Churchill Downs Incorporated Incurred Non-Cash Expense In Fourth Quarter Of 2004

Churchill Downs Incorporated ("CDI" or "Company") (NASDAQ: CHDN) today announced that it incurred an unanticipated, non-cash expense in the fourth quarter of 2004 to reflect an unrealized loss of approximately $4.3 million, or $0.32 per share, related to the terms of a convertible note issued in conjunction with the redemption of 452,603 shares of its common stock.

On Oct. 19, 2004, the Company entered into a transaction in which it exchanged a convertible promissory note ("note") in the principal amount of $16.7 million due in 2014 for 452,603 shares of CDI stock. Pursuant to Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), the note was determined to be a derivative financial instrument with "embedded derivatives." As such, CDI is required to "mark to market" the changes in the imputed market value of the embedded derivatives each quarterly period and reflect the impact of any change against current earnings. The change in fair market value of the embedded derivatives between the date of issuance and Dec. 31, 2004, resulted in a non-cash, unrealized loss of $4.3 million, primarily as a result of the increase in the market value of the Company's common stock.

Michael E. Miller, chief financial officer of Churchill Downs Incorporated, said, "The treatment of the note as a derivative instrument represents an instance of a literal application of accounting rules that may not always reflect the economic substance of transactions. It is important to point out that, given the character of this charge to earnings, this transaction is not representative of the cash flow generated in either the fourth quarter or the full year."

Subsequent to year-end, the note has been modified such that, in the future, it should receive conventional accounting treatment for convertible notes and will not be subject to "mark to market" requirements beyond the first quarter of 2005.

Churchill Downs Incorporated will report fourth quarter and year-end 2004 earnings in conjunction with the filing of its Form 10-K on or around March 16, 2004. An announcement detailing the earnings release date and conference call access information will be distributed within the next week.

Churchill Downs Incorporated, headquartered in Louisville, Ky., owns and operates world-renowned horse racing venues throughout the United States. The Company's seven racetracks in California, Florida, Illinois, Indiana, Kentucky and Louisiana host 121 graded-stakes events and many of North America's most prestigious races, including the Kentucky Derby and Kentucky Oaks, Hollywood Gold Cup and Arlington Million. CDI racetracks have hosted nine Breeders' Cup World Thoroughbred Championships - more than any other North American racing company. CDI also owns off-track betting facilities and has interests in various television production, telecommunications and racing services companies that support CDI's network of simulcasting and racing operations. CDI trades on the NASDAQ National Market under the symbol CHDN and can be found on the Internet at