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: March 31, 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 May 13, 1997
was 3,654,264 shares.
Page 1 of 24
<PAGE>
CHURCHILL DOWNS INCORPORATED
I N D E X
PAGES
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets, March 31, 1997,
December 31, 1996 and March 31, 1996 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Condensed Notes to Consolidated Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-17
ITEM 3. Quantitative and Qualitative Disclosures About Market
Market Risk (Not Applicable) 18
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit Index 20
Exhibits 21-24
2
<PAGE>
<TABLE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31 December 31 March 31
ASSETS 1997 1996 1996
<S> <C> <C> <C>
----------- ------------ -----------
Current assets:
Cash and cash equivalents $7,084,056 $ 8,209,414 $ 7,305,232
Prepaid income taxes 870,792 - 1,186,350
Accounts receivable 3,918,264 5,218,236 957,397
Other current assets 1,180,439 679,221 675,686
----------- ------------ -----------
Total current assets 13,053,551 14,106,871 10,124,665
Other assets 3,634,018 3,739,906 4,498,318
Plant and equipment 101,086,691 100,025,412 98,144,122
Less accumulated depreciation (38,158,464) (37,143,223) (34,115,683)
----------- ------------ -----------
62,928,227 62,882,189 64,028,439
----------- ------------ -----------
$79,615,796 $ 80,728,966 $78,651,422
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $10,258,980 $ 7,575,573 $ 8,715,251
Accrued expenses 3,549,700 5,802,330 3,358,596
Dividends payable - 2,375,271 -
Income Taxes Payable - 2,510,508 -
Deferred revenue 11,477,348 6,511,902 10,796,479
Long-term debt, current portion 73,893 73,893 5,070,097
------------ ------------ -----------
Total current liabilities 25,359,921 24,849,477 27,940,423
Long-term debt, due after one year 2,752,969 2,925,298 351,079
Outstanding mutuel tickets (payable
after one year) 2,250,165 2,031,500 2,413,548
Deferred compensation 1,003,947 825,211 882,762
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, March 31,
1997 and December 31, 1996 and
3,784,605 shares, March 31, 1996 3,493,042 3,493,042 3,504,388
Retained earnings 42,504,152 44,352,838 41,413,247
Deferred compensation costs - - (204,525)
Note receivable for common stock (65,000) (65,000) (65,000)
------------ ------------ -----------
45,932,194 47,780,880 44,648,110
------------ ------------ -----------
$ 79,615,796 $ 80,728,966 $78,651,422
============ ============ ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS for the three
months ended March 31, 1997 and 1996
(Unaudited)
THREE MONTHS ENDED MARCH 31
1997 1996
----------- -----------
Net revenues $13,278,864 $11,349,493
Operating expenses 14,424,004 12,663,038
----------- -----------
Gross loss (1,145,140) (1,313,545)
Selling, general and administrative expenses 1,990,283 2,163,597
Operating loss (3,135,423) (3,477,142)
Other income and expense:
Interest income 66,380 44,003
Interest expense (80,216) (96,198)
Miscellaneous, net 130,573 81,124
----------- -----------
116,737 28,929
----------- -----------
Loss before income tax benefit (3,018,686) (3,448,213)
Federal and state income tax benefit 1,170,000 1,375,000
----------- -----------
Net loss $(1,848,686) $(2,073,213)
Retained earnings, beginning of period 44,352,838 43,486,460
Retained earnings, end of period $42,504,152 $41,413,247
=========== ===========
Net loss per share (based on weighted $ (.51) $ (.55)
====== ======
average shares outstanding of
3,655,837 and 3,786,062
respectively)
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the three
months ended March 31, 1997 and 1996
(Unaudited)
THREE MONTHS ENDED MARCH 31
1997 1996
----------- -----------
Cash flows from operating activities:
Net loss $(1,848,686) $(2,073,213)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 1,143,522 1,147,680
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Prepaid income taxes (870,792) (1,186,350)
Accounts receivable 1,299,972 1,141,504
Other current assets (501,218) (125,866)
Income taxes payable (2,510,508) (1,049,508)
Deferred revenue 4,965,446 4,697,938
Accounts payable, accrued expenses,
and other 827,974 2,481,820
------------ ------------
Net cash provided by
operating activities 2,505,710 5,034,005
------------ ------------
Cash flows from investing activities:
Additions to plant and equipment, net (1,083,468) (692,659)
Net cash used in investing activities (1,083,468) (692,659)
Cash flows from financing activities:
Decrease in long-term debt, net (172,329) (1,000,000)
Dividend paid (2,375,271) (1,892,302)
----------- -----------
Net cash used in financing activities (2,547,600) (2,892,302)
Net increase (decrease) in cash and cash
equivalents (1,125,358) 1,449,044
Cash and cash equivalents, beginning of
period 8,209,414 5,856,188
Cash and cash equivalents, end of period $ 7,084,056 $ 7,305,232
=========== ===========
Supplemental Disclosures of cash flow information:
Cash paid during the period for:
Interest $ 92,300 $ 168,700
Income taxes $ 2,190,000 $ 500,000
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the
three months ended March 31, 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 Company
normally earns a substantial portion of its net income in the second quarter of
each year during which the Kentucky Derby and Kentucky Oaks is run. The Kentucky
Derby and Kentucky Oaks is run on the first weekend in May.
During the three months ended March 31, 1997 and 1996 the Company
conducted simulcast receiving wagering for 368 and 367 location days,
respectively. The Company operated simulcast wagering at its Sports Spectrum
site in Louisville, Kentucky for 72 days during the three month period, compared
to 67 days in 1996. Additionally, the Company conducts simulcast wagering
on-track during its Churchill Downs live race meets. 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 296
days during the three month period compared to 300 days in 1996.
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 March 31, 1997 and December 31, 1996. There were $5.0
million in borrowings outstanding at March 31, 1996.
4. Certain balance sheet and statement of operations items have been
reclassified in the prior year to conform to current period presentation.
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 December 31, 1996.
6
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the
three months ended March 31, 1997 and 1996 (continued)
(Unaudited)
It is not anticipated that the Company will have any 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 financial statements.
7
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 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. For many years, the Company has
conducted live Spring and Fall race meetings for Thoroughbred horses in
Kentucky. In 1988, the Company began in-state simulcasting ("intertrack") of its
live races, except those run on Kentucky Derby Day, by sending its video signal
to other locations in Kentucky for purposes of pari-mutuel wagering into the
Company's mutuel pools. In 1989, the Company commenced operations as a receiving
track for intertrack simulcasting. During November 1991, the Company began
interstate simulcasting for all of the live races with the receiving locations
participating in the Company's mutuel pools. 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 1995, for the first time, Churchill Downs
offered the simulcast of its races on Kentucky Derby Day to racetracks within
Kentucky and continued the practice in 1996. In 1996, Derby weekend accounted
for approximately 30% of total on-track pari-mutuel wagering and 35% of total
on-track attendance for the 1996 Spring Meet at Churchill Downs. In July 1994,
the Company began whole card simulcasting importing a full program or race card
from host tracks located outside the state for pari-mutuel wagering purposes.
Whole card simulcasting has created a major new wagering opportunity for patrons
of the Company in both Kentucky and Indiana.
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. Hoosier Park conducted two Harness race
meets, as well as simulcast wagering, during its first 16 months of operation
beginning September 1, 1994 through December 31, 1995. During 1995 improvements
were made to Hoosier Park for the track's inaugural Thoroughbred meet. From
January 1995 through October 1995, the Company opened off-track wagering
facilities in Merrillville, Fort Wayne and downtown Indianapolis, Indiana. The
license for the fourth facility in Jeffersonville, Indiana was surrendered in
July 1995 because ownership of the tentative site was in question and resolution
was not expected in the near future. The Company is continuing to evaluate sites
for the location of a fourth satellite wagering facility.
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 Company normally
earns a substantial portion of its net income in the second quarter of each year
during which the Kentucky Derby and the Kentucky Oaks is run. The Kentucky Derby
and the Kentucky Oaks is run on the first weekend in May.
8
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
The Company's primary sources of income are commissions and fees
earned from pari-mutuel wagering on on-track and simulcast horse races. Other
significant sources of income include admissions and seating, riverboat
admission tax supplement, concession commissions (primarily for the sale of food
and beverage items), and license, rights and broadcast and sponsorship fees.
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 has been granted a license to conduct live racing during the period
from April 26 through June 29, 1997, and from October 26 through November 29,
1997 for a total of 77 racing days in Kentucky compared to 78 racing days in
1996.
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 any and all possible
dates from January 1 through December 31 and intends to receive simulcasting on
all days it is economically feasible, which is the reason for the increase of
five days in Kentucky. The number of receiving days in both Kentucky and
Indiana has remained relatively the same during 1997 compared to 1996
increasing only one location day. 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 live race meetings,
as many as 2,600 persons are employed.
9
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
In 1996, there were three riverboats in operation along the Ohio
River. During the three months ended March 31, 1996, two of these riverboats
were operating, one in Indiana and one at Metropolis, Illinois. By 1998, as many
as five Indiana riverboats may be operating along the Ohio River, with one of
the nation's largest complexes proposed to be located 10 miles from Louisville
in Harrison County, Indiana. Direct competition with three newly opened
riverboats has negatively impacted wagering at racetracks in western and
northern Kentucky in 1996. Decreases in intertrack wagering, and to some extent
on-track wagering, during Churchill Downs' 1996 Fall Meet were the result of
riverboat competition in these markets. The Company believes that competition
from Indiana riverboat gaming facilities will have a negative impact on the
Company's operations, which could be material.
In addition, licenses allowing up to five riverboat casinos on Lake
Michigan near the Company's Merrillville, Indiana, Sports Spectrum facility have
been granted by the Indiana Gaming Commission. Three riverboats opened on Lake
Michigan in June 1996 with two more projected to open in 1997. 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's wagering activities at
the Merrillville facility have been materially adversely impacted by the
opening of the three riverboats. The Company continues to anticipate that such
operations will have a negative impact upon the Company's wagering activities.
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.
Studies project that direct competition with these boats could
result in as much as a 30% decline in on-track wagering at Churchill Downs and a
20% decline in the Louisville, Kentucky Sports Spectrum business. In response,
the Company's Board of Directors passed a resolution at its June 13, 1996
meeting instructing the Company's management to aggressively pursue alternative
forms of gaming at its racetrack facilities in Louisville. The integration of
alternative gaming products at the racetrack is one of four core business
strategies developed by the Company to grow its live racing program. Management
has been positioning the Company to compete in this changing environment for the
past several years by strengthening its flagship operations, increasing its
share of the interstate simulcast market, and geographically expanding its
racing operations into Indiana.
The Company is pursuing legislative initiatives in both Kentucky and
Indiana which would allow alternative gaming operations at its racetrack
facilities. Alternative gaming in the form of video lottery and slot machines
would enable Churchill Downs and Hoosier Park to effectively compete with
Indiana riverboat casinos, and provide new revenue for capital investment and
purse money.
10
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
The 1997 regular session of the Indiana General Assembly expired on
April 29, 1997 without the passage of House Bill 1135 or a biennial state
budget. This bill would have materially reduced Hoosier Park's share of a
riverboat admission tax. In May, 1997 the Indiana General Assembly will convene
in special session to consider a budget bill, which may include provisions
similar to those included in House Bill 1135.
The Company owned two live racing facilities and four simulcast
wagering facilities during the three month period ended March 31, 1997. There
was no live racing conducted during the three month periods ended March 31, 1997
and 1996. The chart below summarizes the results of these operations.
<TABLE>
<CAPTION>
KENTUCKY INDIANA
--------------------------------------------------------------------------
Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
March 31 March 31 Increase March 31 March 31 Increase
1997 1996 (DECREASE) 1997 1996 (DECREASE)
------------ ------------ -------- ------------ ------------ -----------
INTERTRACK/SIMULCAST-RECEIVING*
<S> <C> <C> <C> <C> <C>
Number of Simulcast
Facilities 1 1 - 4 4 -
Number of Receiving
Days 72 67 5 296 300 (4)
Attendance 144,130 152,310 -5% ** ** **
Handle $41,160,854 $40,332,802 2% $32,189,879 $35,242,965 -7%
Average Daily
Attendance 2,002 2,273 -12% ** ** **
Average Daily
Handle $571,679 $601,982 -5% $108,750 $117,477 -5%
Per capita handle $285.58 $264.81 8% ** ** **
* The Company's Indiana operations include four separate simulcast wagering facilities.
** Attendance figures are not kept for the off-track wagering facilities in Indiana.
</TABLE>
11
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO 1996
REVENUES
Net revenue during the three months ended March 31, 1997 increased
approximately $1.9 million (17%). Indiana operations contributed or $1,772,000
(92%) to the total increase as a result of an increase in riverboat admissions
revenue of approximately $2.1 million due to an increase of five riverboats in
operation along the Ohio River and on Lake Michigan compared to the first
quarter of 1996. The net increase in riverboat admissions revenue after required
purse and marketing expenses of approximately $1.3 million is approximately $.8
million.
Admission, seat, concession and program revenues showed a decline
during the three months ended March 31, 1997 primarily as a result of a decrease
in attendance as compared to 1996.
Following is a summary of Revenues:
<TABLE>
NET REVENUE SUMMARY
------------------------------------------------------------------
Three Months % to Three Months % to 1997 vs 1996
Ended Total Ended Total $ %
March 31, 1997 Revenue March 31, 1996 Revenue Change Change
-------------- ------- -------------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Pari-Mutuel Revenue
Simulcast Receiving $9,964,289 75% $ 9,977,295 88% $ (13,006) -
Admission & Seat Revenue 259,375 2% 344,704 3% (85,329) -25%
License, Rights, Broadcast
& Sponsorship Revenue 50,733 1% 48,982 0% 1,751 4%
Concession Commission 159,686 1% 201,849 2% (42,163) -21%
Program Revenue 485,262 4% 540,851 5% (55,589) -10%
Riverboat Admissions
Revenue 2,181,925 16% 75,000 1% 2,106,925 2,809%
Other 177,594 1% 160,812 1% 16,782 10%
----------- ---- ----------- ---- ---------- ------
$13,278,864 100% $11,349,493 100% $1,929,371 17%
=========== ==== =========== ==== ========== ======
</TABLE>
12
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
OPERATING EXPENSES
Operating expenses increased $1,761,000 (14%) during the quarter
ended March 31, 1997. The negative gross margin which is typical for the first
quarter of the year improved by approximately $200,000 and in percentage terms
by 3% to -8.6% in 1997 compared to -11.6% for the same period in 1996.
Indiana operations contributed $1,082,000 (61%) of the total
increase and Kentucky operations contributed $679,000 (39%). Riverboat purse
expenses in Indiana showed a corresponding increase of $1.2 million which
represents 40% of the riverboat admission tax that is restricted for additional
purse 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.
Wages and Contract Labor increased $407,000 for the period. This is
primarily due to increases in Mutuel payroll related to a new pari-mutuel union
contract beginning January 1, 1997. In addition, a corporate restructuring
to focus resources and support the Company's core strategic initiatives resulted
in several new positions in Kentucky. Indiana showed no significant change.
Advertising, Marketing and Publicity increased primarily due to
riverboat admission tax revenue of which 10% is earmarked specifically for
racetrack promotions in Indiana. This resulted in an increase of $130,000 in
Indiana.
Totalisator Expense, Simulcast Host Fee Expense and Audio/Video and
Signal Distribution expenses showed increases in Kentucky of $61,000, $141,000
and $125,000 respectively. This increase is attributed primarily to the greater
number signals offered during the first quarter and increased simulcast
revenues. In Indiana, these categories showed no significant change with the
exception of Simulcast Host Fees which showed a decline of $149,000 primarily
due to fewer simulcast receiving days.
Program expenses show declines in both Kentucky and Indiana totaling
$44,000. This is attributed to the decrease in attendance in Kentucky and four
fewer receiving days in Indiana.
Maintenance expenses increased by $76,000, almost all of which was
incurred in Kentucky for renovations for the spring meet beginning in March.
Decreases in the Derby Expansion Area are related to the timing of
expenses paid in the first quarter of 1997 when compared to 1996.
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 Operating Expenses:
<TABLE>
<CAPTION>
OPERATING EXPENSE SUMMARY
------------------------------------------------------------------
Three Months % to Three Months % to 1997 vs 1996
Ended Total Ended Total $ %
March 31, 1997 Expenses March 31, 1996 Expense Change Change
------------- -------- -------------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Purses:
Simulcast-Receiving $3,214,623 22% $3,257,138 26% $ (42,515) -1%
Riverboat 1,220,257 9% - - 1,220,257 100%
----------- ----- ---------- ---- ---------- ----
$4,434,880 31% $3,257,138 26% $1,177,742 36%
Wages and Contract Labor 3,030,477 21% 2,623,255 21% 407,222 16%
Advertising, Marketing
& Publicity 658,092 5% 466,758 4% 191,334 41%
Racing Relations & Services 73,383 1% 94,836 1% (21,453) -23%
Totalisator Expense 356,390 2% 287,946 2% 68,444 24%
Simulcast Host Fee 2,077,515 14% 2,086,009 16% (8,494) -0%
Audio/Video & Signal
Distribution Expense 333,301 2% 178,384 1% 154,917 87%
Program Expense 338,967 2% 382,473 3% (43,506) -11%
Depreciation &
Amortization 1,143,522 8% 1,147,680 9% (4,158) -0%
Insurance, Taxes &
License Fees 524,526 4% 541,702 4% (17,176) -3%
Maintenance 387,854 3% 311,172 2% 76,682 25%
Utilities 524,666 4% 594,161 5% (69,495) -12%
Derby Expansion Area 16,180 0% 199,431 2% (183,251) -92%
Facility/Land Rent 187,041 1% 190,753 2% (3,712) -2%
Other Meeting Expense 337,210 2% 301,340 2% 35,870 12%
----------- ---- ----------- ---- ---------- ----
$14,424,004 100% $12,663,038 100% $1,760,966 14%
=========== ==== =========== ==== ========== ====
</TABLE>
14
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Selling, general and administrative expenses decreased by $173,000
during the three month period ended March 31, 1997, primarily as the result of
reclassifications made to operating expenses during the three months ended March
31, 1997.
Interest expense decreased $16,000 as positive cash flow from
operations allowed the Company to pay down its line of credit in May 1996. This
decrease was partially offset by interest expense incurred in conjunction with a
10% minority interest in Hoosier Park's debt.
SIGNIFICANT CHANGES IN THE BALANCE SHEET DECEMBER 31, 1996 TO MARCH 31, 1997
The cash balances at March 31, 1997 were approximately $1.1 million
lower than December 31, 1996 due primarily to the payment of dividends,
management bonuses and the cost of improvements in plant and equipment in the
first quarter, offset partially by the collection of advance ticket sales for
the 1997 Kentucky Derby and Oaks.
Accounts receivable at March 31, 1997 was approximately $1.3 million
lower than at December 31, 1996 primarily due to the collection of 1996 Fall
meet simulcasting receivables, purse supplements due from the Commonwealth of
Kentucky and collection of advance ticket sales for the 1997 Kentucky Derby and
Oaks.
Other current assets increased $501,000 primarily as a result of the
prepayment of costs relating to the Kentucky Derby and the Kentucky Oaks races.
Plant and equipment increased approximately $1 million as a result
of routine capital spending throughout the Company.
Accounts payable increased $2,683,000 at March 31, 1997 primarily
due to the settlement liability related to whole card simulcasting and the
increase in purses payable related to the overall increase in simulcast wagering
and riverboat admissions revenue.
Accrued expenses decreased $2,253,000 at March 31, 1997 primarily as
a result of payments of expenses incurred during the Fall 1996 live race meet.
Dividends payable decreased by $2,375,000 at March 31, 1997 due to
the payment of dividends (declared in 1996) in the first quarter.
Income taxes payable decreased by $2,511,000 at March 31, 1997 due
to the payment of estimated taxes in the first quarter in 1997.
15
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Deferred revenue is higher at March 31 due to advance billings of
season box and membership revenue for Kentucky's live race meets and the Derby
Expansion Area relating to the Kentucky Derby and Kentucky Oaks races.
SIGNIFICANT CHANGES IN THE BALANCE SHEET MARCH 31, 1996 TO MARCH 31, 1997
The increase in accounts receivable of approximately $3 million at
March 31, 1997 is primarily due to the increase in Riverboat Admissions tax
revenue which resulted primarily from an increase in the number of riverboats in
operation along the Ohio River and on Lake Michigan.
Other current assets increased $505,000 primarily as a result of the
timing of expenses related to the Kentucky Derby and the Kentucky Oaks races.
Other assets decreased $864,000 primarily as a result of
amortization of preopening and organizational costs in Indiana.
Plant and equipment increased by approximately $2.9 million due to
routine capital spending throughout the Company offset by approximately $4
million in depreciation expense.
Accounts payable and accrued expenses increased by $1.7 million
primarily due to the settlement liability related to whole card simulcasting and
the purses payable related to the overall increase in simulcast wagering and
riverboat admissions revenue.
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficiency for the three months ended March 31,
1997 decreased by approximately $5.5 million compared to March 31, 1996 as shown
below:
March 31
---------------------------------
1997 1996
---- ----
Working capital deficiency $(12,306,370) $(17,815,758)
Working capital ratio .51 to 1 .36 to 1
The decrease in the deficiency is primarily based upon an increase
in accounts receivable of $3 million and a decrease in the current portion of
long-term debt of $5 million.
16
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
The working capital deficiency is primarily a result of the nature
and seasonality of the Company's business. Cash flows provided by operations
were $2,506,000 for the three months ended March 31, 1997 and $5,034,000 for the
three months ended March 31, 1996. The decrease of $2,528,000 in cash flow from
operations for the three months ended March 31, 1997 compared to 1996 is
primarily the result of timing of income tax payments and the overall decrease
in accrued expenses during the first quarter of 1997. Management believes cash
flows from operations during 1997 and funds available under the Company's
unsecured line of credit 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 March 31, 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.
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 financial statements.
17
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. See exhibit index
B. During the quarter ending March 31, 1997, no Form 8-K's were filed
by the Company.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
CHURCHILL DOWNS INCORPORATED
May 13, 1997 /S/THOMAS H. MEEKER
-----------------------
Thomas H. Meeker
President
May 13, 1997 /S/ROBERT L. DECKER
-----------------------
Robert L. Decker
Senior Vice President, Finance
(Chief Financial Officer)
May 13, 1997 /S/VICKI L. BAUMGARDNER
-----------------------
Vicki L. Baumgardner, Treasurer
(Principal Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
NUMBERS DESCRIPTION BY REFERENCE TO
(10)(l) Employment Agreement between Pages 21-24
Churchill Downs Incorporated and
Robert L. Decker
20
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of March 1st, 1997
(the "Employment Agreement"), between CHURCHILL DOWNS INCORPORATED, a Kentucky
corporation ("Company") and ROBERT L. DECKER ("Decker").
1. EMPLOYMENT. The Company hereby employs Decker, and Decker hereby
accepts employment, in the capacity of Senior Vice President, Finance and
Development, and Chief Financial Officer of the Company. Decker shall exert his
best efforts and devote his full time and attention to the business and affairs
of the Company. Decker shall have all powers and responsibilities as provided in
the Company's current bylaws attendant to the position of Chief Financial
Officer and/or as delegated to him by the Company's President and Chief
Executive Officer (the "CEO"). Decker shall be responsible for managing and
supervising those departments of the Company assigned to him by the CEO from
time to time and for executing the Company's business policies.
2. COMPENSATION AND PERQUISITES.
A. SALARY. As partial compensation for the services rendered by
Decker hereunder, the Company shall pay to Decker a base salary of $170,000 a
year, payable in accordance with the Company's payroll procedures. Salary
adjustments, if any, shall be made, in the discretion of the Board of Directors,
at any time but will normally occur on January 1 of each year in accordance with
standard company policy.
B. EXPENSES. The Company will reimburse Decker for all reasonable
and necessary travel and other out-of-pocket expenses incurred by him in the
performance of his duties. The Company will pay Decker's reasonable travel and
entertainment expenses and other reasonable expenses incurred on behalf of the
Company's business. The Company also will pay for such expenses for Decker's
wife when she travels with him on the Company's business. Decker shall present
to the Company from time to time an itemized account of such expenses in such
form as may be required by the Company.
C. AUTOMOBILE. The Company will provide Decker with an automobile
and will pay for maintenance, repairs, insurance and all costs incident thereto.
D. DUES. The Company will pay for Decker's dues (excluding any
initiation fee) for any one country club and for a mutually acceptable number of
professional or business clubs and associations to which he may belong.
E. MOVING EXPENSES. The Company will pay to Decker reasonable moving
expenses which includes but is not limited to, transportation costs, dislocation
allowance, temporary housing, sales expenses relating to home, living allowances
and the gross up of such expenses to cover tax liability (not to exceed $97,000)
incurred by him in connection with his relocation to Louisville, Kentucky.
Decker shall present to the Company an itemized account of such expenses. The
full reimbursement of moving expenses shall be deemed to have been earned at the
end of one year's employment (February 28, 1998). In the event that Decker
voluntarily leaves the Company's employment prior to such date, Decker shall
repay to the Company a pro rata portion of the moving expenses, calculated by
multiplying the number of months remaining in the twelve-month period times the
sum derived by dividing the total moving expenses by twelve. The Company shall
be entitled to off-set this amount against any amounts owed by the Company to
Decker.
21
<PAGE>
3. EMPLOYEE BENEFITS.
A. EMPLOYEE STOCK PURCHASE PLAN. Decker shall be entitled to
participate in the Churchill Downs Incorporated (1995) Employee Stock Purchase
Plan, subject to and on a basis consistent with the terms, conditions and
overall administration of such plan.
B. EMPLOYEE STOCK OPTION PLAN. Decker shall be entitled to
participate in the Churchill Downs Incorporated (1993) Stock Option Plan,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plan. Decker shall receive an initial stock option grant
of 10,000 shares of the Company's Common Stock, as of March 1, 1997, and shall
execute the Company's standard stock option agreement.
C. LIFE INSURANCE. The Company shall provide to Decker life
insurance, major medical and health insurance and disability insurance on the
same basis as generally provided for other full-time employees of the Company.
D. INCENTIVE COMPENSATION PLAN. Decker shall be entitled to
participate in the Churchill Downs Incorporated (1997) Incentive Compensation
Plan, subject to and on a basis consistent with the terms, conditions and
overall administration of such plan. Under the terms of such plan, Decker's
Target Award (as defined in such plan) shall be set at 35% of base compensation.
Decker's award for 1997 shall be calculated as if Decker was employed for the
full 1997 calendar year.
E. SECTION 401(K) PROFIT SHARING PLAN. Decker shall be entitled
to participate in the Churchill Downs Incorporated's Section 401(k) Profit
Sharing Plan, subject to and on a basis consistent with the terms, conditions
and overall administration of such plan.
4. VACATION. The Company shall give Decker twenty (20) vacation days
with pay during each 12 month period during the term of this Agreement, for a
total of approximately thirty-four (34) paid time off days. The time for using
such vacation days shall be determined by mutual agreement between the CEO and
Decker.
5. TERMINATION.
(A) BY COMPANY. The Company shall pay to Decker one year's base
compensation (excluding bonus) in the event that Decker is terminated by the
Company without just cause. It is stipulated that any payments made in
accordance with the foregoing shall be paid to and received by Decker as
liquidated damages for the unlawful termination of his employment and not as a
penalty and Decker shall be entitled to receive no further sums under this
Employment Agreement or as a result of his employment with the Company except
such as have accrued as of the date of such termination or as otherwise
specifically provided in this Employment Agreement. In consideration of the
receipt of such payment, Decker specifically releases and discharges any and all
claims and causes of action of any kind or nature whatsoever, whether known or
unknown and whether specifically mentioned or not, which may exist or might be
claimed to exist at or prior to the date of termination of employment, as well
as any future injuries, losses or damages not now known or anticipated but which
may later develop or become discovered (including the effects or consequences
thereof), and which are attributable to the claims. This waiver includes any
claims which might exist as of this date under the Age Discrimination in
Employment Act ("ADEA"). However, Decker is not
22
<PAGE>
waiving any such ADEA claims which might arise after the date of execution of
this Employment Agreement.
"Just cause" shall mean [i] the willful and continued failure by
Decker to substantially perform his duties hereunder (other than any such
failure resulting from incapacity due to physical or mental illness), after
demand for substantial performance is delivered by the Company that specifically
identifies the manner in which the Company believes Decker has not substantially
performed his duties, or [ii] the willful engaging by Decker in misconduct which
is materially injurious to the Company, monetarily or otherwise, or [iii] the
willful violation by Decker of the provisions of this Agreement. "Just cause"
shall not mean differences relating to business philosophy and/or strategic
direction. For purposes of this paragraph, no act, or failure to act, on
Decker's part, shall be considered "willful" unless done, or omitted to be done,
by him not in good faith and without reasonable belief that such action or
omission was in the best interest of the Company. Should Decker's employment be
terminated for just cause, the Company shall be obligated to pay Decker's then
base salary only through the end of the month during which such termination
occurs, plus such other sums as are payable under this Employment Agreement and
which shall have accrued through the end of such month.
(B) TERMINATION BY DECKER. Decker may at any time resign from his
position after giving the Company not less than sixty (60) days prior written
notice of the effective date of his resignation. Any such resignation shall not
be deemed to be a material breach by Decker of this Agreement and Decker shall
not be entitled to receive the severance pay contemplated by Paragraph 6(A)
above. It is further agreed that upon such resignation, except for obligations
of either party to the other which have accrued through the date of Decker's
resignation as otherwise specifically provided in this Employment Agreement,
Decker and the Company shall become and remain fully and finally released from
all further and future obligations of performance under this Agreement.
6. NON-DISCLOSURE. Decker agrees that he shall not, at any time during
or following his employment with the Company, disclose or use, except in
the course of such employment, in the pursuit of the business of the Company,
any confidential information or proprietary data of the Company.
7. NOTICES. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be sufficiently
given if and when mailed in the continental United States by registered or
certified mail or personally delivered to the party entitled thereto at the
address stated below or to such changed address as the addressee may have given
by a similar notice:
To the Company: Churchill Downs Incorporated
700 Central Avenue
Louisville, Kentucky 40208
To Decker: Robert L. Decker
1748 Casselberry Road
Louisville, Kentucky 40205
8. AMENDMENT OR MODIFICATION; WAIVER. No provision of this Employment
Agreement may be amended, modified or waived unless such amendment, modification
or waiver shall be authorized by the CEO and shall be agreed to in writing,
signed by Decker and by the CEO. Except as otherwise specifically provided in
this Employment Agreement, no waiver by either party hereto of any breach by the
other party
23
<PAGE>
thereto of any condition or provision of this Employment Agreement to be
performed by such other party shall be deemed a waiver of a subsequent breach of
such condition or provision or a waiver of a similar or dissimilar provision or
condition at the same or at any prior or subsequent time.
9. SEVERABILITY. In the event that any provision or portion of this
Employment Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions and portions of this Employment Agreement shall
be unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
10. APPLICABLE LAW. This Employment Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, the parties have executed this Agreement the date and
year first above written.
CHURCHILL DOWNS INCORPORATED
By: /S/ THOMAS H. MEEKER
-------------------------
Thomas H. Meeker, President and
Chief Executive Officer
By: /S/ ROBERT L. DECKER
--------------------------
Robert L. Decker
24
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<ARTICLE> 5
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 7,084,056
<SECURITIES> 0
<RECEIVABLES> 3,918,264
<ALLOWANCES> 115,621
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<CURRENT-ASSETS> 13,053,551
<PP&E> 101,086,691
<DEPRECIATION> 38,158,464
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0
0
<COMMON> 3,493,042
<OTHER-SE> 42,439,152
<TOTAL-LIABILITY-AND-EQUITY> 79,615,796
<SALES> 13,278,864
<TOTAL-REVENUES> 13,278,864
<CGS> 14,424,004
<TOTAL-COSTS> 16,414,287
<OTHER-EXPENSES> 196,953
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<INTEREST-EXPENSE> 80,216
<INCOME-PRETAX> (3,018,686)
<INCOME-TAX> (1,170,000)
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<NET-INCOME> (1,848,686)
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