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 March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 0-1469
CHURCHILL DOWNS INCORPORATED
(Exact name of registrant as specified in its charter)
Kentucky 61-0156015
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
700 Central Avenue, Louisville, KY 40208
(Address of principal executive offices)
(Zip Code)
(502) 636-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No____
The number of shares outstanding of registrant's common stock at May 15, 2000
was 9,853,627 shares.
1
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CHURCHILL DOWNS INCORPORATED
I N D E X
PAGES
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets, March 31,
2000, December 31, 1999 and March 31, 1999 3
Condensed Consolidated Statements of Earnings
for the three months ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 5
Condensed Notes to Consolidated Financial Statements 6-11
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings (Not applicable) 20
ITEM 2. Changes in Securities and Use of Proceeds (Not applicable) 20
ITEM 3. Defaults Upon Senior Securities (Not applicable) 20
ITEM 4. Submission of Matters to a Vote of Security Holders
(Not applicable) 20
ITEM 5. Other Information (Not applicable) 20
ITEM 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit Index 22
Exhibits 23
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
ASSETS 2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 8,577 $ 29,060 $ 12,590
Accounts receivable 12,555 24,279 8,402
Income taxes receivable 5,788 - 2,375
Other current assets 4,107 2,751 950
--------- --------- ----------
Total current assets 31,027 56,090 24,317
Other assets 7,229 4,740 5,427
Plant and equipment, net 276,712 274,882 85,827
Intangible assets, net 61,813 62,334 11,407
--------- --------- ----------
$376,781 $398,046 $ 126,978
========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $14,743 $ 14,794 $ 11,330
Accrued expenses 14,231 23,821 5,308
Dividends payable - 4,927 -
Income taxes payable - 336 -
Deferred revenue 18,576 10,860 15,462
Long-term debt, current portion 511 552 570
--------- --------- ----------
Total current liabilities 48,061 55,290 32,670
Long-term debt, due after one year 175,075 180,898 21,236
Other liabilities 8,726 8,263 3,810
Deferred income taxes 15,534 15,474 7,012
Commitments and contingencies - - -
Shareholders' equity:
Preferred stock, no par value;
250 shares authorized; no
shares issued - - -
Common stock, no par value; 50,000
shares authorized; issued: 9,854
shares March 31, 2000 and
December 31, 1999, and 7,525
shares March 31, 1999 71,634 71,634 8,927
Retained earnings 57,902 66,667 53,589
Deferred compensation costs (86) (115) (201)
Note receivable for common stock (65) (65) (65)
--------- --------- ----------
129,385 138,121 62,250
--------- --------- ----------
$376,781 $398,046 $ 126,978
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
for the three months ended March 31,
(Unaudited)
(In thousands, except per share data)
2000 1999
---- ----
Net revenues $25,645 $17,663
Operating expenses 31,004 19,157
-------- --------
Gross loss (5,359) (1,494)
Selling, general and administrative expenses 6,181 3,303
-------- --------
Operating loss (11,540) (4,797)
-------- --------
Other income (expense):
Interest income 266 147
Interest expense (3,751) (435)
Miscellaneous, net 42 44
-------- --------
(3,443) (244)
-------- --------
Loss before income tax benefit (14,983) (5,041)
Income tax benefit 6,218 2,031
-------- --------
Net loss $(8,765) $(3,010)
======== ========
Basic and diluted net loss per common share $ (0.89) $ (0.40)
Basic and diluted weighted average
shares outstanding 9,854 7,525
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
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CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31,
(Unaudited)
(in thousands)
2000 1999
---- ----
Cash flows from operating activities:
Net earnings $(8,765) $(3,010)
Adjustments to reconcile net earnings to
net cash (used in) provided by
operating activities:
Depreciation and amortization 4,093 1,903
Deferred income taxes 99 74
Deferred compensation 189 99
Increase (decrease) in cash resulting from
changes in operating assets and
liabilities:
Accounts receivable 13,190 4,405
Income taxes receivable (5,788) (2,375)
Other current assets (1,395) 113
Accounts payable (51) 4,713
Accrued expenses (9,590) (2,869)
Income taxes payable (336) (258)
Deferred revenue 6,252 6,259
Other assets and liabilities (2,264) (1,205)
-------- --------
Net cash (used in) provided by
operating activities (4,366) 7,849
-------- --------
Cash flows from investing activities:
Additions to plant and equipment, net (5,326) (2,564)
Acquisition of business, net of cash
acquired of $26 in 1999 - (2,925)
-------- --------
Net cash used in investing activities (5,326) (5,489)
-------- --------
Cash flows from financing activities:
Decrease in long-term debt, net (164) (938)
Borrowings on bank line of credit 7,000 8,000
Repayments of bank line of credit (12,700) (1,000)
Payment of dividends (4,927) (3,762)
Capital contribution by minority interest
in subsidiary - 1,551
-------- --------
Net cash (used in) provided by
financing activities (10,791) 3,851
-------- --------
Net (decrease) increase in cash and cash equivalents (20,483) 6,211
Cash and cash equivalents, beginning of period 29,060 6,379
-------- --------
Cash and cash equivalents, end of period $ 8,577 $12,590
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,541 $ 526
Income taxes $ 452 -
Schedule of non-cash activities:
Invoicing for future events $ 1,465 $ 790
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
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CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the three months ended March 31, 2000 and 1999 (Unaudited)
($ in thousands, except per share data)
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 accounting principles
generally accepted in the United States 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 accounting principles generally accepted in the United States.
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, 1999 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. Certain prior period
financial statement amounts have been reclassified to conform to the
current period presentation. 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 and recent
acquisition activity, 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 (loss) as the Company normally earns a substantial portion of its
net earnings in the second quarter of each year during which four of its
five racetracks are open, and the Kentucky Derby and Kentucky Oaks are
run. The Kentucky Derby and Kentucky Oaks are run on the first weekend in
May. Through recent acquisitions, the size of the Company's racing
operations significantly expanded, however, only two of the 260 days of
live racing offered during 2000 occurred in the first quarter.
6
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CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the three months ended March 31, 2000 and 1999 (Unaudited)
($ in thousands, except per share data)
2. Long-Term Debt
On April 23, 1999, the Company increased its line of credit to $250
million under a 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. This
credit facility replaced a $100 million line of credit obtained during
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 $172.3 million outstanding on this line of
credit at March 31, 2000 compared to $178.0 million outstanding at
December 31, 1999, and under a previous line of credit there was $18.0
million outstanding at March 31, 1999. The line of credit is
collateralized by substantially all of the assets of the Company and its
wholly owned subsidiaries, and matures in 2004.
The Company has entered into interest rate swap contracts with major
financial institutions which have termination dates through March 2003.
Under the terms of the contracts we receive a LIBOR based variable
interest rate and pay a fixed interest rate of 5.89% on a notional amount
of $35.0 million, which matures in August 2000, and 7.015% on a notional
amount of $35.0 million, which matures in March 2003. The variable
interest rate paid on the contracts is determined based on LIBOR on the
last day of each month, which is consistent with the variable rate
determination on the underlying debt.
3. Acquisitions
On September 10, 1999, the Company acquired the assets of the Hollywood
Park racetrack and the Hollywood Park Casino in Inglewood, California,
including approximately 240 acres of land upon which the racetrack and
casino are located, for a purchase price of $140.0 million plus
approximately $2.5 million in transaction costs. The Company leases the
Hollywood Park Casino facility to the seller under a 10-year lease with
one 10-year renewal option. The lease provides for annual rent of $3.0
million, subject to adjustment during the renewal period. The entire
purchase price of $142.5 million was allocated to the acquired assets and
liabilities based on their fair values on the acquisition date. The
acquisition was accounted for by the Company as an asset purchase and,
accordingly, the financial position and results of operations of Hollywood
Park racetrack have been included in the Company's consolidated financial
statements since the date of acquisition. The allocation of the purchase
price may require adjustment in the Company's future financial statements
based on a final determination of the fair value of assets acquired in the
acquisition.
7
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CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the three months ended March 31, 2000 and 1999 (Unaudited)
($ in thousands, except per share data)
3. Acquisitions (cont'd)
On April 23, 1999, the Company acquired all of the outstanding stock of
Calder Race Course, Inc. and Tropical Park, Inc. from KE Acquisition Corp.
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. The purchase price, including
additional costs, 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 $49.4 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 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.
Following are the unaudited pro forma results of operations as if the
September 10, 1999 acquisition of Hollywood Park Racetrack, the July 20,
1999 stock issuance, and the April 23, 1999 acquisition of Calder Race
Course had occurred on January 1, 1999:
Three Months Ended
March 31, 1999
------------------
Net revenues $25,707
Net loss $(7,461)
Basic and diluted net loss per share $(.76)
Basic and diluted weighted average shares 9,825
This unaudited proforma financial information is not necessarily
indicative of the operating results that would have occurred had the
transaction been consummated as of January 1, 1999, nor is it necessarily
indicative of future operating results.
8
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CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the three months ended March 31, 2000 and 1999 (Unaudited)
($ in thousands, except per share data)
4. Earnings Per Share
The following is a reconciliation of the numerator and denominator of the
earnings per common share computations:
Three months ended
March 31,
2000 1999
---- ----
Loss (numerator) amounts used for basic
and diluted per share computations: $(8,765) $(3,010)
-------- --------
Basic and diluted weighted average shares
(denominator) of common stock outstanding
per share: 9,854 7,525
Basic and diluted net loss per common share $(.89) $(.40)
Options to purchase 608 and 478 shares for the three months ended
March 31, 2000 and 1999, respectively, are excluded from the computation
of diluted net earnings (loss) per common share since their effect is
antidilutive because of net losses for the periods.
5. 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 six segments: (1) Churchill Downs
racetrack and the Louisville Sports Spectrum simulcast facility (2)
Hollywood Park racetrack and its on-site simulcast facility (3) Calder
Race Course (4) Ellis Park racetrack and its on-site simulcast facility
(5) Hoosier Park racetrack and its on-site simulcast facility and the
other three Indiana off-track betting facilities ("OTBs") and (6) Other
investments, including Kentucky Horse Center, Charlson Broadcast
Technologies LLC ("CBT") and the Company's other various equity interests,
which are not material. Eliminations include the elimination of management
fees and other intersegment transactions. As a result of a reorganization
for internal reporting during 2000, the Company's segment disclosures
are presented on a new basis to correspond with internal reporting for
corporate expenses which, for the three months ended March 31, 1999 and
2000, are now reported separate of Churchill Downs racetrack expenses.
Most of the Company's revenues are generated from commissions on
pari-mutuel wagering at the Company's racetracks and OTBs, plus simulcast
fees, Indiana riverboat admissions revenue, admissions and concessions
revenue and other sources.
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, 1999. EBITDA should
not be considered as an alternative to, or more meaningful than, net
income (as determined in accordance with accounting principles generally
accepted in the United States) as a measure of our operating results or
cash flows (as determined in accordance with accounting principles
generally accepted in the United States) or as a measure of our liquidity.
9
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CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the three months ended March 31, 2000 and 1999 (Unaudited)
($ in thousands, except per share data)
5. Segment Information (cont'd)
The table below presents information about reported segments for the three
months ended March 31, 2000 and 1999:
Three Months Ended March 31,
2000 1999
---- ----
Net Revenues:
Churchill Downs $ 4,557 $ 4,643
Hollywood Park 5,759 -
Calder Race Course 1,877 -
Hoosier Park 11,185 10,948
Ellis Park 1,312 1,166
Other investments 1,320 1,214
--------- --------
26,010 17,971
Eliminations (365) (308)
--------- --------
$ 25,645 $17,663
========= =======
EBITDA:
Churchill Downs $ (3,530) $(3,283)
Hollywood Park (1,621) -
Calder Race Course (2,029) -
Hoosier Park 1,887 1,678
Ellis Park (391) (382)
Other investments 135 329
--------- --------
(5,549) (1,658)
Corporate expenses* (2,008) (1,192)
--------- --------
$ (7,557) $(2,850)
========= ========
Operating income (loss):
Churchill Downs $ (4,453) $(4,198)
Hollywood Park (2,680) -
Calder Race Course (2,919) -
Hoosier Park 1,556 1,377
Ellis Park (751) (702)
Other investments (285) (82)
--------- --------
(9,532) (3,605)
Corporate expenses* (2,008) (1,192)
--------- --------
$(11,540) $(4,797)
========= ========
* As a result of a reorganization for internal reporting during 2000, the
Company's segment disclosures are presented on a new basis to correspond
with internal reporting for corporate expenses. Corporate expenses for the
three months ended March 31, 1999 and 2000 are reported separately.
10
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CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the three months ended March 31, 2000 and 1999 (Unaudited)
($ in thousands, except per share data)
5. Segment Information (cont'd)
As of As of As of
March 31, 2000 December 31, 1999 March 31, 1999
-------------- ----------------- --------------
Total assets:
Churchill Downs $355,548 $345,909 $ 98,429
Hollywood Park 149,156 153,126 -
Calder Race Course 96,440 114,396 -
Hoosier Park 33,665 32,559 32,835
Ellis Park 24,513 25,015 22,788
Other investments 311,375 312,272 83,277
--------- -------- ---------
970,697 983,277 237,329
Eliminations (593,916) (585,231) (110,351)
--------- --------- ---------
$376,781 $398,046 $126,978
========= ========= =========
Following is a reconciliation of total EBITDA to income before provision
for income taxes:
Three Months Ended March 31,
2000 1999
---- ----
Total EBITDA $ (7,557) $(2,850)
Depreciation and amortization (3,941) (1,903)
Interest income (expense), net (3,485) (288)
--------- --------
Earnings before provision for income taxes $(14,983) $(5,041)
========= ========
6. Subsequent Events
On April 21, 2000, Keeneland Association, Inc. ("Keeneland") purchased the
Company's Thoroughbred training and boarding facility known as Kentucky
Horse Center ("KHC") for a cash payment of $5 million. Proceeds from the
sale were used to repay the Company's line of credit, and to fund
operating expenses and capital expenditures during the second quarter of
2000.
The Company has entered into a definitive agreement with Centaur, Inc.
("Centaur") to sell a 26% interest in Hoosier Park, LP ("HPLP") for a
purchase price of $8.5 million. HPLP is an Indiana limited partnership
that owns Hoosier Park racetrack and related OTBs. Upon closing, the
Company will retain a 51% interest in HPLP and continue to manage its
day-to-day operations. Centaur, which already owned a portion of HPLP
prior to the agreement, will then hold a 39% minority interest in HPLP.
The transaction is subject to certain closing conditions, including the
approval of the Indiana Horse Racing Commission and various regulatory
agencies. The agreement also contains a provision under which Centaur has
the right to purchase our remaining interest at any time prior to July 31,
2001. Upon failure of Centaur to exercise this provision both parties will
have an opportunity to purchase the other's remaining interest. Closing is
expected during the second quarter of 2000.
11
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CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 gaming competition (including lotteries and riverboat,
cruise ship and land-based casinos) and other sports and entertainment options
in those markets in which we operate; a substantial change in law or regulations
affecting our pari-mutuel activities; a substantial change in allocation of live
racing days; a decrease in riverboat admissions revenue from our Indiana
operations; the impact of an additional racetrack near 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 continued ability to
grow our share of the interstate simulcast market; the impact of interest rate
fluctuations; 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; 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 racing 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 Hollywood Park, a
Thoroughbred racetrack in Inglewood, California ("Hollywood Park"); Calder Race
Course, a Thoroughbred racetrack in Miami, Florida, which owns racing licenses
held by Calder Race Course, Inc. and Tropical Park, Inc. ("Calder Race Course");
and Ellis Park, a Thoroughbred racetrack in Henderson, Kentucky ("Ellis Park").
Additionally, we are the majority owner and operator of Hoosier Park
at Anderson in Anderson,
12
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CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Indiana, which conducts Thoroughbred, Quarter Horse and Standardbred horse
racing ("Hoosier Park"). Hoosier Park is owned by Hoosier Park, LP ("HPLP"), an
Indiana limited partnership. We have entered into a definitive agreement with
Centaur, Inc. ("Centaur") to sell a 26% interest in Hoosier Park, LP for a
purchase price of $8.5 million. Upon closing, we will retain a 51% interest in
Hoosier Park and continue to manage its day-to-day operations. Centaur, which
already owned a portion of HPLP prior to the agreement, will then hold a 39%
minority interest in HPLP. The transaction is subject to certain closing
conditions, including the approval of the Indiana Horse Racing Commission
("IHRC") and various regulatory agencies, and closing is expected during the
second quarter of 2000. We also conduct simulcast wagering on horse racing at
our off-track betting facilities (OTBs) located in Louisville, Kentucky, and in
Indianapolis, Merrillville and Fort Wayne, Indiana, as well as at our
racetracks.
Because of the seasonal nature of our business and recent acquisition activity,
revenues and operating results for any interim quarter are likely 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. We
normally earn a substantial portion of our net earnings in the second quarter of
each year during which four of our five racetracks are open, and the Kentucky
Derby and the Kentucky Oaks are run. The Kentucky Derby and the Kentucky Oaks
are run on the first weekend in May.
Our primary source of revenue is commissions on pari-mutuel wagering at our
racetracks and OTBs. Other sources of revenue include simulcast fees, Indiana
riverboat admissions subsidy revenue, lease income, admissions and concessions
revenue.
In Kentucky, two pieces of legislation significant to our operations were passed
in the 2000 session of the Kentucky General Assembly. First, an excise tax
credit for racetracks was included in the 2000-2002 Kentucky state budget. The
measure calls for a two-year phase-in of a graduated excise tax, with live
on-track daily handle of $1.2 million and below to be taxed at 2.5% and handle
in excess of $1.2 million to be taxed at 3.5%. Under previous Kentucky law,
tracks with average daily handle of $1.2 million and above, such as Churchill
Downs, were taxed at a flat rate of 3.5%. This credit of nearly $1.4 million in
new revenue is earmarked for horsemen's incentives and necessary capital
improvements at Churchill Downs racetrack over the next two years. Though this
legislation is set to expire in 2002, we are hopeful that a permanent 2% tax
reduction can be passed by 2002.
The Kentucky General Assembly also enacted legislation that eliminates the
excise tax on Breeders' Cup Championship Day wagering at the Kentucky track that
hosts the event. This legislation is aimed at attracting the Breeders' Cup to
Kentucky, and Churchill Downs, on a more frequent basis. In 1998, Breeders' Cup
Day wagering at Churchill Downs totaled $13.4 million and generated excise taxes
of approximately $315,000. This tax exemption will not become effective until
January 1, 2001, and therefore will not apply to the 2000 Breeders' Cup at
Churchill Downs. The exemption will continue if the Breeders' Cup returns to
Kentucky within three years of the previously held event.
13
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CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
Pari-mutuel wagering information, including intercompany transactions, for our
five live racing facilities and four separate OTBs, which are included in their
respective racetracks, during the three months ended March 31, 2000 and 1999 is
as follows ($ in thousands):
Churchill Hollywood Calder Race Hoosier Ellis
Downs Park* Course* Park Park
Live Racing
2000 handle - - $3,114 - -
2000 no. of days - - 2 - -
1999 handle - - $3,105 - -
1999 no. of days - - 2 - -
Export simulcasting
2000 handle - - $12,252 - -
2000 no. of days - - 2 - -
1999 handle - - $11,915 - -
1999 no. of days - - 2 - -
Import simulcasting
2000 handle $40,704 $86,362 - $35,758 $11,401
2000 no. of days 78 65 - 299 91
1999 handle $41,517 $79,888 - $33,972 $11,538
1999 no. of days 77 64 - 284 90
Totals
2000 handle $40,704 $86,362 $15,366 $35,758 $11,401
1999 handle $41,517 $79,888 $15,020 $33,972 $11,538
* Pari-mutuel wagering information is provided for the three months ended March
31, 2000 and 1999. Although the summary reflects handle for the first quarter of
2000 and 1999 as if the acquisitions had taken place at the beginning of the
year, only revenues generated since the subsidiaries' acquisition dates have
been included in the Company's consolidated statements of earnings.
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CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net Revenues
Net revenues during the three months ended March 31, 2000 increased $8.0 million
(45%) from $17.7 million in 1999 to $25.6 million in 2000. The increase was
primarily due to revenues contributed by the prior year acquisitions of Calder
Race Course of $1.9 million and Hollywood Park of $5.8 million. Other segments,
including Churchill Downs, Hoosier Park, Ellis Park and other operations,
comprised the remaining $0.3 million of the increase.
Operating Expenses
Operating expenses increased $11.8 million (62%) from $19.2 million in 1999 to
$31.0 million in 2000. Calder Race Course and Hollywood Park incurred 2000
operating expenses of $3.8 million and $7.4 million, respectively, versus none
in the first three months of 1999. Other segments, including Churchill Downs,
Hoosier Park, Ellis Park and other operations, comprised the remaining $0.6
million of the increase.
Gross Loss
Gross loss increased $3.9 million from $1.5 million loss in 1999 to $5.4 million
loss in 2000. The increased loss was primarily due to a $1.9 million and $1.6
million increase in gross loss from Calder Race Course and Hollywood Park,
respectively. Gross losses were incurred as a result of only 2 days of live
racing during the first quarter. Live racing will begin at four of our five
racetracks during the second quarter.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased by $2.9 million
(87%) from $3.3 million in 1999 to $6.2 million in 2000. Calder Race Course and
Hollywood Park contributed $1.0 million each to this increase. SG&A expenses at
Churchill Downs increased $1.0 million (48%) due primarily to increased
corporate staffing reflecting the Company's strengthened corporate services to
meet the needs of new business units.
Other Income and Expense
Interest expense increased $3.3 million from $0.4 million in 1999 to $3.7
million in 2000 primarily as a result of borrowings to finance the acquisitions
of Calder Race Course and Hollywood Park in 1999.
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CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Income Tax Provision
Our income tax benefit increased by $4.2 million from $2.0 million in 1999 to
$6.2 million in 2000 primarily as the result of an increase in pre-tax loss of
$9.9 million. The effective income tax rate increased from 40.3% in 1999 to
41.5% in 2000 due primarily to non-deductible amortization expense related to
the acquisitions of Calder Race Course and CBT.
Significant Changes in the Balance Sheet March 31, 2000 to December 31, 1999
Accounts receivable balances decreased by $11.7 million in 2000 primarily due to
the collection of 1999 live meet receivables for Hollywood Park, Calder Race
Course, Churchill Downs and Hoosier Park with decreases in accounts receivables
of $4.0 million, $2.8 million, $2.3 million and $2.2 million, respectively.
Income taxes receivable increased $5.8 million as a result of the estimated
income tax benefit (receivable) associated with the quarterly net loss.
Accrued liabilities decreased $9.6 million primarily due to the decrease of
horseman accounts and purses payable related to live racing at Calder Race
Course.
Dividends payable decreased $4.9 million at March 31, 2000 due to the payment of
dividends (declared in 1999) in the first quarter 2000.
Deferred revenue increased $7.7 million at March 31, 2000, primarily due to
Churchill Downs increase of $7.6 million for the collection of revenues for
corporate sponsor event tickets, season box and membership sales and future
wagering related to the 2000 Kentucky Derby and Kentucky Oaks race days held in
the second quarter of 2000.
Significant Changes in the Balance Sheet March 31, 2000 to March 31, 1999
The net plant and equipment increase of $190.9 million included $186.1 million
for the acquisitions of Hollywood Park and Calder Race Course. The remaining
increase was due to capital spending offset by depreciation expense, including
$2.9 million for the expansion of Churchill Downs' main entrance and corporate
offices which is expected to be completed in spring 2000.
Intangible assets increased $50.4 million primarily a result of the addition of
approximately $48.3 million of net goodwill due to the acquisition of Calder
Race Course. In addition, deferred financing costs of $3.1 million related to
our $250 million revolving loan facility are included. These increases were
partially offset by amortization expense of $2.2 million since the first quarter
of 1999.
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CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Accrued liabilities increased $8.9 million primarily as a result of increases of
$3.4 million and $2.2 million for Hollywood Park and Calder Race Course,
respectively.
The long-term debt increase of $153.8 million was due primarily to line of
credit borrowings used to fund the acquisitions of Hollywood Park and Calder
Race Course.
Deferred income tax liabilities increased by $8.5 million primarily as a result
of the Calder Race Course acquisition during the second quarter of 1999.
Common stock increased by $62.7 million primarily due to $62.1 million in net
proceeds received from our public offering during the third quarter of 1999.
Liquidity and Capital Resources
The working capital deficiency was $17.0 million and $8.4 million for the three
months ended March 31, 2000 and 1999, respectively, reflecting the seasonality
of our businesses. The prior year acquisitions of Calder Race Course and
Hollywood Park contributed $10.4 million and $2.9 million, respectively, to the
consolidated working capital deficiency for the three months ended March 31,
2000. Cash flows (used in) provided by operations were $(4.4) and $7.8 million
for the three months ended March 31, 2000 and 1999, respectively. Management
believes cash flows from operations and available borrowings during 2000 will be
sufficient to fund our cash requirements for the year, including capital
improvements and future acquisitions.
Cash flows used in investing activities were $5.3 and $5.5 million for the three
months ended March 31, 2000 and 1999, respectively. The $5.5 million in 1999 is
comprised of the $2.9 million acquisition of a majority interest in CBT during
the first quarter and $2.6 million in capital spending at our facilities.
Capital spending of $5.3 million in 2000 is $2.9 million greater than 1999 and
is primarily the result of capital spending at Calder Race Course and Hollywood
Park. The capital additions for all locations, including the expansion of
Churchill Downs' main entrance corporate offices, are expected to approximate
$16.6 million for 2000.
Cash flows (used in) provided by financing activities were $(10.8) and $3.9
million for the three months ended March 31, 2000 and 1999, respectively. We
borrowed $7.0 million and repaid $12.7 million on our line of credit during
2000.
In April 1999, our total line of credit was increased to $250 million under a
revolving loan facility, of which $172.3 million was outstanding at March
31, 2000. This credit facility replaced a $100 million line of credit obtained
during the third quarter of 1998. The new facility is collateralized by
substantially all of our assets. This credit facility is intended to provide
funds for acquisitions and to meet working capital, capital expenditures and
other short-term requirements. Proceeds from the sale of KHC were used to repay
$2.0 million of this credit facility during the second quarter of 2000. In
addition, proceeds from the pending sale of a portion of our interest in
Hoosier Park are expected to be used to repay a portion of this credit facility.
The new revolving loan facility matures in 2004.
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CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Impact of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivatives and Hedging Activities (SFAS 133), which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS 133, as amended by SFAS 137, is
effective for the Company's year ending December 31, 2001. Management of the
Company is currently analyzing the impact of SFAS 133 but anticipates that the
adoption of SFAS 133 will not have a material effect on the Company's results of
operations or financial position.
On December 3, 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. SAB 101 summarizes some of the staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
All registrants are expected to apply the accounting and disclosure requirements
that are described in SAB 101 no later than the second quarter of the fiscal
year beginning after December 15, 1999. Management of the Company is currently
analyzing the impact of SAB 101 but anticipates that the adoption of SAB 101
will not have a material effect on the Company's results of operations or
financial position.
Subsequent Events
On April 21, 2000, Keeneland Association, Inc. ("Keeneland") purchased our
Thoroughbred training and boarding facility known as Kentucky Horse Center
("KHC"). Keeneland purchased KHC for a cash payment of $5 million. Proceeds from
the sale were used to repay our line of credit and to fund operating expenses
and capital expenditures during the second quarter of 2000.
We have also entered into a definitive agreement with Centaur, Inc. ("Centaur")
to sell a 26% interest in Hoosier Park, LP ("HPLP") for a purchase price of $8.5
million. HPLP is an Indiana limited partnership that owns Hoosier Park racetrack
and related OTBs. Upon closing, we will retain a 51% interest in HPLP and
continue to manage its day-to-day operations. Centaur, which already owned a
portion of HPLP prior to the agreement, will then hold a 39% minority interest
in HPLP. The transaction is subject to certain closing conditions, including the
approval of the IHRC and various regulatory agencies. The agreement also
contains a provision under which Centaur has the right to purchase our remaining
interest at any time prior to July 31, 2001. Upon failure of Centaur to exercise
this provision both parties will have an opportunity to purchase the other's
remaining interest. Closing is expected during the second quarter of 2000.
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CHURCHILL DOWNS INCORPORATED
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
At March 31, 2000, we had $172.3 million of debt outstanding
under our revolving loan facility, which bears interest at LIBOR
based variable rates. We are exposed to market risk on variable
rate debt due to potential adverse changes in the LIBOR rate.
Assuming the outstanding balance on the revolving loan facility
remains constant, a one percentage point increase in the LIBOR
rate would reduce annual pre-tax earnings and cash flows by $1.7
million.
In order to mitigate a portion of the market risk associated with
our variable rate debt, we have entered into interest rate swap
contracts with major financial institutions. Under the terms of
the contracts we receive a LIBOR based variable interest rate and
pay a fixed interest rate of 5.89% on a notional amount of $35.0
million, which matures in August 2000 and 7.015% on a notional
amount of $35.0 million, which matures in March 2003. Assuming
the March 31, 2000 notional amounts under the interest rate swap
contracts remain constant, a one percentage point increase in the
LIBOR rate would increase annual pre-tax earnings and cash flows
by $0.7 million.
In early May 2000, we entered into a 2-year interest rate swap in
which we pay a fixed interest rate of 7.30% on a notional amount
of $35.0 million. Management plans to engage in further interest
rate swap agreements in the future to protect our interest rate
exposure.
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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
Not Applicable
ITEM 5. Other Information
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K.
A. Exhibits
See exhibit index on page 22.
B. Reports on Form 8-K
Not Applicable
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
May 15, 2000 \s\Thomas H. Meeker
Thomas H. Meeker
President and Chief Executive Officer
(Director and Principal Executive Officer)
May 15, 2000 \s\Robert L. Decker
Robert L. Decker
Executive Vice President and Chief Financial
Officer
(Principal Financial Officer)
May 15, 2000 \s\Michael E. Miller
Michael E. Miller
Senior Vice President, Finance
(Principal Accounting Officer)
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EXHIBIT INDEX
Numbers Description By Reference To
(2) Partnership Interest Purchase Agreement Exhibit (2)(h) to Report
dated as of February 16, 2000 by and on Form 10-K for the year
among Anderson Park, Inc., Churchill ended December 31, 1999
Downs Management Company and
Centaur, Inc.
(3) Restated Bylaws of Churchill Downs Page 23, Report on Form
Incorporated as amended 10-Q for the fiscal
quarter ended March 31, 2000
(10) Third Amendment, Waiver and Consent to Exhibit (10)(c) to Report on
$250,000,000 Revolving Credit Facility Form 10-K for the year
Credit Agreement dated ended December 31, 1999
February 23, 2000
(27) Financial Data Schedule for the fiscal Page 38, Report on Form 10-Q
quarter ended March 31, 2000 for the fiscal quarter
ended March 31, 2000
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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
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the place of meeting for any annual meeting of stockholders, or any place either
within or without the State of Kentucky as the place of meeting for any special
meeting called by the Board of Directors.
If no designation is made, or if a special meeting be called by
other than the Board of Directors, the place of meeting shall be the principal
office of the Corporation in the State of Kentucky.
SECTION 4. NOTICE OF MEETINGS. Written notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
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
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stockholders entitled to vote at any meeting of stockholders or
to receive any dividend.
SECTION 7. QUORUM. A majority of the outstanding shares entitled
to vote, represented in person or by proxy, shall constitute a quorum at any
meeting of stockholders. The stockholders present at a duly organized meeting
can continue to do business at any adjourned meeting, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 8. PROXIES. At all meetings of stockholders, a
stockholder may vote by proxy. An appointment of a proxy shall be executed in
writing by the stockholder or by his duly authorized attorney-in-fact and be
filed with the Secretary of the Corporation before or at the time of the
meeting.
SECTION 9. NATURE OF BUSINESS. At any meeting of stockholders,
only such business shall be conducted as shall have been brought before the
meeting by or at the direction of the Board of Directors or by any stockholder
who complies with the procedures set forth in this Section 9.
No business may be transacted at any meeting of stockholders,
other than business that is either (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before such meeting of stockholders by or at the
direction of the Board of Directors, or (c) in the case of any annual meeting of
stockholders or a special meeting called for the purpose of electing directors,
otherwise properly brought before such meeting by any stockholder (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 9 and on the record date for the determination of stockholders
entitled to vote at such meeting of stockholders and (ii) who complies with the
notice procedures set forth in this Section 9.
In addition to any other applicable requirements, for business to
be properly brought before any annual meeting of stockholders by a stockholder,
or for a nomination of a person to serve as a Director, to be made by a
stockholder, such stockholder must have given timely notice thereof in proper
written form to the Secretary.
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To be timely, a stockholder's notice to the Secretary must be
delivered or mailed to and be received at the principal executive offices of the
Corporation (a) in the case of the annual meeting of stockholders, not less than
ninety(90) nor more than one hundred and twenty (120) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting of stockholders is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder, in order to be timely, must be so
received not later than the close of business on the tenth (10th) day following
the day on which notice of the date of the annual meeting of stockholders was
mailed or public disclosure of the date of such meeting was made, whichever
first occurs; and (b) in the case of a special meeting of stockholders called
for the purpose of electing directors, not later than the close of business on
the tenth (10th) day following the day on which notice of the date of the
special meeting of stockholders was mailed or public disclosure of the date of
such meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter (including nominations) such
stockholder proposes to bring before the meeting of stockholders (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting the business at the meeting, (b) the name and record
address of such stockholder, (c) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record by
such stockholder as of the record date for the meeting (if such date shall then
have been made publicly available and shall have occurred) and as of the date of
such notice, (d) a description of all arrangements or understandings between
such stockholder and any other person or persons (including their names) in
connection with the proposal of such business by such stockholder and any
material interest of such stockholder in such business, (e) as to each person
whom the stockholder proposes to nominate for election as a director (i) the
name, age, business address and residence address of the person and (ii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by the person as of the record date for the
meeting (if such date shall then have been made publicly available and shall
have occurred) and as of the date of such notice, (f) any other
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information which would be required to be disclosed in a proxy statement or
other filings required to be made in connection with the solicitations of
proxies for the proposal (including, if applicable, with respect to the election
of directors) pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder if such
stockholder were engaged in such solicitation, and (g) a representation that
such stockholder intends to appear in person or by proxy at the meeting to bring
such business before the meeting. Any notice concerning the nomination of a
person for election as a director must be accompanied by a written consent of
the proposed nominee to being named as a nominee and to serve as a director if
elected.
No business shall be conducted and no person shall be eligible for
election as a Director at any annual meeting of stockholders or a special
meeting of stockholders called for the purpose of electing directors except
business or nominations brought before such meeting in accordance with the
procedures set forth in this Section 9; provided, however, that, once business
has been properly brought before the meeting in accordance with such procedures,
nothing in this Section 9 shall be deemed to preclude discussion by any
stockholder of any such business. If the chairman of the meeting of stockholders
determines that business was not properly brought before such meeting, or a
nomination was not properly 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 twelve (12) 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 four
(4) Class III
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Directors. Each director shall hold office for a term of three (3) 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
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shall be deemed delivered upon receipt. Any Director may waive notice of any
meeting. The attendance of a Director at any meeting shall constitute a waiver
of notice of such meeting, except when a Director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
SECTION 6. QUORUM. A majority of the Board of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, provided that if less than a majority of the Directors are present
at said meeting, a majority of the Directors present may adjourn the meeting
from time to time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the
Directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 8. VACANCIES. Any vacancy occurring in the Board of
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 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.
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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, Article III, Section 5, of these Bylaws.
ARTICLE V
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OFFICERS
SECTION 1. CLASSES. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a
Treasurer and such other officers and agents as may be provided by the Board and
elected in accordance with the provisions of this Article. Any of the offices
may be combined in one person in accordance with the provisions of law. The
Chairman of the Board of Directors shall be a member of the Board but none of
the other officers is required to be a member of the Board.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually by the Board of Directors at the first meeting of the
Board held after each annual meeting of stockholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as convenient. Vacancies may be filled or new offices created and
filled at any meeting of the Board of Directors. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified or
until his death or until he shall resign or shall have been removed from office
in the manner hereinafter provided.
SECTION 3. REMOVAL. Any officer elected by the Board of Directors
may be removed by the President whenever in his judgment the best interest of
the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed and shall be
subject always to supervision and control of the Board of Directors. Election or
appointment of an officer or agent shall not of itself create contractual
rights.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors shall call to order and preside at all stockholders' meetings and at
all meetings of the Board of Directors. He shall perform such other duties as he
may be authorized to perform by the Board of Directors.
SECTION 5. PRESIDENT. The President shall be the chief executive
officer of the Corporation and as such shall in general supervise and control
all of the business operations and affairs of the Corporation. In the absence of
32
<PAGE>
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
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
33
<PAGE>
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.
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.
34
<PAGE>
SECTION 3. CHECKS, DRAFTS, ORDERS, ETC. All checks, drafts or
other orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents, of the Corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies, or other depositories as the Board of Directors
may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing
shares of the Corporation shall be in such form as may be determined by the
Board of Directors. Such certificates shall be signed by the President or Vice
President and by the Secretary or an assistant Secretary and may be sealed with
the seal of the Corporation of a facsimile thereof. All certificates surrendered
to the Corporation for transfer shall be canceled, and no new certificate shall
be issued until the former certificate for all like number of shares shall have
been surrendered and cancelled, except that in case of a lost, destroyed or
mutilated certificate, a new one may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof or by his attorney authorized by power of attorney duly executed
and filed with the Secretary of the Corporation, and on surrender for
cancellation of the certificate for such shares. The person in whose name shares
stand on the books of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation.
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.
35
<PAGE>
ARTICLE IX
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions
of these Bylaws, or under the provisions of the Articles of Incorporation, or
under the provisions of the corporation laws of the State of Kentucky, waiver
thereof in writing, signed by the person, or persons, entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE X
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Corporation shall indemnify and may advance expenses to all
Directors, officers, employees, or agents of the Corporation, and their
executors, administrators or heirs, who are, were or are threatened to be made a
defendant or respondent to any threatened, pending or completed action, suit or
proceedings (whether civil, criminal, administrative or investigative) by reason
of the fact that he is or was a Director, officer, employee or agent of the
Corporation, or while a Director, officer, employee or agent of the Corporation,
is or was serving the Corporation or any other legal entity in any capacity at
the request of the Corporation (hereafter a "Proceeding"), to the fullest extent
that is expressly permitted or required by the statutes of the Commonwealth of
Kentucky and all other applicable law.
In addition to the foregoing, the Corporation shall, by action of
the Board of Directors, have the power to indemnify and to advance expenses to
all Directors, officers, employees or agents of the Corporation who are, were or
are threatened to be made a defendant or respondent to any Proceeding, in such
amounts, on such terms and conditions, and based upon such standards of conduct
as the Board of Directors may deem to be in the best interests of the
Corporation.
ARTICLE XI
36
<PAGE>
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.
37
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