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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, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to            
Commission file number 001-33998
Churchill Downs 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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, No Par ValueCHDNThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 14, 2020 was 39,455,225 shares.




CHURCHILL DOWNS INCORPORATED
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2020
 

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
2


PART I.    FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
(in millions, except per common share data)2020201920202019
Net revenue:
Churchill Downs$60.8 $31.4 $107.6 $234.6 
Online Wagering125.9 70.2 314.4 228.9 
Gaming134.8 178.3 319.7 524.7 
All Other16.3 26.4 34.1 60.9 
Total net revenue337.8 306.3 775.8 1,049.1 
Operating expense:
Churchill Downs48.3 30.8 106.0 127.8 
Online Wagering83.5 52.2 208.2 159.3 
Gaming96.7 137.3 267.1 395.5 
All Other20.5 22.9 53.2 59.9 
Selling, general and administrative expense38.8 34.4 85.3 89.4 
Impairment of intangible assets  17.5  
Transaction expense, net0.5 0.9 1.0 5.0 
Total operating expense288.3 278.5 738.3 836.9 
Operating income49.5 27.8 37.5 212.2 
Other income (expense):
Interest expense, net(19.7)(18.9)(59.3)(52.0)
Equity in income of unconsolidated affiliates27.6 14.1 13.2 27.7 
Miscellaneous, net(0.4)0.2 (0.1)0.6 
Total other income (expense)7.5 (4.6)(46.2)(23.7)
Income (loss) from continuing operations before provision for income taxes57.0 23.2 (8.7)188.5 
Income tax (provision) benefit(13.9)(8.0)5.6 (53.1)
Income (loss) from continuing operations, net of tax43.1 15.2 (3.1)135.4 
Loss from discontinued operations, net of tax (0.4)(96.1)(1.9)
Net income (loss)43.1 14.8 (99.2)133.5 
Net loss attributable to noncontrolling interest(0.1) (0.2) 
Net income (loss) and comprehensive income (loss) attributable to CDI$43.2 $14.8 $(99.0)$133.5 
Net income (loss) per common share data - basic:
Continuing operations$1.09 $0.38 $(0.07)$3.37 
Discontinued operations$ $(0.01)$(2.43)$(0.05)
Net income (loss) per common share data - basic$1.09 $0.37 $(2.50)$3.32 
Net income (loss) per common share data - diluted:
Continuing operations$1.08 $0.37 $(0.07)$3.33 
Discontinued operations$ $(0.01)$(2.43)$(0.05)
Net income (loss) per common share data - diluted$1.08 $0.36 $(2.50)$3.28 
Weighted average shares outstanding:
Basic39.5 40.0 39.6 40.2 
Diluted40.1 40.7 39.6 40.7 
The accompanying notes are an integral part of the condensed consolidated financial statements.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
3


CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions)September 30, 2020December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$622.0 $96.2 
Restricted cash
57.6 46.3 
Accounts receivable, net
53.0 37.3 
Income taxes receivable
40.7 14.5 
Other current assets
33.3 26.9 
Total current assets806.6 221.2 
Property and equipment, net
1,081.8 937.3 
Investment in and advances to unconsolidated affiliates
634.0 634.5 
Goodwill
366.8 367.1 
Other intangible assets, net
351.8 369.8 
Other assets
22.0 21.1 
Total assets$3,263.0 $2,551.0 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
$108.2 $57.8 
Accrued expenses and other current liabilities192.4 173.4 
Current deferred revenue
42.4 42.5 
Current maturities of long-term debt
4.0 4.0 
Dividends payable
 23.5 
Current liabilities of discontinued operations124.0  
Total current liabilities471.0 301.2 
Long-term debt, net of current maturities and loan origination fees
1,076.3 384.0 
Notes payable, net of debt issuance costs
1,087.3 1,085.9 
Non-current deferred revenue14.2 16.7 
Deferred income taxes
205.4 212.8 
Other liabilities
36.6 39.4 
Total liabilities2,890.8 2,040.0 
Commitments and contingencies
Shareholders' equity:
Preferred stock  
Common stock15.5  
Retained earnings
357.6 509.2 
Accumulated other comprehensive loss
(0.9)(0.9)
Total Churchill Downs Incorporated shareholders' equity372.2 508.3 
Noncontrolling interest 2.7 
Total shareholders' equity372.2 511.0 
Total liabilities and shareholders' equity$3,263.0 $2,551.0 
The accompanying notes are an integral part of the condensed consolidated financial statements.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
4


CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Common StockRetained
Earnings
Accumulated Other Comprehensive LossNoncontrolling InterestTotal Shareholders' Equity
(in millions, except per common share data)SharesAmount
Balance, December 31, 201939.7$ $509.2 $(0.9)$2.7 $511.0 
Net loss(23.4)(0.1)(23.5)
Repurchase of common stock(0.3)(4.3)(23.6)(27.9)
Cash settlement of stock awards(12.7)(12.7)
Taxes paid related to net share settlement of stock awards(15.1)(15.1)
Stock-based compensation4.34.3 
Adoption of ASC 326(0.5)(0.5)
Balance, March 31, 202039.4  433.9 (0.9)2.6 435.6 
Net loss(118.8)(118.8)
Stock-based compensation6.16.1 
Other(0.2)(0.2)
Balance, June 30, 202039.4 6.1 314.9 (0.9)2.6 322.7 
Net income43.2(0.1)43.1
Purchase of noncontrolling interest(0.5)(2.5)(3.0)
Issuance of common stock0.12.52.5
Stock-based compensation6.96.9
Balance, September 30, 202039.5$15.5 $357.6 $(0.9)$ $372.2 
The accompanying notes are an integral part of the condensed consolidated financial statements.










CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
5


(Unaudited)
Common StockRetained
Earnings
Accumulated Other Comprehensive LossNoncontrolling InterestTotal Shareholders' Equity
(in millions, except per common share data)SharesAmount
Balance, December 31, 201840.4 $ $474.2 $(0.9)$ $473.3 
Net income11.6 11.6 
Issuance of common stock0.1 — — 
Repurchase of common stock(0.3)(4.7)(20.3)(25.0)
Taxes paid related to net share settlement of stock awards(0.1)— (7.6)(7.6)
Issuance of restricted stock awards, net of forfeitures0.1 — — 
Stock-based compensation4.7 4.7 
Adoption of ASC 842(0.3)(0.3)
Other0.2 0.2 
Balance, March 31, 201940.2  457.8 (0.9) 456.9 
Net income107.1 107.1 
Repurchase of common stock(0.2)(4.4)(13.6)(18.0)
Stock-based compensation7.4 7.4 
Other(0.1)(0.1)
Balance, June 30, 201940.0 2.9551.3(0.9) 553.3 
Net income14.8 14.8 
Issuance of common stock0.1 1.9 1.9 
Repurchase of common stock(0.2)(10.4)(14.6)(25.0)
Taxes paid related to net share settlement of stock awards(0.1)(0.1)
Stock-based compensation5.5 5.5 
Other0.1 (0.1)— 
Balance, September 30, 201939.9 $ $551.3 $(0.9)$ $550.4 
The accompanying notes are an integral part of the condensed consolidated financial statements.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
6


CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
(in millions)20202019
Cash flows from operating activities:
Net (loss) income$(99.2)$133.5 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization66.5 64.3 
Distributions from unconsolidated affiliates12.8 24.7 
Equity in income of unconsolidated affiliates(13.2)(27.7)
Stock-based compensation17.3 17.6 
Deferred income taxes(7.4)22.0 
Impairment of intangible assets17.5  
Amortization of operating lease assets3.7 3.3 
Other3.5 2.0 
Changes in operating assets and liabilities, net of business acquisitions and dispositions:
Income taxes(26.2)15.5 
Deferred revenue(1.9)(36.0)
Other assets and liabilities163.9 41.0 
Net cash provided by operating activities137.3 260.2 
Cash flows from investing activities:
Capital maintenance expenditures(18.2)(37.7)
Capital project expenditures(191.9)(53.3)
Acquisition of businesses, net of cash acquired (172.1)
Investments in and advances to unconsolidated affiliates (410.1)
Distributions of capital from unconsolidated affiliates 5.8 
Acquisition of gaming licenses (22.1)
Other(2.7)(1.1)
Net cash used in investing activities(212.8)(690.6)
Cash flows from financing activities:
Proceeds from borrowings under long-term debt obligations726.0 1,236.0 
Repayments of borrowings under long-term debt obligations(34.4)(639.0)
Payment of dividends(23.4)(22.2)
Repurchase of common stock(28.4)(66.8)
Cash settlement of stock awards(12.7) 
Taxes paid related to net share settlement of stock awards (15.1)(7.7)
Debt issuance costs(1.7)(8.9)
Other2.3 (0.5)
Net cash provided by financing activities612.6 490.9 
Net increase in cash, cash equivalents and restricted cash537.1 60.5 
Cash, cash equivalents and restricted cash, beginning of period142.5 173.3 
Cash, cash equivalents and restricted cash, end of period$679.6 $233.8 
The accompanying notes are an integral part of the condensed consolidated financial statements.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
7


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

Nine Months Ended September 30,
(in millions)20202019
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest$57.3 $40.3 
Income taxes1.4 16.1 
Schedule of non-cash investing and financing activities:
Deferred tax liability assumed from equity investment$ $103.2 
Property and equipment additions included in accounts payable and accrued expenses
10.5 10.2 
Repurchase of common stock included in accrued expenses 3.7 
The accompanying notes are an integral part of the condensed consolidated financial statements.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
8

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


1. DESCRIPTION OF BUSINESS
Basis of Presentation
The Churchill Downs Incorporated (the "Company", "we", "us", "our") financial statements are presented in conformity with the requirements of this Quarterly Report on Form 10-Q and consequently do not include all of the disclosures normally required by U.S. generally accepted accounting principles ("GAAP") or those normally made in our Annual Report on Form 10-K. The December 31, 2019 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP.
The following information is unaudited. All per share amounts assume dilution unless otherwise noted. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019.
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: Churchill Downs, Online Wagering, 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.
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% of gaming capacity.
Fair Grounds Slots, Fair Grounds Race Course and Video Services, LLC ("VSI") (collectively, "Fair Grounds and VSI"):
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
9

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

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.
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 patron restrictions of 300 persons 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
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
10

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

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 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.
Oak Grove Racing, Gaming & Hotel
On September 18, 2020, the Company opened its simulcast and historical racing machine ("HRM") operations at Oak Grove Racing, Gaming & Hotel ("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 Racing & Gaming ("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.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
11

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

Acquisitions of Presque Isle and Lady Luck Nemacolin
On January 11, 2019, we completed the acquisition of Presque Isle located in Erie, Pennsylvania from Eldorado Resorts, Inc. ("ERI") for cash consideration of $178.9 million (the "Presque Isle Transaction") and $1.6 million of working capital and other purchase price adjustments.
On March 8, 2019, the Company assumed management and acquired certain assets related to the management of Lady Luck Nemacolin in Farmington, Pennsylvania, from ERI for cash consideration of $100,000 (the "Lady Luck Nemacolin Transaction").
Acquisition of Certain Ownership Interests of Midwest Gaming Holdings, LLC
On March 5, 2019, the Company completed the acquisition of certain ownership interests of Midwest Gaming Holdings, LLC ("Midwest Gaming"), the parent company of Rivers Des Plaines in Des Plaines, Illinois to acquire approximately 42% of Midwest Gaming from affiliates and co-investors of Clairvest Group Inc. ("Clairvest") and members of High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC and Casino Investors, LLC ("Casino Investors") for cash consideration of approximately $406.6 million and $3.5 million of certain transaction costs and working capital adjustments (the "Sale Transaction"). Following the closing of the Sale Transaction, the parties completed a recapitalization transaction on March 6, 2019 (the "Recapitalization"), pursuant to which Midwest Gaming used approximately $300.0 million in proceeds from amended and extended credit facilities to redeem, on a pro rata basis, additional Midwest Gaming units held by High Plaines and Casino Investors. As a result of the Recapitalization, the Company's ownership of Midwest Gaming increased to 61.3%. High Plaines retained ownership of 36.0% of Midwest Gaming and Casino Investors retained ownership of 2.7% of Midwest Gaming.
We also recognized a $103.2 million deferred tax liability and a corresponding increase in our investment in unconsolidated affiliates related to an entity we acquired in conjunction with our acquisition of the Clairvest ownership stake in Midwest Gaming.
Refer to Note 14, Investments in and Advances to Unconsolidated Affiliates, for further information on the Midwest Gaming transactions.
Turfway Park Acquisition
The Company completed the acquisition of Turfway Park from Jack Entertainment LLC ("JACK") and Hard Rock International (“Hard Rock”) on October 9, 2019 for total consideration of $46.0 million in cash ("Turfway Park Acquisition"). Turfway Park is located on 197 acres in Florence, Kentucky. 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 $200.0 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.
Refer to Note 4, Acquisitions, for further information on the Turfway Park Acquisition.
Seasonality
Due to the seasonal nature of live racing, revenue and operating results for any interim quarter for the Churchill Downs segment and the TwinSpires business within the Online Wagering segment are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year. Historically, the majority of our live racing revenue occurs during the second quarter with the running of the Kentucky Derby and Kentucky Oaks. Due to the COVID-19 pandemic, the Company rescheduled the 146th Kentucky Oaks and Kentucky Derby from May 1, 2020 and May 2, 2020 to September 4, 2020 and September 5, 2020, respectively.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncement - Adopted on January 1, 2020
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses, ("ASC 326") which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets. We adopted ASC 326 on January 1, 2020 using the modified retrospective approach. We recognized the cumulative effect of applying ASC 326 as an opening balance sheet adjustment at
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

January 1, 2020. The comparative information has not been retrospectively adjusted and continues to be reported under the accounting standards in effect for those periods. The adoption of ASC 326 did not have a material impact on our business.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. This new guidance simplifies the accounting for goodwill impairments by removing step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. We adopted this guidance on January 1, 2020. The new guidance did not result in a cumulative adjustment upon adoption and there was no impairment recognized under the new guidance for the three or nine months ended September 30, 2020.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other: Internal-Use Software, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance also requires an entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. We adopted this guidance on January 1, 2020. This guidance is consistent with our current accounting policies, and therefore our adoption of this guidance did not have a material impact on our business.
3. SIGNIFICANT ACCOUNTING POLICIES
Except for the accounting policy for the allowance for doubtful accounts receivable described below, which was updated as a result of our adoption of ASC 326 on January 1, 2020, as described in Note 2, Recent Accounting Pronouncements, there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2019.
Allowance for Doubtful Accounts Receivable
Upon our adoption of ASC 326 on January 1, 2020, we maintained an allowance for doubtful accounts for current expected credit losses on our financial assets measured at amortized cost which are primarily included in accounts receivable, net in the accompanying condensed consolidated balance sheets. The Company evaluates current expected credit losses on a collective (pool) basis when similar risk characteristics exist. Write-offs are recognized when the Company concludes that all or a portion of a financial asset is no longer collectible. Any subsequent recovery is recognized when it occurs.
4. ACQUISITIONS
Turfway Park
On October 9, 2019, the Company completed the Turfway Park Acquisition for total consideration of $46.0 million. Of the total consideration paid, $36.0 million was allocated to JACK and accounted for as a business combination. The remaining $10.0 million was paid to Hard Rock for the assignment of the purchase and sale agreement rights and was accounted for separately from the business combination as an intangible asset and amortized through expense in the fourth quarter of 2019.
The cash purchase price paid to JACK was $36.0 million, less $0.9 million of working capital and purchase price adjustments. The preliminary fair values of the assets acquired and liabilities assumed, net of cash acquired of $0.9 million, at the date of acquisition were as follows: property and equipment (primarily land) of $18.8 million, indefinite-lived gaming rights of $9.8 million, indefinite-lived trademark of $5.5 million, goodwill of $2.7 million, and current liabilities of $2.6 million.
5. DISCONTINUED OPERATIONS
On November 29, 2017, the Company entered into a definitive Stock Purchase Agreement (the "Stock Purchase Agreement") to sell its mobile gaming subsidiary, Big Fish Games, Inc. ("Big Fish Games"), a Washington corporation, to Aristocrat Technologies, Inc. ("Aristocrat"), a Nevada corporation, an indirect, wholly-owned subsidiary of Aristocrat Leisure Limited, an Australian corporation (the "Big Fish Transaction"). On January 9, 2018, pursuant to the Stock Purchase Agreement, the Company completed the Big Fish Transaction. Aristocrat paid aggregate consideration of $990.0 million in cash in connection with the Big Fish Transaction, subject to customary adjustments for working capital and indebtedness and certain other adjustments as set forth in the Stock Purchase Agreement.
The Big Fish Games segment and the related Big Fish Transaction meet the criteria for discontinued operation presentation. The condensed consolidated statements of comprehensive income and the notes to financial statements reflect Big Fish Games as discontinued operations for all periods presented. Unless otherwise specified, disclosures in these condensed consolidated financial statements reflect continuing operations only. The condensed consolidated statements of cash flows include both continuing and discontinued operations.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Kater and Thimmegowda Settlement
On May 22, 2020, we entered into an agreement in principle to settle Cheryl Kater v. Churchill Downs Incorporated ("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 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 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 $124.0 million pre-tax settlement related to the Company is included in loss from discontinued operations, net of tax in the accompanying condensed consolidated statements of comprehensive (loss) income for the nine months ended September 30, 2020, and on a pre-tax basis in current liabilities of discontinued operations in the accompanying condensed consolidated balance sheets at September 30, 2020.
The following table presents the financial results of Big Fish Games included in "loss from discontinued operations, net of tax" in the accompanying condensed consolidated statements of comprehensive (loss) income:
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2020201920202019
Net revenue$ $ $ $ 
Selling, general and administrative expense 0.8 1.5 2.8 
Legal settlement  124.0  
Loss from discontinued operations before provision for income taxes
 (0.8)(125.5)(2.8)
Income tax benefit 0.4 29.4 0.9 
Loss from discontinued operations, net of tax$ $(0.4)$(96.1)$(1.9)

6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, by segment, is comprised of the following:
(in millions)Churchill DownsOnline WageringGamingAll OtherTotal
Balances as of December 31, 2019$49.7 $148.2 $165.2 $4.0 $367.1 
Adjustments   (0.3)(0.3)
Balances as of September 30, 2020$49.7 $148.2 $165.2 $3.7 $366.8 
We performed our annual goodwill impairment analysis as of April 1, 2020. We assessed goodwill for impairment by performing qualitative or quantitative analyses for each reporting unit. Based on the results of these analyses, no goodwill impairments were identified in connection with our annual impairment testing. During the second quarter we recorded an immaterial measurement period adjustment for the Turfway Park acquisition that impacted the All Other goodwill balance.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Other intangible assets are comprised of the following:
September 30, 2020December 31, 2019
(in millions)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Definite-lived intangible assets$31.2 $(15.4)$15.8 $31.3 $(15.0)$16.3 
Indefinite-lived intangible assets336.0 353.5 
Total$351.8 $369.8 
Refer to Note 7, Asset Impairment, for information regarding intangible asset impairments recognized during the first quarter of 2020.
We performed our annual indefinite-lived intangible assets impairment analysis as of April 1, 2020. 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.
7. 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 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 in 2019.
The initial fair value of Presque Isle gaming rights in the first quarter of 2019 was determined using the Greenfield Method, which is an income approach methodology that calculates the present value based on a projected cash flow stream. This method assumes that the Presque Isle gaming rights provide the opportunity to develop a casino and online wagering platform in a specified region, and that the present value of the projected cash flows are a result of the realization of advantages contained in these rights. Under this methodology, the acquirer is expected to absorb all start-up costs, as well as incur all expenses pertaining to the acquisition and / or the creation of all tangible and intangible assets. The estimated future revenue, operating expenses, start-up costs, and discount rate were the primary inputs in the valuation.
Based on the Trigger Event, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated the projected cash flow stream. As a result, the Company recognized an impairment of $15.0 million in first quarter of 2020 for its Presque Isle gaming rights ($12.5 million related to the Gaming segment and $2.5 million related to the Online Wagering segment).
The Presque Isle trademark was initially valued in first quarter of 2019 using the relief-from-royalty method of the income approach, which estimates the fair value of the intangible asset by discounting the fair value of the hypothetical royalty payments a market participant would be willing to pay to enjoy the benefits of the asset. The estimated future revenue, royalty rate, and discount rate were the primary inputs in the valuation of the trademark.
Based on the Trigger Event, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated projected cash flow stream. As a result, the Company recognized an impairment of $2.5 million in first quarter of 2020 for its Presque Isle trademark.
The fair value of the Presque Isle reporting unit's goodwill was determined under the market and income valuation approaches using inputs primarily related to discounted projected cash flows and price multiples of publicly traded comparable companies.
In accordance with Accounting Standards Codification 350, Intangibles - Goodwill and Other, the Company performed its impairment testing of the Presque Isle gaming rights and trademark prior to testing Presque Isle goodwill. Based on the Trigger Event, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated project cash flow stream. As a result, the Company did not recognize an impairment for Presque Isle goodwill in the first quarter of 2020 because the fair value exceeded the carrying value.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

8. INCOME TAXES
The Company’s effective income tax rate for the three months ended September 30, 2020 was higher than the U.S. federal statutory rate of 21.0% primarily resulting from tax expense during a period of pre-tax income from nondeductible officer’s compensation and state income taxes, partially offset by tax benefits during a period of pre-tax income from a current year estimated federal taxable loss which will be carried back to a pre-2018 tax year, and a decrease in our unrecognized tax benefits due to the expiration of the federal income tax statute of limitations.
The Company’s effective income tax rate for the nine months ended September 30, 2020 was higher than the U.S. federal statutory rate of 21.0% primarily resulting from tax benefits during a period of pre-tax loss from a current year estimated federal taxable loss which will be carried back to a pre-2018 tax year, year-to-date tax deductions from vesting of stock awards in excess of book deductions, state income taxes, and a decrease in our unrecognized tax benefits due to the expiration of the federal income tax statute of limitations, partially offset by tax expense during a period of pre-tax loss from nondeductible officer’s compensation.
The Company’s effective income tax rate for the three and nine months ended September 30, 2019 was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes, certain expenses that are not deductible for the purposes of income taxes, and $2.7 million of future income tax expenses recognized from the re-measurement of our net deferred tax liabilities based on an increase in income attributable to states with higher tax rates compared to the prior year quarter. This expense was partially offset by a decrease in our unrecognized tax benefits due to the expiration of the federal income tax statute of limitations and year-to-date tax deductions from vesting of stock awards in excess of book deductions.
9. SHAREHOLDERS’ EQUITY
On October 30, 2018, the Board of Directors of the Company approved a new common stock repurchase program of up to $300.0 million. The new program replaced the prior $250.0 million program that was authorized in April 2017 and had unused authorization of $78.3 million. The new authorized amount included and was not in addition to any unspent amount remaining under the prior authorization. Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The repurchase program has no time limit and may be suspended or discontinued at any time.
For the nine months ended September 30, 2020, we repurchased 235,590 shares of our common stock under the October 2018 stock repurchase program at an aggregate purchase price of $27.9 million, based on trade date. We had approximately $147.1 million of repurchase authority remaining under this program at September 30, 2020, based on trade date. There were no repurchases of common stock under our repurchase program for the three months ended September 30, 2020.
10. 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 $6.9 million for the three months ended September 30, 2020 and $5.5 million for the three months ended September 30, 2019. Stock-based compensation expense was $17.3 million for the nine months ended September 30, 2020 and $17.6 million for the nine months ended September 30, 2019.
During the nine months ended September 30, 2020, the Company awarded RSUs to employees, RSUs and PSUs to certain named executive officers ("NEOs"), and RSUs to directors. The vesting criteria for the PSU awards granted in 2020 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 will be determined using the Monte Carlo valuation methodology, which factors in the value of the TSR market condition when determining the grant date fair value of the PSU. Compensation cost for each PSU is recognized during the performance and service period based on the probable achievement of the two performance criteria. The PSUs are converted into shares of our common stock at the time the PSU award value is finalized.
On February 12, 2020, the Compensation Committee of the Board of Directors offered, and the NEOs accepted, to settle the 2017 PSU Awards in cash.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

A summary of the RSUs and PSUs granted during 2020 is presented below (units in thousands):
Grant YearAward TypeNumber of Units AwardedVesting Terms
2020RSU44
Vest equally over three service periods ending in 2021, 2022, and 2023
2020RSU37
Vest equally over three service periods ending in 2020, 2021, and 2022
2020PSU37
Three year performance and service period ending in 2022
2020RSU12
One year service period ending in 2021

11. DEBT
Credit Agreement
On March 16, 2020, the Company entered into the First Amendment (the “First Amendment”) to its Credit Agreement (as amended, the “Credit Agreement”), dated December 27, 2017, among the Company, the subsidiary guarantors party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders and other financial institutions party thereto.
The First Amendment extends the maturity for the Company’s Revolver to at least September 27, 2024, which is 91 days prior to the latest maturity date of the Company’s term loan facility on December 27, 2024. Previously, the maturity date of the revolving credit facility was December 27, 2022.
The interest rates applicable to the Company’s borrowings under the Credit Agreement are LIBOR-based plus a spread, determined by the Company’s consolidated total net leverage ratio. The First Amendment, among other things, lowers the upper limit of the applied spreads with respect to revolving loans from 2.25% to 1.75% and for commitment fees with respect thereto from 0.35% to 0.30%, and generally offers a reduced pricing schedule for outstanding borrowings and commitment fees with respect to the Revolver across all other leverage pricing levels. The interest rates applicable to borrowings under the facilities are LIBOR-based plus a spread, determined by the Company’s consolidated total net leverage ratio. The First Amendment does not alter the Company’s borrowing capacity. The Company capitalized $2.0 million of debt issuance costs associated with the First Amendment which are amortized as interest expense over the remaining duration of the Revolver.
On March 16, 2020, we borrowed $675.4 million on our Revolver 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 the Second Amendment to its Credit Agreement, which (i) provides for a financial covenant relief period through the date on which the Company delivers its quarterly financial statements and compliance certificate for the fiscal quarter ending June 30, 2021, subject to certain exceptions (the “Financial Covenant Relief Period”), (ii) amends the definition of “Consolidated EBITDA” in the Credit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extends certain deadlines and makes certain other amendments to the Company’s financial reporting obligations, (iv) places certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amends the definitions of “Material Adverse Effect” and “License Revocation” in the Credit Agreement to take into consideration COVID-19.
During the Financial Covenant Relief Period, the Company will not be required to comply with 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.
12. REVENUE FROM CONTRACTS WITH CUSTOMERS
Performance Obligations
As of September 30, 2020, the Churchill Downs segment had remaining performance obligations, on contracts with a duration greater than one year, with an aggregate transaction price of $133.2 million. The revenue we expect to recognize on these remaining performance obligations is $0.4 million for the remainder of 2020, $41.2 million in 2021, $34.2 million in 2022, and the remainder thereafter.
As of September 30, 2020, our remaining performance obligations in segments other than Churchill Downs were not material.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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Churchill Downs Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Contract Assets and Contract Liabilities
As of September 30, 2020 and December 31, 2019, contract assets were not material.
As of September 30, 2020 and December 31, 2019, contract liabilities were $