C HURCHILL DOWNS INCORPORATED 2007 Annual Report Dear Shareholder– The pages that follow provide considerable detail on the performance of your Company during 2007. In this brief letter we would like to highlight three key developments. First, like every company, we want to achieve sustained revenue and earnings growth. In the no-growth U.S. Thoroughbred industry, this is no easy feat. In 2007 we put in place two new business capabilities that we hope will produce such growth. We entered the advance-deposit wagering (“ADW”) business with the launch of Twinspires.com and the subsequent acquisition of the AmericaTAB and Bloodstock Research Information Services companies. Our ADW businesses generated more than $94 million in handle during the fi rst six months we owned them in 2007, and we are confi dent we will further grow this segment of our operations – and its bottom-line impact – in 2008. We launched our fi rst gaming operation in September 2007 with the opening of a 245-machine temporary slot operation at our Fair Grounds Race Course in New Orleans that has exceeded our expectations for average daily net win per machine. While we can’t predict future levels of play, we are very pleased with the temporary facility’s performance to date. The permanent slot machine facility at the Fair Grounds is under construction, and we expect to open it in late 2008 with an initial 600 machines. Finally, we were successful in winning the Jan. 29, 2008, election in Florida’s Miami-Dade County, which will enable us to launch a slot operation at our Calder Race Course. We are currently fi nalizing our plans for this facility. Second, we have put in place what, in our opinion, is a world-class senior leadership team, attracting top management talent from across Kentucky, home to our corporate headquarters, as well as from Philadelphia, San Francisco, Chicago, Boulder, Atlanta, Los Angeles, New Orleans, Miami and Silicon Valley. We are undertaking a signifi cant transformation of the Company and our success depends on having only the very best people. Third, we have been making these changes to the Company while improving our fi nancial results and customer service initiatives. Revenues from continuing operations increased nine percent during 2007 compared to 2006. While overall EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations was lower year-over-year, it is important to note that in 2006 we had insurance recoveries of $19.2 million related to storm damage at our Louisiana and Florida Operations, compared to $0.8 million in 2007. Additionally, we had expenditures of $2.6 million in 2007 related to our Florida slots campaign that impacted EBITDA. Our customer service performance improved at all of our tracks and off-track betting (“OTB”) operations, from an average of 88.5 percent to 91.0 percent (of all service activities performed at or above standard) as measured by our “Mystery Shopper” program conducted by an outside fi rm. Our focus in 2008 is on delivering revenue and earnings growth from the ADW and slots initiatives we have launched. We did not make as much progress as we had hoped in 2007 on broadening the scope of our transformational efforts across all of our racetracks and OTB operations, and on reducing our cost structure and improving margins. We will redouble our efforts in these areas in 2008. Finally, we will continue to look for new business opportunities that will sustain our growth beyond the next several years. The quality of both our organization and our balance sheet leave us uniquely positioned to capitalize on the rapidly changing U.S. Thoroughbred industry. Thank you for your investment in Churchill Downs Incorporated, and for your trust in our leadership. Warm regards, Carl F. Pollard Robert L. Evans Chairman President and Chief Executive Offi cer Directors and Offi cers for Churchill Downs Incorporated and Subsidiaries Directors for Offi cers for Churchill Downs Incorporated Churchill Downs Incorporated and Subsidiaries Terms Expiring in 2011 Terms Expiring in 2009 Executive Offi cers Robert L. Fealy Leonard S. Coleman Jr. Executive Vice President and Director, Retired. Former Senior Advisor, Robert L. Evans Duchossois Industries Inc. Major League Baseball President and Chief Executive Offi cer Daniel P. Harrington Craig J. Duchossois William C. Carstanjen President and Chief Executive Offi cer, Chief Executive Offi cer and Director, Executive Vice President and HTV Industries Inc. Duchossois Industries Inc.; Chairman, Chief Development Offi cer The Chamberlain Group Inc.; Director and Chief Executive Offi cer, TCMC Inc. Carl F. Pollard William E. Mudd Owner, Hermitage Farm Robert L. Evans Executive Vice President and Chief Financial Offi cer Darrell R. Wells President and Chief Executive Offi cer, Churchill Downs Incorporated General Partner, Security Management Vernon D. Niven III Company G. Watts Humphrey Jr. Executive Vice President of Technology Initiatives President, GWH Holdings Inc.; Chief Executive Offi cer, IPEG and Centria; Terms Expiring in 2010 Owner, Shawnee Farm Steven P. Sexton Executive Vice President, Richard L. Duchossois Senior Vice President of Kentucky Chairman, Duchossois Industries Inc.; Operations and President of Director, TCMC Inc. Directors Emeriti Churchill Downs Racetrack J. David Grissom Charles W. Bidwill Jr. Chairman, Mayfair Capital Inc.; Chairman, The Glenview Trust Company Catesby W. Clay Seth W. Hancock Frank B. Hower Jr. Managing Partner, Claiborne Farm Ltd.; President, Hancock Farms LLC Stanley F. Hugenberg Jr. Susan Elizabeth Packard Thomas H. Meeker President, Brand Outreach, Scripps Networks Inc. Arthur B. Modell UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007 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 0-1469 (Exact name of registrant as specified in its charter) Kentucky 61-0156015 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 700 Central Avenue, Louisville, Kentucky 40208 (502) 636-4400 (Address of principal executive offices) (zip code) (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, No Par Value The NASDAQ Stock Market LLC (Title of each class registered) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None (Title of class) Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ‘ No È Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ‘ No È Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ‘ Accelerated filer È Non-accelerated filer ‘ Smaller reporting company ‘ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È As of March 5, 2008, 13,504,388 shares of the Registrant’s Common Stock were outstanding. As of June 30, 2007, (based upon the closing sale price for such date on the NASDAQ Global Market), the aggregate market value of the shares held by non-affiliates of the Registrant was $517,072,103. Portions of the Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held on June 19, 2008, are incorporated by reference herein in response to Items 10, 11, 12, 13 and 14 of Part III of Form 10-K. The exhibit index is located on pages 86-91. CHURCHILL DOWNS INCORPORATED INDEX TO ANNUAL REPORT ON FORM 10-K For the Year Ended December 31, 2007 Part I 3 Item 1. Business .................................................................... 3 Item 1A. Risk Factors ................................................................. 17 Item 1B. Unresolved Staff Comments .................................................... 26 Item 2. Properties ................................................................... 26 Item 3. Legal Proceedings ............................................................ 26 Item 4. Submission of Matters to a Vote of Security Holders ................................. 26 Part II 27 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ........................................................... 27 Item 6. Selected Financial Data ........................................................ 29 Item 7. Management’s Discussion and Analysis of Financial