SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 Identification No.)
incorporation or organization)
700 Central Avenue, Louisville, KY 40208 (Address
of principal executive offices)
(Zip Code)
(502) 636-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No____
The number of shares outstanding of registrant's common stock at August 13, 1999
was 9,832,127 shares.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
I N D E X
PART I. FINANCIAL INFORMATION PAGES
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets, June 30, 1999, 3
December 31, 1998 and June 30, 1998
Condensed Consolidated Statements of Earnings for the six 4
and three months ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for the 5
six months ended June 30, 1999 and 1998
Condensed Notes to Consolidated Financial Statements 6-12
ITEM 2. Management's Discussion and Analysis of Financial 13-23
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 24
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 1. Legal Proceedings (Not applicable) 24
ITEM 2. Changes in Securities and Use of Proceeds (Not applicable) 24
ITEM 3. Defaults Upon Senior Securities (Not applicable) 24
ITEM 4. Submission of Matters to a Vote of Security Holders 24-25
ITEM 5. Other Information (Not applicable) 25
ITEM 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Exhibit Index 27
Exhibits 28-59
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31, June 30,
ASSETS 1999 1998 1998
---- ---- ----
Current assets:
Cash and cash equivalents $ 21,927,123 $ 6,379,686 $ 7,952,835
Accounts receivable 14,652,743 11,968,114 14,436,397
Other current assets 1,670,492 1,049,084 363,734
------------- ------------- -------------
Total current assets 38,250,358 19,396,884 22,752,966
Other assets 8,947,247 3,796,292 4,452,913
Plant and equipment, net 133,461,131 83,088,204 84,663,446
Intangible assets, net 62,268,627 8,369,395 9,488,088
------------- ------------- -------------
$242,927,363 $114,650,775 $121,357,413
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,717,921 $ 6,530,502 $ 11,375,368
Accrued expenses 16,937,491 8,098,228 9,359,247
Dividends payable - 3,762,521 -
Income taxes payable 7,678,956 257,588 7,110,768
Deferred revenue 3,362,318 8,412,552 2,307,262
Long-term debt, current portion 479,202 126,812 122,801
------------- ------------- -------------
Total current liabilities 43,175,888 27,188,203 30,275,446
Long-term debt, due after one year 103,271,284 13,538,027 8,728,963
Other liabilities 4,553,890 1,755,760 4,099,794
Deferred income taxes 15,982,069 6,937,797 8,000,643
Shareholders' equity:
Preferred stock, no par value;
authorized, 250,000 shares; - - -
issued, none
Common stock, no par value;
authorized, 20,000,000 shares,
issued 7,525,041 shares,
June 30, 1999 and December
31, 1998 and 7,516,934
shares, June 30, 1998 8,926,975 8,926,975 8,808,613
Retained earnings 67,254,715 56,598,957 61,796,384
Deferred compensation costs (172,458) (229,944) (287,430)
Note receivable for common stock (65,000) (65,000) (65,000)
------------- ------------- -------------
75,944,232 65,230,988 70,252,567
------------- ------------- -------------
$242,927,363 $114,650,775 $121,357,413
============= ============= =============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
for the six and three months ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net revenues $101,802,751 $82,759,503 $84,139,825 $67,374,352
Operating expenses 74,819,679 58,336,648 55,662,526 42,337,520
------------- ------------ ------------ ------------
Gross profit 26,983,072 24,422,855 28,477,299 25,036,832
Selling, general and
administrative expenses 6,889,501 4,972,595 3,586,386 2,816,841
------------- ------------ ------------ ------------
Operating income 20,093,571 19,450,260 24,890,913 22,219,991
------------ ----------- ----------- ------------
Other income (expense):
Interest income 362,233 362,305 214,802 173,035
Interest expense (2,208,832) (405,297) (1,773,367) (300,773)
Miscellaneous, net 125,025 166,186 80,908 49,131
------------- ------------ ------------ ------------
(1,721,574) 123,194 (1,477,657) (78,607)
------------ ------------ ------------ ------------
Earnings before income
tax provision 18,371,997 19,573,454 23,413,256 22,141,384
------------- ------------ ------------ ------------
Federal and state income tax
provision (7,716,239) (7,620,000) (9,747,362) (8,618,900)
------------- ------------ ------------ ------------
Net earnings $ 10,655,758 $11,953,454 $13,665,894 $13,522,484
============= ============ ============ ============
Net earnings per share:
Basic $1.42 $1.62 $1.82 $1.81
Diluted $1.39 $1.61 $1.79 $1.79
Weighted average shares
outstanding:
Basic 7,525,041 7,395,387 7,525,041 7,472,978
Diluted 7,670,520 7,438,018 7,649,420 7,546,183
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE>
CHURCHILL DOWNS INCORPORATED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS for the six
months ended June 30, 1999 and 1998
(Unaudited)
Six Months Ended June 30
1999 1998
Cash flows from operating activities:
Net earnings $10,655,758 $11,953,454
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 4,510,995 2,551,573
Deferred compensation 150,392 84,216
Deferred income taxes (100,781) -
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable (2,022,241) (6,428,673)
Other current assets (38,939) 302,756
Accounts payable 7,894,379 3,694,371
Accrued expenses 2,748,996 681,115
Income taxes payable 7,421,368 6,924,126
Deferred revenue (5,050,234) (5,071,986)
Other assets and liabilities (33,738) 1,007,463
------------ -------------
Net cash provided by operating activities 26,135,955 15,698,415
------------ -------------
Cash flows from investing activities:
Additions to plant and equipment, net (8,079,580) (2,181,257)
Prepaid acquisition costs - Hollywood Park (322,799) -
Acquisition of business, net of cash acquired (85,324,542) (17,232,849)
------------ -------------
Net cash used in investing activities (93,726,921) (19,414,106)
------------ -------------
Cash flows from financing activities:
Increase (decrease) in long-term debt, net (994,698) 46,761
Borrowings on bank line of credit 119,000,000 16,000,000
Repayments of bank line of credit (30,000,000) (10,000,000)
Payment of loan origination costs (2,655,794) -
Dividends paid (3,762,521) (3,658,468)
Contribution by minority interest in subsidiary 1,551,416 -
------------ -------------
Net cash provided by financing activities 83,138,403 2,388,293
------------ -------------
Net increase (decrease) in cash and cash
equivalents 15,547,437 (1,327,398)
Cash and cash equivalents, beginning of period 6,379,686 9,280,233
------------ -------------
Cash and cash equivalents, end of period $21,927,123 $ 7,952,835
============ =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $1,650,000 $410,652
Income taxes $775,000 $539,000
Noncash transaction:
Issuance of common stock related to the
acquisition of RCA - $4,850,000
Accrued acquisition costs related to
Hollywood Park $1,668,672 -
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended June 30, 1999 and 1998 (continued)
(Unaudited)
1. Basis of Presentation
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
Churchill Downs Incorporated's (the "Company") annual report on Form
10-K. The year end condensed consolidated 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, 1998 for further information. The
accompanying condensed 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.
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 condensed consolidated financial statements
reflect a disproportionate share of annual net earnings 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.
2. Long-Term Debt
On April 23, 1999, the Company increased its line of credit to $250
million under a new revolving loan facility through a syndicate of banks
headed by its principal lender to meet working capital and other
short-term requirements and to provide funding for acquisitions,
including the pending acquisition of Hollywood Park Race Track. This
credit facility replaced a $100 million line of credit obtained during
the third quarter of 1998. The interest rate on the borrowing is based
upon LIBOR plus 75 to 250 additional basis points, which is determined
by certain Company financial ratios. There was $100.0 million
outstanding on the line of credit at June 30, 1999 compared to $11.0
million outstanding at December 31, 1998 and $6.0 million outstanding at
June 30, 1998 under previous lines of credit. The line of credit is
secured by substantially all of the assets of the Company and its wholly
owned subsidiaries, and matures in 2004.
3. Reclassification
Certain prior period financial statement amounts have been reclassified
to conform to the current period presentation.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended June 30, 1999 and 1998 (continued)
(Unaudited)
4. Acquisitions
On May 5, 1999, the Company entered into a definitive agreement with
Hollywood Park, Inc. to acquire the Hollywood Park Race Track and the
Hollywood Park Casino in Inglewood, California, for approximately $140.0
million plus acquisition costs which approximate $2.0 million as of June
30, 1999. Consummation of the acquisition is subject to several
conditions, including receipt of regulatory approvals. The Company will
acquire approximately 240 acres of land upon which the racetrack and
casino are located. The Company will lease the Hollywood Park Casino to
Hollywood Park, Inc. under a ten-year lease with one ten-year renewal
option. The lease provides for annual rent of $3.0 million, subject to
adjustment during the renewal period. The transaction is expected to
close on August 31, 1999.
On April 23, 1999, the Company acquired all of the outstanding stock of
Calder Race Course, Inc. and Tropical Park, Inc. from KE Acquisition
Corporation for a purchase price of $86 million cash plus a closing net
working capital adjustment of approximately $2.9 million cash and $0.6
million in transaction costs. The purchase included Calder Race Course
in Miami and the licenses held by Calder Race Course, Inc. and Tropical
Park, Inc. to conduct horse racing at Calder Race Course. Calder Race
Course, one of four Thoroughbred tracks in Florida, offers live racing
and simulcast- only days during two consecutive race meets, which run
from late May through early January. The purchase price of $89.5 million
was allocated to the acquired assets and liabilities based on their fair
values on the acquisition date with the excess of $48.7 million being
recorded as goodwill, which is being amortized over 40 years. The
acquisition was accounted for by the Company under the purchase method
of accounting and, accordingly, the financial position and results of
operations of Calder Race Course, Inc. and Tropical Park, Inc. have been
included in the Company's consolidated financial statements since the
date of acquisition. The purchase price allocation above is preliminary
and may require adjustment in the Company's future financial statements
based on a final determination of liabilities assumed in the
acquisition.
On April 21, 1998, the Company acquired from TVI Corp., ("TVI") all of
the outstanding stock of Racing Corporation of America ("RCA") for a
purchase price of $22.6 million, which includes transaction costs of
$0.6 million. RCA owns and operates Ellis Park Race Course in Henderson,
Kentucky, and the Kentucky Horse Center, a training facility located in
Lexington, Kentucky. As part of the transaction, TVI received 200,000
shares of the Company's common stock valued at $4.9 million with the
remaining balance of $17.1 million paid from cash on hand and a draw on
the Company's bank line of credit. The purchase price of $22.6 million
was allocated to the
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CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended June 30, 1999 and 1998 (continued)
(Unaudited)
acquired assets and liabilities based on their fair values on the
acquisition date with the excess of $6.4 million being recorded as
goodwill, which is being amortized over 40 years. The acquisition was
accounted for by the Company under the purchase method of accounting
and, accordingly, the results of operations of RCA subsequent to April
20, 1998, are included in the Company's consolidated results of
operations.
Following are the unaudited pro forma results of operations as if the
April 23, 1999 acquisition of Calder Race Course and the April 21, 1998
acquisition of Racing Corporation of America had occurred on January 1,
1998 (in thousands, except per share and share amounts):
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
------------- -------------
Net revenues $105,378 $97,318
Net earnings $8,553 $7,346
Earnings per common share:
Basic $1.14 $0.99
Diluted $1.11 $0.98
Weighted average shares
Basic 7,525,041 7,455,387
Diluted 7,670,520 7,498,018
This unaudited pro forma financial information is not necessarily
indicative of the operating results that would have occurred had the
transactions been consummated as of January 1, 1998, nor is it
necessarily indicative of future operating results.
On January 13, 1999, the Company acquired a 60% interest in Charlson
Broadcast Technologies, LLC ("CBT") for $3.1 million and made an
additional equity contribution to CBT in the amount of $2.3 million.
CBT's total assets and liabilities were $2.1 million and $2.2 million,
respectively, on the date of acquisition. The purchase price was
allocated to the fair value of net assets acquired, with the excess of
$3.2 million being amortized over periods of 5 and 20 years based on the
nature of the intangibles acquired. The acquisition was accounted for by
the Company under the purchase method of accounting and, accordingly,
the financial position and results of operations have been included in
the Company's consolidated financial statements since the date of
acquisition.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended June 30, 1999 and 1998 (continued)
(Unaudited)
5. Earnings Per Share
The following is a reconciliation of the numerator and denominator of
the basic and diluted per share computations:
<TABLE>
<CAPTION>
Six months Three months
ended June 30, ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Earnings (numerator) amounts used for
basic and diluted per share computations: $10,655,758 $11,953,454 $13,665,894 $13,522,484
----------- ----------- ----------- -----------
Weighted average shares (denominator) of
common stock outstanding per share:
Basic 7,525,041 7,395,387 7,525,041 7,472,978
Plus dilutive effect of outstanding
stock options 145,479 42,631 124,379 73,205
----------- ----------- ----------- -----------
Diluted 7,670,520 7,438,018 7,649,420 7,546,183
Basic net earnings per share $1.42 $1.62 $1.82 $1.81
Diluted net earnings per share $1.39 $1.61 $1.79 $1.79
</TABLE>
Options to purchase 51,766 shares for the three and six months ended
June 30, 1999 were not included in the computation of earnings per
common share-assuming dilution because the options' exercise prices were
greater than the average market price of the common share.
On July 20, 1999, the Company issued 2,300,000 shares of common stock.
If these shares had been outstanding in the periods presented above, it
would have materially impacted the number of potential common shares
outstanding and basic and diluted net earnings per share at the end of
the periods.
6. Segment Information
The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." The Company has determined that it
currently operates in the following five segments: (1) Churchill Downs
racetrack, the Louisville Sports Spectrum simulcast facility and
Churchill Downs corporate expenses (2) Calder Race Course (3) Ellis Park
racetrack and its on-site simulcast facility, (4) Hoosier Park racetrack
and its on-site simulcast facility and the other three Indiana simulcast
facilities and (5) Other operations. Hollywood Park Race Track will be
included as a segment after the expected third quarter acquisition.
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CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for
the six months ended June 30, 1999 and 1998 (continued)
(Unaudited)
Most of the Company's revenues are generated from commissions on
pari-mutuel wagering at the Company's racetracks and simulcast wagering
facilities, as well as Indiana riverboat admissions revenue, simulcast
fees, admissions and concessions revenue and other sources. Other
operations include Kentucky Horse Center, Charlson Broadcast
Technologies, LLC and the Company's investments in various other
business enterprises. The Company's equity interest in the net income of
equity method investees is not material. Eliminations include the
elimination of management fees and other intersegment transactions.
The accounting policies of the segments are the same as those described
in the "Summary of Significant Accounting Policies" in the Company's
annual report to stockholders for the year ended December 31, 1998.
EBITDA should not be considered as an alternative to, or more meaningful
than, net income (as determined in accordance with GAAP) as a measure of
our operating results of cash flows (as determined in accordance with
GAAP) or as a measure of our liquidity.
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CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for
the six months ended June 30, 1999 and 1998 (continued)
(Unaudited)
The table below presents information about reported segments for the six months
and three months ended June 30, 1999 and 1998:
Segment Information (in thousands)
Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Calder
Churchill Race Hoosier Ellis Other Elimina-
Downs Course Park Park operations tions Total
Net Revenues
<S> <C> <C> <C> <C> <C> <C> <C>
1999 61,133 11,701 24,258 2,963 2,711 (963) 101,803
1998 59,229 - 21,892 1,298 947 (606) 82,760
EBITDA
1999 19,469 1,888 3,387 (803) 661 - 24,602
1998 19,163 - 3,007 (429) 427 - 22,168
Operating
income (loss)
1999 17,666 1,302 2,766 (1,450) (190) - 20,094
1998 17,297 - 2,457 (629) 325 - 19,450
Total Assets
1999 191,894 108,593 34,737 23,031 171,655 (286,983) 242,927
1998 93,186 - 32,492 19,746 68,487 (92,554) 121,357
Three Months Ended June 30, 1999 and 1998
Calder
Churchill Race Hoosier Ellis Other Elimina-
Downs Course Park Park operations tions Total
Net Revenues
1999 56,490 11,701 13,310 1,797 1,497 (655) 84,140
1998 53,862 - 11,874 1,298 613 (272) 67,375
EBITDA
1999 23,944 1,888 1,709 (421) 332 - 27,452
1998 22,514 - 1,353 (429) 224 - 23,662
Operating
income (loss)
1999 23,056 1,302 1,389 (748) (108) - 24,891
1998 21,640 - 1,078 (629) 131 - 22,220
Following is a reconciliation of total EBITDA to income before provision for
income taxes:
</TABLE>
Six Months Three Months
ended June 30, ended June 30,
(in thousands) 1999 1998 1999 1998
---- ---- ---- ----
Total EBITDA $24,602 $22,168 $27,452 $23,662
Depreciation and amortization (4,384) (2,552) (2,481) (1,393)
Interest income (expense), net (1,846) (43) (1,558) (128)
-------- -------- -------- --------
Earnings before provision for
income taxes $18,372 $19,573 $23,413 $22,141
======== ======== ======== ========
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<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for
the six months ended June 30, 1999 and 1998 (continued)
(Unaudited)
7. Subsequent Events
On July 20, 1999 the Company issued 2,300,000 shares of the Company's
common stock at a price of $29 per share. The total proceeds before
offering expenses were $63.2 million, and were used for the repayment of
bank borrowings.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Information set forth in this discussion and analysis contain various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private
Securities Litigation Reform Act of 1995 ( the "Act") provides certain "safe
harbor" provisions for forward-looking statements. All forward-looking
statements made in this Quarterly Report on Form 10-Q are made pursuant to the
Act. These statements represent our judgment concerning the future and are
subject to risks and uncertainties that could cause our actual operating results
and financial condition to differ materially. Forward-looking statements are
typically identified by the use of terms such as "may," "will," "expect,"
"anticipate," "estimate," and similar words, although some forward-looking
statements are expressed differently. Although we believe that the expectations
reflected in such forward-looking statements are reasonable we can give no
assurance that such expectations will prove to be correct. Important factors
that could cause actual results to differ materially from our expectations
include: the impact of competition from alternative gaming (including lotteries
and riverboat and cruise ship casinos) in those markets in which we operate; a
substantial change in law or regulations affecting our gaming activities; a
substantial change in allocation of live racing days; a decrease in riverboat
admissions revenue from our Indiana operations; our continued ability to
effectively compete for the country's top horses and trainers necessary to field
high-quality horse racing; our ability to execute our acquisition strategy and
to complete or successfully operate planned expansion projects; our ability to
adequately integrate acquired businesses; the loss of our totalisator companies
or their inability to keep their technology current; our accountability for
environmental contamination; Year 2000 computer issues; the loss of key
personnel and the volatility of our stock price.
Overview
We conduct pari-mutuel wagering on live Thoroughbred, Standardbred and
Quarter Horse horse races and simulcast signals of races. Additionally, we offer
racing services through our other interests.
We own and operate the Churchill Downs racetrack in Louisville, Kentucky, which
has conducted Thoroughbred racing since 1875 and is internationally known as
home of the Kentucky Derby. We also own and operate Calder Race Course, a
Thoroughbred racetrack in Miami, Florida; Ellis Park Race Course, a Thoroughbred
racetrack in Henderson, Kentucky ("Ellis Park"); and Kentucky Horse Center,
a Thoroughbred training center in Lexington, Kentucky. Additionally, we are
the majority owner and operator of Hoosier Park in Anderson, Indiana, which
conducts Thoroughbred, Quarter Horse and Standardbred horse racing. We conduct
simulcast wagering on horse racing in Louisville, Kentucky, and at our three
simulcast wagering facilities in Indianapolis, Merrillville and Fort Wayne,
Indiana, as well as at our racetracks.
Because of the seasonal timing of our racing meets, 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.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Our primary sources of revenue are commissions and fees earned from pari-mutuel
wagering on live and simulcast horse races. Other sources of revenue include
admissions and seating, riverboat admission tax subsidy, concession commissions
primarily for the sale of food and beverages, sponsorship revenues, licensing
rights and broadcast fees.
RESULTS OF OPERATIONS
Pari-mutuel wagering for our four live racing facilities and four separate
simulcast wagering facilities during the six months ended June 30, 1999 and 1998
is as follows:
($ in thousands, except for number of days)
Churchill Downs Calder Hoosier Ellis
racetrack Race Course** Park Park*
Live racing
1999 handle $93,689 $35,225 $5,546 $596
1999 no. of days 47 29 67 2
1998 handle $95,951 $35,785 $4,924 $342
1998 no. of days 47 30 54 1
Export simulcasting
1999 handle $336,344 $68,409 $9,593 $4,736
1999 no. of days 47 41 67 2
1998 handle $303,951 $67,654 $9,170 $1,531
1998 no. of days 47 41 54 1
Import simulcasting
1999 handle $55,258 - $69,262 $23,894
1999 no. of days 101 - 581 179
1998 handle $62,041 - $66,617 $23,481
1998 no. of days 98 - 589 177
* Pari-mutuel wagering information for Ellis Park is provided for the six months
ended June 30, 1999 and 1998. However, only revenues generated since its
acquisition on April 21, 1998 have been included in the Company's results of
operations.
**Pari-mutuel wagering information for Calder Race Course is provided for the
six months ended June 30, 1999 and 1998. However, only revenues generated since
its acquisition on April 23, 1999 have been included in the Company's results of
operations.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net Revenues
Net revenues during the six months ended June 30, 1999 increased $19.0 million
(23%) from $82.8 million in 1998 to $101.8 million in 1999. Churchill Downs
racetrack revenues increased $1.9 million (3%) primarily due to an increase in
corporate sponsor event ticket prices, admissions and seat revenue, concessions,
and program revenue as a result of record attendance on Kentucky Oaks and
Kentucky Derby days. Calder Race Course contributed $11.7 million to the first
six months of 1999 net revenues as opposed to none in the prior year. Hoosier
Park revenues increased $2.4 million (11%) primarily due to a $1.8 million
increase in the riverboat gross admissions subsidy of which a portion was
required to be spent on purses and marketing expenses. Net revenues for Ellis
Park for the first six months of 1999 increased $1.7 million (128%) primarily
due to the timing of the acquisition. Other operations, including the 1999
acquisition of Charlson Broadcasting Technologies the 1998 acquisition of
Kentucky Horse Center and intercompany eliminations, comprised the remaining
$1.3 million of the increase.
Operating Expenses
Operating expenses increased $16.5 million (28%) from $58.3 million in 1998 to
$74.8 million in 1999. Churchill Downs racetrack's operating expenses increased
$1.0 million (3%). Calder Race Course incurred 1999 operating expenses of $9.9
million versus none in the first six months of 1998. Hoosier Park operating
expenses increased $2.1 million (11%) due primarily to required increases in
purses and marketing expenses related to the riverboat admissions subsidy. Ellis
Park operating expenses increased $2.2 million (131%) for the first six months
of 1999 as compared to expenses after the acquisition date of April, 21 1998 for
the prior year. Other operations, including Charlson Broadcasting Technologies,
Kentucky Horse Center and intercompany eliminations, accounted for the remaining
$1.3 million of the increase in operating expenses.
Gross Profit
Gross profit increased $2.6 million from $24.4 million in 1998 to $27.0 million
in 1999. The increase in gross profit was primarily the result of the current
year acquisition of Calder Race Course and the increase in gross profit for
Churchill Downs racetrack due to record attendance on Kentucky Oaks and Kentucky
Derby days.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased by $1.9 million
(38%) from $5.0 million in 1998 to $6.9 million in 1999. SG&A expenses at
Churchill Downs increased $0.6 million (15%) due primarily to increased
corporate staffing and compensation expenses reflecting the
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<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Company's strengthened corporate services to meet the needs of new business
units. The acquisition of Calder Race Course contributed $0.5 million and the
second quarter of 1998 acquisition of Ellis Park contributed $0.3 million of the
increase. Other operations, including Charlson Broadcast Technologies, LLC and
Kentucky Horse Center, accounted for remaining $0.5 million of the increase in
SG&A expenses.
Other Income and Expense
Interest expense increased $1.8 million from $0.4 million in 1998 to $2.2
million in 1999 primarily as a result of borrowings to finance the acquisition
of Calder Race Course and Charlson Broadcast Technologies, LLC in 1999 and the
acquisition of Ellis Park in April 1998.
Income Tax Provision
Our income tax provision increased by $0.1 million for the six months ended June
30, 1999 as compared to June 30, 1998 as a result of an increase in the
estimated effective tax rate from 38.9% in 1998 to 42.0% in 1999 due primarily
to non-deductible amortization expense related to the acquisitions of Calder
Race Course in April 1999, Charlson Broadcast Technologies, LLC in January 1999
and Ellis Park and Kentucky Horse Center in April 1998 offset by a decrease
in pre-tax earnings of $1.2 million.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net Revenues
Net revenues during the three months ended June 30, 1999 increased $16.7 million
(25%) from $67.4 million in 1998 to $84.1 million in 1999. Churchill Downs
racetrack revenues increased $2.6 million (5%) primarily due to $1.9 million of
increased revenues on the Kentucky Oaks and Kentucky Derby days. Calder Race
Course contributed $11.7 million to the three months ended June 30, 1999 net
revenues as opposed to none in the prior year. Hoosier Park revenues increased
$1.4 million (12%) primarily due to a $1.0 million increase in the riverboat
gross admissions subsidy of which a portion was required to be spent on purses
and marketing expenses. Net revenues for Ellis Park for the second quarter of
1999 increased by $0.5 million (38%). Other operations, including the 1999
acquisition of Charlson Broadcasting Technologies and intercompany eliminations,
comprised the remaining $0.5 million of the increase.
Operating Expenses
Operating expenses increased $13.4 million (32%) from $42.3 million in 1998 to
$55.7 million in 1999. Churchill Downs racetrack operating expenses increased
$1.0 million (3%). Calder Race Course incurred 1999 operating expenses of $9.9
million versus none in the second quarter of 1998. Hoosier
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<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Park operating expenses increased $1.2 million (11%) due primarily to required
increases in purses and marketing expenses related to the riverboat admissions
subsidy. Ellis Park operating expenses increased $0.6 million (36%) for the
second quarter of 1999 as compared to expenses after the acquisition date of
April 21, 1998 for the prior year, consistent with the increase in revenues.
Other operations, including Charlson Broadcasting Technologies, Ellis Park and
intercompany eliminations, accounted for the remaining $0.7 million of the
increase in operating expenses.
Gross Profit
Gross profit increased $3.5 million from $25.0 million in 1998 to $28.5 million
in 1999. The increase in gross profit was primarily the result of the current
year acquisition of Calder Race Course and the increase in gross profit for
Churchill Downs racetrack due to record attendance on Kentucky Oaks and Kentucky
Derby days.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased by $0.8 million
(29%) from $2.8 million in 1998 to $3.6 million in 1999. SG&A expenses at
Churchill Downs increased $0.2 million (9%) due primarily to increased corporate
staffing and compensation expenses reflecting the Company's strengthened
corporate services to meet the needs of new business units. The acquisition of
Calder Race Course contributed $0.5 million. Other operations accounted for
remaining $0.1 million of the increase in SG&A expenses.
Other Income and Expense
Interest expense increased $1.5 million from $0.3 million in 1998 to $1.8
million in 1999 primarily as a result of borrowings to finance the acquisition
of Calder Race Course and Charlson Broadcast Technologies, LLC in 1999 and the
acquisition of Ellis Park in April 1998.
Income Tax Provision
Our income tax provision increased by $1.1 million for the three months ended
June 30, 1999 as compared to June 30, 1998 as a result of an increase in pre-tax
earnings of $1.3 million and an increase in the estimated effective tax rate
from 38.9% in 1998 to 41.6% in 1999 due primarily to non-deductible amortization
expense related to the acquisitions of Calder Race Course in April 1999,
Charlson Broadcast Technologies, LLC in January 1999 and Ellis Park and Kentucky
Horse Center in April 1998.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Significant Changes in the Balance Sheet June 30, 1999 to December 31, 1998
Accounts receivable balances increased by $2.7 million in 1999. The acquisition
of Calder Race Course increased accounts receivable by $1.3 million. The
remaining increase of $1.4 million was primarily a result of the timing of
payments received for Churchill Downs live meet.
Other assets increased $5.2 million in 1999. The acquisition of Calder Race
Course increased other assets $1.8 million primarily due to investments held for
the future Florida Stallion Stakes races. The remaining increase was primarily
due to $2.0 million of costs incurred for the expected acquisition of Hollywood
Park.
Intangible assets increased $53.9 million primarily due to the addition of
goodwill of $3.2 million recorded for the acquisition of Charlson Broadcast
Technologies, LLC during the first quarter of 1999, and $48.7 million recorded
for the acquisition of Calder Race Course during the second quarter of 1999. In
addition, costs related to the Company's new $250 million revolving loan
facility of $2.7 million are included. These increases were partially offset by
current year additions to accumulated amortization.
The net plant and equipment increase of $50.4 million during 1999 included $48.2
million for the acquisitions of Calder Race Course and Charlson Broadcast
Technologies, LLC and the remaining increase was due to routine capital spending
at our operating units offset by current year depreciation expense.
Accounts payable increased $8.2 million at June 30, 1999 primarily due to
increases in purses payable and other expenses related to simulcast wagering for
Hoosier Park and Ellis Park and an increase in accounts payable was also due to
our acquisition of Calder Race Course during the second quarter of 1999.
Accrued expenses increased $8.8 million, primarily due to a $7.1 million
increase as a result of the Calder Race Course acquisition. The remaining
increase was due to accrued acquisition costs related to Calder Race Course and
the acquisition costs related to the expected third quarter of 1999 acquisition
of Hollywood Park Racetrack.
Dividends payable decreased $3.7 million at June 30, 1999 due to the payment of
dividends of $3.7 million (declared in 1998) in first quarter 1999.
Income taxes payable increased by $7.4 million at June 30, 1999 representing the
estimated income tax expense attributed to income generated in the six months of
1999 and the increase in effective tax rate.
Deferred revenue decreased $5.1 million at June 30, 1999, primarily due to the
significant amount of admission and seat revenue that was received prior to
December 31, 1998 recognized as income in May 1999 for the Kentucky Derby and
Kentucky Oaks race days. This decrease was offset by a $2.0 million increase in
deferred revenues acquired with the acquisition of Calder Race Course in the
second quarter of 1999.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The long-term debt increase of $89.7 million was the result of additional
borrowings on our bank line of credit during 1999, primarily used to fund the
1999 acquisitions of Calder Race Course and Charlson Broadcast Technologies,
LLC.
Deferred income taxes increased by $9.0 million primarily as a result of the
recognition of deferred taxes with the Calder Race Course acquisition during the
second quarter of 1999.
Significant Changes in the Balance Sheet June 30, 1999 to June 30, 1998
Other assets increased $4.5 million in 1999. The acquisition of Calder Race
Course increased other assets $1.8 million primarily due to investments held for
the future Florida Stallion Stakes races. The remaining increase was primarily
due to $2.0 million of costs incurred for the expected acquisition of Hollywood
Park.
Intangible assets increased $52.8 million primarily due to the addition of
goodwill of $3.2 million recorded for the acquisition of Charlson Broadcast
Technologies, LLC during the first quarter of 1999, and $48.7 million recorded
for the acquisition of Calder Race Course during the second quarter of 1999. In
addition, costs related to the Company's new $250 million revolving loan
facility of $2.7 million are included. These increases were partially offset by
additions to accumulated amortization.
Net plant and equipment increase of $48.8 million included $48.2 million
for the acquisitions of Calder Race Course and Charlson Broadcast Technologies,
LLC and the remaining increase was due to routine capital spending at our
operating units offset by depreciation expense.
The accounts payable increase of $3.3 million was primarily due to the
acquisition of Calder Race Course which represents $2.2 million of the increase.
The remaining $1.1 million was due to the timing of payments for
horsemen-related and simulcast payables for Churchill Downs racetrack Spring
Meet.
Accrued expenses increased $7.6 million, primarily due to a $7.1 million
increase as a result of the Calder Race Course acquisition.
The long-term debt increase of $94.5 million was due primarily to line of credit
borrowings used to fund the acquisitions of Calder Race Course during the second
quarter of 1999 and Charlson Broadcast Technologies, LLC during the first
quarter of 1999.
Deferred income taxes increased by $8.0 million as a result of the recognition
of deferred taxes with the Calder Race Course acquisition during the second
quarter of 1999.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
The working capital deficiency was $4.9 and $7.5 million for the six months
ended June 30, 1999 and 1998, respectively, which results from the seasonality
of our businesses. Cash flows provided by operations were $26.1 and $15.7
million for the six months ended June 30, 1999 and 1998, respectively.
Significant changes in operating cash flows are primarily a result of the
current year acquisitions of Charlson Broadcast Technologies, LLC and Calder
Race Course. Management believes cash flows from operations and available
borrowings during 1999 will be sufficient to fund our cash requirements for the
year, including capital improvements and the acquisition of Hollywood Park Race
Track and Casino.
Cash flows used in investing activities were $93.7 and $19.4 million for the six
months ended June 30, 1999 and 1998, respectively. Cash used for 1999 business
acquisitions consisted of $82.4 million net of cash acquired for the acquisition
of Calder Race Course during the second quarter and $2.9 million net of cash
acquired for the acquisition of Charlson Broadcast Technologies, LLC during the
first quarter. We also had prepaid acquisition costs of $0.3 million for the
expected third quarter acquisition of Hollywood Park Race Track and Casino. We
used $8.1 million for capital spending at our facilities including $1.2 million
for the construction of a stable area dormitory and $0.6 million for the
renovation of the racing offices at Churchill Downs racetack facility. The
additional increase in capital spending from prior year spending is primarily
the result of the RCA, Charlson Broadcast LLC, and Calder Race Course
acquisitions.
Cash flows provided by financing activities were $83.1 and $2.4 million for the
six months ended June 30, 1999 and 1998, respectively. We borrowed $119 million
and repaid $30 million on our line of credit during 1999 primarily to finance
the purchase of Calder Race Course and Charlson Broadcast Technologies, LLC. We
received a $1.6 million contribution by a minority interest in our Charlson
Broadcast Technologies, LLC subsidiary. In addition, we incurred $2.7 million of
costs for the origination of the $250 million line of credit.
In April 1999, our total line of credit was increased to $250 million under a
new revolving loan facility, of which $100 million was outstanding at June 30,
1999. This credit facility replaced a $100 million line of credit obtained
during the third quarter of 1998. The new facility is secured by substantially
all of our assets. This credit facility is intended to meet working capital and
other short-term requirements and to provide funding for acquisitions, including
the pending purchase of Hollywood Park. The new revolving loan facility matures
in 2004.
Impact of the Year 2000 Issue
The "Year 2000 Issue" is the result of computer programs that were written using
two digits rather than four to define the applicable year in date-dependent
systems. If our computer programs with date- sensitive functions are not Year
2000 compliant, they may be unable to distinguish the year 2000 from the year
1900. This could result in system failure or miscalculations leading to a
disruption of business operations.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Some of our mission critical operations are dependent upon computer systems and
applications. These systems are either directly owned and controlled by us or
are provided under contract by third party technology service providers. To
address the Year 2000 issue, we have categorized the Year 2000 Issue into four
principal areas.
Systems Owned By the Company
The first area is related to systems that we own. These systems include
application software and dedicated hardware that run our core operations. In
addition, there are numerous applications that provide administrative support
and management reporting functions. We developed some of these applications
internally and purchased other applications.
To address Year 2000 compliance across this broad category of systems, we have
broken each system down into its most elemental pieces in order to study the
hardware including any embedded chip technology/firmware, the operating systems
and, finally, the applications themselves.
We have identified hardware, including any embedded chip technology/firmware
that was not Year 2000 compliant and replaced it as part of the routine turnover
of technology capital. The remaining hardware requiring replacement was upgraded
during the first half of 1999. At the end of June 1999, all hardware and
embedded chip technology/firmware that we own were believed to be Year 2000
compliant.
We have checked all operating systems supporting specific applications by
advancing the dates to determine if the date change impacts operating
system-level functionality. As new operating system upgrades are made available
and installed, periodic testing will continue to assure operating system- level
functionality is maintained. In addition, we have contacted the developers of
the operating systems we use and have received assurances as to their
compatibility with the Year 2000 transition.
Application software compliance with the Year 2000 has been certified through a
combination of technical consultation with the software developers and testing.
Applications developed with internal resources have been written with Year 2000
compliance in mind using development tools that are Year 2000 compliant. We have
received technical reports from third parties on Year 2000 compliance for
financial reporting, payroll, operations control and reporting and internal
communications applications. We require Year 2000 compliance on any software
upgrades.
Based on the schedule outlined above, we expect our owned systems to be Year
2000 compliant prior to the year 2000. We will test the system by advancing
dates to include a majority of the Year 2000 critical dates by the fourth
quarter of 1999. However, even though our planned modifications to internally
owned hardware and software should adequately address Year 2000 issues, there
can be no assurance that unforeseen difficulties will not arise.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Technology Services Provided to the Company Under Contract By Third Parties
The second area is services provided to us by third parties. Many of these
services are mission critical and could materially impact on us should the
systems upon which the services are dependent be unable to function.
The totalisator services provided by United Tote Company and AmTote
International, Inc. are the most critical to our operations. Totalisator
services include the calculation of amounts wagered and owed to winning ticket
holders. United Tote developed a plan to bring all systems provided to us into
Year 2000 compliance during 1998. United Tote and the Company initiated this
plan during the second quarter of 1998 by undertaking a comprehensive system
hardware and software upgrade that is Year 2000 compliant. We successfully
installed the systems in three phases with the last phase having been completed
in October 1998. All on-track, intertrack wagering and hub operations are Year
2000 compliant. We will continue to work closely with United Tote to assure that
future releases and upgrades are Year 2000 compliant by including this provision
as a condition in contracts for future services. Based on our evaluation, we
believe that AmTote, which is utilized by Calder Race Course, is on schedule to
be Year 2000 compliant by the fourth quarter of 1999.
The video services provided by an outside vendor are also important to our
operations. Video services include the capture, production and distribution of
the television signal for distribution to customers located on our premises and
to customers located at remote outlets throughout the nation. We are working
closely with the vendor to ensure the software applications that provide the
graphical enhancements and other distinguishing features to the televised signal
for Churchill Downs racetrack and Hoosier Park are Year 2000 compliant. The
graphical software was upgraded during the second quarter of 1999 to a Year 2000
compliant version of the application.
We purchase data and statistical information from Equibase for resale to the
public. This information is an essential element of our product and is included
in printed material made available to our customers to assist in their wagering
decisions. Equibase has implemented a Year 2000 remediation plan which is
expected to be completed by the third quarter of 1999.
A variety of other smaller and less critical technology service providers are
involved with our product. We have received assurance letters from a majority of
these suppliers and will continue to work to receive assurances from those
remaining.
Because of the nature of our business and its dependence upon key technology
services provided by third parties, we require that all new software and
technology services are Year 2000 compliant. This requirement includes patches,
upgrades and fixes to existing technology services.
In the event that any of our third party service providers do not successfully
and timely achieve Year 2000 compliance, and we are unable to replace them with
alternate service providers, it could result in a delay in providing our core
live racing and simulcasting products to our customers and have a material
adverse effect on our business, financial condition and results of operations.
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<PAGE>
Industry-wide Issues
Because we derive a significant portion of our revenues from customers at other
racing organizations that are confronted with the same technological issues,
including totalisator, video and statistical information services, we have been
actively participating in an industry-wide assessment and remedial efforts to
address the Year 2000 issue.
Feedback Control Systems
A variety of the newer control and regulating systems are date sensitive.
Environmental control systems, elevator/escalator systems, fire control and
security systems utilize date-sensitive software/embedded chip technology for
correct operation. We have systems that perform each of these functions, and we
are identifying if any of these systems employ technology that may not be Year
2000 compliant. We will work closely with manufacturers of these products to
develop a remedial plan to assure Year 2000 compliance if any problems are
identified.
Cost and Contingency Planning
To date, the total cost is estimated to be less than $100,000 to remediate Year
2000 compliance issues. Our management believes that any future costs to
remediate Year 2000 compliance issues will not be material to our financial
position or results of operations.
We are currently evaluating our most reasonably likely worst-case Year 2000
scenario and are also developing contingency plans as part of our efforts to
identify and correct Year 2000 issues affecting our owned systems as well as
issues involving third party service providers. We intend to complete both the
evaluation of a worst-case Year 2000 scenario and contingency planning in the
third quarter of 1999.
Due to our recent acquisition of Calder Race Course, we will continue to assess
the status of the Company's Year 2000 compliance in regards to the factors
mentioned above and we expect to complete this evaluation in the third quarter.
Subsequent Events
On July 20, 1999, we issued 2,300,000 shares of common stock at a price of $29
per share. The total proceeds before offering expenses were $63.2 million, and
were used for the repayment of bank borrowings.
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<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Our major market risk exposure is primarily due to possible
fluctuations in interest rates as they relate to our variable
rate debt. We do not enter into derivative financial investments
for trading or speculation purposes. As a result, we believe
that our market risk exposure is not material to our
financial position, liquidity or results of operations.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not Applicable
ITEM 3. Defaults Upon Senior Securities
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
The registrant's 1999 Annual Meeting of Shareholders was held on
June 17, 1999. Proxies were solicited by the registrant's board
of directors pursuant to Regulation 14 under the Securities
Exchange Act of 1934. There was no solicitation in opposition to
the board's nominees as listed in the proxy statement, and all
nominees were elected by vote of the shareholders. Voting results
for each nominee were as follows:
Class III Directors Votes For Votes Withheld
------------------- --------- --------------
Charles W. Bidwill, Jr. 6,228,039 78,237
Daniel P. Harrington 6,229,780 76,496
Thomas H. Meeker 6,229,635 76,641
Carl F. Pollard 6,230,389 75,887
Darrell R. Wells 6,230,549 75,727
A proposal (Proposal No. 2) to approve amending Churchill Downs'
Articles of Incorporation to increase the number of authorized
common shares from 20 million to 50 million was approved
by a vote of the majority of the shares of the registrant's
common stock represented at the meeting: 5,832,957 shares were
voted in favor of the proposal; 416,557 were voted against;
and 56,763 abstained.
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<PAGE>
A proposal (Proposal No. 3) to approve the minutes of the 1998
Annual Meeting of Shareholders was approved by a vote of the
majority of the shares of the registrant's common stock
represented at the meeting: 6,241,967 shares were voted in favor
of the proposal; 9,764 were voted against; and 54,546 abstained.
The total number of shares of common stock outstanding as of
April 20, 1999, the record date of the Annual Meeting of
Shareholders, was 7,525,041.
ITEM 5. Other Information
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K.
A. Exhibits
See exhibit index on page 30.
B. Reports on Form 8-K
Churchill Downs Incorporated filed a Current Report on
Form 8-K dated April 23, 1999, amended by Form 8-K/A dated
June 18, 1999, reporting, under Item 2, "Acquisition or
disposition of assets", the acquisition of Calder Race
Course, Inc. and Tropical Park, Inc. pursuant to a Stock
Purchase Agreement and Joint Escrow Instructions dated
January 21, 1999, amended by a First Amendment to Stock
Purchase Agreement dated April 19, 1999 and an Agreement
and Plan of Merger and Amendment to Stock Purchase
Agreement dated April 22, 1999.
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<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
August 13, 1999 \s\Thomas H. Meeker
Thomas H. Meeker
President and Chief Executive Officer
(Director and Principal Executive Officer)
August 13, 1999 \s\Robert L. Decker
Robert L. Decker
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
August 13, 1999 \s\Vicki L. Baumgardner
Vicki L. Baumgardner
Vice President, Finance and Treasurer
(Principal Accounting Officer)
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<PAGE>
EXHIBIT INDE+X
Numbers Description By Reference To
(1) Underwriting agreement for 2,000,000 Exhibit 1.1 to Registration
Shares of Churchill Downs Incorporated Statement on Form
Common Stock between Churchill Downs S-3/A dated July 15, 1999
Incorporated and CIBC World Markets
Corporation, Lehman Brothers, Inc.,
JC Bradford & Co., J.J.B. Hilliard,
W.L. Lyons, Inc. on behalf of several
underwriters
(2)(a) First Amendment to Stock Purchase Exhibit 2.2 to Report on
Agreement dated as of April 19, 1999 Form 8-K dated April 23,
by and between Churchill Downs 1999
Incorporated, Churchill Downs
Management Company and KE Acquisition
Corp.
(b) Agreement and Plan of Merger and Exhibit 2.3 to Report on
Amendment to Stock Purchase Agreement Form 8-K dated April 23,
dated as of April 22, 1999 by and 1999
among Churchill Downs Incorporated,
Churchill Downs Management Company, CR
Acquisition Corp., TP Acquisition Corp.,
Calder Race Course, Inc., Tropical
Park, Inc. and KE Acquisition Corp.
(c) Asset Purchase Agreement dated May 5, Exhibit 2.1 to Registration
1999 between Hollywood Park, Inc., a Statementon Form S-3 dated
Delaware Corporation, and Churchill May 21, 1999
Downs Incorporated
(3)(a) Restated Bylaws of Churchill Downs Page 28, Report on Form
Incorporated as amended 10-Q for the fiscal quarter
ended June 30, 1999
(10)(a) $250,000,000 Revolving Credit Facility Exhibit (10)(a) to Report
Credit Agreement between Churchill on Form 10-Q for the fiscal
Downs Incorporated, and the guarantors quarter ended March 31,
party hereto, and the Banks party 1999
hereto and PNC Bank, National
Association, as Agent, and CIBC
Oppenheimer Corp., as Syndication Agent,
and Bank One, Kentucky, N.A., as
Documentation Agent, dated as of April
23, 1999
(b) First Amendment to $250,000,000 Exhibit (10)(b) to Report
Revolving Credit Facility Credit on Form 10-Q for the fiscal
Agreement dated April 30, 1999 quarter ended March 31,
1999
(c) Second Amendment to $250,000,000 Page 43, Report on Form
Revolving Credit Facility Credit 10-Q for the fiscal quarter
Agreement dated June 14, ended June 30, 1999
(27) Financial Data Schedule for the Page 59,Report on Form
fiscal quarter ended June 30, 1999 10-Q for the fiscal quarter
ended June 30, 1999
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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 holders of not less than 662/3% of all
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
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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
personally or by mail, by or at the direction of the President, or the
Secretary, or the officer or persons calling the meeting, to each stockholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail in a sealed envelope
addressed to the stockholder at his address as it appears on the records of the
Corporation, with first class postage thereon prepaid.
SECTION 5. RECORD DATE. The Corporation's record date shall be
fixed by the Board of Directors for the determination of stockholders entitled
to notice of or to vote at a meeting of stockholders, or stockholders entitled
to receive any distribution. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as provided herein, such
determination shall apply to any adjournment thereof.
SECTION 6. VOTING LISTS AND SHARE LEDGER. The Secretary shall
prepare a complete list of the stockholders entitled to vote at any meeting, or
any adjournment thereof, arranged in alphabetical order, with the address of and
the number of shares held by each stockholder, which list shall be produced and
kept open at the meeting and shall be subject to the inspection of any
stockholder during the meeting. The original share ledger or stock transfer
book, or a duplicate thereof kept in this State, shall be prima facie evidence
as to the stockholders entitled to examine such list or share ledger or stock
transfer book, or the stockholders entitled to vote at any meeting of
stockholders or to
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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 to the Secretary.
To be timely, a stockholder's notice to the Secretary
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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
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made in connection with the solicitations of proxies for the proposal
(including, if applicable, with respect to the election of directors) pursuant
to Section 14 of the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder if such stockholder were engaged in such
solicitation, and (g) a representation that such stockholder intends to appear
in person or by proxy at the meeting to bring such business before the meeting.
Any notice concerning the nomination of a person for election as a director must
be accompanied by a written consent of the proposed nominee to being named as a
nominee and to serve as a director if elected.
No business shall be conducted and no person shall be eligible for
election as a Director at any annual meeting of stockholders or a special
meeting of stockholders called for the purpose of electing directors except
business or nominations brought before such meeting in accordance with the
procedures set forth in this Section 9; provided, however, that, once business
has been properly brought before the meeting in accordance with such procedures,
nothing in this Section 9 shall be deemed to preclude discussion by any
stockholder of any such business. If the chairman of the meeting of stockholders
determines that business was not properly brought before such meeting, or a
nomination was not properly made, as the case may be, in accordance with the
foregoing procedures, the chairman shall declare to the meeting that (a) the
business was not properly brought before the meeting and such business shall not
be transacted, or, if applicable, (b) the nomination was defective and such
defective nomination shall be disregarded.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of
the Corporation shall be managed by a Board of Directors.
SECTION 2. NUMBER AND TENURE. The Board of Directors shall
consist of thirteen (13) members but the number may be increased or decreased by
amendment of this Bylaw. The Directors shall be divided into three classes,
consisting of four (4) Class I Directors, four (4) Class II Directors and five
(5) Class III Directors. Each director shall hold office for a term of three (3)
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years or until his successor shall have been elected and qualifies for the
office, whichever period is longer. Except for any individual who is serving as
Chairman of the Board of Directors at the time of nomination of directors, a
person shall not be qualified for election as a Director unless he shall be less
than seventy-two (72) years of age on the date of election. Each Director other
than the Chairman of the Board of Directors shall become a Director Emeritus
upon expiration of his current term following the date the Director is no longer
qualified for election as a Director due to age. Directors Emeritus may attend
all regular and special meetings of the Board of Directors and shall serve in an
advisory capacity without a vote in Board actions.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw, immediately after,
and at the same place as, the annual meeting of stockholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Kentucky, for the holding of additional regular meetings
without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the President, the Chairman of
the Board or the majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any place,
either within or without the State of Kentucky, as the place for holding any
special meeting of the Board of Directors.
SECTION 5. NOTICE. Notice of any special meeting of the Board of
Directors shall be given by notice delivered personally, by mail, by telegraph
or by telephone. If mailed, such notice shall be given at least five (5) days
prior thereto and such mailed notice shall be deemed to have been delivered upon
the earlier of receipt or five (5) days after it is deposited in the United
States mail in a sealed envelope so addressed, with first class postage thereon
prepaid. If notice is given by telegram, it shall be delivered at least
twenty-four (24) hours prior to the special meeting and such telegram notice
shall be deemed to have been delivered when the telegram is delivered to the
telegraph company. Personal notice and notice by telephone shall be given at
least twenty-four (24) hours prior to the special meeting and shall be deemed
delivered upon receipt. Any Director may waive notice of any
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meeting. The attendance of a Director at any meeting shall constitute a waiver
of notice of such meeting, except when a Director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
SECTION 6. QUORUM. A majority of the Board of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, provided that if less than a majority of the Directors are present
at said meeting, a majority of the Directors present may adjourn the meeting
from time to time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of
the Directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
SECTION 8. VACANCIES. Any vacancy occurring in the Board of
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
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otherwise provided in the Restated Articles of Incorporation with respect to the
right of holders of preferred stock of the Corporation to nominate and elect a
specified number of Directors in certain circumstances.
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 1. COMMITTEES. The Board of Directors shall have
authority to establish such committees as it may consider necessary or
convenient for the conduct of its business. All committees so established shall
keep minutes of every meeting thereof and such minutes shall be submitted at the
next regular meeting of the Board of Directors at which a quorum is present, and
any action taken by the Board with respect thereto shall be entered in the
minutes of the Board. Each committee so established shall elect a Chairman of
the committee. On all committees where the Chairman of the Board is not
appointed as a voting member, the Chairman of the Board shall be an ex officio,
nonvoting member of that committee.
SECTION 2. THE EXECUTIVE COMMITTEE. The Board of Directors shall
appoint and establish an Executive Committee composed of up to six (6) 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 up to five (5) 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
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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 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 Company's Supplemental Benefit Plan[s],
the Company's Incentive Compensation Plan[s], the Company's Stock Option
Plan[s], any executive compensation 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 salary paid to the
President and Chief Executive Officer of the Company 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 Company 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 up to four (4)
Directors who shall be appointed by the Board annually. The Racing Committee
shall be responsible for and shall have the authority to obligate the
Corporation with respect to matters concerning the Corporation's contracts and
relations with horsemen, jockeys and others providing services relating to the
conduct of horse racing, including the authority to approve and cause the
Corporation to enter into contracts with organizations representing horsemen
and/or commit to provide benefits or services by the Corporation to horsemen and
others.
SECTION 6. NOTICE OF COMMITTEE MEETINGS. Notice of all meetings
by the committees established in this Article shall be given in accordance with
the special meeting notice section,
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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.
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SECTION 5. PRESIDENT. The President shall be the chief executive
officer of the Corporation and as such shall in general supervise and control
all of the business operations and affairs of the Corporation. In the absence of
the Chairman of the Board of Directors, or in the event of the death or
incapacity of the Chairman, the President shall perform the duties of the
Chairman until a successor Chairman is elected or until the incapacity of the
Chairman terminates. The President shall have full power to employ and cause to
be employed and to discharge and cause to be discharged all employees of the
Corporation, subject always to supervision and control of the Board of
Directors. When authorized so to do by the Board of Directors, he shall execute
contracts and other documents for and in behalf of the Corporation. Unless
otherwise ordered by the Board of Directors, the President shall have full power
and authority on behalf of the Corporation to attend, act and vote at any
meeting of stockholders of any corporation in which this Corporation may hold
stock. He shall perform such other duties as may be specified in the Bylaws and
such other duties as he may be authorized to perform by the Board of Directors.
SECTION 6. EXECUTIVE VICE PRESIDENT. In the case of the death of
the President or in the event of his inability to act, the Executive Vice
President designated by the Board shall perform the duties of the President and,
when so acting, shall have all the powers of and be subject to all restrictions
upon the President. The Executive Vice President shall perform such other duties
as from time to time may be assigned by the President or by the Board of
Directors.
SECTION 7. TREASURER. The Treasurer, subject to the control of
the Board of Directors, and together with the President, shall have general
supervision of the finances of the Corporation. He shall have care and custody
of and be responsible for all moneys due and payable to the Corporation from any
source whatsoever and deposit such moneys in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of these Bylaws. The Treasurer shall have the care of, and
be responsible for all securities, evidences of value and corporate instruments
of the Corporation, and shall supervise the officers and other persons
authorized to bank, handle and disburse its funds, informing himself as to
whether all deposits are or have been duly made and all expenditures duly
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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 instruments in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances.
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SECTION 2. LOANS. No loans shall be contracted on behalf
of the Corporation, and no evidences of indebtedness shall be
issued in its name unless authorized by a resolution of the Board
of Directors. Such authority may be general or confined to specific
instances.
SECTION 3. CHECKS, DRAFTS, ORDERS, ETC. All checks, drafts or
other orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents, of the Corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies, or other depositories as the Board of Directors
may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing
shares of the Corporation shall be in such form as may be determined by the
Board of Directors. Such certificates shall be signed by the President or Vice
President and by the Secretary or an assistant Secretary and may be sealed with
the seal of the Corporation of a facsimile thereof. All certificates surrendered
to the Corporation for transfer shall be canceled, and no new certificate shall
be issued until the former certificate for all like number of shares shall have
been surrendered and cancelled, except that in case of a lost, destroyed or
mutilated certificate, a new one may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof or by his attorney authorized by power of attorney duly executed
and filed with the Secretary of the Corporation, and on surrender for
cancellation of the certificate for such shares. The person in whose name shares
stand on the books of the Corporation shall be deemed the owner thereof for all
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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
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.
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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.
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SECOND AMENDMENT
to
$250,000,000 REVOLVING CREDIT FACILITY
CREDIT AGREEMENT
by and among
CHURCHILL DOWNS INCORPORATED, as the Borrower,
and
THE GUARANTORS PARTY HERETO
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION, As Agent,
and
CIBC OPPENHEIMER CORP., As Syndication Agent.
and
BANK ONE, KENTUCKY, N.A., As Documentation Agent
Dated as of June 14, 1999
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THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Second Amendment") dated
as of June 14, 1999, by and among CHURCHILL DOWNS INCORPORATED, as the Borrower
(the "Borrower"), the GUARANTORS party to the Credit Agreement (as hereinafter
defined), the BANKS party to the Credit Agreement (as hereinafter defined) and
PNC BANK, NATIONAL ASSOCIATION, as the Agent (the "Agent"), and CIBC OPPENHEIMER
CORP., As Syndication Agent. and BANK ONE, KENTUCKY, N.A., As Documentation
Agent
WHEREAS, reference is made to the Credit Agreement dated April 23, 1999
(the "Credit Agreement") described above;
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement;
WHEREAS, the Borrower has entered into that certain Asset Purchase
Agreement (the "HPI Purchase Agreement"), dated as of May 5, 1999, between
Hollywood Park, Inc. ("HPI") and the Borrower, pursuant to which the Borrower
has agreed to purchase (the "HPI Purchase") on August 31, 1999 (subject to
extension by mutual agreement) the Hollywood Park Racetrack and related assets
(the "Hollywood Park Racetrack Business") and the building (the "Casino
Building") in which the Hollywood Park Casino operates, as more fully described
in the HPI Purchase Agreement;
WHEREAS, the HPI Purchase Agreement provides in part that the Borrower
shall enter into a lease with HPI, in the form attached as Exhibit C to the HPI
Purchase Agreement (the "HPI Lease"), pursuant to which HPI shall lease the
Casino Building from the Borrower for a term of 10 years (subject to extension)
at a base rent in the amount of $250,000 per month (the "Casino Base Rent")
during such initial term;
WHEREAS, the legislature of the State of California enacted that certain
bill designated Senate Bill 27 ("Senate Bill 27") and the Governor of the State
of California approved such Senate Bill 27 on August 21, 1998 and the changes
made pursuant to such bill became effective on January 1, 1999; and
WHEREAS, Senate Bill 27, among other things, reduces the license fees
imposed by the State of California on wagers received by live and off-track
betting facilities in such State and makes other changes in the laws applicable
to owners and operators of such facilities and the Borrower has determined that
such changes (i) will increase the net revenue that the Hollywood Park Racetrack
Business will earn in 1999 and subsequent years over the net revenues such
business would have earned in the absence of such changes and (ii) would have
increased the net revenues that the Hollywood Park Racetrack Business would have
earned in 1998 if such changes had been in effect during 1998 (the "Legislative
Benefits");
WHEREAS, Section 7.2.5 of the Credit Agreement provides in part that the
Loan Parties may not acquire substantially all of the assets of another Person
unless they satisfy certain conditions which include delivering an Acquisition
Compliance Certificate evidencing that the Loan Parties shall be in compliance
with the financial covenants contained in Sections 7.2.1, 7.2.4 and 7.2.17
through 7.2.21 after making such acquisition;
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WHEREAS, Section 7.2.17 (Maximum Total Leverage Ratio) and 7.2.18
(Maximum Senior Leverage Ratio) each provide in part as follows: "For purposes
of this covenant, EBITDA shall include the rolling four quarter results of any
entity being acquired by the Loan Parties if such entity will become a Loan
Party hereunder."
WHEREAS, The Loan Parties request that the Banks:
(i) acknowledge that the Loan Parties may include the results of the
Hollywood Park Racetrack Business for periods prior to their acquisition of such
business in their rolling four quarter computations of EBITDA for purposes of
Section 7.2.17 (Maximum Total Leverage Ratio) and Section 7.2.18 (Maximum Senior
Leverage Ratio); and
(ii) agree that the Loan Parties may make pro-forma adjustments to such
results to give effect to the Casino Base Rent and the Legislative Benefits as
if such Casino Base Rent had been earned by the Loan Parties and such
Legislative Benefits had been available to the Hollywood Park Racetrack Business
throughout such rolling-four quarters periods.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. Amendments to Credit Agreement.
A. New Definitions. (Section 1.1)
The following new definitions are hereby added to Section
1.1. Each such definition is inserted in alphabetical order in such Section:
"Hollywood Park EBITDA Adjustments shall mean the
following adjustments to the Pre-Acquisition EBITDA of the
Hollywood Park Racetrack Business for purposes of computing the
ratios in Section 7.2.17 (Maximum Total Leverage Ratio) and
7.2.18 (Maximum Senior Leverage Ratio):
(i) Base Rent from the Hollywood Park Casino. There shall
be added to the Pre-Acquisition EBITDA of the Hollywood Park
Racetrack Business $750,000 for each fiscal quarter prior to the
Acquisition Date (such figure shall be prorated for the fiscal
quarter in which the Acquisition Date falls based on the number
of days in such quarter falling prior to the Acquisition Date)
representing the Casino Base Rent that will be payable to the
Loan Parties under the HPI Lease.
(ii) Legislative Benefits. Subject to the following
sentence, the Loan Parties shall add to the Pre-Acquisition
EBITDA of the Hollywood Park Racetrack Business an amount equal
to $1,621,000 for
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<PAGE>
fiscal quarter ending June 30, 1998, $578,000 for fiscal quarter
ending September 30, 1998, and $887,000 for fiscal quarter ending
December 31, 1998 (collectively, the "1998 EBITDA Add Back"),
representing the additional revenues that would have been earned
by HPI in such fiscal quarters of 1998 if Senate Bill 27 had been
in effect during such fiscal quarters (the Borrower has set forth
its computation of the 1998 EBITDA Add Back before the adjustment
in the next sentence on Schedule 1.1(H)(1)) Notwithstanding the
preceding sentence, the amount of the 1998 EBITDA Add Back
included in any four-quarter computation shall not exceed the
difference between the following:
(a) $3,000,000,
LESS
(b) the 1999 EBITDA Benefit included in such four-quarter
period.
An example of the operation of the 1998 EBITDA Add Back
limitation set forth in the preceding sentence is contained on
Schedule 1.1(H)(2).
Net Commission Rate Increase shall mean for each category
of wagering activities conducted by the Hollywood Park Racetrack
Business, the difference between the commission rate earned by
such business in 1998 (before passage of Senate Bill 27) and the
commission rate earned by such business in 1999 (after passage
of Senate Bill 27). The Net Commission Rate Increase is set
forth in column (C) of Schedule 1.1(H)(1).
1998 EBITDA Add Back shall have the meaning given to such
term in the definition of Hollywood Park EBITDA Adjustments
1999 EBITDA Benefit shall be computed for each quarter in
1999 as follows: First the Loan Parties shall compute the
following for each category of handle earned by the Hollywood
Park Racetrack Business during such quarter (i) the product of
such handle times (ii) the applicable Net Commission Rate
Increase for such handle. Second, the Loan Parties shall add all
of the products computed under the preceding sentence. It is
acknowledged that the Loan Parties' computation of their 1999
EBITDA shall be subject to the Agent's review and approval.
Second Amendment shall mean the Second Amendment to this
Credit Agreement
Second Amendment Effective Date shall mean the effective
date of the Second Amendment.
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<PAGE>
The following terms are hereby added to Section 1.1
in alphabetical order and shall have the meaning assigned to such terms in the
recitals to this Second Amendment:
Casino Base Rent
Casino Building
Hollywood Park Racetrack Business
HPI
HPI Lease
HPI Purchase
HPI Purchase Agreement
Legislative Benefits
Senate Bill 27
` B. Maximum Total Leverage Ratio. (Section 7.2.17)
Section 7.2.17 is hereby amended and restated to read as
follows:
"7.2.17 Maximum Total Leverage Ratio.
The Loan Parties shal not permit the ratio of
Consolidated Total Indebtedness as of the last day of each
fiscal quarter to Consolidated EBITDA (the "Leverage Ratio") for
the four fiscal quarters ending on that date to exceed the
applicable ratios set forth on Schedule 7.2 as of the dates set
forth on such Schedule under column (1) (titled "Maximum Total
Leverage Ratio").
For purposes of this covenant and the covenant in Section 7.2.18,
EBITDA shall include on and after the date (the "Acquisition
Date") of any Permitted Acquisition pursuant to and in compliance
with Section 7.2.5 (Liquidations, Mergers, Consolidations,
Acquisitions) the rolling four quarter results for periods prior
to such Acquisition Date (the "Pre-Acquisition EBITDA") of
(i) the entity being acquired by the Loan Parties if such
entity will become a Loan Party hereunder, and
(ii) the assets being acquired by a Loan Party if the
Loan Parties are acquiring substantially all of the assets of
a Person in such Permitted Acquisition, provided that when
the Loan Parties acquire the Hollywood Park Racetrack Business
pursuant to the HPI Purchase Agreement, the Loan Parties may
add to the Pre-Acquisition EBITDA of such Hollywood Park
Racetrack Business the Hollywood Park EBITDA Adjustments.
The Loan Parties acknowledge that for purposes of clause (ii) of
the preceding sentence, they shall include only the Pre-
Acquisition EBITDA of the Hollywood Park Racetrack Business (as
adjusted by the Hollywood Park EBITDA Adjustments) in their
EBITDA and they shall not include in such EBITDA any results of
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<PAGE>
the Hollywood Park Casino (except that they may include the
Casino Base Rent which is one of the Hollywood Park EBITDA
Adjustments).
C. Maximum Senior Leverage Ratio. (Section 7.2.18)
The last sentence of Section 7.2.18 (Maximum Senior Leverage
Ratio) is hereby amended and restated to read as follows:
"For purposes of this covenant, EBITDA shall be adjusted in
accordance with the last two sentences of Section 7.2.17 (Maximum
Total Leverage Ratio)."
D. Schedules. New Schedules 1.1(H)(1) and 1.1(H)(2) are hereby
added to the Credit Agreement in the form attached as Schedules 1.1(H)(1) and
1.1(H)(2) hereto.
2. Warranties
The Loan Parties, jointly and severaly, represent and warrant as
follows:
A. Recitals; Senate Bill.
The recitals hereto are true and correct in all material
respects. Senate Bill 27 became effective on January 1, 1999.
B. Hollywood Park EBITDA Adjustments.
Schedule 1.1(H)(1) correctly computes the additional amount
of Hollywood Park EBITDA Adjustments (without giving effect to the limitation
set forth in the second sentence of subsection (ii) of the definition of
Hollywood Park EBITDA Adjustments) that the Hollywood Park Race Track Business
would have earned if the Senate Bill 27 had become effective on or before
April 1, 1998 rather than January 1, 1999. Schedule 1.1(H)(1) also provides
a reasonable estimate of the additional amount of income that the Hollywood
Park Racetrack Business will incur in 1999 as a result of the changes made by
Senate Bill 27.
To the knowledge of the Loan Parties, the audited financial
statements for the Hollywood Park Racetrack Business for the four quarters
ending December 31, 1998 were compiled from the books and records maintained
by HPI's management, are correct and complete in all material respects
and fairly represent the consolidated financial condition of the Hollywood Park
Racetrack Business as of their dates and the results of operations for the
fiscal periods then ended and have been prepared in accordance with GAAP
consistently applied.
The representations and warranties in this paragraph (A) are
incorporated in Section 5 of the Credit Agreement and any breach of such
representations or warranties is a breach under Section 5 of the Credit
Agreement.
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<PAGE>
C. Other Warranties Under the Credit Agreement
The other representations and warranties of Loan Parties
contained in the Credit Agreement, after giving effect to the amendments thereto
on the date hereof, are true and correct on and as of the date hereof with the
same force and effect as though made by the Loan Parties on such date, except to
the extent that any such representation or warranty expressly relates solely to
a previous date. The Loan Parties are in compliance with all terms, conditions,
provisions, and covenants contained in the Credit Agreement.
3. Conditions to Effectiveness.
This Second Amendment shall become effective provided that each
of the following conditions is satisfied as of the date set forth in such
condition:
A. Representations and Warranties.
Each of the Borrower's representations and warranties under
Section 2 hereof shall be true and correct on the Second Amendment Effective
date.
B. Opinion of Counsel.
On or before the Second Amendment Effective Date, there
shall be delivered to the Agent for the benefit of each Bank written opinions
of Wyatt, Tarrant & Combs and Rebecca C. Reed, counsel for the Loan Parties, in
each case dated the Second Amendment Effective Date as to the warranties listed
in Exhibit 3(B) hereto as such warranties relate to this Second Amendment and
the documents executed in connection herewith and the consents required for
this Second Amendment and such other documents.
C. Payment of Expenses.
On or before the Second Amendment Effective Date, the
Borrower shall have paid or caused to be paid to the Agent for itself and for
the account of the Banks to the extent not previously paid the costs and
expenses for which the Agent and the Banks are entitled to be reimbursed.
D. Execution by Required Banks, Agent and Loan Parties.
On or before the Second Amendment Effective Date, this
Second Amendment shall have been executed by the Required Banks, the Agent
and the Loan Parties.
E. Acknowledgments Regarding Closing Conditions.
At least five (5) Business Days before the closing (the "HPI
Closing")of the HPI Purchase Agreement and the acquisition by the Loan Parties
of the Hollywood Park Racetrack Business and the Casino Building, the Loan
Parties shall acknowledge and agree that they shall execute and deliver
the following to the Agent for the benefit of the Banks:
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<PAGE>
(a) Acquisition Compliance Certificate.
An Acquisition Compliance Certificate in accordance with
Section 7.2.5 of the Credit Agreement which shall be computed using rolling four
quarters tests through and including the most recent quarter for which the
applicable financial statements are available, provided that if the HPI Closing
occurs (i) on or after August 15, 1999 but within the third quarter of 1999 such
Certificate shall be computed using rolling four quarters test through and
including June 30, 1999, and (ii) in any quarter ending after September 30, 1999
but more than 45 days after the commencement of such quarter, such Compliance
Certificate shall be computed using rolling four quarters test through and
including the last day of the immediately preceding fiscal quarter.
(b) Financial Statement Deliveries.
The (1) audited financial statements Hollywood Park
Racetrack Business for the fiscal year ended December 31, 1998, and (2)
unaudited financial statements of the Borrower through and including the date on
which the rolling four quarters test is to be measured as provided in Section
3(D)((a)) of this Second Amendment.
(c) Assignment of Lease; Subordination and Non-Disturbance
Agreement, Consent to Assignment.
An Assignment of Leases and Rents relating to the
HPI Lease in favor of the Agent for the benefit of the Banks and a
Subordination and Non-Disturbance Agreement relating to the HPI Lease signed
by the parties thereto, in each case in a form reasonably acceptable to the
Agent.
(d) Opinion of Counsel.
A written opinion of Wyatt, Tarrant & Combs and Gibson
Dunn & Crutcher LLP, and any applicable local counsel for the Loan Parties,
dated the date of the HPI Closing addressing the representations and warranties
covered in the opinions delivered on the Closing Date of the Credit Agreement
as such representations and warranties relate to the documents to be delivered
in connection with the HPI Closing.
(e) Other Documents.
Each of the other documents required under the Credit
Agreement in connection with the HPI Purchase, including Guarantor Joinders
by any new subsidiaries which shall become Loan Parties, Mortgages on the
real estate acquired by the Loan Parties and related title insurance policies,
surveys and environmental reports, the consent of the California Horse Racing
Board for the grant of Liens in the assets acquired in the HPI Purchase, and
pledges of stock of the acquisition entities, to the Agent.
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<PAGE>
F. HPI Purchase.
The Loan Parties shall consummate the HPI Purchase pursuant
to the Purchase Agreement on or before December 31, 1999.
4. References to Credit Agreement, Loan Documents.
Any reference to the Credit Agreement or other Loan Documents in
any document, instrument, or agreement shall hereafter mean and include the
Credit Agreement or such Loan Document, including such schedules and exhibits,
as amended hereby. In the event of irreconcilable inconsistency between the
terms or provisions hereof and the terms or provisions of the Credit Agreement
or such Loan Document, including such schedules and exhibits, the terms and
provisions hereof shall control.
5. Force and Effect.
The Borrower reconfirms, restates, and ratifies the Credit
Agreement and all other documents executed in connection therewith except to the
extent any such documents are expressly modified by this Second Amendment and
Borrower confirms that all such documents have remained in full force and effect
since the date of their execution.
6. Governing Law.
This Second Amendment shall be deemed to be a contract under the
laws of the Commonwealth of Kentucky and for all purposes shall be governed by
and construed and enforced in accordance with the internal laws of the
Commonwealth of Kentucky without regard to its conflict of laws principles.
7. Counterparts; Effective Date.
This Second Amendment may be signed in any number of counterparts
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. This Second Amendment shall become
effective when it has been executed by the Agent, the Loan Parties and the
Required Banks and each of the other conditions set forth in Section 3 of this
Second Amendment has been satisfied.
[SIGNATURE PAGES TO FOLLOW]
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<PAGE>
[SIGNATURE PAGE 1 OF 4 TO SECOND AMENDMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Second Amendment as of the day and year above
written.
BORROWER:
CHURCHILL DOWNS INCORPORATED
By:/s/ Robert L. Decker
Title: Executive Vice President
Chief Financial Officer
GUARANTORS:
CHURCHILL DOWNS MANAGEMENT COMPANY
By:/s/ Robert L. Decker
Title:Vice President/Treasurer
CHURCHILL DOWNS INVESTMENT COMPANY
By: /s/ Robert L. Decker
Title: President
RACING CORPORATION OF AMERICA
By: /s/ Robert L. Decker
Title: Treasurer
ELLIS PARK RACE COURSE, INC.
By: /s/ Robert L. Decker
Title: Treasurer
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<PAGE>
[SIGNATURE PAGE 2 OF 4 TO SECOND AMENDMENT]
ANDERSON PARK, INC.
By: /s/ Robert L. Decker
Title: Treasurer
CALDER RACE COURSE, INC.
By: /s/ Robert L. Decker
Title: Vice President/Treasurer
TROPICAL PARK, INC.
By: /s/ Robert L. Decker
Title: Vice President/Treasurer
BANKS AND AGENT
PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
By:/s/ Susan C. Snyder
Title:Vice President
BANK ONE, KENTUCKY, NA
By:/s/Michael McFerran
Title: Vice President
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<PAGE>
[SIGNATURE PAGE 3 OF 4 TO SECOND AMENDMENT]
CIBC INC.
By:/s/Leo Fernandex
Title: Director
COMERICA BANK
By:/s/ Kathleen Kasperek
Title: Account Officer
FIFTH THIRD BANK
By: /s/Aubrey Hayden
Title: Assistant Vice President
NATIONAL CITY BANK OF KENTUCKY
By: /s/ Laura Cromer
Title: Vice President
FIRSTAR BANK, N.A.
By: /s/ Toby B. Rau
Title:Assistant Vice President
BANK OF LOUISVILLE
By: /s/John Barr, Sr.
Title: Senior Vice President
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<PAGE>
[SIGNATURE PAGE 4 OF 4 TO SECOND AMENDMENT]
CIVITAS BANK
By: /s/Dwight Hamilton
Title: Vice President
WELLS FARGO BANK
By: /s/Virginia Christenson
Title: Relationship Manager
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<PAGE>
Schedule 1.1(H)(1)--Hollywood Park 1998 EBITDA Add Back
(before the $3,000,000 limitation))
CHURCHILL DOWNS
Calculation of Hollywood Park Legislative Benefits
using 1998 Actual Handle
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G) (H) (I) (J)
((A) Less(B)) ((C)times (D)) ((C) times(F)) (C) times(D)
Net Handle Adjustment Handle Adjustment Handle Adjustment
1998 Net 1999 Net Commission 6-30-98 6-30-98 9-30-98 9-30-98 12-31-98 12-31-98 Total
Commissions Commissions Inc Quarter Quarter Quarter Quarter Quarter Quarter Adjustment
(dec)-1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
License Fee (LF) relief- 6.66% 8.28% 1.62% $78,386 $1,270 $25,987 $421 $36,412 $590 $2,281
Live-On track (1)
LF - Intrastate - Live 4.54% 5.16% 0.62% $102,838 $638 $32,875 $204 $54,374 $337 $1,179
Races (2)
LF-No. CA - On-track (3) 5.21% 6.44% 1.23% $21,166 $260 $5,347 $66 $12,021 $148 $474
LF-No. CA - Intrastate 4.38% 5.18% 0.80% $41,202 $330 $11,616 $93 $25,856 $207 $629
(4)
LF - Out of State 5.07% 4.33% -0.74% $41,209 ($306) $8,629 ($64) $13,555 ($101) ($471)
Simulcasts (5)
LF - No. CA - Producer 1.25% 0.00% -1.25% $46,590 ($582) $14,484 ($181) $25,320 ($317) ($1,080)
Fee (6)
LF - Simulcast Meets - 1.94% 2.00% 0.06% $18,509 $12 $62,282 $39 $35,259 $22 $73
Producer Fee (7)
Net License Fee Relief $1,621 $578 $887 $3,086
(total above) ====== ==== ==== ======
</TABLE>
Footnotes:
1. This category represents patrons at Hollywood Park betting on Hollywood
Park live races.
2. This category represents patrons at Southern California OTBs betting on
Hollywood Park live races
3. This category represents patrons at Hollywood Park betting on Northern
California races.
4. This category represents patrons at Southern California OTBs betting on
Northern California races.
5. This category represents patrons at Hollywood Park and Southern
California OTBs betting on races conducted at out of state locations and
simulcast at Hollywood Park. The 1998 actual handle for each of the
Spring/Summer and Autumn meets consists of Woodbine handle and Out of
State handle, both On Track and Within California. The 1999 budgeted
handle consists of Out of State handle, both On Track and Within
California (Woodbine races are not shown at Hollywood Park in 1999).
6. This category represents wagers placed by North California patrons on
Hollywood Park live races. This fee has been eliminated in 1999.
7. This category represents the Hollywood Park patrons betting on Southern
California, Northern California and out of state races during the
periods when Hollywood Park is not racing live.
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<PAGE>
Schedule 1.1(H)(2)--Example of 1998 EBITDA Add Back Limitation
Facts:
Assume the following facts (1999 numbers below are hypothetical. They do not
reflect actual results):
1999 EBITDA Benefit is as follows:
1st quarter (ending 3-31-99): $1,000,000
2nd quarter (ending 6-30-99) $1,000,000
The Loan Parties are computing their EBITDA for the 4 quarters ending 6-30-99
for purposes of determining their Maximum Total Leverage Ratio and Maximum
Senior Leverage Ratio on their 6-30-1999 compliance certificate.
Computation:
The definition of "Hollywood Park EBITDA Adjustments" provides that the
Hollywood Park EBITDA Adjustments would be $578,000 for fiscal quarter ending
September 30, 1998, and $887,000 for fiscal quarter ending December 31, 1998,
subject to the limitation described in the second sentence of that definition.
Under that second sentence the limitation is $1,000,000, computed as follows:
$3,000,000
less
$2,000,000 (1999 EBITDA Benefit)
Equals limitation $1,000,000
The 1998 EBITDA Add Back (after giving effect to the limitation) is $1,000,000,
computed as follows:
$1,465,000 ($578,000 plus $887,000) limited to $1,000,000
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<PAGE>
EXHIBIT 3(B)
OPINION OF COUNSEL
The opinion of Rebecca Reed shall confirm that the recitals
hereto are true and correct in all material respects and that the other matters
contained in the warranty in Section 2(B) hereto are true and the opinion of
Wyatt, Tarrant & Combs shall confirm that the following representations and
warranties in the Credit Agreement are true and correct as such warranties
relate to this Second Amendment and the Credit Agreement as amended by this
Second Amendment.
Credit Agreement
Section Warranty
5.1.1 Organization and Qualification
5.1.2 Capitalization and Ownership
5.1.4 Power and Authority
5.1.5 Validity and Binding Effect
5.1.6 No Conflict
5.1.12 Consents and Approvals
-58-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 21,927
<SECURITIES> 0
<RECEIVABLES> 14,653
<ALLOWANCES> 517
<INVENTORY> 133
<CURRENT-ASSETS> 38,250
<PP&E> 222,514
<DEPRECIATION> 89,053
<TOTAL-ASSETS> 242,927
<CURRENT-LIABILITIES> 43,176
<BONDS> 0
<COMMON> 8,927
0
0
<OTHER-SE> 67,017
<TOTAL-LIABILITY-AND-EQUITY> 242,927
<SALES> 101,803
<TOTAL-REVENUES> 101,803
<CGS> 74,820
<TOTAL-COSTS> 81,709
<OTHER-EXPENSES> 791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,209
<INCOME-PRETAX> 18,372
<INCOME-TAX> 7,716
<INCOME-CONTINUING> 10,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,656
<EPS-BASIC> 1.42
<EPS-DILUTED> 1.39
</TABLE>
