SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
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
CHURCHILL DOWNS INCORPORATED
(Exact name of registrant as specified in its charter)
KENTUCKY 61-0156015
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
700 CENTRAL AVENUE, LOUISVILLE, KY 40208
(Address of principal executive offices)
(Zip Code)
(502) 636-4400
(Registrant's telephone number, including area code)
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 X No______
The number of shares outstanding of registrant's common stock at August 8, 1997
was 3,654,264 shares.
1
<PAGE>
CHURCHILL DOWNS INCORPORATED
I N D E X
PAGES
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets, June 30, 1997,
December 31, 1996 and June 30, 1996 3
Condensed Consolidated Statements of Operations
for the six months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Operations
for the three months ended June 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 6
Condensed Notes to Consolidated Financial Statements 7-8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-20
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk (Not Applicable) 21
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 4. Submission of Matters to a Vote of Security Holders 21
ITEM 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit Index 23
Exhibits 24-35
2
<PAGE>
<TABLE>
<CAPTION>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30 December 31 June 30
ASSETS 1997 1996 1996
----------- ------------- -----------
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $16,156,852 $ 8,209,414 $14,028,675
Accounts receivable 12,472,948 5,218,236 5,553,215
Other current assets 698,316 679,221 207,075
----------- ----------- -----------
Total current assets 29,328,116 14,106,871 19,788,965
Other assets 3,641,979 3,739,906 4,046,354
Plant and equipment 102,842,179 100,025,412 98,852,730
Less accumulated depreciation (39,195,894) (37,143,223) (35,128,935)
----------- ----------- -----------
63,646,285 62,882,189 63,723,795
----------- ----------- -----------
$96,616,380 $80,728,966 $87,559,114
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $12,570,920 $ 7,575,573 $12,209,115
Accrued expenses 7,757,233 5,802,330 3,759,193
Dividends payable - 2,375,271 -
Income taxes payable 6,839,208 2,510,508 6,539,508
Deferred revenue 1,127,166 6,511,902 1,200,753
Long-term debt, current portion 73,893 73,893 70,097
----------- ----------- -----------
Total current liabilities 28,368,420 24,849,477 23,778,666
Long-term debt, due after one year 2,781,462 2,925,298 2,950,079
Outstanding mutuel tickets
(payable after one year) 3,574,724 2,031,500 3,189,408
Deferred compensation 857,274 825,211 958,312
Deferred income taxes 2,316,600 2,316,600 2,415,500
Stockholders' equity:
Preferred stock, no par value;
authorized, 250,000 shares; issued, none - - -
Common stock, no par value; authorized, 10 million
shares, issued 3,654,264 shares, June 30, 1997
and December 31, 1996 and 3,725,955 shares,
June 30, 1996 3,493,042 3,493,042 3,450,078
Retained earnings 55,289,858 44,352,838 51,018,421
Deferred compensation costs - - (136,350)
Note receivable for common stock (65,000) (65,000) (65,000)
----------- ----------- -----------
58,717,900 47,780,880 54,267,149
----------- ----------- -----------
$96,616,380 $80,728,966 $87,559,114
=========== =========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
3
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the six months ended June 30, 1997 and 1996
(Unaudited)
SIX MONTHS ENDED JUNE 30
1997 1996
----------- -----------
Net revenues $74,058,499 $66,490,002
Operating expenses 51,986,126 46,450,327
----------- -----------
Gross earnings 22,072,373 20,039,675
Selling, general and administrative expenses 4,392,127 3,845,423
Operating income 17,680,246 16,194,252
----------- -----------
Other income and expense:
Interest income 196,840 94,631
Interest expense (148,710) (147,035)
Miscellaneous, net 198,644 81,804
----------- -----------
246,774 29,400
----------- -----------
Earnings before income tax provision 17,927,020 16,223,652
Federal and state income tax provision (6,990,000) (6,400,000)
----------- ------------
Net earnings 10,937,020 9,823,652
Retained earnings, beginning of period 44,352,838 41,194,769
Retained earnings, end of period $55,289,858 $51,018,421
=========== ===========
Net earnings per share (based on weighted
average shares outstanding of
3,655,899 and 3,768,632
respectively) $2.99 $2.61
===== =====
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended June 30, 1997 and 1996
(Unaudited)
THREE MONTHS ENDED JUNE 30
1997 1996
----------- -----------
Net revenues $60,779,635 $54,939,249
Operating expenses 37,562,122 33,230,109
----------- -----------
Gross earnings 23,217,513 21,709,140
Selling, general and administrative expenses 2,401,844 2,071,556
Operating income 20,815,669 19,637,584
----------- -----------
Other income and expense:
Interest income 130,460 50,628
Interest expense (68,494) ( 50,837)
Miscellaneous, net 68,071 34,490
----------- -----------
130,037 34,281
----------- -----------
Earnings before income tax provision 20,945,706 19,671,865
Federal and state income tax provision (8,160,000) (7,775,000)
----------- -----------
Net earnings 12,785,706 11,896,865
Retained earnings, beginning of period 42,504,152 39,121,556
Retained earnings, end of period $55,289,858 $51,018,421
=========== ===========
Net earnings per share (based on weighted
average shares outstanding of
3,655,952 and 3,751,183
respectively) $3.50 $3.17
===== =====
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1997 and 1996
(Unaudited)
SIX MONTHS ENDED JUNE 30
1997 1996
----------- -----------
Cash flows from operating activities:
Net earnings $10,937,020 $ 9,823,652
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,248,616 2,294,718
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable (7,254,712) (3,454,314)
Other current assets (19,095) 342,745
Income taxes payable 4,328,700 5,490,000
Deferred revenue (5,384,736) (4,897,788)
Accounts payable, accrued expenses,
and other 8,449,708 7,614,044
----------- -----------
Net cash provided by
operating activities 13,305,501 17,213,057
Cash flows from investing activities:
Additions to plant and equipment, net (2,838,956) (1,401,267)
Net cash used in investing activities (2,838,956) (1,401,267)
Cash flows from financing activities:
Decrease in long-term debt, net (143,836) (3,401,000)
Dividend paid (2,375,271) (1,892,302)
Common stock repurchased - (2,346,001)
----------- -----------
Net cash used in financing activities (2,519,107) (7,639,303)
----------- -----------
Net increase in cash and cash equivalents 7,947,438 5,856,188
Cash and cash equivalents, beginning of
period 8,209,414 5,856,188
Cash and cash equivalents, end of period $16,156,852 $14,028,675
Supplemental Disclosures of cash flow information:
Cash paid during the period for:
Interest $115,290 $219,601
Income taxes $2,640,000 $710,000
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended June 30, 1997 and 1996
(Unaudited)
1. Because of the seasonal nature of the Company's business,
revenues and operating results for any interim quarter are not indicative of the
revenues and operating results for the year and are not necessarily comparable
with results for the corresponding period of the previous year. The accompanying
consolidated financial statements reflect a disproportionate share of annual net
income as the Company normally earns a substantial portion of its net earnings
in the second quarter of each year during which the Kentucky Derby and Kentucky
Oaks are run. The Kentucky Derby and Kentucky Oaks are run on the first weekend
in May.
During the six months ended June 30, 1997 and 1996 the Company
conducted simulcast receiving wagering for 682 and 661 location days,
respectively, which includes simulcast wagering at its Sports Spectrum site in
Louisville, Kentucky for 92 days in 1997 compared to 84 days in 1996. Through
its subsidiary, Hoosier Park L.P. ("Hoosier Park"), the Company conducted
simulcast wagering at its racetrack in Anderson, Indiana and at three simulcast
wagering facilities located in Merrillville, Ft. Wayne and Indianapolis, Indiana
for a total of 590 days during the six month period compared to 577 days in
1996. Additionally, the Company conducts simulcast wagering on-track during its
Churchill Downs and Hoosier Park live race meets.
2. The accompanying consolidated financial statements are presented
in accordance with the requirements of Form 10-Q and consequently do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally made in the Company's annual report on Form 10-K.
The year end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. Accordingly, the reader of this Form 10-Q may wish to
refer to the Company's Form 10-K for the period ended December 31, 1996 for
further information. The accompanying consolidated financial statements have
been prepared in accordance with the registrant's customary accounting practices
and have not been audited. In the opinion of management, all adjustments
necessary for a fair presentation of this information have been made and all
such adjustments are of a normal recurring nature.
3. The Company has an unsecured $20,000,000 bank line of credit with
various options for the interest rate, none of which are greater than the bank's
prime rate. The line of credit expires January 31, 1998. There were no
borrowings outstanding at June 30, 1997, December 31, 1996 and June 30, 1996.
4. Certain balance sheet and statement of operations items have been
reclassified in the prior year to conform to current period presentation.
7
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended June 30, 1997 and 1996 (continued)
(Unaudited)
5. On January 22, 1992, the Company acquired certain assets of
Louisville Downs, Incorporated for $5,000,000. In conjunction with this
purchase, the Company withheld $1,000,000 from the amount due to the sellers to
offset certain costs related to the remediation of environmental contamination
associated with underground storage tanks at the site. Substantially, all of the
$1,000,000 hold back has been utilized as of June 30, 1997. The Company awaits a
ruling from the Commonwealth of Kentucky on whether the remediation is complete.
It is not anticipated that the Company will have any material
liability as a result of compliance with environmental laws with respect to any
of the Company's property. Compliance with environmental laws has not otherwise
affected development and operation of the Company's property and the Company is
not otherwise subject to any material compliance costs in connection with
federal or state environmental laws.
6. In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128). SFAS 128 is designed to improve the EPS information provided in
financial statements by simplifying the existing computational guidelines. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997. The Company does not expect adoption of this standard will
have a material impact on its future or previously reported earnings per share.
7. In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS 130 is effective for financial
statements issued for periods ending after December 15, 1997. The Company does
not expect adoption of this standard will have a material impact on its
financial statements.
8. In July 1997, BC Racing Group, LLC (BC), of which the Company is
a 24% owner, purchased Dueling Grounds racecourse for $11 million at a Federal
Bankruptcy Court sale after having purchased underlying mortgage notes to the
property from the mortgagee at a discount. Located in Franklin, Kentucky, just
north of Nashville, Tennessee, Dueling Grounds opened in 1991, conducting short
race meets and year-round simulcasting. The Company has one seat on the
four-person Management Committee of BC. The Company will account for its
investment in BC of $2,187,500 under the equity method of accounting.
8
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CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
This discussion and analysis contains both historical and
forward-looking information. The forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements regarding riverboat competition and alternative
gaming legislation may be significantly impacted by certain risks and
uncertainties described herein, and in the Company's annual report on Form 10-K
for the year ended December 31, 1996.
The Company's principal business is conducting pari-mutuel wagering
on Thoroughbred and Standardbred horse races. The Kentucky Derby and Kentucky
Oaks, which are run on the first weekend in May of each year, continue to be the
Company's outstanding attractions. In the second quarter of 1997, the Company
again offered the simulcast of its races on Kentucky Derby Day to racetracks
within Kentucky. In 1997, Derby weekend accounted for approximately 30% of total
on-track pari-mutuel wagering and 34% of total on-track attendance for the 1997
Spring Meet at Churchill Downs compared to 30% and 35%, respectively, in 1996.
The Company, through its subsidiary, Hoosier Park, L.P. ("Hoosier
Park"), is majority owner and operator of Indiana's only pari-mutuel racetrack,
Hoosier Park in Anderson, Indiana. The Company conducted live harness racing in
the second quarter beginning April 24, 1997 through the end of June 1997 and
will continue the harness meet through August 24, 1997. Average daily attendance
and daily handle figures were down by 10 and 8 percent, respectively, compared
to the 1996 harness race meet. The Company is continuing to evaluate sites for a
fourth satellite wagering facility in Indiana.
Because of the seasonal nature of the Company's business, revenues
and operating results for any interim quarter are not indicative of the revenues
and operating results for the year and are not necessarily comparable with
results for the corresponding period of the previous year. During the second
quarter of 1997, the Company earned a substantial portion of its expected net
income for the year from the running of the Kentucky Derby and the Kentucky
Oaks.
The Company's primary sources of income are commissions and fees
earned from pari-mutuel wagering on live and simulcast horse races. Other
significant sources of income include admissions and seating, concession
commissions (primarily for the sale of food and beverage items), riverboat
admission tax supplement, and license, rights and broadcast and sponsorship
fees.
9
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In Kentucky, licenses to conduct Thoroughbred race meetings and to
participate in simulcasting are approved annually by the Kentucky Racing
Commission based upon applications submitted by the racetracks in Kentucky,
including the Company. Based on gross figures for on-track pari-mutuel wagering
and attendance, the Company is the leading Thoroughbred racetrack in Kentucky.
The Company conducted live racing from April 26 through June 29, 1997, and has
been granted a license to conduct live racing during the period October 26
through November 29, 1997 for a total of 77 racing days in Kentucky compared to
78 racing days in 1996. During the second quarter, the company has submitted an
application to the Kentucky Racing Commission to conduct live racing in Kentucky
from April 25, 1998 through June 28, 1998 (Spring Meet) and from November 1,
1998 through November 28, 1998 (Fall Meet).
In Indiana, licenses to conduct live Standardbred and Thoroughbred
race meetings and to participate in simulcasting are approved annually by the
Indiana Horse Racing Commission based upon applications submitted by the
Company. Currently, the Company is the only facility in Indiana licensed to
conduct live Standardbred or Thoroughbred race meetings and to participate in
simulcasting. In Indiana the Company has been granted a license to conduct live
racing in 1997 for a total of 143 racing days, including 85 days of Standardbred
racing from April 24 through August 24, 1997, and 58 days of Thoroughbred racing
from September 12 through November 29, 1997. In 1996, the Company conducted live
racing for a total of 132 racing days, including 80 days of Standardbred racing
and 52 days of Thoroughbred racing.
With the advent of whole card simulcasting, the Company conducts
interstate simulcasting year-round on multiple racing programs each day from
around the nation. For 1997, the Company has been granted a license to operate
simulcast receiving locations in Kentucky and Indiana for all dates from January
1 through December 31 and intends to receive simulcasting on all days it is
economically feasible. The number of receiving days in Kentucky and Indiana has
increased eight and thirteen days, respectively, in 1997 compared to 1996.
Hoosier Park may ultimately be supported by a fourth whole card simulcasting
facility. An increase in the number of days or facilities would be expected to
enhance operating results.
Because the business of the Company is seasonal, the number of
persons employed will vary throughout the year. Approximately 600 individuals
are employed on a permanent year-round basis. During the second quarter, as many
as 2,600 persons were employed.
In the first six months of 1996, two riverboat casinos were
operating on the Ohio River along Kentucky's border -- one in southwestern
Indiana and one at Metropolis, Illinois. In the Fall of 1996, two additional
riverboats opened in southeastern Indiana. Direct competition with these
riverboats negatively impacted wagering at racetracks in western and northern
Kentucky in 1996.
10
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CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The Company implemented an aggressive on-track marketing program in
1997 which management believes was a primary reason for the increased attendance
and handle during its 1997 Spring meet in spite of the increasing riverboat
competition.
During the next two years, a fifth riverboat may be operating along
the Ohio River. One of the nation's largest riverboat complexes is proposed to
be located 10 miles from Louisville in Harrison County, Indiana. Studies project
that once all five riverboats are open and mature, Churchill Downs could
experience as much as a 30% decline in on-track wagering and a 20% decline in
the Louisville, Kentucky, Sports Spectrum business.
The Company's Board of Directors passed a resolution in June 1996,
instructing the Company's management to aggressively pursue alternative forms of
gaming at its racetrack facilities in Louisville as an additional means of
combating the negative effects of riverboat competition. The integration of
alternative gaming products at the racetrack is one of four core business
strategies developed by the Company to position itself to compete in this
changing environment. Implementing these strategies, the Company has
successfully grown its live racing product by strengthening its flagship
operations, increasing its share of the interstate simulcast market, and
geographically expanding its racing operations into Indiana. Alternative gaming
in the form of video lottery terminals and slot machines would enable Churchill
Downs to better compete with Indiana riverboat casinos, and provide new revenue
for purse money and capital investment.
In Indiana, licenses allowing up to five riverboat casinos on Lake
Michigan near the Company's Merrillville Sports Spectrum have been granted by
the Indiana Gaming Commission. Three riverboats opened on Lake Michigan in June
1996, while a fourth opened in April 1997. The fifth Lake Michigan riverboat is
scheduled to open in August 1997. The Company's pari-mutuel wagering activities
at the Merrillville facility have been adversely impacted by the opening of
these Lake Michigan riverboats.
Additionally, the Potawatomi Indian Tribe has expressed an interest
in establishing land-based casino operations in southwestern Michigan and
northeastern Indiana, while the Miami Indian Tribe has expressed an interest in
establishing a land-based casino near the Company's Merrillville Sports
Spectrum. The Company continues to anticipate that such operations will
negatively impact pari-mutuel wagering activities at its Indiana facilities. The
extent of the impact is unknown at this time due, in part, to the uncertain
geographic distances between the Company's operations and the number of
potential casino sites.
11
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CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In May, 1997 the Indiana General Assembly convened in special
session and passed a budget bill, which did not include provisions similar to
those included in House Bill 1135 which would have materially reduced Hoosier
Park's share of a riverboat admissions tax. There is no assurance that a similar
bill will not be introduced in the future.
The Company owned and operated two live racing facilities and four
simulcast wagering facilities during the six month periods ended June 30, 1997
and 1996. The chart below summarizes attendance and wagering handle for the
operations in 1997 and 1996 for the six month periods:
<TABLE>
<CAPTION>
KENTUCKY INDIANA
--------------------------------------------------------------------
Six Months Six Months Six Months Six Months
Ended Ended Ended Ended
June 30 June 30 Increase June 30 June 30 Increase
1997 1996 (DECREASE) 1997 1996 (DECREASE)
----------- ----------- -------- ---------- ---------- --------
ON-TRACK
<S> <C> <C> <C> <C> <C> <C>
Number of Race Days 47 48 (1) 45 43 2
Attendance 687,533 685,228 - 46,117 48,974 -6%
Handle $96,580,365 $95,077,056 2% $4,944,802 $5,154,518 -4%
Average Daily Attendance 14,628 14,276 2% 1,025 1,139 -10%
Average Daily Handle $2,054,901 $1,980,772 4% $109,884 $119,873 -8%
Per Capita Handle $140.47 $138.75 1% $107.22 $105.24 2%
INTERTRACK/SIMULCAST-HOST (SENDING)
Number of Race Days 47 48 (1) 45 43 2
Handle $269,226,795 $245,018,693 10% $3,964,102 $1,116,693 255%
Average Daily Handle $5,728,230 $5,104,556 12% $88,091 $25,969 239%
INTERTRACK/SIMULCAST-RECEIVING*
Number of Race Days 92 84 8 590 577 13
Attendance 186,596 195,552 -5% ** ** **
Handle $57,185,249 $52,340,744 9% $65,761,722 $69,946,803 -6%
Average Daily Attendance 2,028 2,328 -13% ** ** **
Average Daily Handle $621,579 $623,104 - $111,461 $121,225 -8%
Per Capita Handle $306.47 $267.66 14% ** ** **
Total Handle $422,992,409 $392,436,493 8% $74,670,626 $74,880,342 -
<FN>
* The Company's Indiana operations include four separate simulcast wagering
facilities.
** Attendance figures are not kept for the off-track wagering facilities in
Indiana.
</FN>
</TABLE>
12
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Total handle in Kentucky increased approximately $30.6 million (8%)
primarily as a result of a 10% increase in simulcast-host handle. The Company's
live races at Churchill Downs were transmitted to a record number of outlets
across the nation for the 1997 Spring Meet.
In Indiana, total handle remained relatively flat decreasing
approximately $210,000. Increased simulcast-host handle of 255% was more than
offset by decreases in both on-track and simulcast-receiving handle of 4% and 6
%, respectively, as a result of increased riverboat competition. On-track
average daily attendance and average daily handle figures decreased by 10% and
8%, respectively.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO 1996
NET REVENUES
Net revenues during the six months ended June 30, 1997 increased
approximately $7.6 million (11%). Approximately $2.2 million of the total net
revenue increase was the result of increased simulcast-receiving pari-mutuel
revenues at Churchill Downs generated from Kentucky operations. The construction
of an on-site simulcast wagering facility used during live racing in Kentucky as
well as growth at the Sports Spectrum wagering facility during non-live racing
times generated the positive variance for Kentucky operations. This increase was
partially offset by a $300,000 decline in simulcast-receiving revenues in
Indiana. Simulcast-host revenues also contributed to the increase in total net
revenues, with the Company's live races being transmitted to a record number of
outlets across the nation.
Admission and seat revenue increased $360,000 primarily due to
increases in admission prices on Kentucky Oaks and Derby days. License, rights,
broadcast and sponsorship revenues increased due to new corporate sponsors
during the Spring Meet at Churchill Downs which included new sponsors for three
steeplechase races held for the first time since the late 1800's. Concession
revenues declined as a result of concession price reductions as part of the
Company's aggressive on-track marketing program. Derby expansion area revenues
increased as additional space was added for corporate sponsors for the Kentucky
Derby and Oaks days.
Riverboat admissions revenue from the Company's Indiana operations
increased $4.9 million primarily as a result of the opening of additional
riverboats along the Ohio River and Lake Michigan since June 30, 1996. The net
increase in riverboat admissions revenue, after required purse and marketing
expenses of approximately $3 million, is $1.9 million.
13
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Following is a summary of Net Revenues:
<TABLE>
<CAPTION>
NET REVENUE SUMMARY
----------------------------------------------------------------
Six Months % of Six Months % of 1997 VS. 1996
Ended Net Ended Net $ %
June 30, 1997 Revenue June 30, 1996 Revenue Change Change
------------- ------- ------------- ------- ------ ------
Pari-Mutuel Revenue:
<S> <C> <C> <C> <C> <C> <C>
On-track 13,356,239 18% $13,636,521 20% ($280,282) -2%
Intertrack-Host 4,410,467 6 4,906,386 7 (495,919) -10
Simulcast-Receiving 19,233,141 26 17,278,345 26 1,954,796 11
Simulcast Host 9,191,211 12 8,391,321 13 799,890 10
----------- ---- ----------- ---- ---------- ----
$46,191,058 62% $44,212,573 66% $1,978,485 4%
Admission & Seat
Revenue 10,681,419 15 10,322,496 15 358,923 3
License, Rights, Broadcast
& Sponsorship Revenue 5,833,765 8 5,432,850 8 400,915 7
Concession Commission 1,531,761 2 1,798,167 3 (266,406) -15
Program Revenue 1,696,010 2 1,865,790 3 (169,780) -9
Riverboat Admissions
Revenue 5,430,462 7 527,679 1 4,902,783 929
Derby Expansion Area 1,337,350 2 1,128,270 2 209,080 19
Other 1,356,674 2 1,202,177 2 154,497 13
----------- ---- ----------- ---- ---------- ----
$74,058,499 100% $66,490,002 100% $7,568,497 11%
=========== ==== =========== ==== ========== ====
</TABLE>
14
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
OPERATING EXPENSES
In Kentucky and Indiana, purse expense varies directly with
pari-mutuel revenues and is calculated as a percentage of the related revenue
and may change from year to year pursuant to contract or statute. Accordingly,
on-track, intertrack and simulcast purses reflect changes in direct proportion
to changes in pari-mutuel revenues for the same categories. The increase in
riverboat purses of $2.6 million is directly related to the $4.9 million
increase in riverboat admissions revenue.
Wages and contract labor increased $890,000. General wage increases,
including a new pari-mutuel clerks union contract in Kentucky which increased
mutuel clerks' wages, account for a significant portion of the variance.
Advertising, marketing & publicity expenses increased $606,000 which
includes an increase in the Churchill Downs direct marketing expenses as part of
the aggressive marketing plan initiated during the live racing meet.
Simulcast host fees increased primarily as a result of expansion of
whole-card wagering during the Spring live racing meet.
Audio, video and signal distribution expense increases of $269,000
represents costs associated with the greater number of sites being sent the
Company's live racing products and additional equipment for enhanced and
expanded areas for whole-card wagering in Kentucky.
The insurance, taxes & license fees decrease of $203,000 was
achieved by lower insurance costs in both Kentucky and Indiana.
Derby expansion area expenses increased in relation to increased
space sold Derby weekend. Other Meeting Expenses rose $217,000 due primarily to
increases in meet related printing expenses.
15
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Following is a summary of Operating Expenses:
<TABLE>
<CAPTION>
OPERATING EXPENSE SUMMARY
-----------------------------------------------------------
Six Months % of Six Months % of 1997 VS. 1996
Ended Net Ended Net
June 30 Operating June 30 Operating $ %
1997 Expenses 1996 Expenses Change Change
---------- -------- ---------- -------- -------- ------
Purses:
<S> <C> <C> <C> <C> <C> <C>
On-track $7,267,307 14% $7,374,473 16% ($107,166) -1%
Intertrack-Host 2,078,509 4 2,262,832 5 (184,323) -8
Simulcast- Receiving 6,269,524 12 5,554,331 12 715,193 13
Simulcast-Host 4,594,141 9 4,151,239 9 442,902 11
Riverboat 2,863,606 6 263,838 - 2,599,768 985
----------- --- ----------- --- ---------- ---
$23,073,087 45% $19,606,713 42% $3,466,374 18%
Wages and Contract Labor 9,798,634 19 8,909,004 19 889,630 10
Advertising, Marketing
& Publicity 2,689,438 5 2,083,656 4 605,782 29
Racing Relations
& Services 1,068,113 2 1,035,281 2 32,832 3
Totalisator Expense 789,877 2 770,321 2 19,556 3
Simulcast Host Fee 3,919,550 8 3,822,315 8 97,235 3
Audio/Video & Signal
Distribution Expense 1,088,597 2 819,133 2 269,464 33
Program Expense 1,251,719 2 1,271,430 3 (19,711) -2
Depreciation &
Amortization 2,248,616 4 2,291,564 5 (42,948) -2
Insurance, Taxes &
License Fees 1,269,905 2 1,473,076 3 (203,171) -14
Maintenance 1,075,505 2 977,415 2 98,090 10
Utilities 1,214,189 2 1,263,477 3 (49,288) -4
Derby Expansion Area 592,658 1 415,915 1 176,743 42
Facility/Land Rent 397,958 1 419,641 1 (21,683) -5
Other meeting expense 1,508,280 3 1,291,386 3 216,894 17
----------- ---- ----------- ---- ---------- ----
$51,986,126 100% $46,450,327 100% $5,535,799 12%
=========== ==== =========== ==== ========== ====
</TABLE>
16
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Selling, general and administrative expenses increased by $547,000
during the six month period ended June 30, 1997, which represents only a slight
increase as a percentage of revenues from 5.8% to 5.9%.
The interest income increase of $102,000 represents the additional
earnings generated by the Company from its short-term cash investments.
Miscellaneous income increased by $117,000 primarily as a result of a dividend
payment received on annuity contracts related to a terminated pension plan.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 TO THREE MONTHS ENDED JUNE 30,
1996
Net earnings for the three months ended June 30, 1997 increased by
approximately $890,000 compared to the same three months last year as a result
of an increase in the Company's net revenues offset partially by lower profit
margins associated with simulcasting revenues. Additional interest income also
contributed to the increase.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 TO THREE MONTHS ENDED MARCH 31,
1997
The increase in net earnings for the three months ended June 30,
1997 from the net loss for the three months ended March 31, 1997 is primarily
the result of live racing income generated at Churchill Downs during the
Kentucky Derby and the Kentucky Oaks weekend and the rest of the 1997 Spring
meet. Live racing in Kentucky begins in the second quarter during which the
Company earns a substantial portion of it net earnings.
17
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
SIGNIFICANT CHANGES IN THE BALANCE SHEET DECEMBER 31, 1996 TO JUNE 30, 1997
The cash and cash equivalent balances at June 30, 1997 were $7.9
million higher than December 31, 1996 due to the cash generated during 47 live
race days at Churchill Downs, principally the Kentucky Derby and Oaks weekend.
Cash and cash equivalent balances during May and June are historically at the
highest levels of the year.
Accounts receivable at June 30, 1997 were $7.3 million higher than
December 31, 1996 due primarily to interstate and intrastate simulcasting
settlements relating to the 1997 Spring race meet.
Plant and equipment increased by $2.8 million due to the
construction of a new on-site simulcast facility as well as routine capital
spending throughout the Company. This was offset by approximately $2 million in
depreciation expense.
Accounts payable at June 30, 1997 were $5.0 million higher than
December 31, 1996 as a result of simulcast settlements due other racetracks and
additional payables relating to the Company's 1997 Spring Meet including
horsemen's payable balances. Live-meet payable balances for the 1996 Fall Meet
had substantially been paid prior to December 31, 1996.
Accrued expenses increased by $2.0 million at June 30, 1997 as a
result of expenses generated during the 1997 Spring Meet.
Dividends payable decreased by $2.4 million at June 30, 1997 due to
the payment of dividends (declared in 1996) in the first quarter of 1997.
Income taxes payable increased by $4.3 million at June 30, 1997
representing the estimated income tax expense attributed to the income generated
in the second quarter of 1997.
Deferred revenue was $5.4 million lower at June 30, 1997 due to the
significant amount of admission and seat revenue that was received in advance at
December 31 and recognized as income in May 1997 for the Kentucky Derby and
Kentucky Oaks.
Outstanding mutuel tickets increased by $1.5 million at June 30,
1997 as a result of unclaimed mutuel tickets relating to the 1997 Spring Meet.
18
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
SIGNIFICANT CHANGES IN THE BALANCE SHEET JUNE 30, 1996 TO JUNE 30, 1997
Cash and cash equivalents increased $2.1 million in 1997 over 1996
based upon the increased earnings of the Company.
The accounts receivable increase of $6.9 million includes an
increase in the Indiana riverboat admissions tax receivable of $3.4 million and
an increase in simulcast settlement receivables from other racetracks.
Plant and equipment increased by approximately $4 million due to the
construction of a new on-site simulcast facility as well as routine capital
spending throughout the Company during the past twelve months. Plant and
equipment additions were offset by approximately $4 million in depreciation
expense.
Accounts payable and accrued expenses increased $4.4 million at June
30, 1997 due primarily to the timing of payments of live meet-related expenses
and horsemen's payable balances.
LIQUIDITY AND CAPITAL RESOURCES
The working capital surplus for the six months ended June 30, 1997
increased by approximately $4.9 million compared to June 30, 1996 as shown
below:
JUNE 30
----------------------------
1997 1996
---- ----
Working capital surplus (deficiency) $ 959,696 $( 3,989,701)
Working capital ratio 1.03 to 1 .83 to 1
The increase in the surplus reflects the improved liquidity of the
Company consistent with its continually improving financial performance.
19
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Cash flows provided by operations were $13,306,000 for the six
months ended June 30, 1997 compared to $17,213,000 for the six months ended June
30, 1996. The decrease of $3,908,000 is primarily the result of increased
short-term accounts receivable. Management believes cash flows from operations
during 1997 will be substantially in excess of the Company's disbursements for
the year.
The Company has a $20,000,000 unsecured line-of-credit available
with $20 million available at June 30, 1997 to meet working capital and other
short-term requirements. Management believes that the Company has the ability to
obtain additional long-term financing should the need arise.
RECENT ACCOUNTING DEVELOPMENTS
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128). SFAS 128 is designed to improve the EPS information provided in
financial statements by simplifying the existing computational guidelines. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997. The Company does not expect adoption of this standard will
have a material impact on its future or previously reported earnings per share.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general purpose financial statements. SFAS 130 is effective for financial
statements issued for periods ending after December 15, 1997. The Company does
not expect adoption of this standard will have a material impact on its
financial statements.
SUBSEQUENT EVENT
In July 1997, BC Racing Group, LLC (BC), of which the Company is a
24% owner, purchased Dueling Grounds racecourse for $11 million at a Federal
Bankruptcy Court sale after having purchased underlying mortgage notes to the
property from the mortgagee at a discount. Located in Franklin, Kentucky, just
north of Nashville, Tennessee, Dueling Grounds opened in 1991, conducting short
race meets and year-round simulcasting. The Company has one seat on the
four-person Management Committee of BC. The Company will account for its
investment in BC of $2,187,500 under the equity method of accounting.
20
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The registrant's 1997 Annual Meeting of Shareholders was held on
June 19, 1997. Proxies were solicited by the registrant's board of
directors pursuant to Regulation 14 under the Securities Exchange Act of
1934. There was no solicitation in opposition to the board's nominees as
listed in the proxy statement, and all nominees were elected by vote of
the shareholders. Voting results for each nominee were as follows:
VOTES FOR VOTES WITHHELD
DIRECTORS:
William S. Farish 2,570,163 11,659
G. Watts Humphrey, Jr. 2,570,271 11,551
Arthur B. Modell 2,229,842 351,980
Dennis D. Swanson 2,565,965 15,857
A proposal (Proposal No. 2) to approve amending Churchill Downs'
Articles of Incorporation to increase the percentage of shareholders
required to call a special meeting of the Company's shareholders was
approved by a vote of the majority of the shares of the registrant's
common stock represented at the meeting: 1,782,022 shares were voted in
favor of the proposal; 437,753 were voted against; and 10,547 abstained.
A proposal (Proposal No. 3) to approve the minutes of the 1996
Annual Meeting of Shareholders was approved by a vote of the majority of
the shares of the registrant's common stock represented at the meeting:
2,550,994 shares were voted in favor of the proposal; 19,568 were voted
against; and 10,260 abstained.
The total number of shares of common stock outstanding as of April
18, 1997, the record date of the Annual Meeting of Shareholder, was
3,654,264.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. See exhibit index.
B. During the quarter ending June 30, 1997, no Form 8-Ks were
filed by the Company.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.
CHURCHILL DOWNS INCORPORATED
August 13, 1997 \S\THOMAS H. MEEKER
-------------------------------------
Thomas H. Meeker
President and Chief Executive Officer
August 13, 1997 \S\ ROBERT L. DECKER
-------------------------------------
Robert L. Decker
Senior Vice President, Finance
(Chief Financial Officer)
August 13, 1997 \S\VICKI L. BAUMGARDNER
-------------------------------------
Vicki L. Baumgardner, Vice President
and Treasurer
(Principal Accounting Officer)
22
<PAGE>
EXHIBIT INDEX
NUMBERS DESCRIPTION BY REFERENCE TO
2 Restated Bylaws of Churchill Downs Page 24-35
Incorporated
23
RESTATED BYLAWS OF
CHURCHILL DOWNS INCORPORATED
ARTICLE I
OFFICE AND SEAL
SECTION 1. OFFICES. The principal office of the Corporation in the
State of Kentucky shall be located at 700 Central Avenue, Louisville, Kentucky.
The Corporation may have such other offices, either within or without the State
of Kentucky, as the business of the Corporation may require from time to time.
SECTION 2. THE CORPORATE SEAL. The Seal of the Corporation shall be
circular in form, mounted upon a metal die suitable for impressing same upon
paper, and along the upper periphery of the seal shall appear the word
"Churchill Downs" and along the lower periphery thereof the word "Kentucky". The
center of the seal shall contain the word "Incorporated".
ARTICLE II
STOCKHOLDERS MEETINGS AND RECORD DATES
SECTION 1. ANNUAL MEETING. The date of the annual meeting of the
stockholders for the purpose of electing directors and for the transaction of
such other business as may come before the meeting shall be established by the
Board of Directors, but shall not be later than 180 days following the end of
the Corporation's fiscal year. If the election of Directors shall not be held on
the day designated for any annual meeting, or at any adjournment thereof, the
Board of Directors shall cause the election to be held at a special meeting of
the stockholders to be held as soon thereafter as may be convenient.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders
may be called by the President, the Chairman of the Board or by holders of not
less than 33-1/3% of all the shares entitled to vote at the meeting, or by a
majority of the members of the Board of Directors.
SECTION 3. PLACE OF MEETING. The Board of Directors may designate
any place within or without the State of Kentucky as the place of meeting for
any annual meeting of stockholders, or any place either within or without the
State of Kentucky as the place of meeting for any special meeting called by the
Board of Directors.
If no designation is made, or if a special meeting be called by
other than the Board of Directors, the place of meeting shall be the principal
office of the Corporation in the State of Kentucky.
SECTION 4. NOTICE OF MEETINGS. Written notice stating the
place, day and hour of the meeting and, in case of a special meeting,
the purpose or purposes for which the meeting is called, shall be
24
<PAGE>
delivered not less than ten (10) nor more than sixty (60) days before the date
of the meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the officer or persons calling the meeting, to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
in a sealed envelope addressed to the stockholder at his address as it appears
on the records of the Corporation, with first class postage thereon prepaid.
SECTION 5. RECORD DATE. The Corporation's record date shall be fixed
by the Board of Directors for the determination of stockholders entitled to
notice of or to vote at a meeting of stockholders, or stockholders entitled to
receive any distribution. When a determination of stockholders entitled to vote
at any meeting of stockholders has been made as provided herein, such
determination shall apply to any adjournment thereof.
SECTION 6. VOTING LISTS AND SHARE LEDGER. The Secretary shall
prepare a complete list of the stockholders entitled to vote at any meeting, or
any adjournment thereof, arranged in alphabetical order, with the address of and
the number of shares held by each stockholder, which list shall be produced and
kept open at the meeting and shall be subject to the inspection of any
stockholder during the meeting. The original share ledger or stock transfer
book, or a duplicate thereof kept in this State, shall be PRIMA FACIE evidence
as to the stockholders entitled to examine such list or share ledger or stock
transfer book, or the stockholders entitled to vote at any meeting of
stockholders or to receive any dividend.
SECTION 7. QUORUM. A majority of the outstanding shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at any
meeting of stockholders. The stockholders present at a duly organized meeting
can continue to do business at any adjourned meeting, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 8. PROXIES. At all meetings of stockholders, a stockholder
may vote by proxy. An appointment of a proxy shall be executed in writing by the
stockholder or by his duly authorized attorney-in-fact and be filed with the
Secretary of the Corporation before or at the time of the meeting.
SECTION 9. NATURE OF BUSINESS. At any meeting of stockholders, only
such business shall be conducted as shall have been brought before the meeting
by or at the direction of the Board of Directors or by any stockholder who
complies with the procedures set forth in this Section 9.
No business may be transacted at any meeting of stockholders, other
than business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before such meeting of stockholders by or at the
direction of the Board of Directors, or (C) in the case of any annual meeting of
stockholders or a special meeting
25
<PAGE>
called for the purpose of electing directors, otherwise properly brought before
such meeting by any stockholder (I) who is a stockholder of record on the date
of the giving of the notice provided for in this Section 9 and on the record
date for the determination of stockholders entitled to vote at such meeting of
stockholders and (ii) who complies with the notice procedures set forth in this
Section 9.
In addition to any other applicable requirements, for business to be
properly brought before any annual meeting of stockholders by a stockholder, or
for a nomination of a person to serve as a Director, to be made by a
stockholder, such stockholder must have given timely notice thereof in proper
written form to the Secretary.
To be timely, a stockholder's notice to the Secretary must be
delivered or mailed to and be received at the principal executive offices of the
Corporation (a) in the case of the annual meeting of stockholders, not less than
ninety(90) nor more than one hundred and twenty (120) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
PROVIDED, HOWEVER, that in the event that the annual meeting of stockholders is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder, in order to be timely, must be so
received not later than the close of business on the tenth (10th) day following
the day on which notice of the date of the annual meeting of stockholders was
mailed or public disclosure of the date of such meeting was made, whichever
first occurs; and (b) in the case of a special meeting of stockholders called
for the purpose of electing directors, not later than the close of business on
the tenth (10th) day following the day on which notice of the date of the
special meeting of stockholders was mailed or public disclosure of the date of
such meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter (including nominations) such
stockholder proposes to bring before the meeting of stockholders (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting the business at the meeting, (b) the name and record
address of such stockholder, (C) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record by
such stockholder as of the record date for the meeting (if such date shall then
have been made publicly available and shall have occurred) and as of the date of
such notice, (d) a description of all arrangements or understandings between
such stockholder and any other person or persons (including their names) in
connection with the proposal of such business by such stockholder and any
material interest of such stockholder in such business, (e) as to each person
whom the stockholder proposes to nominate for election as a director (I) the
name, age, business address and residence address of the person and (ii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by the person as of the record date for the
meeting (if such date shall then have been made publicly available and shall
have occurred) and as of the date of such notice, (f) any other information
which would be required to be disclosed in a proxy statement or other filings
required
26
<PAGE>
to be made in connection with the solicitations of proxies for the proposal
(including, if applicable, with respect to the election of directors) pursuant
to Section 14 of the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder if such stockholder were engaged in such
solicitation, and (g) a representation that such stockholder intends to appear
in person or by proxy at the meeting to bring such business before the meeting.
Any notice concerning the nomination of a person for election as a director must
be accompanied by a written consent of the proposed nominee to being named as a
nominee and to serve as a director if elected.
No business shall be conducted and no person shall be eligible for
election as a Director at any annual meeting of stockholders or a special
meeting of stockholders called for the purpose of electing directors except
business or nominations brought before such meeting in accordance with the
procedures set forth in this Section 9; PROVIDED, HOWEVER, that, once business
has been properly brought before the meeting in accordance with such procedures,
nothing in this Section 9 shall be deemed to preclude discussion by any
stockholder of any such business. If the chairman of the meeting of stockholders
determines that business was not properly brought before such meeting, or a
nomination was not properly made, as the case may be, in accordance with the
foregoing procedures, the chairman shall declare to the meeting that (a) the
business was not properly brought before the meeting and such business shall not
be transacted, or, if applicable, (b) the nomination was defective and such
defective nomination shall be disregarded.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by a Board of Directors.
SECTION 2. NUMBER AND TENURE. The Board of Directors shall consist
of thirteen (13) members but the number may be increased or decreased by
amendment of this Bylaw. The Directors shall be divided into three classes,
consisting of four (4) Class I Directors, five (5) Class II Directors and four
(4) Class III Directors. At the 1995 annual meeting of shareholders, one (1)
Class I director shall be elected for a term of two (2) years, five (5) Class II
directors shall be elected for a term of three (3) years, and one (1) Class III
director shall be elected for a term of one (1) year. Thereafter, each director
shall hold office for a term of three (3) years (or in the case of the Class I
director elected in 1995, a term of two (2) years; or in the case of the Class
III director elected in 1995, a term of one (1) years) or until his successor
shall have been elected and qualifies for the office, whichever period is
longer. Except for any individual who is serving as Chairman of the Board of
Directors at the time of nomination of directors, a person shall not be
qualified for election as a Director unless he shall be less than seventy-two
(72) years of age on the date of election. Each Director other than the Chairman
of the Board of Directors shall become a Director Emeritus upon expiration of
27
<PAGE>
his current term following the date the Director is no longer qualified for
election as a Director due to age. Directors Emeritus may attend all regular and
special meetings of the Board of Directors and shall serve in an advisory
capacity without a vote in Board actions.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw, immediately after,
and at the same place as, the annual meeting of stockholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Kentucky, for the holding of additional regular meetings
without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the President, the Chairman of
the Board or the majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any place,
either within or without the State of Kentucky, as the place for holding any
special meeting of the Board of Directors.
SECTION 5. NOTICE. Notice of any special meeting of the Board of
Directors shall be given by notice delivered personally, by mail, by telegraph
or by telephone. If mailed, such notice shall be given at least five (5) days
prior thereto and such mailed notice shall be deemed to have been delivered upon
the earlier of receipt or five (5) days after it is deposited in the United
States mail in a sealed envelope so addressed, with first class postage thereon
prepaid. If notice is given by telegram, it shall be delivered at least
twenty-four (24) hours prior to the special meeting and such telegram notice
shall be deemed to have been delivered when the telegram is delivered to the
telegraph company. Personal notice and notice by telephone shall be given at
least twenty-four (24) hours prior to the special meeting and shall be deemed
delivered upon receipt. Any Director may waive notice of any meeting. The
attendance of a Director at any meeting shall constitute a waiver of notice of
such meeting, except when a Director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the Board of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, provided that if less than a majority of the Directors are present
at said meeting, a majority of the Directors present may adjourn the meeting
from time to time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the
Directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors.
SECTION 8. VACANCIES. Any vacancy occurring in the Board of
28
<PAGE>
Directors may be filled by the affirmative vote of a majority of the remaining
Directors though less than a quorum of the Board of Directors. A Director
elected to fill a vacancy shall serve until the next annual meeting of the
stockholders.
SECTION 9. INFORMAL ACTION. Any action required or permitted to be
taken of the Board of Directors or of a committee of the Board, may be taken
without a meeting if a consent, in writing, setting forth action so taken shall
be signed by all of the Directors, or all of the members of the committee, as
the case may be. Members of the Board of Directors or any committee designated
by the Board may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment whereby all persons
participating in the meeting can hear or speak to each other at the same time.
Participation in a meeting pursuant to this section shall constitute presence in
person at the meeting.
SECTION 10. NOMINATION OF DIRECTORS. Only persons who are nominated
in accordance with the procedures set forth in Section 9 of Article II of these
Bylaws shall be eligible for election as Directors of the Corporation, except as
may be otherwise provided in the Restated Articles of Incorporation with respect
to the right of holders of preferred stock of the Corporation to nominate and
elect a specified number of Directors in certain circumstances.
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 1. COMMITTEES. The Board of Directors shall have authority
to establish such committees as it may consider necessary or convenient for the
conduct of its business. All committees so established shall keep minutes of
every meeting thereof and such minutes shall be submitted at the next regular
meeting of the Board of Directors at which a quorum is present, and any action
taken by the Board with respect thereto shall be entered in the minutes of the
Board. Each committee so established shall elect a Chairman of the committee.
SECTION 2. THE EXECUTIVE COMMITTEE. The Board of Directors shall
appoint and establish an Executive Committee composed of the Chairman of the
Board and up to six (6) other Directors who shall be appointed by the Board
annually. The Executive Committee shall have and may exercise when the Board of
Directors is not in session, all of the authority of the Board of Directors that
may lawfully be delegated; provided, however, the Executive Committee shall not
have the power to enter into any employment agreement with an officer of the
Corporation, without the specific approval and ratification of the Board of
Directors. A majority in membership of the Executive Committee shall constitute
a quorum.
SECTION 3. THE AUDIT COMMITTEE. The Board of Directors shall
appoint and establish an Audit Committee composed of the Chairman of
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the Board and up to four (4) Directors, none of whom shall be officers, who
shall be appointed by the Board annually. The Audit Committee shall make an
examination every twelve months into the affairs of the Corporation and report
the results of such examination in writing to the Board of Directors at the next
regular meeting thereafter. Such report shall state whether the Corporation is
in sound condition and whether adequate internal audit controls and procedures
are being maintained and shall include recommendations to the Board of Directors
regarding such changes in the manner of doing business or conducting the affairs
of the Corporation as shall be deemed advisable.
SECTION 4. THE COMPENSATION COMMITTEE. The Board of Directors shall
appoint and establish a Compensation Committee to be composed of the Chairman of
the Board and up to four (4) Directors who shall be appointed by the Board
annually. Each member of the Compensation Committee shall be a director who is
not, during the one year prior to service or during such service, granted or
awarded equity securities pursuant to any compensation plan of the Company. It
shall be the duty of the Compensation Committee to administer the Corporation's
Supplemental Benefit Plan, the Amended and Restated Incentive Compensation Plan
(1993), the 1993 Stock Option Plan and any shareholder approved employee stock
purchase or thrift plan, including without limitation, matters relating to the
amendment, administration, interpretation, employee eligibility for and
participation in, and termination of, the foregoing plans. It shall further be
the duty of the Compensation Committee to review annually the salaries paid to
all executive officers of the Corporation and make all decisions relating to
executive compensation after considering the recommendations of the CEO (on all
but CEO compensation) and to exercise any other authorities relating to
compensation that the Board may lawfully delegate to it; provided, however, the
Compensation Committee shall not have the power to enter into any employment
agreement with an officer of the Corporation without the specific approval and
ratification of the Board of Directors.
SECTION 5. THE RACING COMMITTEE. The Board of Directors shall
appoint and establish a Racing Committee to be composed of the Chairman of the
Board and up to four (4) Directors who shall be appointed by the Board annually.
The Racing Committee shall be responsible for and shall have the authority to
obligate the Corporation with respect to matters concerning the Corporation's
contracts and relations with horsemen, jockeys and others providing services
relating to the conduct of horse racing, including the authority to approve and
cause the Corporation to enter into contracts with organizations representing
horsemen and/or commit to provide benefits or services by the Corporation to
horsemen and others.
SECTION 6. NOTICE OF COMMITTEE MEETINGS. Notice of all meetings by
the committees established in this Article shall be given in accordance with the
special meeting notice section, Article III, Section 5, of these Bylaws.
ARTICLE V
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OFFICERS
SECTION 1. CLASSES. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a
Treasurer and such other officers and agents as may be provided by the Board and
elected in accordance with the provisions of this Article. Any of the offices
may be combined in one person in accordance with the provisions of law. The
Chairman of the Board of Directors shall be a member of the Board but none of
the other officers is required to be a member of the Board.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board held after each annual meeting of stockholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as convenient. Vacancies may be filled or new offices
created and filled at any meeting of the Board of Directors. Each officer shall
hold office until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign or shall have been removed
from office in the manner hereinafter provided.
SECTION 3. REMOVAL. Any officer elected by the Board of Directors
may be removed by the President whenever in his judgment the best interest of
the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed and shall be
subject always to supervision and control of the Board of Directors. Election or
appointment of an officer or agent shall not of itself create contractual
rights.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors shall call to order and preside at all stockholders' meetings and at
all meetings of the Board of Directors. He shall perform such other duties as he
may be authorized to perform by the Board of Directors.
SECTION 5. PRESIDENT. The President shall be the chief executive
officer of the Corporation and as such shall in general supervise and control
all of the business operations and affairs of the Corporation. In the absence of
the Chairman of the Board of Directors, or in the event of the death or
incapacity of the Chairman, the President shall perform the duties of the
Chairman until a successor Chairman is elected or until the incapacity of the
Chairman terminates. The President shall have full power to employ and cause to
be employed and to discharge and cause to be discharged all employees of the
Corporation, subject always to supervision and control of the Board of
Directors. When authorized so to do by the Board of Directors, he shall execute
contracts and other documents for and in behalf of the Corporation. Unless
otherwise ordered by the Board of Directors, the President shall have full power
and authority on behalf of the Corporation to attend, act and vote at any
meeting of stockholders of any corporation in which this Corporation may hold
stock. He shall perform such other duties as may be specified in the Bylaws and
such
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other duties as he may be authorized to perform by the Board of
Directors.
SECTION 6. EXECUTIVE VICE PRESIDENT. In the case of the death of the
President or in the event of his inability to act, the Executive Vice President
designated by the Board shall perform the duties of the President and, when so
acting, shall have all the powers of and be subject to all restrictions upon the
President. The Executive Vice President shall perform such other duties as from
time to time may be assigned by the President or by the Board of Directors.
SECTION 7. TREASURER. The Treasurer, subject to the control of the
Board of Directors, and together with the President, shall have general
supervision of the finances of the Corporation. He shall have care and custody
of and be responsible for all moneys due and payable to the Corporation from any
source whatsoever and deposit such moneys in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of these Bylaws. The Treasurer shall have the care of, and
be responsible for all securities, evidences of value and corporate instruments
of the Corporation, and shall supervise the officers and other persons
authorized to bank, handle and disburse its funds, informing himself as to
whether all deposits are or have been duly made and all expenditures duly
authorized and evidenced by proper receipts and vouchers. He shall cause full
and accurate books to be kept, showing the transactions of the Corporation, its
accounts, assets, liabilities and financial condition, which shall at all times
be open to the inspection of any Director, and he shall make due reports to the
Board of Directors and the stockholders, and such statements and reports as are
required of him by law. Subject to the Board of Directors, he shall have such
other powers and duties as are incident to his office and not inconsistent with
the Bylaws, or as may be assigned to him at any time by the Board.
SECTION 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors, make a record of the business transacted and record same in
one or more books kept for that purpose. The Secretary shall see that the Stock
Transfer Agent of the Corporation keeps proper records of all transfers,
cancellations and reissues of stock of the Corporation and shall keep a list of
the stockholders of the Corporation in alphabetical order, showing the Post
Office address and number of shares owned by each. The Secretary shall also keep
and have custody of the seal of the Corporation and when so directed and
authorized by the Board of Directors shall affix such seal to instruments
requiring same. The Secretary shall be responsible for authenticating records of
the Corporation and shall perform such other duties as may be specified in the
Bylaws or as he may be authorized to perform by the Board of Directors.
SECTION 9. VICE PRESIDENTS. There may be additional Vice Presidents
elected by the Board of Directors who shall have such responsibilities, powers
and duties as from time to time may be assigned by the President or by the Board
of Directors.
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ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS AND AGREEMENTS. The Board of Directors may
authorize any officer or officers, agent or agents, to enter into any contract
or agreement or execute and deliver any instruments in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of
the Corporation, and no evidences of indebtedness shall be issued in
its name unless authorized by a resolution of the Board of Directors.
Such authority may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ORDERS, ETC. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation shall be signed by such officer or officers,
agent or agents, of the Corporation and in such manner as shall from time to
time be determined by resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies, or other depositories as the Board of Directors
may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares
of the Corporation shall be in such form as may be determined by the Board of
Directors. Such certificates shall be signed by the President or Vice President
and by the Secretary or an assistant Secretary and may be sealed with the seal
of the Corporation of a facsimile thereof. All certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificate shall be
issued until the former certificate for all like number of shares shall have
been surrendered and cancelled, except that in case of a lost, destroyed or
mutilated certificate, a new one may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the Corporation
shall be made only on the books of the Corporation by the registered holder
thereof or by his attorney authorized by power of attorney duly executed and
filed with the Secretary of the Corporation, and on surrender for cancellation
of the certificate for such shares. The person in whose name shares stand on the
books of the Corporation shall be deemed the owner thereof for all purposes as
regards the Corporation.
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<PAGE>
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the 1st day of
January and end on the 31st day of December.
ARTICLE IX
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of
these Bylaws, or under the provisions of the Articles of Incorporation, or under
the provisions of the corporation laws of the State of Kentucky, waiver thereof
in writing, signed by the person, or persons, entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice.
ARTICLE X
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Corporation shall indemnify and may advance expenses to all
Directors, officers, employees, or agents of the Corporation, and their
executors, administrators or heirs, who are, were or are threatened to be made a
defendant or respondent to any threatened, pending or completed action, suit or
proceedings (whether civil, criminal, administrative or investigative) by reason
of the fact that he is or was a Director, officer, employee or agent of the
Corporation, or while a Director, officer, employee or agent of the Corporation,
is or was serving the Corporation or any other legal entity in any capacity at
the request of the Corporation (hereafter a "Proceeding"), to the fullest extent
that is expressly permitted or required by the statutes of the Commonwealth of
Kentucky and all other applicable law.
In addition to the foregoing, the Corporation shall, by action of
the Board of Directors, have the power to indemnify and to advance expenses to
all Directors, officers, employees or agents of the Corporation who are, were or
are threatened to be made a defendant or respondent to any Proceeding, in such
amounts, on such terms and conditions, and based upon such standards of conduct
as the Board of Directors may deem to be in the best interests of the
Corporation.
ARTICLE XI
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FIDELITY BONDS
The Board of Directors shall have authority to require the execution
of fidelity bonds by all or any of the officers, agents and employees of the
Corporation in such amount as the Board may determine. The cost of any such bond
shall be paid by the Corporation as an operating expense.
ARTICLE XII
AMENDMENT OF BYLAWS
The Board of Directors may alter, amend or rescind these Bylaws,
subject to the right of the stockholders to repeal or modify such actions.
35
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