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: September 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 November 1,
1997 was 3,658,468 shares.
Page 1 of 39
<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, September 30, 1997,
December 31, 1996 and September 30, 1996 3
Condensed Consolidated Statements of Operations for the
nine and three months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 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 8-19
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk (Not Applicable) 20
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit Index 22
Exhibits 23-39
Page 2 of 39
<PAGE>
<TABLE>
<CAPTION>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30 December 31 September 30
ASSETS 1997 1996 1996
------------ ------------ --------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $11,030,692 $ 8,209,414 $ 9,546,648
Accounts receivable 11,627,361 5,218,236 3,152,738
Other current assets 548,464 679,221 263,007
--------------- -------------- --------------
Total current assets 23,206,517 14,106,871 12,962,393
Other assets 5,803,188 3,739,906 3,822,956
Plant and equipment 104,059,771 100,025,412 99,743,493
Less accumulated depreciation (40,227,530) (37,143,223) (36,141,096)
----------- ----------- -----------
63,832,241 62,882,189 63,602,397
------------ ------------ ------------
$92,841,946 $80,728,966 $80,387,746
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $10,532,273 $ 7,575,573 $11,755,821
Accrued expenses 6,096,346 5,802,330 5,272,632
Dividends payable - 2,375,271 -
Income taxes payable 2,605,534 2,510,508 2,569,508
Deferred revenue 7,778,630 6,511,902 1,825,689
Long-term debt, current portion 79,805 73,893 70,097
----------- ----------- -----------
Total current liabilities 27,092,588 24,849,477 21,493,747
Long-term debt, due after one year 2,827,191 2,925,298 2,885,784
Outstanding mutuel tickets
(payable after one year) 2,702,221 2,031,500 2,564,265
Deferred compensation 884,000 825,211 817,562
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 3,658,468
shares, September 30, 1997, 3,654,264
shares, December 31, 1996 and
September 30, 1996 3,613,697 3,493,042 3,493,013
Retained earnings 53,470,649 44,352,838 46,851,050
Deferred compensation costs - - ( 68,175)
Note receivable for common stock (65,000) (65,000) (65,000)
----------- ----------- -----------
57,019,346 47,780,880 50,210,888
----------- ----------- -----------
$92,841,946 $80,728,966 $80,387,746
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 3 of 39
<PAGE>
<TABLE>
<CAPTION>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the nine and three months ended September 30, 1997 and 1996
(Unaudited)
Nine Months Ended Three Months Ended
September 30 September 30
1997 1996 1997 1996
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenues $90,488,275 $81,690,754 16,827,607 $ 15,200,752
Operating expenses 69,391,492 62,875,236 17,803,197 16,424,909
----------- ----------- ------------ ------------
Gross earnings (loss) 21,096,783 18,815,518 (975,590) (1,224,157)
Selling, general and
administrative expenses 6,421,807 5,403,696 2,029,680 1,558,273
Operating income (loss) 14,674,976 13,411,822 (3,005,270) (2,782,430)
Other income and expense:
Interest income 349,286 214,924 152,446 120,293
Interest expense (255,930) (238,515) (107,220) (292)
Miscellaneous, net 289,479 296,244 90,835 171,441
----------- ----------- ----------- -----------
382,835 272,653 136,061 291,442
----------- ----------- ----------- -----------
Earnings (loss) before income
tax provision (benefit) 15,057,811 13,684,475 (2,869,209) (2,490,988)
Federal and state income tax
(provision) benefit (5,940,000) (5,490,000) 1,050,000 910,000
----------- ----------- ----------- -----------
Net earnings (loss) $9,117,811 $8,194,475 $(1,819,209) $ (1,580,988)
=========== =========== =========== ============
Net earnings (loss) per share
(based on weighted average shares
outstanding of 3,656,820 and 3,747,195
nine months ended, respectively and
3,656,794 and 3,704,721, three
months ended, respectively) $2.49 $2.19 $(.50) $(.43)
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 4 of 39
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1997 and 1996
(Unaudited)
Nine Months Ended September 30
1997 1996
----------- -----------
Cash flows from operating activities:
Net earnings $ 9,117,811 $ 8,194,475
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,340,076 3,441,832
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable (796,921) (1,053,837)
Other current assets 130,757 286,813
Income taxes payable 95,026 1,520,000
Deferred revenue (4,345,476) (4,272,852)
Accounts payable 2,956,700 5,238,313
Accrued expenses 294,016 1,961,750
Other assets and liabilities 597,959 864,853
----------- -----------
Net cash provided by operating
activities 11,389,948 16,181,347
Cash flows from investing activities:
Additions to plant and equipment, net (4,034,359) (2,292,030)
Purchase of minority-owned investment (2,187,500) -
----------- -----------
Net cash used in investing activities (6,221,859) (2,292,030)
----------- -----------
Cash flows from financing activities:
Decrease in long-term debt, net (92,195) (3,465,295)
Dividend paid (2,375,271) (1,892,302)
Common stock issued 120,655 112,941
Common stock repurchased - (4,954,201)
----------- ------------
Net cash used in financing activities (2,346,811) (10,198,857)
----------- ------------
Net increase in cash and cash equivalents 2,821,278 3,690,460
Cash and cash equivalents, beginning of
period 8,209,414 5,856,188
Cash and cash equivalents, end of
period $11,030,692 $ 9,546,648
=========== ===========
Supplemental Disclosures of cash flow information:
Cash paid during the period for:
Interest $ 115,290 $ 261,182
Income taxes $ 5,823,674 $ 3,770,000
Schedule of Non-cash Operating Activities:
Invoicing for 1998 Kentucky Derby and
Oaks $ 5,612,204 -
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 5 of 39
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the nine months ended September 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 nine months ended September 30, 1997 and 1996 the Company
conducted simulcast receiving wagering for 1,071 and 1,044 location days,
respectively, which includes simulcast wagering at its Sports Spectrum site in
Louisville, Kentucky for 167 days in 1997 compared to 160 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 904 days during the nine month period compared to 884 days in
1996. Additionally, the Company conducts simulcast wagering on-track during its
Churchill Downs and Hoosier Park live race meets.
2. The accompanying condensed 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 September 30, 1997, December 31, 1996 and September
30, 1996.
4. Certain balance sheet and statement of operations items have been
reclassified in the prior year to conform to current period presentation.
Page 6 of 39
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the nine months ended September 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 September 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. During the nine month period ended September 30, 1997, the
Company issued 4,204 shares of its common stock to employees under its Stock
Purchase Plan for total proceeds of $120,655.
7. 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.
8. 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.
9. In July 1997, BC Racing Group, LLC (BC), of which a wholly-owned
subsidiary of 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 will account for its investment in BC of $2,187,500 under the equity
method of accounting.
Page 7 of 39
<PAGE>
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. The Spring Thoroughbred meet average daily
attendance and handle increased by 2 and 4 percent, respectively, in Kentucky.
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. Hoosier Park conducted live Standardbred
racing beginning April 24, 1997 and ending on August 24, 1997. Hoosier Park also
conducted live Thoroughbred racing in the third quarter beginning September 12,
1997 through the end of September 1997 and will continue the Thoroughbred meet
through November 29, 1997. Average daily attendance and daily handle figures for
the 1997 Standardbred race meet were down by 13 and 15 percent, respectively,
compared to the 1996 Standardbred race meet.
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.
Page 8 of 39
<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 (KRC) 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. The Company has received approval from the KRC 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)
for a total of 70 racing days.
The Company will host Breeders' Cup Day on November 7, 1998.
Breeders' Cup Limited is a tax-exempt organization chartered to promote
Thoroughbred racing and breeding. The Breeders' Cup Day races are held annually,
featuring $11 million in purses, for the purpose of determining Thoroughbred
champions in seven different events. Racetracks across the United States compete
for the privilege of hosting the Breeders' Cup Day races each year. The
Breeders' Cup Day races were held in California in November 1997. Hosting the
event in 1998 may have a positive impact on the Company's 1998 results.
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 (IHRC) 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. The Company will submit an application for
1998 live racing days in Indiana to the IHRC during the fourth quarter and no
significant changes in racing dates for 1998 are expected.
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 seven and twenty days, respectively, in 1997 compared to 1996. Hoosier
Park is continuing to evaluate sites and may ultimately be supported by a fourth
whole card simulcasting facility in Indiana. 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,
approximately 2,600 persons were employed by the Company at all of its
locations.
Page 9 of 39
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
There are currently four riverboat casinos operating on the Ohio
River along Kentucky's border -- two in the southeastern Indiana cities of
Lawrenceburg and Rising Sun, one in southwestern Indiana in Evansville and one
at Metropolis, Illinois.
Direct competition with these riverboats has negatively impacted
wagering at racetracks in western and northern Kentucky. Churchill Downs
experienced small increases in attendance and wagering during its 1997 Spring
Meet, due primarily to an aggressive on-track marketing program, and further
expansion of both intertrack and interstate simulcasting.
Two additional riverboats are anticipated to open along the Indiana
shore of the Ohio River. Caesars World has been licensed to open the nation's
largest riverboat casino in Harrison County, Indiana, just 10 miles from
Louisville. Developers of this project are currently awaiting issuance of a
permit from the Army Corps of Engineers. A license to open a fifth Indiana
riverboat along the Ohio River in either Crawford County or Switzerland County,
within 30 and 70 miles, respectively of Louisville, is also under consideration
by the Indiana Gaming Commission.
In addition to those riverboats operating along the Ohio River, five
riverboat casinos have opened along the Indiana shore of Lake Michigan near the
Company's Sports Spectrum in Merrillville, Indiana. The Company's pari-mutuel
wagering activities at the Merrillville facility have been adversely impacted by
the opening of these Lake Michigan riverboats.
Studies project that once all 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.
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.
Churchill Downs' 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. 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
Page 10 of 39
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
machines would enable Churchill Downs to effectively compete with Indiana
riverboat casinos, and provide new revenue for purse money and capital
investment. Currently, Churchill Downs is working with members of the Kentucky
horse industry to establish a consensus for a plan to operate video lottery
terminals exclusively at Kentucky's racetracks.
The Company owned and operated two live racing facilities and four
simulcast wagering facilities during the nine month periods ended September 30,
1997 and 1996. The chart below summarizes attendance and wagering handle for the
operations in 1997 and 1996 for the nine month periods:
<TABLE>
<CAPTION>
KENTUCKY INDIANA
----------------------------------- ------------------------------------
Nine Months Nine Months Nine Months Nine Months
Ended Ended Ended Ended
September 30 September 30 Increase September 30 September 30 Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
------------ ------------ -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
ON-TRACK
Number of Race Days 47 48 (1) 100 89 11
Attendance 687,533 685,228 - 119,068 118,928 -
Handle $96,580,365 $95,077,056 2% $7,187,996 $7,728,249 -7%
Average Daily Attendance 14,628 14,276 2% 1,191 1,336 -11%
Average Daily Handle $2,054,901 $1,980,772 4% $71,880 $86,834 -17%
Per Capita Handle $140.47 $138.75 1% $60.37 $64.98 -7%
INTERTRACK/SIMULCAST-HOST(SENDING)
Number of Race Days 47 48 (1) 100 89 11
Handle $315,413,060 $284,048,671 11% $15,690,932 $6,118,208 156%
Average Daily Handle $6,710,916 $5,917,681 13% $156,909 $68,047 131%
INTERTRACK/SIMULCAST-RECEIVING*
Number of Race Days 167 160 7 904 884 20
Attendance 378,100 361,018 5% ** ** **
Handle $102,716,114 $ 97,848,742 5% $102,126,265 $105,617,223 -3%
Average Daily Attendance 2,264 2,256 - ** ** **
Average Daily Handle $615,067 $611,555 1% $112,972 $119,476 -5%
Per Capita Handle $271.66 $271.04 - ** ** **
Total Handle $514,709,539 $476,974,469 8% $125,005,193 $119,463,680 5%
* The Company's Indiana operations include four separate simulcast wagering facilities.
** Attendance figures are not kept for the off-track wagering facilities in Indiana.
Page 11 of 39
<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 $37.7 million (8%)
primarily as a result of a $31.4 million (11%) 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 increased approximately $5.5 million (5%)
primarily as a result of a 156% increase in simulcast-host handle. The number of
live race days in Indiana increased by 11 days and were transmitted to more
outlets across the nation for the nine-months ended September 30, 1997.
Conversely, on-track average daily attendance and average daily handle figures
decreased by 11% and 17%, respectively.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO 1996
NET REVENUES
Net revenues during the nine months ended September 30, 1997
increased approximately $8.8 million (11%). Approximately $2.4 million of the
total net revenue increase was the result of increased simulcast-receiving
pari-mutuel revenues at Churchill Downs generated from Kentucky operations. This
increase was partially offset by a $180,000 decline in simulcast-receiving
revenues in Indiana. The construction of an on-site simulcast wagering facility
at Churchill Downs 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. Simulcast-host revenues contributed
$602,000 to the increase in total net revenues, with the Company's live races
being transmitted to a record number of outlets.
License, rights, broadcast and sponsorship revenues increased due to
new corporate sponsors during the Spring Meet at Churchill Downs including
sponsors for three steeplechase races held for the first time since the late
1800's. Concession revenues declined $473,000 (22%) 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 $6.5 million 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 $4.8 million, is $1.7 million.
Page 12 of 39
<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:
NET REVENUE SUMMARY
----------------------------------------------------------------
Nine Months Nine Months
Ended % of Ended % of 1997 VS. 1996
September 30 Net September 30 Net $ %
1997 Revenue 1996 Revenue Change Change
------------ ------- ----------- ------- ------ ------
Pari-Mutuel Revenue:
On-track 13,679,913 15% $14,057,689 17% ($377,776) -3%
Intertrack-Host 4,646,898 5 4,906,386 6 (259,488) -5
Simulcast-Receiving 29,809,989 33 27,590,212 34 2,219,777 8
Simulcast Host 9,165,465 10 8,563,103 10 602,362 7
----------- ------ ----------- ----- ---------- ----
$57,302,265 63% $55,117,390 67% $2,184,875 4%
Admission & Seat
Revenue 11,016,414 12 10,975,351 13 41,063 -
License, Rights, Broadcast
& Sponsorship Revenue 5,925,759 7 5,517,677 7 408,082 7
Concession Commission 1,678,846 2 2,152,271 3 (473,425) -22
Program Revenue 2,256,058 3 2,457,357 3 (201,299) -8
Riverboat Admissions
Revenue 9,137,345 10 2,622,436 4 6,514,909 248
Derby Expansion Area 1,337,620 1 1,128,270 1 209,350 19
Other 1,833,968 2 1,720,002 2 113,966 7
----------- ---- ----------- ---- ---------- ----
$90,488,275 100% $81,690,754 100% $8,797,521 11%
=========== ==== =========== ==== ========== ====
</TABLE>
Page 13 of 39
<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 $3.3 million is directly related to the $6.5 million
increase in riverboat admissions revenue.
Wages and contract labor increased $1.4 million. In addition to
volume wage increases, 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. The increase in the base-wage scale
for pari-mutuel clerks throughout 1997 replaced the previous bonus provision
which was triggered and accounted for in the fourth quarter. Also contributing
to the increase is a revised contract with the crowd management vendor in
Kentucky and security changes at the Louisville Sports Spectrum.
Advertising, marketing and publicity expenses increased $628,000
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 $411,000
represent costs associated with sending the Company's live racing products to a
greater number of sites and additional equipment for enhanced and expanded areas
for whole-card wagering in Kentucky.
The insurance, taxes and license fees decrease of $207,000 was
achieved by lower insurance costs in both Kentucky and Indiana.
Derby expansion area expenses increased in relation to increased
space sold Derby weekend.
Page 14 of 39
<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>
OPERATING EXPENSE SUMMARY
-------------------------------------------------------------
Nine Months Nine Months
Ended % of Ended % of 1997 VS. 1996
September 30 Operating September 30 Operating $ %
1997 Expenses 1996 Expenses Change Change
------------ --------- ------------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Purses:
On-track $7,621,597 11% $7,744,028 12% ($122,431) -2%
Intertrack-Host 2,174,146 3 2,262,831 4 (88,685) -4
Simulcast- Receiving 9,542,075 14 9,260,501 15 281,574 3
Simulcast-Host 4,669,537 7 3,784,605 6 884,932 23
Riverboat 4,701,220 7 1,434,248 2 3,266,972 228
------------ ---- ------------ ---- ---------- ----
$28,708,575 42% $24,486,213 39% $4,222,362 17%
Wages and Contract
Labor 13,569,389 19 12,204,758 19 1,364,631 11
Advertising, Marketing
& Publicity 3,584,782 5 2,956,313 5 628,469 21
Racing Relations
& Services 1,295,212 2 1,275,411 2 19,801 2
Totalisator Expense 1,119,758 2 1,152,965 2 (33,207) -3
Simulcast Host Fee 5,906,651 8 5,725,570 9 181,081 3
Audio/Video & Signal
Distribution Expense 1,606,604 2 1,195,419 2 411,185 34
Program Expense 1,737,891 2 1,785,020 3 (47,129) -3
Depreciation &
Amortization 3,340,076 5 3,441,832 6 (101,756) -3
Insurance, Taxes &
License Fees 1,819,475 3 2,026,870 3 (207,395) -10
Maintenance 1,418,404 2 1,394,005 2 24,399 2
Utilities 1,832,697 3 2,005,167 3 (172,470) -9
Derby Expansion Area 598,798 1 436,323 1 162,475 37
Facility/Land Rent 611,078 1 645,913 1 (34,835) -5
Other meeting expense 2,242,102 3 2,143,457 3 98,645 5
----------- ---- ----------- ---- ---------- ----
$69,391,492 100% $62,875,236 100% $6,516,256 10%
=========== ==== =========== ==== ========== ===
</TABLE>
Page 15 of 39
<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 $1,018,000
during the nine month period ended September 30, 1997 which only represents a
one-half percent increase as a percentage of net revenues. Several new positions
were added for 1997 to support base business growth and to align the Company's
organizational structure to support strategic growth initiatives.
The interest income increase of $134,000 represents the additional
earnings generated by the Company from its short-term cash investments.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net losses for the three months ended September 30, 1997 of
$1,819,000 were higher by approximately $238,000 compared to the same three
months last year totaling $1,581,000 as a result of a slight increase in the
Company's selling, general and administrative expenses, for the same reasons as
described above for the nine months ended, additional interest expense of
$107,000 offset partially by an increase in interest income of $32,000 and a
decrease in miscellaneous income. The difference in the effective tax rates for
the three months ended September 30, 1997 and 1996 are due to a slight revision
of the estimated annual tax rate.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED
JUNE 30, 1997
The decrease in net earnings (loss) for the three months ended
September 30, 1997 totaling $1,819,000 from the net earnings for the three
months ended June 30, 1997 of $12,785,706 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 its net earnings. No live racing is conducted in Kentucky during the
third quarter.
Page 16 of 39
<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 SEPTEMBER 30, 1997 TO DECEMBER 31, 1996
The cash and cash equivalent balances at September 30, 1997 were
$2.8 million higher than December 31, 1996 due to the cash generated during 47
live race days at Churchill Downs, including the Kentucky Derby and Oaks
weekend. Cash balances during May and June are historically at the highest
levels of the year, and they decrease as the year progresses due to normal
business operations.
Accounts receivable at September 30, 1997 were $6.4 million higher
than December 31, 1996 due primarily to the invoicing for the 1998 Kentucky
Derby and Oaks races late in the third quarter of 1997 versus invoicing for the
1997 Kentucky Derby and Oaks races early in the fourth quarter in 1996 which was
substantially received by December 31, 1996.
Other assets at September 30, 1997 were $2.1 million higher than
December 31, 1996 due primarily to the Company's 24% ownership investment in BC
Racing Group, LLC totaling $2.2 million.
Plant and equipment increased by $4 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 $3.1 million in
depreciation expense.
The accounts payable and accrued expenses increase of $3.3 million
is primarily the increase in simulcast settlement liabilities and the increase
in purses payable which are due to the overall increase in simulcast wagering
and riverboat admissions revenue.
Dividends payable decreased by $2.4 million at September 30, 1997
due to the payment of dividends (declared in 1996) in the first quarter of 1997.
The deferred revenue increase of $1.3 million represents the
admission and seat revenue received in advance at September 30 for the 1997 Fall
race meet which will be recognized in the fourth quarter of 1997.
Page 17 of 39
<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 SEPTEMBER 30, 1997 TO SEPTEMBER 30,1996
Cash and cash equivalents increased $1.5 million in 1997 over 1996
based upon the increased earnings of the Company.
The accounts receivable increase of $8.5 million includes $5.6
million of the invoicing for the 1998 Kentucky Derby and Oaks races late in the
third quarter of 1997 versus invoicing for the 1997 Kentucky Derby and Oaks
races early in the fourth quarter in 1996. The Indiana riverboat admissions tax
receivable of $4.3 million increased by $2 million.
Other assets at September 30, 1997 were $2 million higher in 1997
over 1996 due primarily to the Company's 24% ownership investment in BC Racing
Group, LLC.
Plant and equipment increased by approximately $4.3 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 $4.1 million in depreciation
expense.
The deferred revenue increase of $6 million is primarily the result
of the invoicing of the 1998 Kentucky Derby and Oaks tickets.
LIQUIDITY AND CAPITAL RESOURCES
This working capital deficiency for the nine months ended September
30, 1997 decreased by approximately $4.6 million compared to September 30, 1996
as shown below:
SEPTEMBER 30
1997 1996
---- ----
Working capital surplus (deficiency) $ ( 3,886,071) $( 8,531,354)
Working capital ratio .86 to 1 .60 to 1
This decrease reflects the improved liquidity of the Company
consistent with its continually improving financial performance.
Page 18 of 39
<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 $11,390,000 and $16,181,000
for the nine months ended September 30, 1997 and 1996, respectively. The
decrease of $4,791,000 is primarily the result of the timing of payment of
accounts payable, income taxes payable and accrued expense balances. 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 September 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.
Page 19 of 39
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. See exhibit index.
B. During the quarter ending September 30, 1997, no Form 8-Ks
were filed by the Company.
Page 20 of 39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHURCHILL DOWNS INCORPORATED
November 14, 1997 /S/THOMAS H. MEEKER
-------------------
Thomas H. Meeker
President and Chief Executive Officer
November 14, 1997 /S/ROBERT L. DECKER
-------------------
Robert L. Decker
Senior Vice President, Finance
(Chief Financial Officer)
November 14, 1997 /S/VICKI L. BAUMGARDNER
-----------------------
Vicki L. Baumgardner, Vice President
and Treasurer
(Principal Accounting Officer)
Page 21 of 39
<PAGE>
EXHIBIT INDEX
NUMBERS DESCRIPTION BY REFERENCE TO
3 (a) Amended and Restated Articles of Pages 23-29
Incorporation of Churchill Downs
Incorporated
3 (b) Restated Bylaws of Churchill Downs Pages 30-39
Incorporated
Page 22 of 39
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF CHURCHILL DOWNS INCORPORATED
ARTICLE I
NAME
The name of the corporation shall be Churchill Downs Incorporated.
ARTICLE II
PURPOSE AND POWERS
The nature of the business to be conducted by the corporation and its
objects and purposes shall be the improvement of livestock, particularly
thoroughbred horses, by giving exhibitions of contests of speed and races
between horses for premiums, purses and other awards. In the furtherance and in
the accomplishment of the objects and purposes enumerated, the corporation shall
have the power to establish, maintain, purchase or otherwise acquire suitable
race tracks located in or without the Commonwealth of Kentucky, with all
necessary buildings and improvements and land for the purpose of establishing
race tracks; to give or conduct on said race tracks public exhibitions of speed
or races between horses for premiums, purses and other awards made up from fees
or otherwise, and to charge the public for admission thereto and to the said
race tracks; to engage in the registering of bets on exhibitions of speed or
races at paid race tracks and premises in such manner as may be authorized or
permitted by law; to operate restaurant, cafes, lunch counters and stands for
the sale of food and other refreshments to persons on said premises; to purchase
and hold title to such real estate as may be necessary or deemed to be necessary
to fully carry out the several purposes for which the corporation is formed; to
borrow money and give security therefor; to acquire, hold, mortgage, pledge or
dispose of the shares, bonds, securities and other evidences of indebtedness of
any domestic or foreign corporation and the securities issued by the corporation
and the securities issued by the United States or by the Commonwealth of
Kentucky or any governmental subdivision thereof to adopt through its Board of
Directors a corporate seal and to alter name at the pleasure of the Board of
Directors; to make bylaws through its Board of Directors not inconsistent with
the law; and to transact any or all lawful business for which corporations may
be incorporated.
The corporation shall have the power to purchase shares of the capital
stock of the corporation to the extent of unreserved and unrestricted earned
surplus and capital surplus of the corporation.
ARTICLE III
DURATION
The corporation shall have perpetual existence.
Page 23 of 39
<PAGE>
ARTICLE IV
REGISTERED OFFICE AND AGENT
Until otherwise designated as provided by law, the location and Post
Office address of the registered office of the corporation and its principal
place of business shall be:
700 Central Avenue
Louisville, Kentucky 40208
ARTICLE V
REGISTERED AGENT
Until otherwise designated as provided by law, the name and Post Office
address of the authorized agent of the corporation upon whom process shall be
served shall be:
Alexander M. Waldrop
700 Central Avenue
Louisville, Kentucky 40208
ARTICLE VI
DEBT LIMITATION
There shall be no limit on the amount of indebtedness which the
corporation may incur.
ARTICLE VII
CAPITAL STOCK
The corporation shall be authorized to issue 10,000,000 shares of common
stock of no par value (the "Common Stock"), and 250,000 shares of preferred
stock of no par value in such series and with such rights, preferences and
limitations, including voting rights, as the Board of Directors may determine
(the "Preferred Stock").
A. THE COMMON STOCK. Shares of the Common Stock may be issued from time to
time as the Board of Directors shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
B. THE PREFERRED STOCK.
1. Shares of the Preferred Stock may be issued from time to time in
one or more series as may from time to time be determined by the Board of
Directors of the corporation. Each series shall be distinctly designated. All
shares of any one series of the Preferred Stock shall be alike in every
particular,
Page 24 of 39
<PAGE>
except that there may be different dates from which dividends (if any) thereon
shall be cumulative, if made cumulative. The relative preferences,
participating, optional and other special rights of each such series, and
limitations thereof, if any, may differ from those of any and all other series
at any time outstanding. The Board of Directors of the corporation is hereby
expressly granted authority to fix by resolution or resolutions adopted prior to
the issuance of any shares of each particular series of the Preferred Stock, the
designation, relative preferences, participating, optional and other special
rights and limitations thereof, if any, of such series, including but without
limiting the generality of the foregoing, the following:
[a] The distinctive designation of, and the number of shares of the
Preferred Stock which shall constitute the series, which number may be increased
(except as otherwise fixed by the Board of Directors) or decreased (but not
below the number of shares thereof then outstanding) from time to time by action
of the Board of Directors;
[b] The rate and times at which, and the terms and conditions upon
which dividends, if any, on shares of the series may be paid, the extent of
preference or relation, if any, of such dividend to the dividends payable on any
other class or classes of stock of the corporation, or on any series of the
Preferred Stock or of any other class of Stock of the corporation, and whether
such dividends shall be cumulative or non-cumulative;
[c] The right, if any, of the holders of shares of the series to
convert the same into, or exchange the same for, shares of any other class or
classes of stock of the corporation, or of any series of the Preferred Stock and
the terms and conditions of such conversion or exchange;
[d] Whether shares of the series shall be subject to redemption and
the redemption price or prices and the time or times at which, and the terms and
conditions upon which shares of the series may be redeemed;
[e] The rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation, distribution or
sale of assets, dissolution or winding up of the corporation;
[f] The terms of the sinking fund or redemption or purchase account,
if any, to be provided for shares of the series; and
[g] The voting powers, if any, of the holders of shares of the
series which may, without limiting the generality of the foregoing, include the
right, voting as a series by itself or together with other series of the
Preferred Stock as a class, to vote more or less than one vote per share on any
or all matters voted upon by the stockholders and to elect one or more directors
of the corporation in the event there shall have been a default in the payment
of dividends on any one or more series of the Preferred Stock or under such
other circumstances and upon such conditions as the Board of Directors may fix.
C. OTHER PROVISIONS.
1. The relative preferences, rights and limitations of each Series
of Preferred Stock in relation to the preferences, rights and limitations of
each other series of Preferred Stock shall, in each case,
Page 25 of 39
<PAGE>
be as fixed from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in this Article VII, and the
consent by class or series vote or otherwise, of the holders of the Preferred
Stock of such of the series of the Preferred Stock as are from time to time
outstanding shall not be required for the issuance by the Board of Directors of
any other series of Preferred Stock whether the preferences and rights of such
other series shall be fixed by the Board of Directors as senior to, or on a
parity with, the preferences and rights of such outstanding series, or any of
them; provided, however, that the Board of Directors may provide in such
resolution or resolutions adopted with respect to any series of Preferred Stock
that the consent of the holders of a majority (or such greater proportion as
shall be therein fixed) of the outstanding shares of such series voting thereon
shall be required for the issuance of any or all other Series of Preferred
Stock.
2. Subject to the provisions of Subparagraph 1 of this Paragraph C,
shares of any series of Preferred Stock may be issued from time to time as the
Board of Directors shall determine and on such terms and for such consideration
as shall be fixed by the Board of Directors.
ARTICLE VIII
VOTING RIGHTS OF COMMON STOCK
In stockholders' meetings each holder of Common Stock shall be entitled to
one vote for each share of Common Stock standing in his name on the books of the
corporation, except that in the election of directors, each holder of Common
Stock shall have as many votes as results from multiplying the number of shares
held by him by the number of directors to be elected. Such votes may be divided
among the total number of directors to be elected or distributed among any
lesser number in such proportion as the holder may determine.
The presence in person or by proxy of the holders of a majority of the
outstanding Common Stock of the corporation shall constitute a quorum at all
stockholders' meetings.
ARTICLE IX
PREEMPTIVE RIGHTS
No holder of any shares of Common Stock of the corporation, whether now or
hereafter authorized, issued or outstanding, shall be entitled to a preemptive
right to acquire unissued or treasury shares or securities convertible into such
shares or carrying a right to subscribe to or acquire shares or any rights or
options to purchase shares of the corporation.
ARTICLE X
DIRECTORS
The business and affairs of the corporation shall be managed by or under
the direction of a Board of Directors consisting of not less than nine (9) nor
more than twenty-five (25) directors, the exact number of directors to be
determined by affirmative vote of a majority of the entire Board of Directors
except that
Page 26 of 39
<PAGE>
at the time this new Article X is adopted, the number of directors shall be
fixed at seventeen (17). The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as possible, of one-third of the total number of directors constituting the
entire Board of Directors.
At the 1984 annual meeting of stockholders, the seventeen (17) directors
elected will not be elected to a specific class of directors. Following the 1984
annual meeting of stockholders, the Board of Directors will initially determine
which directors will be designated and serve as Class I, Class II and Class III
directors, respectively. Upon such determination by the Board of Directors,
Class I directors shall serve for a one-year term expiring in 1985, Class II
directors for a two-year term expiring in 1986, and Class III directors for a
three-year term expiring in 1987. At each succeeding annual meeting of
Stockholders beginning in 1985, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting of the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
that results from an increase in the number of directors may be filled by a
majority of the Board of Directors then in office, and any other vacancy
occurring in the Board of Directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Any director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his
predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of these Articles of Incorporation applicable thereto, and such directors
so elected shall not be divided into classes pursuant to this Article X unless
expressly provided by such terms.
Any director or the entire Board of Directors may be removed from office
without cause by the affirmative vote of eighty percent (80%) of the votes
entitled to be cast by the holders of all then outstanding shares of voting
stock of the corporation, voting together as a single class; PROVIDED, HOWEVER,
that no individual director shall be removed without cause (unless the Board of
Directors or the class of directors of which he is a member be removed) in case
the votes cast against such removal would be sufficient, if voted cumulatively
for such director, to elect him to the class of directors of which he is a
member.
Notwithstanding any other provision of these Articles or the bylaws of the
corporation and notwithstanding the fact that a lesser percentage or separate
class vote may be specified by law, these Articles or the bylaws of the
corporation, the affirmative vote of the holders of not less than eighty percent
(80%) of the votes entitled to be cast by the holders of all then outstanding
shares of voting stock of the corporation, voting together as a single class,
shall be required to amend or repeal, or adopt any provisions
Page 27 of 39
<PAGE>
inconsistent with, this Article X, unless such action has been previously
approved by a three-fourths vote of the whole Board of Directors.
ARTICLE XI
ELIMINATION OF DIRECTOR LIABILITY
No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for a breach of his duties
as a director except for liability:
[a] For any transaction in which the director's personal financial
interest is in conflict with the financial interest of the corporation or
its stockholders;
[b] For acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of
law:
[c] For distributions made in violation of the Kentucky Revised
Statutes; or
[d] For any transaction from which the director derives an improper
personal benefit.
If the Kentucky Revised Statutes are amended after approval by the
stockholders of this Article to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the Kentucky Revised Statutes, as so amended. Any repeal or
modification of this Article XI by the stockholders of the corporation shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
Page 28 of 39
<PAGE>
ARTICLE XII
SPECIAL MEETING OF SHAREHOLDERS
Special meetings of the shareholders of the corporation may be called only
by:
[a] The Board of Directors; or
[b] The holders of not less than sixty-six and two thirds percent
(66 2/3%) of all shares entitled to cast votes on any issue proposed to be
considered at the proposed special meeting upon such holders signing,
dating and delivering to the corporation's Secretary one or more written
demands for the meeting, including a description of the purpose or
purposes for which the meeting is to be held.
It is hereby certified that on this date I am the duly elected and
qualified Senior Vice President, Administration, General Counsel and Secretary
of Churchill Downs Incorporated and that on the 19th day of June, 1997, the
foregoing Restated Articles of Incorporation of the Company were amended to add
the provisions of the foregoing Article XII thereto, in the manner as set forth
in the Certificate delivered herewith and that the foregoing Restated Articles
of Incorporation were approved by action of the Board of Directors.
CHURCHILL DOWNS INCORPORATED
/s/Alexander M. Waldrop
------------------------------------
Alexander M. Waldrop, Senior Vice President,
Administration, General Counsel and Secretary
Page 29 of 39
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 delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
Page 30 of 39
<PAGE>
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 pre-
pare 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 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
Page 31 of 39
<PAGE>
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 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
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<PAGE>
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 Corpora-
tion 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) year 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
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
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<PAGE>
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 Direc-
tors 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
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
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<PAGE>
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, as an ex officio, nonvoting member 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 the Board, as an ex
officio, nonvoting member 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, as an ex officio, nonvoting member 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
executive 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, as an ex officio, nonvoting member 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
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<PAGE>
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
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
Page 36 of 39
<PAGE>
corporation in which this Corporation may hold stock. He shall perform such
other duties as may be specified in the Bylaws and such 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 super-
vision 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.
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
Page 37 of 39
<PAGE>
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 canceled, 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.
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
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<PAGE>
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
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.
Page 39 of 39
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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