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 impact of the novel coronavirus (COVID-19) pandemic and related economic
matters on our results of operations, financial conditions and prospects;
•the effect of economic conditions on our consumers' confidence and
discretionary spending or our access to credit;
•additional or increased taxes and fees;
•public perceptions or lack of confidence in the integrity of our business or
any deterioration in our reputation;
•loss of key or highly skilled personnel;
•restrictions in our debt facilities limiting our flexibility to operate our
business;
•general risks related to real estate ownership, including fluctuations in
market values and environmental regulations;
•catastrophic events and system failures disrupting our operations;
•online security risk, including cyber-security breaches;
•inability to recover under our insurance policies for damages sustained at our
properties in the event of inclement weather and casualty events;
•increases in insurance costs and inability to obtain similar insurance coverage
in the future;
•inability to identify and complete acquisition, expansion or divestiture
projects, on time, on budget or as planned;
•difficulty in integrating recent or future acquisitions into our operations;
•costs and uncertainties relating to the development of new venues and expansion
of existing facilities;
•risks associated with equity investments, strategic alliances and other
third-party agreements;
•inability to respond to rapid technological changes in a timely manner;
•inadvertent infringement of the intellectual property of others;
•inability to protect our own intellectual property rights;
•payment-related risks, such as risk associated with fraudulent credit card and
debit card use;
•compliance with the Foreign Corrupt Practices Act or applicable
money-laundering regulations;
•risks related to pending or future legal proceedings and other actions;
•inability to negotiate agreements with industry constituents, including
horsemen and other racetracks;
•work stoppages and labor issues;
•changes in consumer preferences, attendance, wagering, and sponsorship with
respect to Churchill Downs Racetrack and the Kentucky Derby;
•personal injury litigation related to injuries occurring at our racetracks;
•weather and other conditions affecting our ability to conduct live racing;
•the occurrence of extraordinary events, such as terrorist attacks, public
health threats and civil unrest;
•changes in the regulatory environment of our racing operations;
•increased competition in the horse racing business;
•difficulty in attracting a sufficient number of horses and trainers for full
field horse races;
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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•our inability to utilize and provide totalizator services;
•changes in regulatory environment of our online horse racing wagering business;
•a reduction in the number of people wagering on live horse races;
•increased competition in our online horse racing wagering business;
•uncertainty and changes in the legal landscape relating to our online horse
racing wagering business;
•continued legalization of online sports betting and iGaming in the United
States and our ability to predict and capitalize on any such legalization;
•inability to expand our sports betting operations and effectively compete;
•failure to manage risks associated with sports betting;
•failure to comply with laws requiring us to block access to certain individuals
could result in penalties or impairment with respect to our mobile and online
wagering products;
•increased competition in our casino business;
•changes in regulatory environment of our casino business;
•concentration and evolution of slot machine manufacturing and other technology
conditions that could impose additional costs; and
•inability to collect gaming receivables from the customers to whom we extend
credit.
The following information is unaudited. Tabular dollars are in millions, except
per share amounts. All per share amounts assume dilution unless otherwise noted.
This report should be read in conjunction with our Annual Report on Form 10-K
for the year ended December 31, 2019, including Part I - Item 1A, "Risk Factors"
of our Form 10-K for a discussion regarding some of the reasons that actual
results may be materially different from those we anticipate.
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
                                          33


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Our Business
Executive Overview
We are an industry-leading racing, online wagering and gaming entertainment
company anchored by our iconic flagship event - the Kentucky Derby. We own and
operate three pari-mutuel gaming entertainment venues in Kentucky - Derby City
Gaming; Oak Grove Racing, Gaming & Hotel; and Newport Racing & Gaming. Our
online wagering business owns and operates TwinSpires.com, the largest and most
profitable online horse racing wagering platform in the U.S. and BetAmerica, an
online sports betting and iGaming platform in the U.S. We are also a leader in
brick-and-mortar casino gaming with approximately 11,000 slot machines and video
lottery terminals ("VLTs") and 200 table games in eight states. We were
organized as a Kentucky corporation in 1928, and our principal executive offices
are located in Louisville, Kentucky.
Impact of COVID-19 Pandemic
In March 2020, the World Health Organization declared the COVID-19 outbreak a
global pandemic. Considerable uncertainty still surrounds the COVID-19 virus and
its potential effects, and the extent of and effectiveness of responses taken on
international, national and local levels. Measures taken to limit the impact of
COVID-19, including shelter-in-place orders, social distancing measures, travel
bans and restrictions, and business and government shutdowns, have resulted and
continue to result in significant negative economic impacts in the United States
and in relation to our business. The long-term impact of COVID-19 on the United
States and world economies and continuing impact on our business remains
uncertain, the duration and scope of which cannot currently be predicted.
In response to the measures taken to limit the impact of COVID-19 described
above, and for the protection of our employees, customers, and communities, we
temporarily suspended operations at our properties in March 2020. In May 2020,
we began to reopen our properties with patron restrictions and gaming
limitations. As of September 30, 2020, all of our properties had reopened and
remain open with applicable restrictions. We also implemented other initiatives
to facilitate social distancing and enhanced cleaning, such as increased
frequency of cleaning and sanitizing of all high-touch surfaces, mandatory
temperature checks of all guests and team members upon entry and required
training for all team members on safety protocols. Certain amenities at our
properties have continued to be suspended, including all of our food buffets and
valet services, and certain restaurants and food outlets. Below is a summary of
the temporary closures and the current status of each property:
Churchill Downs
•Churchill Downs Racetrack conducted 27 spectator-free live racing days in the
second quarter of 2020 and 14 spectator-free live racing days in the third
quarter of 2020, including the 146th Kentucky Oaks and Derby on September 4-5,
2020. Churchill Downs Racetrack suspended simulcast operations on March 15,
2020, and these operations remained closed.
•Derby City Gaming temporarily suspended operations on March 15, 2020 and
reopened on June 8, 2020. Derby City Gaming is currently restricted to 75% of
patron capacity, and is operating at 66% of gaming capacity.
Gaming
Wholly-Owned Properties
•Calder Casino and Racing ("Calder") temporarily suspended operations on March
16, 2020 and reopened on June 12, 2020. Operations were temporarily suspended
again on July 2, 2020 following a Miami-Dade Emergency Order issued by the
county's mayor to close all entertainment venues in Miami-Dade County. Calder
reopened on August 31, 2020 with restrictions on operating hours and is
operating at 56% gaming capacity.
•Fair Grounds Slots, Fair Grounds Race Course and Video Services, LLC ("VSI")
(collectively, "Fair Grounds and VSI"):
•Fair Grounds Slots temporarily suspended operations on March 16, 2020 and
reopened on June 13, 2020. Fair Grounds Slots is currently restricted to 25% of
patron capacity and is operating at 75% of gaming capacity;
•Fair Grounds Race Course conducted spectator-free live racing from March 13,
2020 through March 21, 2020 and did not have any live race days during the
second or third quarters of 2020; and
•VSI temporarily suspended operations on March 16, 2020 and reopened on May 18,
2020. VSI is currently restricted to 50% of patron capacity and is operating at
75% of gaming capacity.
•Harlow's Casino Resort and Spa ("Harlow's") temporarily suspended operations on
March 16, 2020 and reopened on May 21, 2020. Harlow's is currently restricted to
50% of patron capacity and is operating at 66% of slot gaming capacity and 60%
of table game capacity.
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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•Ocean Downs Casino and Racetrack ("Ocean Downs") temporarily suspended
operations on March 15, 2020 and reopened on June 19, 2020. Ocean Downs is
currently restricted to 50% of patron capacity and is operating at 70% of video
lottery terminals ("VLTs") capacity and 60% of table game capacity.
•Oxford Casino and Hotel ("Oxford") temporarily suspended operations on March
16, 2020 and reopened on July 9, 2020. Oxford is currently restricted to 200
persons on the gaming floor.
•Presque Isle Downs and Casino ("Presque Isle") temporarily suspended operations
on March 16, 2020 and reopened on June 26, 2020. Presque Isle has a temporary
ban on alcohol and smoking on the gaming floor, is currently restricted to 50%
of patron capacity and is operating at 60% of slot gaming capacity and 60% of
table game capacity.
•Riverwalk Casino Hotel ("Riverwalk") temporarily suspended operations on March
16, 2020 and reopened on May 21, 2020. Riverwalk is currently restricted to 50%
of patron capacity and is operating at 66% of slot gaming capacity and 60% of
table game capacity.
Managed Properties
•Lady Luck Casino Nemacolin ("Lady Luck Nemacolin") temporarily suspended
operations on March 16, 2020 and reopened on June 12, 2020. Lady Luck Nemacolin
has a temporary ban on alcohol and smoking on the gaming floor, is currently
restricted to 50% of patron capacity and is operating at 50% of slot gaming
capacity and 60% of table game capacity.
Equity Investments
•Rivers Casino Des Plaines ("Rivers Des Plaines") temporarily suspended
operations on March 15, 2020 and reopened on July 1, 2020. Rivers Des Plaines
has certain operating hour restrictions and temporary bans on food and beverage
within the facility, is currently restricted to 25% of patron capacity and is
operating at 75% of slot gaming capacity and 45% of table game capacity.
•Miami Valley Gaming and Racing ("MVG") temporarily suspended operations on
March 14, 2020 and reopened on June 19, 2020. MVG has certain hourly
restrictions on serving alcohol, is currently restricted to 63% of patron
capacity and is operating at 67% of VLT capacity.
All Other
•Arlington International Racecourse ("Arlington") temporarily suspended
operations of its off-track betting facilities ("OTBs") and simulcast operations
on March 16, 2020. Four OTBs reopened on June 5, 2020 and the remaining OTBs
reopened on various dates in July 2020. Arlington conducted 18 spectator-free
live racing days and 12 live racing days with 300 patron restrictions during the
third quarter of 2020.
•Turfway Park conducted nine live racing days from March 12, 2020 through March
21, 2020 and five of these live racing days were run spectator-free. Live racing
was canceled for the remaining three scheduled racing days in March 2020.
Turfway Park did not have any race days scheduled in the second or third
quarters of 2020.
On March 25, 2020, as a result of the temporary closures and suspended
operations described above, the Company announced the temporary furlough of
employees at its wholly-owned and managed gaming properties and certain racing
operations. As the Company has reopened these properties, certain employees have
returned to work while others remain on temporary furlough due to the capacity
restrictions at these properties. The Company provided health, dental, vision
and life insurance benefits to furloughed employees through July 31, 2020.
The Company also implemented a temporary salary reduction for all remaining
non-furloughed salaried employees based on a percentage that varies dependent
upon the amount of each employee's salary. The most senior level of executive
management received the largest salary decrease, based on both percentage and
dollar amount. Salaries for non-furloughed employees resumed at the annual base
salary beginning with the start of the employee's first full pay period
subsequent to July 31, 2020.
Financial Status and Outlook
The Company reduced its planned maintenance and project capital expenditures for
2020 as a result of the temporary property and operations closures and has
prioritized its capital investments based on the highest near-term return
opportunities in order to maintain financial flexibility.
On March 16, 2020, we borrowed $675.4 million on our revolving credit facility
(the "Revolver") pursuant to the Credit Agreement (defined below) to provide the
Company with additional financial flexibility. The Company had $622.0 million of
cash and cash equivalents as of September 30, 2020.
On April 28, 2020, the Company entered into a Second Amendment to its Credit
Agreement, which (i) provides for a financial covenant relief period through the
date on which the Company delivers its quarterly financial statements and
compliance
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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certificate for the fiscal quarter ending June 30, 2021, subject to certain
exceptions (the "Financial Covenant Relief Period"), (ii) amends the definition
of "Consolidated EBITDA" in the Credit Agreement with respect to the calculation
of Consolidated EBITDA for the first two fiscal quarters after the termination
of the Financial Covenant Relief Period, (iii) extends certain deadlines and
makes certain other amendments to the Company's financial reporting obligations,
(iv) places certain restrictions on restricted payments during the Financial
Covenant Relief Period, and (v) amends the definitions of "Material Adverse
Effect" and "License Revocation" in the Credit Agreement to take into
consideration COVID-19.
During the Financial Covenant Relief Period, the Company will not be required to
comply with the consolidated total secured net leverage ratio financial covenant
and the interest coverage ratio financial covenant. The Company has agreed to a
minimum liquidity financial covenant that requires the Company and its
restricted subsidiaries to maintain liquidity of at least $150.0 million during
the Financial Covenant Relief Period.
We continue to assess the situation at our properties and operations on a daily
basis; however, we are unable to determine when the current restrictions in
place for our opened properties will be removed. Our third quarter of 2020
financial results were materially impacted by the rescheduling of the 146th
Kentucky Oaks and Derby from the second quarter of 2020 to the third quarter of
2020 without spectators, by the temporary suspension of operations at certain
properties, and continued property restrictions.
Based on our current projected operating cash flow needs, interest and debt
repayments, and revised maintenance and project capital expenditures, we believe
we have adequate cash to fund our business operations, meet all of our financial
commitments, and invest in our prioritized key growth capital projects for well
beyond the next twelve months.
Kater and Thimmegowda Settlement
On May 22, 2020, we entered into an agreement in principle to settle Cheryl
Kater v. Churchill Downs Incorporated (the "Kater litigation") and Manasa
Thimmegowda v. Big Fish Games, Inc. (the "Thimmegowda litigation"). The
agreement in principle remains contingent on final court approval by the U.S.
District Court for the Western District of Washington (the "District Court").
Under the terms of the settlement, which will take effect only after final court
approval of the proposed class settlement: (i) a total of $155.0 million will be
paid into a settlement fund. CDI will pay $124.0 million pre-tax of the
settlement from its available cash; Aristocrat Technologies, Inc. ("Aristocrat")
will pay $31.0 million pre-tax of the settlement; (ii) all members of the
nationwide settlement class who do not exclude themselves will release all
claims relating to the subject matter of the lawsuits; and (iii) Aristocrat has
agreed to specifically release CDI of any and all indemnification obligations
under the Stock Purchase Agreement dated November 29, 2017 (the "Stock Purchase
Agreement"), among the Company, Aristocrat, and Big Fish Games, Inc. ("Big Fish
Games") arising from or related to the Kater and Thimmegowda litigations,
including any claims of diminution of value of Big Fish Games and any claims by
any person who opts out of the proposed class settlement. The $124.0 million
pre-tax settlement related to the Company is included in loss from discontinued
operations, net of tax in the accompanying condensed consolidated statements of
comprehensive (loss) income for the nine months ended September 30, 2020, and on
a pre-tax basis in current liabilities of discontinued operations in the
accompanying condensed consolidated balance sheets at September 30, 2020. The
final settlement approval hearing is currently scheduled for February 11, 2021.
We anticipate making the payment into the settlement fund during the first
quarter of 2021, pending final approval by the District Court.
Asset Impairment
During the quarter ended March 31, 2020, the Company evaluated whether events or
circumstances changed that would indicate it is more likely than not that any of
its indefinite-lived intangible assets, goodwill, or property and equipment,
were impaired ("Trigger Event"), or if there were any other than temporary
impairments of our equity investments. Factors considered in this evaluation
included, among other things, the amount of the fair value over carrying value
from the annual impairment testing performed as of April 1, 2019, changes in
carrying values, changes in discount rates, and the impact of temporary property
closures due to the COVID-19 pandemic on cash flows. Based on the Company's
evaluation, the Company concluded that a Trigger Event occurred related to the
Presque Isle gaming rights, trademark, and the reporting unit's goodwill due to
the impact and uncertainty of the COVID-19 pandemic and the recent closing of
the Presque Isle Transaction (as defined below) in 2019. As a result of the
Trigger Event, the Company recognized an impairment in the first quarter of 2020
of $15.0 million for its Presque Isle gaming rights intangible asset and an
impairment of $2.5 million for its Presque Isle trademark intangible asset.
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
                                          36


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Segments


We manage our operations through three reportable segments as follows:
•Churchill Downs
The Churchill Downs segment includes live and historical pari-mutuel racing
related revenue and expenses at Churchill Downs Racetrack and Derby City Gaming.
Churchill Downs Racetrack is the home of the Kentucky Derby and conducts live
racing during the year. Derby City Gaming is a historical racing machine
facility that operates under the Churchill Downs pari-mutuel racing license at
its ancillary training facility in Louisville, Kentucky.
Churchill Downs Racetrack and Derby City Gaming earn commissions primarily from
pari-mutuel wagering on live races at Churchill Downs and on historical races at
Derby City Gaming; simulcast fees earned from other wagering sites; admissions,
personal seat licenses, sponsorships, television rights, and other miscellaneous
services (collectively "racing event-related services"), as well as food and
beverage services.
•Online Wagering
The Online Wagering segment includes the revenue and expenses for the TwinSpires
business ("TwinSpires") and the online sports betting and iGaming business.
TwinSpires operates our online horse racing wagering business on TwinSpires.com,
BetAmerica.com and other Company platforms; facilitates high dollar wagering by
international customers (Velocity); and provides the platform for horse racing
statistical data generated by our information business that provides data and
processing services to the equine industry (Brisnet).
Our sports betting and iGaming business includes the online BetAmerica sports
betting and casino gaming operations. On September 24, 2020, the Company opened
a retail BetAmerica sportsbook at Bronco Billy's Casino in Cripple Creek,
Colorado, and on September 25, 2020, the Company opened a retail BetAmerica
sportsbook at Island Resort & Casino in Harris, Michigan. BetAmerica plans to
launch its online sportsbook and iGaming platform in Pennsylvania, Colorado and
Michigan, and its online sportsbook platform in Indiana, subject to regulatory
approvals.
•Gaming
The Gaming segment includes revenue and expenses for the casino properties and
associated racetrack or jai alai facilities which support the casino license.
The Gaming segment has approximately 11,000 slot machines and VLTs and 200 table
games located in eight states.
The Gaming segment revenue and Adjusted EBITDA includes the following
properties:
•Calder
•Fair Grounds and VSI
•Harlow's
•Lady Luck Nemacolin management agreement
•Ocean Downs
•Oxford
•Presque Isle
•Riverwalk
The Gaming segment Adjusted EBITDA also includes the Adjusted EBITDA related to
the Company's equity investments in the following:
•61.3% equity investment in Midwest Gaming, the parent company of Rivers Des
Plaines in Des Plaines, Illinois
•50% equity investment in MVG
The Gaming segment generates revenue and expenses from slot machines, table
games, VLTs, video poker, retail sports betting, ancillary food and beverage
services, hotel services, commission on pari-mutuel wagering, racing
event-related services, and / or other miscellaneous operations.
We have aggregated the following businesses as well as certain corporate
operations, and other immaterial joint ventures in "All Other" to reconcile to
consolidated results:
•Oak Grove Racing, Gaming & Hotel ("Oak Grove")
•Newport Racing & Gaming ("Newport")
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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•Turfway Park
•Arlington
•United Tote
•Corporate
We conduct our business through these reportable segments and report net revenue
and operating expense associated with these reportable segments in the
accompanying condensed consolidated statements of comprehensive income.
Oak Grove Racing, Gaming & Hotel
On September 18, 2020, the Company opened its simulcast and historical racing
machine ("HRM") operations at Oak Grove, located in Oak Grove, Kentucky. Oak
Grove is currently restricted to 75% of patron capacity and is operating at 63%
of gaming capacity. The Oak Grove Hotel opened on October 15, 2020.
Effective September 11, 2020, the Company purchased the remaining equity
interests of WKY Development, LLC, a joint venture that owns Oak Grove, from
Keeneland Association, Inc. for $3.0 million. As of September 30, 2020, the
Company no longer reports a noncontrolling interest associated with Oak Grove in
the accompanying consolidated financial statements.
Newport Racing and Gaming
The Company invested $38.4 million to build out Newport, located in Newport,
Kentucky, to create a premier entertainment experience as an extension of
Turfway Park. Newport opened on October 2, 2020 and has a pari-mutuel simulcast
area, a 17,000 square foot gaming floor with 500 HRMs, and a feature bar.
Newport is currently restricted to 75% of patron capacity.
Online Wagering
On September 24, 2020, the Company opened a retail BetAmerica sportsbook at
Bronco Billy's Casino in Cripple Creek, Colorado, and on September 25, 2020, the
Company opened a retail BetAmerica sportsbook at Island Resort & Casino in
Harris, Michigan. BetAmerica plans to launch its mobile sportsbook and iGaming
application in each of Pennsylvania, Colorado and Michigan, and its mobile
sportsbook application in Indiana, subject to regulatory approvals.
In August 2020, the Company announced the entry into multi-year agreements with
GAN Limited and Kambi Group PLC to provide player account management, casino
platform, sports trading and risk management services to BetAmerica.
Acquisitions of Presque Isle and Lady Luck Nemacolin
On January 11, 2019, we completed the acquisition of Presque Isle located in
Erie, Pennsylvania from Eldorado Resorts, Inc. ("ERI") for cash consideration of
$178.9 million (the "Presque Isle Transaction") and $1.6 million of working
capital and other purchase price adjustments.
On March 8, 2019, the Company assumed management and acquired certain assets
related to the management of Lady Luck Nemacolin in Farmington, Pennsylvania,
from ERI for cash consideration of $100,000 (the "Lady Luck Nemacolin
Transaction").
Acquisition of Certain Ownership Interests of Midwest Gaming Holdings, LLC
On March 5, 2019, the Company completed the acquisition of certain ownership
interests of Midwest Gaming Holdings, LLC ("Midwest Gaming"), the parent company
of Rivers Des Plaines in Des Plaines, Illinois to acquire approximately 42% of
Midwest Gaming from affiliates and co-investors of Clairvest Group Inc.
("Clairvest") and members of High Plaines Gaming, LLC ("High Plaines"), an
affiliate of Rush Street Gaming, LLC and Casino Investors, LLC ("Casino
Investors") for cash consideration of approximately $406.6 million and $3.5
million of certain transaction costs and working capital adjustments (the "Sale
Transaction"). Following the closing of the Sale Transaction, the parties
completed a recapitalization transaction on March 6, 2019 (the
"Recapitalization"), pursuant to which Midwest Gaming used approximately $300.0
million in proceeds from amended and extended credit facilities to redeem, on a
pro rata basis, additional Midwest Gaming units held by High Plaines and Casino
Investors. As a result of the Recapitalization, the Company's ownership of
Midwest Gaming increased to 61.3%. High Plaines retained ownership of 36.0% of
Midwest Gaming and Casino Investors retained ownership of 2.7% of Midwest
Gaming.
We also recognized a $103.2 million deferred tax liability and a corresponding
increase in our investment in unconsolidated affiliates related to an entity we
acquired in conjunction with our acquisition of the Clairvest ownership stake in
Midwest Gaming.
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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Turfway Park Acquisition
The Company completed the acquisition of Turfway Park from Jack Entertainment
LLC ("JACK") and Hard Rock International ("Hard Rock") on October 9, 2019 for
total consideration of $46.0 million in cash ("Turfway Park Acquisition").
Turfway Park is located on 197 acres in Florence, Kentucky. On July 28, 2020,
the Company's Board of Directors approved the final design plans for the HRM and
grandstand facility at Turfway Park. The final plans reflect $200 million of
project capital, which includes the Turfway Park Acquisition costs and other
previously approved capital. The 155,000 square foot facility will include a
grandstand, sports bar, food offerings, and up to 1,200 historical racing
machines. The Company has temporarily paused the construction of the HRM and
grandstand facility due to the recent ruling by the Kentucky Supreme Court.
Refer to Part II., Item 1. Legal Proceedings, for further information.
Of the $46.0 million total consideration, $36.0 million, less $0.9 million of
working capital and purchase price adjustments, was accounted for as a business
combination. The remaining $10.0 million was paid to Hard Rock for the
assignment of the purchase and sale agreement rights and was accounted for
separately from the business combination as an intangible asset and was
amortized through expense in the fourth quarter of 2019.
Key Indicators to Evaluate Business Results and Financial Condition
Our management monitors a variety of key indicators to evaluate our business
results and financial condition. These indicators include changes in net
revenue, operating expense, operating income, earnings per share, outstanding
debt balance, operating cash flow and capital spend.
Our condensed consolidated financial statements have been prepared in conformity
with U.S. generally accepted accounting principles ("GAAP"). We also use
non-GAAP measures, including EBITDA (earnings before interest, taxes,
depreciation and amortization) and Adjusted EBITDA. We believe that the use of
Adjusted EBITDA as a key performance measure of results of operations enables
management and investors to evaluate and compare from period to period our
operating performance in a meaningful and consistent manner. Our chief operating
decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop
strategy and allocate resources. Adjusted EBITDA is a supplemental measure of
our performance that is not required by, or presented in accordance with, GAAP.
Adjusted EBITDA should not be considered as an alternative to, or more
meaningful than, net income (as determined in accordance with GAAP) as a measure
of our operating results.
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, adjusted for the following:
Adjusted EBITDA includes our portion of EBITDA from our equity investments.
Adjusted EBITDA excludes:
•Transaction expense, net which includes:
•Acquisition and disposition related charges;
•Calder racing exit costs; and
•Other transaction expense, including legal, accounting and other deal-related
expense;
•Stock-based compensation expense;
•Midwest Gaming's impact on our investments in unconsolidated affiliates from:
•The impact of changes in fair value of interest rate swaps; and
•Recapitalization and transaction costs;
•Asset impairments;
•Gain on Ocean Downs/Saratoga Transaction;
•Legal reserves;
•Pre-opening expense; and
•Other charges, recoveries and expenses
For segment reporting, Adjusted EBITDA includes intercompany revenue and expense
totals that are eliminated in the accompanying condensed consolidated statements
of comprehensive income. Refer to the reconciliation of comprehensive income to
Adjusted EBITDA included in this section for additional information.
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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Government Regulations and Legislative Actions
We are subject to various federal, state and international laws and regulations
that affect our businesses. The ownership, operation and management of our
Churchill Downs, Online Wagering, and Gaming 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 activities should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2019, including Part I - Item 1,
"Business," for a discussion of regulatory and legislative issues.
Specific State Casino Regulations and Legislative Actions
Illinois
On June 30, 2020, legislation was signed into law by the Governor of Illinois
that provides financial relief to the gaming industry. The legislation amends
the existing law to allow the lower privilege tax on table games for existing
casinos effective as of July 1, 2020 instead of when a newly authorized casino
begins operations. The legislation also provides cash flow relief for existing
casinos by extending the payment deadline for new gaming positions from July 1,
2020 to July 1, 2021 and extends the payment period and waives interest for
reconciliation payments related to the new gaming positions. The legislation
delays the payment deadline for an initial sports wagering license from July 1,
2020 to July 1, 2021 and also establishes a lower privilege tax schedule for a
new casino in Chicago, which has been authorized but not yet opened. We believe
the legislation will have a positive impact on our business operations.
Louisiana
Effective July 15, 2020, legislation was signed into law by the Governor of
Louisiana that exempts the tax on promotional play up to $5.0 million for
casinos. We believe the legislation will have a positive impact on our business
operations.
Consolidated Financial Results
The following table reflects our net revenue, operating income, net income,
Adjusted EBITDA, and certain other financial information:
                                        Three Months Ended September 30,                            Nine Months Ended September 30,
(in millions)                        2020                2019            Change              2020                    2019             Change
Net revenue                     $     337.8           $ 306.3          $  31.5          $    775.8               $ 1,049.1          $ (273.3)
Operating income                       49.5              27.8             21.7                37.5                   212.2            (174.7)
Operating income margin                  15   %             9  %                                 5   %                  20  %
Net income (loss) from
continuing operations           $      43.1           $  15.2          $  27.9          $     (3.1)              $   135.4          $ (138.5)
Net income (loss) attributable
to Churchill Downs Incorporated        43.2              14.8             28.4               (99.0)                  133.5            (232.5)
Adjusted EBITDA                       121.9              88.0             33.9               207.3                   377.6            (170.3)


Three Months Ended September 30, 2020, Compared to Three Months Ended September
30, 2019
•Net revenue increased $31.5 million driven by a $55.7 million increase from
Online Wagering due to an increase in handle and active players, and a $29.4
million increase from Churchill Downs primarily due to the rescheduling of the
146th Kentucky Oaks and Derby without spectators. Partially offsetting these
increases were a $43.6 million decrease from Gaming due to the patron
restrictions and gaming capacity limitations at each property and a $10.0
million decrease from All Other primarily due to the patron restrictions during
live racing at Arlington.
•Operating income increased $21.7 million due to a $24.4 million increase from
Online Wagering due to an increase in handle and active players, a $11.9 million
increase at Churchill Downs due to the rescheduling of the 146th Kentucky Oaks
and Derby without spectators and strong performance at Derby City Gaming, and a
$0.4 million decrease in transaction expense, net. Partially offsetting these
increases were a $7.6 million decrease due to the patron restrictions during
live racing at Arlington, a $4.4 million increase in selling, general and
administrative expense due to an adjustment for the estimated annual payout of
accrued bonuses, and a $3.0 million decrease from Gaming due to the patron
restrictions and gaming capacity limitations at each property.
•Net income from continuing operations increased $27.9 million. A $4.3 million
after-tax increase in higher transaction, pre-opening and other expenses
impacted comparability of the Company's third quarter of 2020 net income from
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
                                          40



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continuing operations compared to the prior year quarter: Partially offsetting
this increase were a $3.3 million after-tax expense decrease related to our
equity portion of the non-cash change in fair value of Midwest Gaming's interest
rate swaps; a $3.0 million after-tax decrease in expenses due to legal reserves
in the prior year quarter that did not recur in the current year quarter; and a
$0.5 million non-cash tax impact related to the re-measurement of our net
deferred tax liabilities in the third quarter of 2019 that did not recur in the
current year quarter based on an increase in revenue related to states with
higher tax rates. Excluding these items, net income from continuing operations
increased $25.4 million primarily due to a $27.6 million after-tax increase
driven by the results of our operations and equity income from our
unconsolidated affiliates, partially offset by a $2.2 million after-tax increase
in interest expense associated with higher outstanding debt balances.
•Net income attributable to Churchill Downs Incorporated increased $28.4 million
due to a $27.9 million increase in net income from continuing operations
discussed above, a $0.4 million decrease in net loss from discontinued
operations, and a $0.1 million increase in net loss attributable to our
noncontrolling interest.
•Adjusted EBITDA increased $33.9 million driven by a $18.7 million increase from
Churchill Downs primarily due to the rescheduling of the 146th Kentucky Oaks and
Derby without spectators and the strong performance at Derby City Gaming; a
$16.9 million increase from Online Wagering from increased handle and active
players at TwinSpires; and a $3.7 million increase from Gaming due to the strong
performance from our equity investments. Partially offsetting these increases
was a $5.4 million decrease from All Other primarily due to the patron
restrictions at Arlington.
Nine Months Ended September 30, 2020, Compared to Nine Months Ended September
30, 2019
•Net revenue decreased $273.3 million driven by a $205.0 million decrease from
Gaming due to the temporary suspension of operations of all of our Gaming
properties; a $127.0 million decrease from Churchill Downs primarily due to
running the 146th Kentucky Oaks and Derby without spectators; and a $26.8
million decrease from All Other primarily due to the temporary suspension of
operations at Arlington. Partially offsetting these decreases was an $85.5
million increase from Online Wagering due to an increase in handle and net
revenue per active player at TwinSpires.
•Operating income decreased $174.7 million due to a $105.2 million decrease from
Churchill Downs primarily due to running the 146th Kentucky Oaks and Derby
without spectators; a $76.7 million decrease from Gaming due to the temporary
suspension of operations of all of our Gaming properties; a $20.0 million
decrease from All Other primarily due to the temporary suspension of operations
at Arlington; and a $17.5 million non-cash impairment of the Presque Isle gaming
rights and trademark intangible assets. Partially offsetting these decreases
were a $36.6 million increase from Online Wagering due to an increase in handle
and net revenue per active player at TwinSpires; a $4.1 million decrease in
selling, general and administrative expense primarily from a reduction in
salaries and associated benefits; and a $4.0 million decrease in transaction
expense, net.
•Net income from continuing operations decreased $138.5 million. The following
items impacted comparability of the Company's net income from continuing
operations during the nine months ended September 30, 2020 compared to the prior
year period: a $12.0 million non-cash after-tax impact related to our impairment
of the Presque Isle intangible assets and a $2.3 million increase in expenses
related to higher transaction, pre-opening and other expenses. Partially
offsetting these decreases were a $3.4 million after-tax decrease of our equity
portion of Midwest Gaming's recapitalization and transaction costs in 2019 that
did not recur in 2020, a $3.3 million after-tax decrease in expenses due to
legal reserves in 2019 that did not recur in 2020, a $2.7 million non-cash tax
impact related to the re-measurement of our net deferred tax liabilities in 2019
that did not recur in 2020 based on an increase in revenue related to states
with higher tax rates, and a $0.2 million after-tax expense decrease related to
our equity portion of the non-cash change in fair value of Midwest Gaming's
interest rate swaps. Excluding these items, net income from continuing
operations decreased $133.8 million primarily due to a $127.0 million after-tax
decrease driven by the results of our operations and equity income from our
unconsolidated affiliates and a $6.8 million after-tax increase in interest
expense associated with higher outstanding debt balances.
•Net income attributable to Churchill Downs Incorporated decreased $232.5
million due to a $138.5 million decrease in net income from continuing
operations discussed above and a $94.2 million increase in net loss from
discontinued operations, partially offset by a $0.2 million increase from net
loss attributable to noncontrolling interest. During the second quarter of 2020,
we settled the Kater and Thimmegowda litigations for $124.0 million pre-tax
($95.0 million after-tax) which increased our net loss from discontinued
operations compared to the prior year period.
•Adjusted EBITDA decreased $170.3 million driven by a $98.2 million decrease
from Churchill Downs primarily due to running the 146th Kentucky Oaks and Derby
without spectators; a $90.2 million decrease from Gaming due to the temporary
suspension of all Gaming property operations; and a $13.5 million decrease from
All Other primarily due to
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
                                          41


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the temporary suspension of operations at Arlington. Partially offsetting these
decreases was a $31.6 million increase from Online Wagering from increased
handle and net revenue per active players at TwinSpires.
Financial Results by Segment
Net Revenue by Segment
The following table presents net revenue for our segments, including
intercompany revenue:
                                       Three Months Ended September 30,                         Nine Months Ended September 30,
(in millions)                       2020                2019            Change             2020                2019             Change
Churchill Downs:
Churchill Downs Racetrack      $       42.1          $  10.2          $  31.9          $     66.8          $   184.8          $ (118.0)
Derby City Gaming                      25.9             22.5              3.4                55.2               62.4              (7.2)
Total Churchill Downs                  68.0             32.7             35.3               122.0              247.2            (125.2)
Online Wagering:
TwinSpires                            124.6             70.5             54.1               311.9              229.7              82.2
Online Sports Betting and
iGaming                                 1.8             (0.1)             1.9                 3.8                0.1               3.7
Total Online Wagering                 126.4             70.4             56.0               315.7              229.8              85.9
Gaming:
Fair Grounds and VSI                   27.9             25.0              2.9                72.1               94.7             (22.6)
Presque Isle                           27.8             38.3            (10.5)               57.4              105.3             (47.9)
Calder                                  6.5             24.5            (18.0)               34.0               75.5             (41.5)
Oxford                                 12.2             27.2            (15.0)               32.4               77.4             (45.0)
Ocean Downs                            24.3             26.7             (2.4)               42.2               67.0             (24.8)
Riverwalk                              16.0             13.6              2.4                36.1               44.1              (8.0)
Harlow's                               13.0             13.3             (0.3)               30.3               41.9             (11.6)
Lady Luck Nemacolin                     7.2             10.0             (2.8)               16.8               20.6              (3.8)
Total Gaming                          134.9            178.6            (43.7)              321.3              526.5            (205.2)
All Other                              20.3             29.8             (9.5)               44.0               69.9             (25.9)
Eliminations                          (11.8)            (5.2)            (6.6)              (27.2)             (24.3)             (2.9)
Net Revenue                    $      337.8          $ 306.3          $  31.5          $    775.8          $ 1,049.1          $ (273.3)


Three Months Ended September 30, 2020, Compared to Three Months Ended
September 30, 2019
•Churchill Downs revenue increased $35.3 million due to a $31.9 million increase
from Churchill Downs Racetrack primarily due to the rescheduling of the 146th
Kentucky Oaks and Derby without spectators, and a $3.4 million increase from
Derby City Gaming.
•Online Wagering revenue increased $56.0 million from the prior year quarter
primarily due to a $54.1 million increase from TwinSpires. TwinSpires handle
grew $253.7 million, or 68.8%, compared to the prior year quarter, as our
customers wagered more on the content that was available. Online BetAmerica
sports betting and iGaming net revenues increased $1.9 million compared to the
prior year quarter primarily due to a full quarter of iGaming results in
Pennsylvania for the third quarter of 2020 compared to the prior year quarter.
•Gaming revenue decreased $43.7 million primarily due to a $18.0 million
decrease due to the temporary suspension of operations at Calder from July 2,
2020 to August 31, 2020; and a $15.0 million decrease at Oxford, a $10.5 million
decrease at Presque Isle, a $2.8 million decrease at Lady Luck Nemacolin, a $2.4
million decrease at Ocean Downs, and a $0.3 million decrease at Harlow's, all of
which were due to the patron restrictions and gaming capacity limitations at
each property. Partially offsetting these decreases were a $2.9 million increase
at Fair Grounds and VSI and a $2.4 million increase at Riverwalk, driven by
targeted promotional offers and higher unrated play.
•All Other revenue decreased $9.5 million primarily due to a $12.8 million
decrease at Arlington due to the temporary suspension of operations and patron
restrictions. Partially offsetting this decrease were a $2.4 million increase
from the opening of Oak Grove on September 18, 2020, a $0.8 million increase
from Turfway Park, and a $0.1 million increase from other sources.
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
                                          42


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Nine Months Ended September 30, 2020, Compared to Nine Months Ended
September 30, 2019
•Churchill Downs revenue decreased $125.2 million due to a $118.0 million
decrease from Churchill Downs Racetrack primarily due to running the 146th
Kentucky Oaks and Derby without spectators and a $7.2 million decrease at Derby
City Gaming due to the temporary suspension of operations.
•Online Wagering revenue increased $85.9 million from the prior year period
primarily due to a $82.2 million increase at TwinSpires. Although horse racing
content for wagering decreased, TwinSpires handle grew $380.1 million, or 33.3%,
compared to the prior year period, as our customers wagered more on the content
that was available. Our online sports betting and iGaming net revenues increased
$3.7 million compared to the prior year period primarily due to the launch of
iGaming in Pennsylvania and Indiana in late December 2019. Sports betting net
revenue growth was impacted by the suspension of U.S. and international sporting
events beginning in mid-February 2020.
•Gaming revenue decreased $205.2 million primarily due to the temporary
suspension of operations of all of our Gaming properties and the loss of revenue
at each property.
•All Other revenue decreased $25.9 million primarily due to a $30.0 million
decrease at Arlington due to the temporary suspension of operations and a $4.5
million decrease at United Tote due to certain customers suspending services due
to COVID-19. Partially offsetting these decreases was a $6.2 million increase
from the acquisition of Turfway Park in October 2019 and a $2.4 million increase
from the opening of Oak Grove on September 18, 2020.
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)                         2020                2019            Change              2020               2019            Change
Taxes and purses                 $       81.1          $  91.3          $ (10.2)         $     193.4          $ 282.6          $ (89.2)
Salaries and benefits                    37.5             43.5             (6.0)               103.6            127.8            (24.2)
Content expense                          54.4             35.3             19.1                136.4            109.2             27.2
Selling, general and
administrative expense                   38.8             34.4              4.4                 85.3             89.4             (4.1)
Depreciation and amortization            22.4             22.0              0.4                 66.5             64.3              2.2
Marketing and advertising                11.7             10.7              1.0                 25.3             31.6             (6.3)
Transaction expense, net                  0.5              0.9             (0.4)                 1.0              5.0             (4.0)
Impairment of intangible assets             -                -                -                 17.5                -             17.5
Other operating expense                  41.9             40.4              1.5                109.3            127.0            (17.7)
Total expense                    $      288.3          $ 278.5          $   9.8          $     738.3          $ 836.9          $ (98.6)


Three Months Ended September 30, 2020, Compared to Three Months Ended
September 30, 2019
Significant items affecting comparability of consolidated operating expense
include:
•Taxes and purses decreased $10.2 million driven by the reduction of net revenue
due to the patron restrictions and gaming capacity limitations at our Gaming
properties.
•Salaries and benefits expense decreased $6.0 million driven primarily by
temporarily furloughing certain employees and temporarily reducing salaries for
all remaining non-furloughed salaried employees through the end of July 2020.
•Content expense increased $19.1 million primarily due to an increase in certain
host fees and source market fees for TwinSpires as a result of the increase in
handle.
•Selling, general and administrative expense increased $4.4 million primarily
from an adjustment to our estimated annual payout related to accrued bonuses.
•Marketing and advertising expense increased $1.0 million primarily due to
increased marketing by TwinSpires and the BetAmerica online sports betting and
iGaming business in the Online Wagering segment, partially offset by reduced
marketing and advertising at our Gaming properties.
•Other operating expenses include maintenance, utilities, food and beverage
costs, property taxes, insurance, and other operating expenses. Other operating
expense increased $1.5 million primarily driven by additional costs incurred
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
                                          43



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associated with the rescheduling of the 146th Kentucky Oaks and Derby to the
third quarter of 2020.
Nine Months Ended September 30, 2020, Compared to Nine Months Ended
September 30, 2019
Significant items affecting comparability of consolidated operating expense
include:
•Taxes and purses decreased $89.2 million driven by the temporary suspension of
all operations at our Gaming properties and the related decrease in net revenue
and a decrease in purses related to the reduction of horse races from the
temporary closures of our facilities.
•Salaries and benefits expense decreased $24.2 million driven primarily by
temporarily furloughing certain employees and reducing salaries for all
remaining non-furloughed salaried employees through the end of July 2020,
partially offset by an increase at Turfway Park and the opening of Oak Grove in
September 2020.
•Content expense increased $27.2 million primarily due to an increase in certain
host fees and source market fees for TwinSpires as a result of the increase in
handle.
•Selling, general and administrative expense decreased $4.1 million primarily
from a temporary reduction in salaries and associated benefits.
•Depreciation and amortization expense increased $2.2 million primarily driven
by capital projects placed into service for Churchill Downs Racetrack and Derby
City Gaming, and Turfway Park.
•Marketing and advertising expense decreased $6.3 million primarily due to the
temporary suspension of operations at our brick and mortar properties, partially
offset by an increase in marketing and advertising spend for TwinSpires and the
online BetAmerica sports betting and iGaming business in the Online Wagering
segment.
•Transaction expense, net was nominal for the nine months ended September 30,
2020. In the nine months ended September 30, 2019, transaction expense, net was
related to the acquisitions of Presque Isle and Lady Luck Nemacolin.
•Impairment of intangible assets increased $17.5 million driven by a $15.0
million non-cash impairment charge related to Presque Isle's gaming rights and a
$2.5 million non-cash impairment charge related to Presque Isle's trademark.
•Other operating expenses include maintenance, utilities, food and beverage
costs, property taxes, insurance, and other operating expenses. Other operating
expense decreased $17.7 million primarily driven by the temporary suspension of
operations at our brick and mortar properties, partially offset by the operating
expenses related to Turfway Park and the opening of Oak Grove in September 2020.
              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
                                          44



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Adjusted EBITDA
We believe that the use of Adjusted EBITDA as a key performance measure of the
results of operations enables management and investors to evaluate and compare
from period to period our operating performance in a meaningful and consistent
manner. Adjusted EBITDA is a supplemental measure of our performance that is not
required by or presented in accordance with GAAP. Adjusted EBITDA should not be
considered as an alternative to, or more meaningful than, net income (as
determined in accordance with GAAP) as a measure of our operating results.
                                      Three Months Ended September 30,                         Nine Months Ended September 30,
(in millions)                      2020                2019            Change              2020               2019            Change
Churchill Downs              $        23.9          $   5.2          $  18.7          $      30.3          $ 128.5          $  (98.2)
Online Wagering                       31.9             15.0             16.9                 85.7             54.1              31.6
Gaming                                75.4             71.7              3.7                122.4            212.6             (90.2)
Total Segment Adjusted
EBITDA                               131.2             91.9             39.3                238.4            395.2            (156.8)
All Other                             (9.3)            (3.9)            (5.4)               (31.1)           (17.6)            (13.5)
Total Adjusted EBITDA        $       121.9          $  88.0          $  33.9          $     207.3          $ 377.6          $ (170.3)


Three Months Ended September 30, 2020, Compared to Three Months Ended
September 30, 2019
•Churchill Downs Adjusted EBITDA increased $18.7 million due to a $14.9 million
increase from Churchill Downs Racetrack primarily due to the rescheduling of the
146th Kentucky Oaks and Derby without spectators, and a $3.8 million increase at
Derby City Gaming due to the increase in revenue and favorable cost structure
subsequent to the temporary closure of the property.
•Online Wagering Adjusted EBITDA increased $16.9 million primarily due to a
$16.4 million increase from TwinSpires due to an increase in handle and a $0.5
million decrease in the loss from our online sports betting and iGaming
operations.
•Gaming Adjusted EBITDA increased $3.7 million driven by an $8.8 million
increase due to strong performances from our Rivers Des Plaines and MVG equity
investments. These increases were partially offset by a $5.1 million decrease at
our wholly-owned Gaming properties as increased Adjusted EBITDA for our
Mississippi and Louisiana properties was more than offset by a decrease in
Adjusted EBITDA for our other wholly owned gaming properties compared to the
prior year quarter due to patron restrictions and gaming capacity limitations.
•All Other Adjusted EBITDA decreased $5.4 million primarily from a $3.0 million
decrease from Arlington due to the temporary suspension of operations and patron
restrictions during our live meet in the third quarter of 2020 compared to the
prior year quarter, and a $2.4 million decrease at Corporate primarily due to an
adjustment to our estimated annual payout related to accrued bonuses.
Nine Months Ended September 30, 2020, Compared to Nine Months Ended
September 30, 2019
•Churchill Downs Adjusted EBITDA decreased $98.2 million due to the decrease
from Churchill Downs Racetrack primarily due to the reduction in net revenue due
to running the 146th Kentucky Oaks and Derby without spectators. Derby City
Gaming's Adjusted EBITDA was flat for the nine months ended September 30, 2020
compared to the prior year period.
•Online Wagering Adjusted EBITDA increased $31.6 million primarily due to a
$36.9 million increase from TwinSpires due to an increase in handle, partially
offset by a $5.3 million decrease from increased marketing spend and costs
associated with the continued build-out of the online sports betting and iGaming
operations.
•Gaming Adjusted EBITDA decreased $90.2 million driven by a $76.6 million
decrease at our wholly-owned Gaming properties from the decrease in net revenue
and a $13.6 million decrease from our equity investments, both of which were due
to the temporary suspension of operations of all of our Gaming properties.
•All Other Adjusted EBITDA decreased $13.5 million primarily from a $7.8 million
decrease from Arlington due to the temporary suspension of operations, a $3.5
million decrease from United Tote due to a decrease in net revenue, a $2.0
million decrease due to unfavorable results from the Turfway Park Acquisition,
and a $0.2 million decrease from all other sources.

              FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
                                          45


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Reconciliation of Comprehensive Income (Loss) to Adjusted EBITDA


                                           Three Months Ended September 30,                         Nine Months Ended September 30,
(in millions)                           2020                2019            Change              2020               2019            Change
Net income (loss) and
comprehensive income (loss)
attributable to CDI               $        43.2          $  14.8          $

28.4 $ (99.0) $ 133.5 $ (232.5) Net loss attributable to noncontrolling interest

                     0.1                -              0.1                  0.2                -               0.2
Net income (loss) before
noncontrolling interest                    43.1             14.8             28.3                (99.2)           133.5            (232.7)
Loss from discontinued
operations, net of tax                        -              0.4             (0.4)                96.1              1.9              94.2
Income (loss) from continuing
operations, net of tax                     43.1             15.2             27.9                 (3.1)           135.4            (138.5)

Additions:


Depreciation and amortization              22.4             22.0              0.4                 66.5             64.3               2.2
Interest expense                           19.7             18.9              0.8                 59.3             52.0               7.3
Income tax provision (benefit)             13.9              8.0              5.9                 (5.6)            53.1             (58.7)
EBITDA                            $        99.1          $  64.1          $  35.0          $     117.1          $ 304.8          $ (187.7)

Adjustments to EBITDA:
Selling, general and
administrative:
Stock-based compensation expense  $         6.9          $   5.5          $   1.4          $      17.3          $  17.6          $   (0.3)
Legal reserves                                -              3.3             (3.3)                   -              3.6              (3.6)
Other charges                               0.8                -              0.8                  0.7                -               0.7
Pre-opening expense and other
expense                                     6.2              1.2              5.0                  9.8              3.6               6.2
Impairment of intangible assets               -                -                -                 17.5                -              17.5
Transaction expense, net                    0.5              0.9             (0.4)                 1.0              5.0              (4.0)
Other income, expense:
Interest, depreciation and
amortization expense related to
equity investments                          9.9              9.7              0.2                 29.2             22.9               6.3
Changes in fair value of Midwest
Gaming's interest rate swaps               (1.5)             3.2             (4.7)                14.7             15.4              (0.7)
Midwest Gaming's recapitalization
and transactions costs                        -                -                -                    -              4.7              (4.7)
Other                                         -              0.1             (0.1)                   -                -                 -
Total adjustments to EBITDA                22.8             23.9             (1.1)                90.2             72.8              17.4
Adjusted EBITDA                   $       121.9          $  88.0          $  33.9          $     207.3          $ 377.6          $ (170.3)

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