periods ending in 2026
2023 |  | PSU |  | 62 |  | Three year performance and service period ending in 2025
2023 |  | RSU |  | 10 |  | Three year service period ending in 2026
2023 |  | RSU |  | 6 |  | One year service period ending in 2024
2023 |  | RSA |  | 4 |  | One year service period ending in 2024

(1) PSUs reflect the target number of units for the original PSU grant.
(2) Number of units awarded have been adjusted for the Stock Split.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 15 |

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

10. DEBT
The following table presents our total debt outstanding:

(in millions) | September 30, 2023 |  | December 31, 2022 |
Term Loan B due 2024 | $ | — |  |  | $ | 380.0 |  |
Term Loan B-1 due 2028 | 292.5 |  |  | 294.7 |  |
Term Loan A due 2027 | 1,251.3 |  |  | 800.0 |  |
Revolver | 118.7 |  |  | 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 |  |
2031 Senior Notes | 600.0 |  |  | — |  |
Total debt | 4,762.5 |  |  | 4,638.8 |  |
Current maturities of long-term debt | (68.0) |  |  | (47.0) |  |
Unamortized premium and deferred finance charges | (39.7) |  |  | (33.1) |  |
Total debt, net of current maturities and costs | $ | 4,654.8 |  |  | $ | 4,558.7 |  |

Credit Agreement
At September 30, 2023, the Company’s senior secured credit facility (as amended from time to time, the “Credit Agreement") consisted of a $1.2 billion revolving credit facility (the "Revolver"), $300.0 million senior secured term loan B-1 due 2028 (the "Term Loan B-1"), $1.3 billion senior secured term loan A due 2027 (the "Term Loan A"), and $100.0 million swing line commitment. Certain amendments to the Credit Agreement entered into during 2022 and 2023 are described below.
On April 13, 2022, we amended the Credit Agreement to extend the maturity date of its Revolver to April 13, 2027, to increase the commitments under the existing revolving credit facility from $700.0 million to $1.2 billion, and to increase the swing line commitment from $50.0 million to $100.0 million. This amendment also provided for the senior secured Term Loan A due April 13, 2027 in the amount of $800.0 million, which was drawn on November 1, 2022 as part of the financing for the P2E Transaction. Refer to Note 3, Acquisitions for more information regarding the P2E Transaction. The Company capitalized $3.5 million of debt issuance costs associated with the Revolver commitment increase and $6.4 million of debt issuance costs associated with the Term Loan A which are being amortized as interest expense over the 5-year term.
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 $2.6 million of debt issuance costs associated with the increased Term Loan A which are being amortized as interest expense over the remainder of the 5-year term.
The Company is required to pay a commitment fee on the unused portion of the Revolver as determined by a pricing grid based on the consolidated total net secured leverage ratio of the Company. For the period ended September 30, 2023, the Company's commitment fee rate was 0.25%.
The Revolver 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 of September 30, 2023, that applicable margin was 150 basis points. The Term Loan B-1 bears interest at SOFR plus 210 basis points.
The Company completed the transition of its financing from LIBOR to SOFR during the second quarter of 2023. These transition activities did not have a material impact on the Company’s financial statements.
2031 Senior Notes
On April 25, 2023, the Company completed an offering of $600.0 million in aggregate principal amount of 6.750% senior unsecured notes that mature on April 25, 2031 (the "2031 Senior Notes") in a private offering to qualified institutional buyers

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 16 |

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

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 Company used a portion of the net proceeds from the offering to repay indebtedness outstanding under its Term Loan B Facility due 2024 and to fund related transaction fees and expenses, working capital and other general corporate purposes. The Company recognized a loss on extinguishment on Term Loan B of $1.3 million, which is included in miscellaneous, net in the accompanying Condensed Consolidated Statements of Comprehensive Income. The Company capitalized $10.7 million of debt issuance costs associated with the 2031 Senior Notes which are being amortized as interest expense over the remainder of the 8-year term.
The 2031 Senior Notes were issued at 100% of the principal amount, plus interest deemed to have accrued from April 25, 2023, with interest payable in arrears on May 1st and November 1st of each year, commencing on November 1, 2023. The 2031 Senior Notes will vote as one class under the indenture governing the 2031 Senior Notes.
The 2031 Senior Notes were issued pursuant to an indenture, entered into on April 25, 2023 (the "2031 Indenture"), among the Company, certain subsidiaries of the Company as guarantors, and U.S. Bank National Association, as trustee. The Company may redeem some or all of the 2031 Senior Notes at any time at redemption prices set forth in the 2031 Indenture. The terms of the 2031 Indenture, among other things, limit the ability of the Company to: (i) incur additional debt and issue preferred stock, (ii) pay dividends or make other restricted payments, (iii) make certain investments, (iv) create liens, (v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments, (vi) sell assets, (vii) merge or consolidate with other entities, and (viii) enter into transactions with affiliates.
In connection with the issuance of the 2031 Senior Notes, the Company and the guarantors entered into a Registration Rights Agreement to register any notes under the Securities Act for resale that are not freely tradable 366 days from April 25, 2023.
11. REVENUE FROM CONTRACTS WITH CUSTOMERS
Performance Obligations
As of September 30, 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 $138.5 million. The revenue we expect to recognize on these remaining performance obligations is $1.0 million for the remainder of 2023, $54.9 million in 2024, $41.7 million in 2025, and the remainder thereafter.
As of September 30, 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 September 30, 2023 and December 31, 2022, contract assets were not material.
As of September 30, 2023 and December 31, 2022, contract liabilities were $48.1 million and $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. Contract liabilities primarily relate to the Live and Historical Racing segment and the decrease was primarily due to revenue recognized for fulfilled performance obligations. We recognized $1.2 million and $43.6 million of revenue during the three months and nine months ended September 30, 2023, respectively, which was included in the contract liabilities balance at December 31, 2022. We recognized $1.3 million and $48.1 million of revenue during the three months and nine months ended September 30, 2022, respectively, which was included in the contract liabilities balance at December 31, 2021.
Disaggregation of Revenue
The Company has included its disaggregated revenue disclosures as follows:
•For the Live and Historical Racing segment, revenue is disaggregated between Churchill Downs Racetrack and historical racing properties given that our racing facilities revenues primarily revolve around live racing events while our historical racing properties revenues primarily revolve around historical racing. This segment is also disaggregated by location given the geographic economic factors that affect the revenue of service offerings. Within the Live and Historical Racing segment, revenue is further disaggregated between live and simulcast racing, historical racing, racing event-related services, and other services.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 17 |

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

•For the TwinSpires segment, revenue is disaggregated between live and simulcast racing, gaming, and other services.
•For the Gaming segment, revenue is disaggregated by location given the geographic economic factors that affect the revenue of gaming service offerings. 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 September 30, |  | Nine Months Ended September 30,
(in millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Net revenue from external customers: |  |  |  |  |  |  |
Live and Historical Racing: |  |  |  |  |  |  |
Churchill Downs Racetrack | $ | 10.6 |  |  | $ | 6.4 |  |  | $ | 191.3 |  |  | $ | 182.6 |
Louisville | 48.9 |  |  | 41.5 |  |  | 138.2 |  |  | 128.5 |
Northern Kentucky | 19.5 |  |  | 10.0 |  |  | 63.1 |  |  | 29.2 |
Southwestern Kentucky | 37.6 |  |  | 33.3 |  |  | 111.7 |  |  | 97.8 |
Western Kentucky | 11.6 |  |  | 0.2 |  |  | 25.8 |  |  | 0.2 |
Virginia | 88.1 |  |  | — |  |  | 280.4 |  |  | — |
New Hampshire | 3.2 |  |  | 0.9 |  |  | 8.4 |  |  | 0.9 |
Total Live and Historical Racing | $ | 219.5 |  |  | $ | 92.3 |  |  | $ | 818.9 |  |  | $ | 439.2 |
TwinSpires: | $ | 108.5 |  |  | $ | 106.2 |  |  | $ | 340.7 |  |  | $ | 343.3 |
Gaming: |  |  |  |  |  |  |
Florida | $ | 24.4 |  |  | $ | 26.3 |  |  | $ | 76.5 |  |  | $ | 81.2 |
Iowa | 24.0 |  |  | — |  |  | 72.5 |  |  | — |
Louisiana | 32.2 |  |  | 28.5 |  |  | 110.1 |  |  | 107.2 |
Maine | 30.9 |  |  | 31.6 |  |  | 88.1 |  |  | 87.8 |
Maryland | 32.0 |  |  | 33.3 |  |  | 82.9 |  |  | 82.0 |
Mississippi | 24.2 |  |  | 24.5 |  |  | 77.5 |  |  | 78.0 |
New York | 46.2 |  |  | — |  |  | 135.3 |  |  | — |
Pennsylvania | 30.4 |  |  | 39.2 |  |  | 97.3 |  |  | 108.8 |
Total Gaming | $ | 244.3 |  |  | $ | 183.4 |  |  | $ | 740.2 |  |  | $ | 545.0 |
All Other | 0.2 |  |  | 1.2 |  |  | 0.7 |  |  | 2.2 |
Net revenue from external customers | $ | 572.5 |  |  | $ | 383.1 |  |  | $ | 1,900.5 |  |  | $ | 1,329.7 |
Intercompany net revenues: |  |  |  |  |  |  |
Live and Historical Racing | $ | 6.0 |  |  | $ | 10.1 |  |  | $ | 30.4 |  |  | $ | 26.3 |
TwinSpires | 3.9 |  |  | 1.2 |  |  | 7.1 |  |  | 4.0 |
Gaming | 0.6 |  |  | 2.5 |  |  | 4.2 |  |  | 4.6 |
All Other | — |  |  | — |  |  | — |  |  | — |
Eliminations | (10.5) |  |  | (13.8) |  |  | (41.7) |  |  | (34.9) |
Intercompany net revenue | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 18 |

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

| Three Months Ended September 30, 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 | $ | 16.0 |  |  | $ | 86.3 |  |  | $ | 5.1 |  |  | $ | 107.4 |  |  | $ | — |  |  | $ | 107.4 |
Historical racing(a) | 179.9 |  |  | — |  |  | 7.5 |  |  | 187.4 |  |  | — |  |  | 187.4 |
Racing event-related services | 3.3 |  |  | — |  |  | 1.4 |  |  | 4.7 |  |  | — |  |  | 4.7 |
Gaming(a) | 3.1 |  |  | 5.3 |  |  | 203.0 |  |  | 211.4 |  |  | — |  |  | 211.4 |
Other(a) | 17.2 |  |  | 16.9 |  |  | 27.3 |  |  | 61.4 |  |  | 0.2 |  |  | 61.6 |
Total | $ | 219.5 |  |  | $ | 108.5 |  |  | $ | 244.3 |  |  | $ | 572.3 |  |  | $ | 0.2 |  |  | $ | 572.5 |

| Three Months Ended September 30, 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 | $ | 1.8 |  |  | $ | 91.0 |  |  | $ | 3.6 |  |  | $ | 96.4 |  |  | $ | — |  |  | $ | 96.4 |
Historical racing(a) | 78.7 |  |  | — |  |  | 3.5 |  |  | 82.2 |  |  | — |  |  | 82.2 |
Racing event-related services | 3.0 |  |  | — |  |  | 0.1 |  |  | 3.1 |  |  | — |  |  | 3.1 |
Gaming(a) | 0.9 |  |  | 5.3 |  |  | 160.6 |  |  | 166.8 |  |  | — |  |  | 166.8 |
Other(a) | 7.9 |  |  | 9.9 |  |  | 15.6 |  |  | 33.4 |  |  | 1.2 |  |  | 34.6 |
Total | $ | 92.3 |  |  | $ | 106.2 |  |  | $ | 183.4 |  |  | $ | 381.9 |  |  | $ | 1.2 |  |  | $ | 383.1 |

(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 $13.3 million for the three months ended September 30, 2023 and $8.4 million for the three months ended September 30, 2022.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 19 |

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

| Nine Months Ended September 30, 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 | $ | 67.2 |  |  | $ | 283.2 |  |  | $ | 19.9 |  |  | $ | 370.3 |  |  | $ | — |  |  | $ | 370.3 |
Historical racing(a) | 549.3 |  |  | — |  |  | 20.5 |  |  | 569.8 |  |  | — |  |  | 569.8 |
Racing event-related services | 141.0 |  |  | — |  |  | 4.8 |  |  | 145.8 |  |  | — |  |  | 145.8 |
Gaming(a) | 8.2 |  |  | 10.9 |  |  | 615.4 |  |  | 634.5 |  |  | — |  |  | 634.5 |
Other(a) | 53.2 |  |  | 46.6 |  |  | 79.6 |  |  | 179.4 |  |  | 0.7 |  |  | 180.1 |
Total | $ | 818.9 |  |  | $ | 340.7 |  |  | $ | 740.2 |  |  | $ | 1,899.8 |  |  | $ | 0.7 |  |  | $ | 1,900.5 |

| Nine Months Ended September 30, 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 | $ | 53.9 |  |  | $ | 290.9 |  |  | $ | 22.0 |  |  | $ | 366.8 |  |  | $ | — |  |  | $ | 366.8 |
Historical racing(a) | 230.7 |  |  | — |  |  | 4.8 |  |  | 235.5 |  |  | — |  |  | 235.5 |
Racing event-related services | 125.4 |  |  | — |  |  | 0.7 |  |  | 126.1 |  |  | — |  |  | 126.1 |
Gaming(a) | 0.9 |  |  | 21.8 |  |  | 469.6 |  |  | 492.3 |  |  | — |  |  | 492.3 |
Other(a) | 28.3 |  |  | 30.6 |  |  | 47.9 |  |  | 106.8 |  |  | 2.2 |  |  | 109.0 |
Total | $ | 439.2 |  |  | $ | 343.3 |  |  | $ | 545.0 |  |  | $ | 1,327.5 |  |  | $ | 2.2 |  |  | $ | 1,329.7 |

(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 $37.8 million for the nine months ended September 30, 2023 and $23.2 million for the nine months ended September 30, 2022.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 20 |

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

12. OTHER BALANCE SHEET ITEMS
Accounts receivable, net
Accounts receivable, net is comprised of the following:

(in millions) | September 30, 2023 |  | December 31, 2022
Trade receivables | $ | 36.0 |  |  | $ | 12.5 |
Simulcast and online wagering receivables | 47.3 |  |  | 54.1 |
Other receivables | 24.9 |  |  | 20.6 |
| 108.2 |  |  | 87.2 |
Allowance for credit losses | (6.0) |  |  | (5.7) |
Total | $ | 102.2 |  |  | $ | 81.5 |

Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:

(in millions) | September 30, 2023 |  | December 31, 2022
Account wagering deposits liability | $ | 53.0 |  |  | $ | 57.8 |
Accrued salaries and related benefits | 38.6 |  |  | 39.6 |
Purses payable | 44.3 |  |  | 46.1 |
Accrued interest | 76.7 |  |  | 47.8 |
Accrued fixed assets | 41.9 |  |  | 39.5 |
Accrued gaming liabilities | 28.3 |  |  | 26.3 |
Other | 118.6 |  |  | 106.0 |
Total | $ | 401.4 |  |  | $ | 363.1 |

13. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Investments in and advances to unconsolidated affiliates as of September 30, 2023 primarily consisted of an interest in Rivers Casino Des Plaines ("Rivers Des Plaines"), an interest in Miami Valley Gaming and Racing ("MVG"), and an interest in RVA Entertainment Holdings, LLC ("RVA").
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 certain operating, investing and financing decisions. As a result, we account for Rivers Des Plaines using the equity method. As of September 30, 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 $832.6 million.
Our investment in Rivers Des Plaines was $531.6 million and $544.9 million as of September 30, 2023 and December 31, 2022, respectively. The Company received distributions from Rivers Des Plaines of $93.1 million and $92.8 million for the nine months ended September 30, 2023 and 2022, respectively.
Miami Valley Gaming
The Company owns a 50% interest in MVG and Delaware North Companies Gaming & Entertainment Inc. ("DNC") owns the remaining 50% interest. Since both the Company and DNC have participating rights over MVG, and both must consent to certain operating, investing and financing decisions, we account for MVG using the equity method.
Our investment in MVG was $114.2 million and $114.4 million as of September 30, 2023 and December 31, 2022, respectively. The Company received distributions from MVG of $33.5 million and $25.0 million for the nine months ended September 30, 2023 and 2022, respectively.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 21 |

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

RVA
The Company owns a 50% interest in RVA and Urban One owns the remaining 50% interest. Since both the Company and Urban One have participating rights over RVA, and both must consent to certain operating, investing and financing decisions, we account for RVA using the equity method.
Our investment in RVA was $14.2 million as of September 30, 2023.
Summarized Financial Results for our Unconsolidated Affiliates
Summarized below are the financial results for our unconsolidated affiliates.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Net revenue | $ | 208.9 |  |  | $ | 221.5 |  |  | $ | 648.2 |  |  | $ | 613.3 |
Operating and SG&A expense | 135.1 |  |  | 131.5 |  |  | 407.3 |  |  | 380.4 |
Depreciation and amortization | 5.9 |  |  | 5.9 |  |  | 17.5 |  |  | 17.5 |
Total operating expense | 141.0 |  |  | 137.4 |  |  | 424.8 |  |  | 397.9 |
Operating income | 67.9 |  |  | 84.1 |  |  | 223.4 |  |  | 215.4 |
Interest and other, net | (11.1) |  |  | (10.6) |  |  | (32.7) |  |  | (13.8) |
Net income | $ | 56.8 |  |  | $ | 73.5 |  |  | $ | 190.7 |  |  | $ | 201.6 |

(in millions) | September 30, 2023 |  | December 31, 2022
Assets |  |  |
Current assets | $ | 127.7 |  |  | $ | 91.0 |
Property and equipment, net | 340.3 |  |  | 345.7 |
Other assets, net | 268.8 |  |  | 265.0 |
Total assets | $ | 736.8 |  |  | $ | 701.7 |
Liabilities and Members' Deficit |  |  |
Current liabilities | $ | 120.9 |  |  | $ | 97.9 |
Long-term debt | 846.8 |  |  | 838.6 |
Other liabilities | 0.3 |  |  | 0.2 |
Members' deficit | (231.2) |  |  | (235.0) |
Total liabilities and members' deficit | $ | 736.8 |  |  | $ | 701.7 |

14. 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 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 2031 Senior Notes, 2030 Senior Notes, 2028 Senior Notes, and 2027 Senior Notes are estimated based on unadjusted quoted prices for identical or similar liabilities in markets that are not active and as such are Level 2 measurements. The fair values of the Company's Term Loan B, Term Loan B-1, Term Loan A, and Revolver under the Credit Agreement approximate the gross carrying value of the variable rate debt and as such are Level 2 measurements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 22 |

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:

| September 30, 2023
(in millions) | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |  |  |
Restricted cash | $ | 63.3 |  |  | $ | 63.3 |  |  | $ | 63.3 |  |  | $ | — |  |  | $ | — |
Financial liabilities: |  |  |  |  |  |  |  |  |
Term Loan B-1 | $ | 289.8 |  |  | $ | 292.5 |  |  | $ | — |  |  | $ | 292.5 |  |  | $ | — |
Term Loan A | 1,244.5 |  |  | 1,251.3 |  |  | — |  |  | 1,251.3 |  |  | — |
Revolver | 118.7 |  |  | 118.7 |  |  | — |  |  | 118.7 |  |  | — |
2027 Senior Notes | 596.2 |  |  | 570.0 |  |  | — |  |  | 570.0 |  |  | — |
2028 Senior Notes | 698.7 |  |  | 629.1 |  |  | — |  |  | 629.1 |  |  | — |
2030 Senior Notes | 1,185.0 |  |  | 1,081.4 |  |  | — |  |  | 1,081.4 |  |  | — |
2031 Senior Notes | 589.9 |  |  | 566.4 |  |  | — |  |  | 566.4 |  |  | — |
| December 31, 2022
(in millions) | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |  |  |
Restricted cash | $ | 74.9 |  |  | $ | 74.9 |  |  | $ | 74.9 |  |  | $ | — |  |  | $ | — |
Financial liabilities: |  |  |  |  |  |  |  |  |
Term Loan B | $ | 378.4 |  |  | $ | 380.0 |  |  | $ | — |  |  | $ | 380.0 |  |  | $ | — |
Term Loan B-1 | 291.6 |  |  | 294.8 |  |  | — |  |  | 294.8 |  |  | — |
Term Loan A | 794.5 |  |  | 800.0 |  |  | — |  |  | 800.0 |  |  | — |
Revolver | 664.1 |  |  | 664.1 |  |  | — |  |  | 664.1 |  |  | — |
2027 Senior Notes | 595.3 |  |  | 574.5 |  |  | — |  |  | 574.5 |  |  | — |
2028 Senior Notes | 698.4 |  |  | 626.5 |  |  | — |  |  | 626.5 |  |  | — |
2030 Senior Notes | 1,183.4 |  |  | 1,079.4 |  |  | — |  |  | 1,079.4 |  |  | — |

15. CONTINGENCIES
We may be 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 SEPTEMBER 30, 2023
| 23 |

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.
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 September 30, |  | Nine Months Ended September 30,
(in millions, except per share data) | 2023 |  | 2022 |  | 2023 |  | 2022
Numerator for basic and diluted net income per common share: |  |  |  |  |  |  |
Net income | $ | 61.0 |  |  | $ | 57.0 |  |  | $ | 359.7 |  |  | $ | 438.4 |
Denominator for net income per common share: |  |  |  |  |  |  |
Basic | 75.2 |  |  | 75.6 |  |  | 75.3 |  |  | 76.1 |
Plus dilutive effect of stock awards | 1.9 |  |  | 1.1 |  |  | 1.4 |  |  | 1.1 |
Diluted | 77.1 |  |  | 76.7 |  |  | 76.7 |  |  | 77.2 |
Net income per common share data: |  |  |  |  |  |  |
Basic net income | $ | 0.81 |  |  | $ | 0.75 |  |  | $ | 4.78 |  |  | $ | 5.76 |
Diluted net income | $ | 0.79 |  |  | $ | 0.74 |  |  | $ | 4.69 |  |  | $ | 5.68 |

All share and per-share amounts have been retroactively adjusted to reflect the effects of the Stock Split. Refer to Note 8, Shareholders' Equity for further information on the Stock Split.
17. 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.
On September 7, 2023, the Company began operating retail sports betting at its racetracks and HRM facilities in Kentucky. In addition to retail sports betting, third-party service providers began operating online sports wagering in partnership with the Company’s racetracks on September 28, 2023. Our retail and online sports betting business is included in the TwinSpires segment.
We have aggregated Arlington as well as certain corporate operations in All Other to reconcile to consolidated results.
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 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;

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 24 |

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

•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 and asset sales;
•Legal reserves;
•Pre-opening expense; and
•Other charges, recoveries, and expenses
On June 26, 2023, the Company's management agreement for Lady Luck expired and was not renewed. The Company completed the sale of substantially all its assets at Lady Luck for an immaterial amount.
As of December 31, 2021, Arlington ceased racing and simulcast operations and the property was sold on February 15, 2023 to the Chicago Bears. Arlington's results and exit costs in 2022 and 2023 are treated as an adjustment to 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 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 Consolidated Statements of Comprehensive Income.
The tables below present net revenue from external customers, Adjusted EBITDA by segment and reconciles comprehensive income to Adjusted EBITDA:
Net revenue by segment is comprised of the following:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Live and Historical Racing | $ | 219.5 |  |  | $ | 92.3 |  |  | $ | 818.9 |  |  | $ | 439.2 |
TwinSpires | 108.5 |  |  | 106.2 |  |  | 340.7 |  |  | 343.3 |
Gaming | 244.3 |  |  | 183.4 |  |  | 740.2 |  |  | 545.0 |
All Other | 0.2 |  |  | 1.2 |  |  | 0.7 |  |  | 2.2 |
Net Revenue | $ | 572.5 |  |  | $ | 383.1 |  |  | $ | 1,900.5 |  |  | $ | 1,329.7 |

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 25 |

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

Adjusted EBITDA by segment is comprised of the following:

| Three Months Ended September 30, 2023
(in millions) | Live and Historical Racing |  | TwinSpires |  | Gaming
Revenues | $ | 225.5 |  |  | $ | 112.4 |  |  | $ | 244.9 |
Taxes and purses | (62.0) |  |  | (5.8) |  |  | (81.4) |
Marketing and advertising | (7.6) |  |  | (1.3) |  |  | (8.9) |
Salaries and benefits | (27.9) |  |  | (7.0) |  |  | (35.2) |
Content expense | (1.6) |  |  | (49.4) |  |  | (2.4) |
Selling, general and administrative expense | (7.4) |  |  | (3.0) |  |  | (9.9) |
Other operating expense | (39.0) |  |  | (12.0) |  |  | (32.1) |
Other income | 0.9 |  |  | — |  |  | 47.3 |
Adjusted EBITDA | $ | 80.9 |  |  | $ | 33.9 |  |  | $ | 122.3 |

| Three Months Ended September 30, 2022
(in millions) | Live and Historical Racing |  | TwinSpires |  | Gaming
Revenues | $ | 102.4 |  |  | $ | 107.4 |  |  | $ | 185.9 |
Taxes and purses | (31.6) |  |  | (6.6) |  |  | (70.6) |
Marketing and advertising | (3.6) |  |  | (1.3) |  |  | (4.1) |
Salaries and benefits | (13.3) |  |  | (6.3) |  |  | (24.6) |
Content expense | (0.6) |  |  | (49.3) |  |  | (2.7) |
Selling, general and administrative expense | (3.4) |  |  | (2.7) |  |  | (7.1) |
Other operating expense | (15.6) |  |  | (10.1) |  |  | (21.7) |
Other income | 0.2 |  |  | — |  |  | 56.5 |
Adjusted EBITDA | $ | 34.5 |  |  | $ | 31.1 |  |  | $ | 111.6 |

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 26 |

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

| Nine Months Ended September 30, 2023
(in millions) | Live and Historical Racing |  | TwinSpires |  | Gaming
Revenues | $ | 849.3 |  |  | $ | 347.8 |  |  | $ | 744.4 |
Taxes and purses | (203.9) |  |  | (17.8) |  |  | (246.7) |
Marketing and advertising | (27.9) |  |  | (8.0) |  |  | (26.5) |
Salaries and benefits | (80.0) |  |  | (20.7) |  |  | (109.2) |
Content expense | (5.1) |  |  | (161.1) |  |  | (6.9) |
Selling, general and administrative expense | (23.4) |  |  | (8.1) |  |  | (32.4) |
Other operating expense | (123.6) |  |  | (36.0) |  |  | (92.1) |
Other income | 1.1 |  |  | 1.1 |  |  | 144.6 |
Adjusted EBITDA | $ | 386.5 |  |  | $ | 97.2 |  |  | $ | 375.2 |

| Nine Months Ended September 30, 2022
(in millions) | Live and Historical Racing |  | TwinSpires |  | Gaming
Revenues | $ | 465.5 |  |  | $ | 347.3 |  |  | $ | 549.6 |
Taxes and purses | (118.0) |  |  | (21.3) |  |  | (206.1) |
Marketing and advertising | (12.9) |  |  | (11.4) |  |  | (11.3) |
Salaries and benefits | (43.1) |  |  | (19.9) |  |  | (72.0) |
Content expense | (2.2) |  |  | (160.5) |  |  | (6.4) |
Selling, general and administrative expense | (9.7) |  |  | (7.9) |  |  | (20.4) |
Other operating expense | (53.6) |  |  | (37.2) |  |  | (63.9) |
Other income | 0.3 |  |  | — |  |  | 140.0 |
Adjusted EBITDA | $ | 226.3 |  |  | $ | 89.1 |  |  | $ | 309.5 |

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 27 |

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

Adjusted EBITDA by segment is comprised of the following:

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Reconciliation of Comprehensive Income to Adjusted EBITDA: |  |  |  |  |  |  |  |
Net income and comprehensive income |  | $ | 61.0 |  |  | $ | 57.0 |  |  | $ | 359.7 |  |  | $ | 438.4 |
Additions: |  |  |  |  |  |  |  |
Depreciation and amortization |  | 42.1 |  |  | 27.5 |  |  | 121.8 |  |  | 78.7 |
Interest expense, net |  | 67.9 |  |  | 36.2 |  |  | 197.8 |  |  | 92.6 |
Income tax provision |  | 20.8 |  |  | 16.4 |  |  | 130.2 |  |  | 173.5 |
EBITDA |  | $ | 191.8 |  |  | $ | 137.1 |  |  | $ | 809.5 |  |  | $ | 783.2 |
Adjustments to EBITDA: |  |  |  |  |  |  |  |
Stock-based compensation expense |  | $ | 8.1 |  |  | $ | 9.1 |  |  | $ | 24.8 |  |  | $ | 23.5 |
Legal reserve |  | — |  |  | — |  |  | — |  |  | 3.2 |
Pre-opening expense |  | 5.0 |  |  | 4.2 |  |  | 11.4 |  |  | 8.9 |
Arlington exit costs |  | 0.1 |  |  | 1.4 |  |  | 9.4 |  |  | 5.7 |
Other expenses, net |  | 0.7 |  |  | — |  |  | 7.6 |  |  | — |
Transaction expense, net |  | 1.5 |  |  | 1.2 |  |  | 1.8 |  |  | 7.4 |
Asset impairments |  | — |  |  | — |  |  | 24.5 |  |  | 4.9 |
Other income, expense: |  |  |  |  |  |  |  |
Interest, depreciation and amortization expense related to equity investments |  | 10.1 |  |  | 10.1 |  |  | 29.8 |  |  | 31.7 |
Changes in fair value of Rivers Des Plaines' interest rate swaps |  | — |  |  | — |  |  | — |  |  | (12.6) |
Rivers Des Plaines' legal reserves and transaction costs |  | — |  |  | 0.1 |  |  | — |  |  | 0.6 |
Other charges and recoveries, net |  | 0.9 |  |  | — |  |  | — |  |  | 1.0 |
Gain on sale of assets |  | — |  |  | — |  |  | (114.0) |  |  | (274.6) |
Total adjustments to EBITDA |  | 26.4 |  |  | 26.1 |  |  | (4.7) |  |  | (200.3) |
Adjusted EBITDA |  | $ | 218.2 |  |  | $ | 163.2 |  |  | $ | 804.8 |  |  | $ | 582.9 |
Adjusted EBITDA by segment: |  |  |  |  |  |  |  |
Live and Historical Racing |  | $ | 80.9 |  |  | $ | 34.5 |  |  | $ | 386.5 |  |  | $ | 226.3 |
TwinSpires |  | 33.9 |  |  | 31.1 |  |  | 97.2 |  |  | 89.1 |
Gaming |  | 122.3 |  |  | 111.6 |  |  | 375.2 |  |  | 309.5 |
Total segment Adjusted EBITDA |  | 237.1 |  |  | 177.2 |  |  | 858.9 |  |  | 624.9 |
All Other |  | (18.9) |  |  | (14.0) |  |  | (54.1) |  |  | (42.0) |
Total Adjusted EBITDA |  | $ | 218.2 |  |  | $ | 163.2 |  |  | $ | 804.8 |  |  | $ | 582.9 |

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 28 |

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

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

(in millions) | September 30, 2023 |  | December 31, 2022
Total assets: |  |  |
Live and Historical Racing | $ | 3,742.1 |  |  | $ | 3,345.4 |
TwinSpires | 461.4 |  |  | 287.9 |
Gaming | 1,844.2 |  |  | 1,824.2 |
Total segment assets | 6,047.7 |  |  | 5,457.5 |
All Other | 702.8 |  |  | 749.3 |
Total assets | $ | 6,750.5 |  |  | $ | 6,206.8 |

The table below presents total capital expenditures for each of our segments:

| Nine Months Ended September 30,
(in millions) | 2023 |  | 2022
Capital expenditures: |  |  |
Live and Historical Racing | $ | 358.3 |  |  | $ | 177.4 |
TwinSpires | 12.0 |  |  | 9.3 |
Gaming | 120.5 |  |  | 63.0 |
Total segment capital expenditures | 490.8 |  |  | 249.7 |
All Other | 7.3 |  |  | 14.0 |
Total capital expenditures | $ | 498.1 |  |  | $ | 263.7 |

18. SUBSEQUENT EVENTS
At its regularly scheduled meeting held on October 24, 2023, the Board of Directors of the Company declared an annual cash dividend on the Company's common stock of $0.382 per outstanding share, to be paid on January 5, 2024, to shareholders of record as of the close of business on December 1, 2023, with aggregate cash dividend paid to each shareholder rounded to the nearest whole cent.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 29 |

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:
•the occurrence of 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 our consumers' confidence and discretionary spending or our access to credit, including the impact of inflation;
•additional or increased taxes and 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 integrity of our core businesses or any deterioration in our reputation;
•loss of key or highly skilled personnel, as well as general disruptions in the general labor market;
•cyber security risk, including 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;
•the impact of significant competition, and the expectation the competition levels will increase;
•changes in consumer preferences, attendance, wagering, and sponsorships;
•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;
•failure to 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;
•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;

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 30 |

•general risks related to real estate ownership and significant expenditures, including risks related to environmental liabilities;
•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;
•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;
•increase in our insurance costs, or inability to 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; 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, 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 SEPTEMBER 30, 2023
| 31 |

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 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, in All Other. For additional information about our segments, refer to Note 17, Segment Information in the notes to our Condensed Consolidated Financial Statements.
Acquisition of Exacta Systems
On August 22, 2023, the Company completed its previously-announced acquisition of Exacta Systems, LLC ("Exacta"). Refer to Note 3, Acquisitions in the notes to our Condensed Consolidated Financial Statements for further information on the transaction.
Lady Luck Casino Nemacolin
On June 26, 2023, the Company's management agreement for Lady Luck Casino Nemacolin ("Lady Luck") in Farmington, Pennsylvania expired and was not renewed. The Company completed the sale of substantially all its assets at Lady Luck for an immaterial amount.
Stock Split
Effective May 22, 2023, the Company's common stock was split two-for-one with a proportionate increase in the number of its authorized shares of common stock.
Presque Isle Impairment
During the second quarter, we evaluated economic conditions subsequent to the date of our annual impairment assessment on April 1, 2023, including competition in the market and inflationary pressures, which increased during the second quarter of 2023, and impacted the performance and outlook of Presque Isle Downs and Casino ("Presque Isle"). As a result, the Company concluded that a trigger event for impairment testing occurred related to the Presque Isle gaming rights, trademark, and the reporting unit's goodwill at the end of the second quarter. Based on the 2023 trigger event, the Company evaluated and subsequently updated the projected cash flows and discount rate to reflect the current environment. As a result, the Company recognized a non-cash impairment charge of $24.5 million in the second quarter of 2023 for the Presque Isle gaming rights and trademark. Refer to Note 5, Asset Impairments in the notes to our Condensed Consolidated Financial Statements for further information on the impairment.
Arlington Sale
On February 15, 2023, we closed on the 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"). Refer to Note 4, Dispositions in the notes to our Condensed Consolidated Financial Statements for further information on the transaction.
Financing Transactions
On April 25, 2023, we completed an offering of $600.0 million in aggregate principal amount of 6.750% senior 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, working capital and other general corporate purposes.
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.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
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Transaction Update
On August 11, 2022, the Company 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 fourth quarter of 2023.
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 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, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results.
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the following:
Adjusted EBITDA includes our portion of EBITDA from our equity investments.
Adjusted EBITDA excludes:
•Transaction expense, net which includes:
–Acquisition, disposition, and 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, and
–Legal reserves and transaction costs;
•Asset impairments;
•Gain on property and asset sales;
•Legal reserves;
•Pre-opening expense; and
•Other charges, recoveries and expenses
On June 26, 2023, the Company's management agreement for Lady Luck expired and was not renewed. The Company completed the sale of substantially all its assets at Lady Luck for an immaterial amount.
As of December 31, 2021, Arlington ceased racing and simulcast operations and the property was sold on February 15, 2023 to the Chicago Bears. Arlington's results and exit costs in 2022 and 2023 are treated as an adjustment to EBITDA.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
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For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the Condensed Consolidated Statements of Comprehensive Income. See the Reconciliation of Comprehensive Income to Adjusted EBITDA included in this section for additional information.
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. The following update on our regulatory and legislative actions should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 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 racetrack is allowed to contract with up to three providers to carryout online or retail sports betting. Retail sports betting commenced on September 7, 2023 and online sports betting began on September 28, 2023.
Consolidated Financial Results
The following table reflects our net revenue, operating income, net income, Adjusted EBITDA, and certain other financial information:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2023 |  | 2022 |  | Change |  | 2023 |  | 2022 |  | Change
Net Revenue | $ | 572.5 |  | $ | 383.1 |  | $ | 189.4 |  |  | $ | 1,900.5 |  | $ | 1,329.7 |  | $ | 570.8 |
Operating income | 112.3 |  | 63.0 |  | 49.3 |  |  | 457.8 |  | 310.1 |  | 147.7 |
Operating income margin | 20 | % |  | 16 | % |  |  |  | 24 | % |  | 23 | % |  |
Net income | 61.0 |  | 57.0 |  | 4.0 |  |  | 359.7 |  | 438.4 |  | (78.7) |
Adjusted EBITDA | 218.2 |  | 163.2 |  | 55.0 |  |  | 804.8 |  | 582.9 |  | 221.9 |

Three Months Ended September 30, 2023, Compared to Three Months Ended September 30, 2022
•Net revenue increased $189.4 million driven by a $127.2 million increase in Live and Historical Racing revenue primarily due to the Virginia properties acquired in the P2E Transaction, the properties acquired in the Ellis Park and Chasers Transactions, the opening of Turfway Park in Northern Kentucky in September 2022, and continued growth at our other Kentucky properties, a $60.9 million increase in Gaming revenue primarily due to the New York and Iowa properties acquired in the P2E Transaction, and a $2.3 million increase in TwinSpires primarily due to the Exacta Transaction. These increases were partially offset by a $1.0 million decrease in All Other net revenue.
•Operating income increased $49.3 million driven by a $49.1 million increase in Live and Historical Racing income primarily from the Virginia properties acquired in the P2E Transaction, an $18.3 million increase in Gaming income primarily from the New York and Iowa properties acquired in the P2E Transaction, and a $0.6 million increase in All Other. These increases were partially offset by an $11.8 million increase in selling, general and administrative expenses primarily due to the P2E Transaction, a $6.6 million decrease in TwinSpires income, and a $0.3 million increase in transaction costs.
•Net income increased $4.0 million. The following items impacted comparability of the Company's net income from continuing operations for the three months ended September 30, 2023, compared to three months ended September 30, 2022: a $0.9 million after-tax net increase in other nonrecurring expenses. Excluding these items, net income increased $4.9 million due to a $34.5 million after-tax increase primarily driven by the addition of the properties acquired as part of the P2E Transaction in the results of our operations, partially offset by a $22.7 million after-tax increase in interest expense associated with higher outstanding debt balances and higher interest rates, and a $6.9 million after-tax decrease in the equity income from our unconsolidated affiliates.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
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•Adjusted EBITDA increased $55.0 million driven by a $46.4 million increase in Live and Historical Racing Adjusted EBITDA primarily from the Virginia properties acquired in the P2E Transaction and continued growth at our Kentucky HRM properties, a $10.7 million increase in Gaming Adjusted EBITDA primarily from the New York and Iowa properties acquired in the P2E Transaction, and a $2.8 million increase in TwinSpires Adjusted EBITDA primarily due to the Exacta Transaction, partially offset by a $4.9 million increase in corporate general administrative expenses.
Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 2022
•Net revenue increased $570.8 million driven by a $379.7 million increase in Live and Historical Racing revenue primarily attributable to the Virginia properties acquired in the P2E Transaction, the opening of Turfway Park in Northern Kentucky in September 2022, a record-breaking Derby Week at Churchill Downs Racetrack, the properties acquired in the Ellis Park and Chasers Transactions, and continued growth at our other Kentucky properties and a $195.2 million increase in Gaming revenue primarily due to our New York and Iowa properties acquired in the P2E Transaction. These increases were partially offset by a $2.6 million decrease in TwinSpires revenue primarily due to the exit of the direct online Sports and Casino business in the first quarter of 2022 and a $1.5 million decrease in All Other net revenue.
•Operating income increased $147.7 million driven by a $143.2 million increase in Live and Historical Racing income primarily from the Virginia properties acquired in the P2E Transaction, a $53.9 million increase in Gaming income primarily from the New York and Iowa properties acquired in the P2E Transaction, a $7.2 million increase in TwinSpires income, and a $5.6 million decrease in transaction costs. These increases were partially offset by a $37.9 million increase in selling, general and administrative expenses primarily due to the P2E Transaction, a $19.6 million increase in non-cash impairment costs due to the 2023 impairment of Presque Isle intangible assets, and a $4.7 million decrease in All Other operating income primarily related to Arlington exit costs.
•Net income decreased $78.7 million. The following items impacted comparability of the Company's net income from continuing operations for the nine months ended September 30, 2023, compared to nine months ended September 30, 2022: a $107.4 million decrease in after-tax gains on property sales, a $14.9 million increase in after-tax non-cash impairment costs, a $9.2 million after-tax benefit related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swap that did not recur in 2023, and a $2.4 million increase in other nonrecurring costs. Excluding these items, net income increased $55.2 million due to a $135.5 million after-tax increase primarily driven by the addition of the properties acquired as part of the P2E Transaction in the results of our operations, partially offset by a $76.0 million after-tax increase in interest expense associated with higher outstanding debt balances and higher interest rates, and a $4.3 million after-tax decrease in the equity income from our unconsolidated affiliates.
•Adjusted EBITDA increased $221.9 million driven by a $160.2 million increase in Live and Historical Racing Adjusted EBITDA primarily from the Virginia properties acquired in the P2E Transaction, a record-breaking Derby Week at Churchill Downs Racetrack, and continued growth at our other Kentucky properties, a $65.7 million increase in Gaming Adjusted EBITDA primarily from the New York and Iowa properties acquired in the P2E Transaction, and an $8.1 million increase in TwinSpires Adjusted EBITDA primarily due to the exit of the direct online Sports and Casino business in the first quarter of 2022 and the Exacta Transaction, partially offset by a $12.1 million increase in corporate general administrative expenses.
Revenue by Segment
The following table presents revenue for our segments, including intercompany revenue:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2023 |  | 2022 |  | Change |  | 2023 |  | 2022 |  | Change
Live and Historical Racing | $ | 225.5 |  |  | $ | 102.4 |  |  | $ | 123.1 |  |  | $ | 849.3 |  |  | $ | 465.5 |  |  | $ | 383.8 |
TwinSpires | 112.4 |  |  | 107.4 |  |  | 5.0 |  |  | 347.8 |  |  | 347.3 |  |  | 0.5 |
Gaming | 244.9 |  |  | 185.9 |  |  | 59.0 |  |  | 744.4 |  |  | 549.6 |  |  | 194.8 |
All Other | 0.2 |  |  | 1.2 |  |  | (1.0) |  |  | 0.7 |  |  | 2.2 |  |  | (1.5) |
Eliminations | (10.5) |  |  | (13.8) |  |  | 3.3 |  |  | (41.7) |  |  | (34.9) |  |  | (6.8) |
Net Revenue | $ | 572.5 |  |  | $ | 383.1 |  |  | $ | 189.4 |  |  | $ | 1,900.5 |  |  | $ | 1,329.7 |  |  | $ | 570.8 |

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 35 |

Three Months Ended September 30, 2023, Compared to Three Months Ended September 30, 2022
•Live and Historical Racing revenue increased $123.1 million driven by an $89.0 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $14.7 million increase attributable to the properties acquired in the Ellis Park and Chasers Transactions, an $8.8 million increase primarily due to the opening of Turfway Park in Northern Kentucky in September 2022, a $7.4 million increase from our Derby City Gaming property in Louisville, and a $4.3 million increase from our Oak Grove property in Southwestern Kentucky. These increases were partially offset by a $1.1 million decrease at Churchill Downs Racetrack due to the decision to move July race days as part of the Churchill Downs Racetrack Spring Meet to Ellis Park.
•TwinSpires revenue increased $5.0 million driven by a $5.5 million increase attributable to the Exacta Transaction and a $0.9 million increase in all other Horse Racing revenue primarily from the B2B expansion strategy associated with United Tote totalisator fees. These increases were partially offset by a $1.4 million reduction in Sports and Casino revenue.
•Gaming revenue increased $59.0 million driven by a $70.2 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, partially offset by an $8.7 million decrease in Pennsylvania primarily due to our decision not to renew the management agreement at Lady Luck, and a $2.5 million net decrease from our other gaming properties.
Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 2022
•Live and Historical Racing revenue increased $383.8 million driven by a $281.3 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $34.8 million increase primarily due to the opening of Turfway Park in Northern Kentucky in September 2022, a $34.2 million increase attributable to properties acquired in the Ellis Park and Chasers Transactions, a $20.7 million increase due to a record-breaking Derby Week at Churchill Downs Racetrack, a $14.0 million increase from our Oak Grove property in Southwestern Kentucky, and a $9.6 million increase from our Derby City Gaming property in Louisville. These increases were partially offset by a $10.8 million decrease for non-Derby Week racing operations primarily due to the decision to move a portion of the Churchill Downs Racetrack Spring Meet to Ellis Park.
•TwinSpires revenue increased $0.5 million driven by a $5.5 million increase attributable to the Exacta Transaction and a $5.2 million increase in all other Horse Racing revenue primarily from the B2B expansion strategy associated with United Tote totalisator fees, partially offset by a $10.2 million reduction in Sports and Casino revenue due to the exit of the direct online Sports and Casino business in the first quarter of 2022.
•Gaming revenue increased $194.8 million driven by a $207.8 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, partially offset by an $11.4 million decrease in Pennsylvania primarily due to our decision not to renew the management agreement at Lady Luck, and a $1.6 million net decrease from our other gaming properties.
Consolidated Operating Expense
The following table is a summary of our consolidated operating expense:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2023 |  | 2022 |  | Change |  | 2023 |  | 2022 |  | Change
Taxes and purses | $ | 149.1 |  |  | $ | 108.9 |  |  | $ | 40.2 |  | $ | 468.7 |  | $ | 345.5 |  | $ | 123.2
Salaries and benefits | 70.6 |  |  | 45.3 |  |  | 25.3 |  | 211.3 |  | 137.5 |  | 73.8
Content expense | 46.1 |  |  | 39.1 |  |  | 7.0 |  | 135.4 |  | 135.4 |  | —
Selling, general and administrative expense | 50.2 |  |  | 38.4 |  |  | 11.8 |  | 150.6 |  | 112.7 |  | 37.9
Depreciation and amortization | 42.1 |  |  | 27.5 |  |  | 14.6 |  | 121.8 |  | 78.7 |  | 43.1
Marketing and advertising | 18.0 |  |  | 10.0 |  |  | 8.0 |  | 62.4 |  | 36.8 |  | 25.6
Transaction expense, net | 1.5 |  |  | 1.2 |  |  | 0.3 |  | 1.8 |  | 7.4 |  | (5.6)
Asset impairments | — |  |  | — |  |  | — |  | 24.5 |  | 4.9 |  | 19.6
Other operating expense | 82.6 |  |  | 49.7 |  |  | 32.9 |  | 266.2 |  | 160.7 |  | 105.5
Total expense | $ | 460.2 |  | $ | 320.1 |  | $ | 140.1 |  | $ | 1,442.7 |  | $ | 1,019.6 |  | $ | 423.1

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 36 |

Three Months Ended September 30, 2023, Compared to Three Months Ended September 30, 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.
Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 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.
•Asset impairments increased $19.6 million due to the non-cash impairment of Presque Isle intangible assets in the second quarter of 2023.
•Transaction expenses decreased $5.6 million due to the 2022 P2E Transaction.
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 September 30, |  | Nine Months Ended September 30,
(in millions) | 2023 |  | 2022 |  | Change |  | 2023 |  | 2022 |  | Change
Live and Historical Racing | $ | 80.9 |  |  | $ | 34.5 |  |  | $ | 46.4 |  |  | $ | 386.5 |  |  | $ | 226.3 |  |  | $ | 160.2 |
TwinSpires | 33.9 |  |  | 31.1 |  |  | 2.8 |  |  | 97.2 |  |  | 89.1 |  |  | 8.1 |
Gaming | 122.3 |  |  | 111.6 |  |  | 10.7 |  |  | 375.2 |  |  | 309.5 |  |  | 65.7 |
Total Segment Adjusted EBITDA | 237.1 |  |  | 177.2 |  |  | 59.9 |  |  | 858.9 |  |  | 624.9 |  |  | 234.0 |
All Other | (18.9) |  |  | (14.0) |  |  | (4.9) |  |  | (54.1) |  |  | (42.0) |  |  | (12.1) |
Total Adjusted EBITDA | $ | 218.2 |  |  | $ | 163.2 |  |  | $ | 55.0 |  |  | $ | 804.8 |  |  | $ | 582.9 |  |  | $ | 221.9 |

Thr ee Months Ended September 30, 2023, Compared to Three Months Ended September 30, 2022
•Live and Historical Racing Adjusted EBITDA increased $46.4 million driven by a $38.3 million increase attributable to the Virginia properties acquired in the P2E Transaction and a portion of the benefit from the Exacta Transaction, a $7.3 million increase from continued growth at our Derby City Gaming property in Louisville and our Oak Grove property in Southwestern Kentucky, and a $2.9 million increase attributable to our other Live and Historical Racing properties. These increases were partially offset by a $2.1 million decrease at Churchill Downs Racetrack primarily due to the decision to move July race days as part of the Churchill Downs Racetrack Spring Meet to Ellis Park.
•TwinSpires Adjusted EBITDA increased $2.8 million driven by a $3.1 million increase attributable to the Exacta Transaction, partially offset by a $0.3 million net decrease in Horse Racing and Sports and Casino.
•Gaming Adjusted EBITDA increased $10.7 million driven by a $25.0 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, partially offset by a $6.5 million decrease from our equity investments, a $4.9 million decrease from our other wholly-owned gaming properties, and a $2.9 million decrease attributable to proceeds for business interruption insurance claims related to Hurricane Ida. We received $4.1 million of proceeds in the third quarter of 2022, compared to $1.2 million received during the third quarter of 2023.
•All Other Adjusted EBITDA decreased $4.9 million primarily driven by increased corporate compensation and benefits related expenses and legal and professional fees.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 37 |

Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 2022
•Live and Historical Racing Adjusted EBITDA increased $160.2 million driven by a $128.8 million increase attributable to the Virginia properties acquired in the P2E Transaction and a portion of the benefit from the Exacta Transaction, a $16.3 million increase due to a record-breaking Derby Week at Churchill Downs Racetrack, a $14.3 million increase from continued growth at our Derby City Gaming property in Louisville and our Oak Grove property in Southwestern Kentucky, and an $8.5 million increase attributable to our other Live and Historical Racing properties. These increases were partially offset by an $7.7 million decrease for non-Derby Week racing operations primarily driven by the decision to move a portion of the Churchill Downs Racetrack Spring Meet to Ellis Park in June 2023.
•TwinSpires Adjusted EBITDA increased $8.1 million driven by a $9.6 million increase in Sports and Casino from significant cost reductions associated with the exit of the direct online Sports and Casino business in the first quarter of 2022, a $3.3 million increase in Horse Racing primarily from the B2B expansion strategy associated with United Tote totalisator fees, and a $3.1 million increase from the Exacta Transaction. These increases were partially offset by a $7.9 million decrease primarily as a result of lower retail Horse Racing handle due to industry race day cancellations and the decision to move a portion of the Churchill Downs Racetrack Spring Meet to Ellis Park in June 2023 as well as higher content related expenses and higher advance deposit wagering taxes in certain jurisdictions.
•Gaming Adjusted EBITDA increased $65.7 million driven by a $72.8 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction and a $6.9 million increase from our equity investments. These increases were partially offset by an $11.5 million decrease from our other wholly-owned gaming properties and a $2.5 million decrease attributable to proceeds for business interruption insurance claims related to Hurricane Ida. We received $4.1 million of proceeds in 2022 compared to $1.6 million received in 2023.
•All Other Adjusted EBITDA decreased $12.1 million primarily driven by increased corporate compensation and benefits related expenses and legal and professional fees.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 38 |

Reconciliation of Comprehensive Income to Adjusted EBITDA

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2023 |  | 2022 |  | Change |  | 2023 |  | 2022 |  | Change
Net income and comprehensive income | $ | 61.0 |  |  | $ | 57.0 |  |  | $ | 4.0 |  |  | $ | 359.7 |  |  | $ | 438.4 |  |  | $ | (78.7) |
Additions: |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization | 42.1 |  |  | 27.5 |  |  | 14.6 |  |  | 121.8 |  |  | 78.7 |  |  | 43.1 |
Interest expense, net | 67.9 |  |  | 36.2 |  |  | 31.7 |  |  | 197.8 |  |  | 92.6 |  |  | 105.2 |
Income tax provision | 20.8 |  |  | 16.4 |  |  | 4.4 |  |  | 130.2 |  |  | 173.5 |  |  | (43.3) |
EBITDA | $ | 191.8 |  |  | $ | 137.1 |  |  | $ | 54.7 |  |  | $ | 809.5 |  |  | $ | 783.2 |  |  | $ | 26.3 |
Adjustments to EBITDA: |  |  |  |  |  |  |  |  |  |  |
Stock-based compensation expense | $ | 8.1 |  |  | $ | 9.1 |  |  | $ | (1.0) |  |  | $ | 24.8 |  |  | $ | 23.5 |  |  | $ | 1.3 |
Legal reserves | — |  |  | — |  |  | — |  |  | — |  |  | 3.2 |  |  | (3.2) |
Pre-opening expense | 5.0 |  |  | 4.2 |  |  | 0.8 |  |  | 11.4 |  |  | 8.9 |  |  | 2.5 |
Arlington exit costs | 0.1 |  |  | 1.4 |  |  | (1.3) |  |  | 9.4 |  |  | 5.7 |  |  | 3.7 |
Other expense, net | 0.7 |  |  | — |  |  | 0.7 |  |  | 7.6 |  |  | — |  |  | 7.6 |
Transaction expense, net | 1.5 |  |  | 1.2 |  |  | 0.3 |  |  | 1.8 |  |  | 7.4 |  |  | (5.6) |
Asset impairments | — |  |  | — |  |  | — |  |  | 24.5 |  |  | 4.9 |  |  | 19.6 |
Other income, expense: |  |  |  |  |  |  |  |  |  |  |
Interest, depreciation and amortization expense related to equity investments | 10.1 |  |  | 10.1 |  |  | — |  |  | 29.8 |  |  | 31.7 |  |  | (1.9) |
Changes in fair value of Rivers Des Plaines' interest rate swaps | — |  |  | — |  |  | — |  |  | — |  |  | (12.6) |  |  | 12.6 |
Rivers Des Plaines' legal reserves and transactions costs | — |  |  | 0.1 |  |  | (0.1) |  |  | — |  |  | 0.6 |  |  | (0.6) |
Other charges and recoveries, net | 0.9 |  |  | — |  |  | 0.9 |  |  | — |  |  | 1.0 |  |  | (1.0) |
Gain on sale of assets | — |  |  | — |  |  | — |  |  | (114.0) |  |  | (274.6) |  |  | 160.6 |
Total adjustments to EBITDA | 26.4 |  |  | 26.1 |  |  | 0.3 |  |  | (4.7) |  |  | (200.3) |  |  | 195.6 |
Adjusted EBITDA | $ | 218.2 |  |  | $ | 163.2 |  |  | $ | 55.0 |  |  | $ | 804.8 |  |  | $ | 582.9 |  |  | $ | 221.9 |

Consolidated Balance Sheet
The following is a summary of our overall financial position:

(in millions) | September 30, 2023 |  | December 31, 2022 |  | Change
Total assets | $ | 6,750.5 |  |  | $ | 6,206.8 |  |  | $ | 543.7 |
Total liabilities | 5,861.8 |  |  | 5,655.3 |  |  | 206.5 |
Total shareholders' equity | 888.7 |  |  | 551.5 |  |  | 337.2 |

Significant items affecting the comparability of our Condensed Consolidated Balance Sheets include:
•Total assets increased $543.7 million primarily driven by increased capital expenditures and assets acquired in the Exacta Transaction, partially offset by the sale of our Arlington property and the Presque Isle impairment in 2023.
•Total liabilities increased $206.5 million primarily driven by a net increase in long-term debt, income tax liabilities and increased accrued interest, partially offset by decreased dividends payable due to the payment of our annual dividends.
•Total shareholders’ equity increased $337.2 million driven by increased net income and stock-based compensation, partially offset by share repurchases.
Liquidity and Capital Resources
The following table is a summary of our liquidity and cash flows:

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 39 |

(in millions) | Nine Months Ended September 30, |
Cash flows from: | 2023 |  | 2022 |  | Change |
Operating activities | $ | 498.8 |  |  | $ | 424.5 |  |  | $ | 74.3 |  |
Investing activities | (549.5) |  |  | (107.0) |  |  | (442.5) |  |
Financing activities | 38.7 |  |  | 1,020.1 |  |  | (981.4) |  |

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022
•Cash flows provided by operating activities increased $74.3 million driven by increased operating income and increased distributions from unconsolidated affiliates. These increases were partially offset by an increase in net interest paid and net income taxes paid. We anticipate that cash flows from operations and availability of borrowings under our credit facility over the next twelve months will be adequate to fund our business operations and capital expenditures.
•Cash flows used in investing activities increased $442.5 million driven by increased capital project expenditures in 2023 primarily at Churchill Downs Racetrack and for the Dumfries project in Virginia, increased cash used in acquisitions, and decreased proceeds from the sale of assets.
•Cash flows provided by financing activities decreased $981.4 million primarily driven by repayments of long-term debt in 2023 and higher levels of financing than in the prior year period.
We have spent $445.7 million year to date on project capital investments. We expect to spend approximately $575 to $675 million for the year on project capital investments. The significant project capital investments planned for the fourth quarter of 2023 include: Churchill Downs Racetrack Paddock Project, Derby City Gaming Downtown, the Ellis Park HRM facility in Eastern Daviess County, Kentucky, the Terre Haute Casino Resort in Vigo County, Indiana, a New Hampshire HRM Facility, and the Virginia HRM entertainment venue in Dumfries. The planned 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"). 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. The Company repurchased $37.3 million of its common stock during the three months ended September 30, 2023 and had $232.9 million of repurchase authority remaining under this program on September 30, 2023, based on trade date.
Credit Facilities and Indebtedness
The following table presents our debt outstanding:

(in millions) | September 30, 2023 |  | December 31, 2022 |  | Change
Revolver | $ | 118.7 |  |  | $ | 664.1 |  |  | $ | (545.4) |
Term Loan B due 2024 | — |  |  | 380.0 |  |  | (380.0) |
Term Loan B-1 due 2028 | 292.5 |  |  | 294.7 |  |  | (2.2) |
Term Loan A due 2027 | 1,251.3 |  |  | 800.0 |  |  | 451.3 |
2027 Senior Notes | 600.0 |  |  | 600.0 |  |  | — |
2028 Senior Notes | 700.0 |  |  | 700.0 |  |  | — |
2030 Senior Notes | 1,200.0 |  |  | 1,200.0 |  |  | — |
2031 Senior Notes | 600.0 |  |  | — |  |  | 600.0 |
Total debt | 4,762.5 |  |  | 4,638.8 |  |  | 123.7 |
Current maturities of long-term debt | (68.0) |  |  | (47.0) |  |  | (21.0) |
Total debt, net of current maturities | 4,694.5 |  |  | 4,591.8 |  |  | 102.7 |
Issuance costs, net of premiums and discounts | (39.7) |  |  | (33.1) |  |  | (6.6) |
Net debt | $ | 4,654.8 |  |  | $ | 4,558.7 |  |  | $ | 96.1 |

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
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Credit Agreement
At September 30, 2023, the Company’s senior secured credit facility (as amended from time to time, the “Credit Agreement") consisted of a $1.2 billion revolving credit facility (the "Revolver"), $300.0 million senior secured term loan B-1 due 2028 (the "Term Loan B-1"), $1.3 billion senior secured term loan A due 2027 (the "Term Loan A"), and $100.0 million swing line commitment. Certain amendments to the Credit Agreement entered into during 2022 and 2023, are described below.
On April 13, 2022, we amended the Credit Agreement to extend the maturity date of its Revolver to April 13, 2027, to increase the commitments under the existing revolving credit facility from $700.0 million to $1.2 billion, and to increase the swing line commitment from $50.0 million to $100.0 million. This amendment also provided for the senior secured Term Loan A due April 13, 2027 in the amount of $800.0 million, which was drawn on November 1, 2022 as part of the financing for the P2E Transaction. Refer to Note 3, Acquisitions in the notes to our Condensed Consolidated Financial Statements for further information regarding the P2E Transaction. The Company capitalized $3.5 million of debt issuance costs associated with the Revolver commitment increase and $6.4 million of debt issuance costs associated with the Term Loan A which are being amortized as interest expense over the 5-year term.
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 $2.6 million of debt issuance costs associated with the increased Term Loan A which are being amortized as interest expense over the remainder of the 5-year term.
The Company is required to pay a commitment fee on the unused portion of the Revolver as determined by a pricing grid based on the consolidated total net secured leverage ratio of the Company. For the period ended September 30, 2023, the Company's commitment fee rate was 0.25%.
The Revolver 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 of September 30, 2023, that applicable margin was 150 basis points. The Term Loan B-1 bears interest at SOFR plus 210 basis points. The estimated contractual payments, including interest, under the Credit Agreement for the next twelve months are estimated to be $181.2 million assuming no change in the weighted average borrowing rate of 7.01%, which was in place as of September 30, 2023.
During the nine months ended September 30, 2023, we had net repayments of principal and interest on the Revolver of $548.6 million.
The Company completed the transition of its financing from LIBOR to SOFR during the second quarter of 2023. These transition activities did not have a material impact on the Company’s financial statements.
2027 Senior Notes
As of September 30, 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 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 September 30, 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 September 30, 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.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
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In connection with the offering, we capitalized $18.3 million of debt issuance costs which are being amortized as interest expense over the term of the 2030 Senior Notes. The Company held the net proceeds of this transaction of $1.2 billion in escrow until the proceeds were utilized to complete the P2E Transaction on November 1, 2022. The Company may redeem some or all the 2030 Senior Notes at redemption prices set forth in the 2030 Indenture.
2031 Senior Notes
On April 25, 2023, the Company completed an offering of $600.0 million in aggregate principal amount of 6.750% senior unsecured notes that mature on April 25, 2031 (the "2031 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The Company used a portion of the net proceeds from the offering to repay indebtedness outstanding under its Term Loan B Facility due 2024 and to fund related transaction fees and expenses, working capital and other general corporate purposes. The Company recognized a loss on extinguishment on Term Loan B of $1.3 million, which is included in miscellaneous, net in the accompanying Condensed Consolidated Statements of Comprehensive Income. The Company capitalized $10.7 million of debt issuance costs associated with the 2031 Senior Notes which are being amortized as interest expense over the remainder of the 8-year term.
The 2031 Senior Notes were issued at 100% of the principal amount, plus interest deemed to have accrued from April 25, 2023, with interest payable in arrears on May 1st and November 1st of each year, commencing on November 1, 2023. The 2031 Senior Notes will vote as one class under the indenture governing the 2031 Senior Notes.
The Company may redeem some or all of the 2031 Senior Notes at any time prior to April 25, 2025, at redemption prices set forth in the 2031 offering memorandum.
Leases
The Company leases certain real estate and other property. Most of our building and land leases have terms of 2 to 10 years and include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years or more. Certain of our lease agreements include lease payments based on a percentage of net gaming revenue and others include rental payment adjustments periodically for inflation. As of September 30, 2023, minimum rent payable under operating leases was $28.0 million, with $6.3 million due in the next twelve months. As of September 30, 2023, minimum rent payable accounted for as financing obligations was $56.3 million, with $4.4 million due in the next twelve months.
Other Contractual Obligations
The Company has other contractual obligations that consist primarily of minimum guarantees with commitments of $21.6 million, $0.9 million of which is due within the next twelve months.
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 SEPTEMBER 30, 2023
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Interest rate and credit risk
Our primary exposure to market risk relates to changes in interest rates. On September 30, 2023, we had $1.7 billion outstanding under our Credit Agreement, which bears interest at 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 SOFR rate would reduce net income and cash flows from operating activities by $12.1 million. The Company completed the transition of its financing from LIBOR to SOFR during the second quarter of 2023. These transition activities did not have a material impact on the Company’s financial statements.
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 September 30, 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 SEPTEMBER 30, 2023
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in ordinary routine litigation matters which are incidental to our business. Refer to Note 15, Contingencies, in the notes to our Condensed Consolidated Financial Statements, for further information.
ITEM 1A. RISK FACTORS
There have been no material changes 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, 2022.
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 September 30, 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) |
July 2023 |  | 94 |  |  | $ | 120.37 |  |  | — |  |  | $ | 270.2 |  |
August 2023 |  | 147,124 |  |  | 122.55 |  |  | 146,753 |  |  | 252.2 |  |
September 2023 |  | 163,614 |  |  | 118.10 |  |  | 163,614 |  |  | 232.9 |  |
Total |  | 310,832 |  |  | $ | 120.21 |  |  | 310,367 |  |  |  |

(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 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.
ITEM 5. OTHER INFORMATION
Securities Trading Plans of Directors and Executive Officers
During the fiscal quarter ended September 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1 or any non-Rule 10b5-1 trading arrangement.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
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ITEM 6. EXHIBITS

Number |  | Description |  | By reference to:
31(a) |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |  |
31(b) |  | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |  |
32 |  | Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Rule 13a – 14(b))** |  |
101.INS |  | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |  |
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document* |  |
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document* |  |
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document* |  |
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document* |  |
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document* |  |
104 |  | Cover Page Interactive Data File (embedded as Inline XBRL and contained in Exhibit 101) |  |
|  | *filed herewith |  |
|  | **furnished herewith |  |

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
| 45 |

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
October 25, 2023 | /s/ William C. Carstanjen
| William C. Carstanjen
| Chief Executive Officer
| (Principal Executive Officer)
October 25, 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 SEPTEMBER 30, 2023
| 46 |