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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For year ended December 31, 1999
[ ] 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, KENTUCKY 40208
Address of principal executive offices Zip Code
Registrant's telephone number, including area code 502-636-4400
Securities registered pursuant to Section 12(b) of the Act:
None None
Title of each class registered Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Title of class
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 and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. (_________)
As of March 15, 2000, 9,853,627 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of the shares held by nonaffiliates
of the Registrant was $127,000,000.
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on June 22, 2000 are incorporated by reference herein in
response to Items 10, 11, 12 and 13 of Part III of Form 10-K. The exhibit index
is located on pages 57 to 60.
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PART I
ITEM 1. BUSINESS
A. INTRODUCTION
Churchill Downs Incorporated (the "Company") is a racing company that primarily
conducts 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 business interests. We were organized as a Kentucky
corporation in 1928. Our principal executive offices are located at 700 Central
Avenue, Louisville, Kentucky, 40208.
We own and operate our flagship operation, Churchill Downs racetrack, in
Louisville, Kentucky ("Churchill Downs"). Churchill Downs has conducted
Thoroughbred racing continuously since 1875 and is internationally known as home
of the Kentucky Derby. The Churchill Downs operation also encompasses the
Churchill Downs Sports Spectrum ("Louisville Sports Spectrum"), an off-track
betting facility ("OTB").
Churchill Downs Management Company ("CDMC"), a wholly owned subsidiary, oversees
and manages our other racing operations. CDMC oversees Calder Race Course, Inc.
and Tropical Park, Inc. which hold licenses to conduct Thoroughbred horse racing
at Calder Race Course, a Thoroughbred racetrack in Miami, Florida ("Calder Race
Course"). In addition, CDMC oversees Hollywood Park Race Track, a Thoroughbred
racetrack in Inglewood, California ("Hollywood Park"). Calder Race Course and
Hollywood Park were acquired in April 1999 and September 1999, respectively.
CDMC also oversees Ellis Park Race Course ("Ellis Park"), a Thoroughbred track
in Henderson, Kentucky, and Kentucky Horse Center in Lexington, Kentucky
("KHC"). We acquired ownership of these two facilities in April 1998. We have
entered into a definitive agreement with Keeneland Association, Inc.
("Keeneland"), a Lexington, Kentucky racetrack, whereby Keeneland will purchase
the assets of KHC for a cash payment of $5 million. The sale is subject to
certain closing conditions, and closing is expected during the second quarter of
2000.
Additionally, CDMC manages Hoosier Park at Anderson in Anderson, Indiana
("Hoosier Park"). Hoosier Park conducts Thoroughbred, Quarter Horse and
Standardbred horse racing. Hoosier Park is owned by Hoosier Park, LP ("HPLP"),
an Indiana limited partnership. Anderson Park, Inc. ("Anderson"), a wholly owned
subsidiary of CDMC, is the sole general partner of HPLP,and currently owns a 77%
interest in HPLP. The remaining 23% of HPLP is held by unrelated third parties,
Centaur, Inc. ("Centaur"), and Conseco HPLP, LLC ("Conseco"). We have entered
into a definitive agreement with Centaur to sell an additional 26% interest in
HPLP for a purchase price of $8.5 million. 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. CDMC also manages three Churchill Downs
Sports Spectrum facilities ("Indiana Sports Spectrum") in Indiana owned by
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Hoosier Park. These OTBs conduct simulcast wagering on horse racing year-round.
We formed Churchill Downs Investment Company ("CDIC"), a wholly owned
subsidiary, to oversee other industry related investments. In 1999, we completed
the purchase of a 60% ownership interest in Charlson Broadcast Technologies, LLC
("CBT"), a privately held company that provides simulcast graphic software and
video services to racetracks and OTBs.
Other investments owned by CDIC include a 35 percent interest in EquiSource, LLC
("EquiSource"), a procurement business that assists in the group purchasing of
supplies and services for the equine industry, and a 30 percent interest in
NASRIN Services, LLC ("NASRIN"), a telecommunications service provider for the
pari-mutuel and simulcasting industries. In March 1999, CDIC and Autotote
Services, Inc. ("Autotote") formed NASRIN, which is managed on a day-to-day
basis by Autotote. Currently, neither NASRIN nor EquiSource is a material
investment for us.
CDIC also holds a 24 percent minority interest investment in Kentucky Downs, LLC
("Kentucky Downs"), a Franklin, Kentucky, racetrack that conducts a very limited
Thoroughbred race meet with 7 live racing days in late September as well as
year-round simulcasting. Turfway Park LLC ("Turfway"), a Florence, Kentucky,
racetrack, also holds a minority interest in Kentucky Downs and manages its
day-to-day operations. In April 1999, Keeneland ; Dreamport, Inc., a wholly
owned subsidiary of GTECH Corporation; and Dusty Corporation, a wholly owned
subsidiary of Harrah's Entertainment, Inc., through a jointly owned company,
acquired all of Turfway's racetrack-related assets. It is not believed that this
transaction will have a material effect on the management of Kentucky Downs. Our
investment in Kentucky Downs is not material to the Company's operations at this
time.
In February 2000, we announced the creation of a national branding program for
our expanding network of racetracks and OTBs. We have unveiled a new corporate
logo that will be applied consistently to all the CDI racetracks and off-track
betting facilities.
B. LIVE RACING OPERATIONS
We conduct live horse racing at Churchill Downs, Hollywood Park, Calder Race
Course, Hoosier Park and Ellis Park during each track's respective meets. Live
racing produces revenues through pari-mutuel wagering at our racetracks and
OTBs, simulcast fees, admissions and concessions revenue.
The Kentucky Derby and the Kentucky Oaks, both held at Churchill Downs, continue
to be our premier racing events. The Kentucky Derby offers a minimum$1.0 million
in purse money and the Kentucky Oaks offers a minimum $0.5 million in purse
money. Calder Race Course is home to The Festival of the Sun, Florida's richest
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day in Thoroughbred racing offering approximately $1.5 million in total purse
money. Hollywood Park is home to the Sempra Energy Hollywood Gold Cup, which
offers $1.0 million in purse money. Hollywood Park's Autumn Meet is highlighted
by the annual $2.1 million Autumn Turf Festival, comprised of six graded stakes
races. Other races that make us unique are the Indiana Derby for Thoroughbreds
and the Dan Patch Invitational for Standardbreds held at Hoosier Park, as well
as the Gardenia Stakes for older fillies and mares held at Ellis Park.
Churchill Downs hosted the Breeders' Cup Championship ("Breeders' Cup") in 1988,
1991, 1994 and 1998, and will host the event for a record fifth time on November
4, 2000. Hollywood Park has also hosted the Breeders' Cup in 1984, 1987 and
1997. The Breeders' Cup is sponsored by Breeders' Cup Limited, a tax-exempt
organization chartered to promote Thoroughbred racing and breeding. The
Breeders' Cup races, which feature $13.0 million in purses, are held annually
for the purpose of determining Thoroughbred champions in eight different events.
Racetracks across North America compete for the privilege of hosting the
Breeders' Cup races each year. Although most of the income earned from this
event is allocated to Breeders' Cup Limited, hosting the 1998 event had a
positive impact on our 1998 results, and hosting the event in 2000 is expected
to have a positive impact on our 2000 results.
Churchill Downs
We own the Churchill Downs racetrack site and improvements located in
Louisville, Kentucky ("Churchill facility"). The Churchill facility consists of
approximately 147 acres of land with a one-mile oval dirt track, a seven-eighths
(7/8) mile turf track, permanent grandstands and a stabling area. The facility
includes clubhouse and grandstand seating for approximately 48,500 persons, a
state-of- the-art simulcast wagering facility designed to accommodate 450
persons, a general admission area, and food and beverage facilities ranging from
fast food to full-service restaurants. The site also has a saddling paddock,
infield accommodations for groups and special events, parking areas for the
public, and our office facilities. The backside stable area has barns sufficient
to accommodate approximately 1,400 horses, a new 114 room dormitory completed
during 1999 and other facilities for backstretch personnel.
To supplement the facilities at Churchill Downs we provide additional stabling
facilities sufficient to accommodate 500 horses and a three-quarter (3/4) mile
dirt track, which is used for training Thoroughbreds, at the Louisville Sports
Spectrum. The facilities provide a year-round base of operation for many
horsemen and enable us to attract new horsemen to race at Churchill Downs.
We have made numerous capital improvements to the Churchill facility during the
last 10 years in order to better serve our horsemen and patrons. We are in the
process of constructing a $4.9 million expansion of Churchill Downs' main
entrance and expansion of our corporate offices. This project is expected to be
completed spring of 2000.
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Hollywood Park
We own the Hollywood Park Race Track and the Hollywood Park Casino site and
improvements located in Inglewood, California ("Hollywood Park facility"). The
Hollywood Park facility consists of approximately 240 acres of land upon which
the racetrack and casino are located with a one and one-eighth mile (1 1/8) oval
dirt track, a one-mile oval turf track, permanent grandstands and stabling area.
The facility includes clubhouse and grandstand seating for 16,675 persons, a
general admission area, a saddling paddock area and food and beverage facilities
ranging from fast food to full-service restaurants. The stabling area consists
of stalls to accommodate approximately 2,000 horses, tack rooms, feed rooms, a
federally approved quarantine facility, a half-mile oval training track, and a
not-for-profit Equine Teaching Hospital and Research Center operated under the
direction of the Southern California Equine Foundation. The Hollywood Park
facility also features parking areas for the public and office facilities.
The Hollywood Park Casino is a state-of-the-art facility which is open 24 hours
a day, 365 days a year. The casino features more than 150 gaming tables offering
a variety of California approved casino games. Under California gaming law, the
casino is a card club. Thus, it is not authorized to operate slot machines or
video lottery terminals but instead rents its tables to casino patrons for a
seat fee charged on a per hand basis. The casino also offers facilities for
simulcast wagering. We lease the facility to Pinnacle Entertainment, Inc.,
formerly Hollywood Park Inc., under a ten-year lease for an annual rent of $3.0
million and, therefore, do not operate the casino. The lease includes a ten-year
renewal option and is subject to an adjustment to the rent at the time the
option is exercised.
We are also in the process of making a number of capital improvements to the
Hollywood Park facility in order to better serve our horsemen and patrons in
Southern California.
Calder Race Course
We own the Calder Race Course racetrack and improvements located in Miami,
Florida ("Calder Race Course facility"). The Calder Race Course facility is
adjacent to Pro Player Stadium, home of the Florida Marlins and Miami Dolphins.
The Calder Race Course facility consists of approximately 220 acres of land with
a one-mile dirt track, a seven-eighths (7/8) mile turf track, a training area
with a five-eighths (5/8) mile training track, permanent grandstand and a
stabling area. The facility includes clubhouse and grandstand seating for
approximately 15,000 persons, a general admission area, and food and beverage
facilities ranging from fast food to full-service restaurants. The stable area
consists of a receiving barn, feed rooms, tack rooms, detention barns and
living quarters and can accommodate approximately 1,800 Thoroughbreds. The
Calder Race Course facility also features a saddling paddock, parking areas for
the public and office facilities.
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Ellis Park Race Course
We own the Ellis Park racetrack and improvements located in Henderson, Kentucky
("Ellis Park facility"). The Ellis Park facility consists of approximately 230
acres of land just north of the Ohio River with a one and one-eighths (1 1/8)
mile dirt track, a one-mile turf course, permanent grandstands and a stabling
area for 1,290 horses. The facility includes clubhouse and grandstand seating
for 8,000 people, a general admission area, and food and beverage facilities
ranging from fast food to full-service restaurants. The Ellis Park facility also
features a saddling paddock, parking areas for the public and office facilities.
Hoosier Park
Hoosier Park is located in Anderson, Indiana, about 40 miles northeast of
downtown Indianapolis ("Hoosier Park facility"). Hoosier Park leases the land
under a long-term lease with the city of Anderson and owns all of the
improvements on the site. The Hoosier Park facility consists of approximately
110 acres of leased land with a seven-eighths (7/8) mile oval dirt track,
permanent grandstands and stabling area. The facility includes seating for
approximately 2,400 persons, a general admission area, and food and beverage
facilities ranging from fast food to a full-service restaurants. The site also
has a saddling paddock, parking areas for the public and office facilities. The
stable area has barns sufficient to accommodate 780 horses and other facilities
for backstretch personnel.
C. SIMULCAST OPERATIONS
We generate a significant portion of our revenues by sending signals of races
from our racetracks to other facilities and receiving signals from other tracks.
These revenues are earned through pari- mutuel wagering on signals that we both
import and export. Import simulcasting involves receiving a video signal of a
live race at a remote wagering location. Export simulcasting involves sending
the video signal of a live race to a remote wagering location.
Churchill Downs and Calder Race Course conduct simulcast wagering only during
live race meets, while Hollywood Park, Hoosier Park and Ellis Park offer
year-round simulcast wagering. The Louisville Sports Spectrum conducts simulcast
wagering when Churchill Downs is not operating a live race meet with the
exception of Kentucky Oaks Day, Kentucky Derby Day and the immediately following
Sunday. The Indiana Sports Spectrums and the Kentucky Off-Track Betting
facilities conduct simulcast wagering year-round.
During 1999, we initiated the sale of Churchill Downs, Ellis Park, Hoosier Park
and the Kentucky Derby signals as a combined package. Hollywood Park and Calder
Race Course were acquired during 1999, therefore, these signals were sold as
separate products. Starting in 2000, we will combine all of the signals to form
a new product, the Churchill Downs Simulcast Network (CDSN). CDSN will provide
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incentives to encourage OTB operators to purchase the new CDSN product but will
also continue to make individual signals available to OTB operators.
Louisville Sports Spectrum
We own the real property and improvements known as the Louisville Sports
Spectrum, located in Louisville, Kentucky about seven miles from Churchill
Downs. This 100,000-square-foot property, located on approximately 88 acres of
land, is a state-of-the-art OTB and Thoroughbred training annex. The Louisville
Sports Spectrum provides audio and visual technology, seating for approximately
3,000 persons, parking, offices and related facilities for simulcasting races.
The Louisville Sports Spectrum also provides a stabling and training annex for
Churchill Downs.
Indiana Sports Spectrums
Hoosier Park owns and operates three Churchill Downs Sports Spectrum facilities
in Indiana ("Indiana Sports Spectrums"). These OTBs provide a statewide
distribution system for Hoosier Park's racing signal and additional simulcast
markets for our products. The Indiana Sports Spectrum at Merrillville, located
about 30 miles southeast of Chicago, consists of approximately 27,300 square
feet of space. The Indiana Sports Spectrum at Fort Wayne consists of
approximately 15,750 square feet of space. A third Indiana Sports Spectrum is
located in downtown Indianapolis where Hoosier Park leases space for the OTB. In
February 1999, the Indianapolis facility was expanded from approximately 17,500
square feet to 24,800 square feet.
Hoosier Park is continuing to evaluate sites for the location of a fourth
Indiana Sports Spectrum facility. The state of Indiana has enacted legislation
that requires a county's fiscal body to adopt an ordinance permitting OTBs
before such a facility can be located in that county. The ordinance requires
that the voters of the county must approve the operation of an OTB in that
county if the OTB is to be located on public property. The county fiscal body
may require in the ordinance that the voters of the county must approve the
operation of an OTB in that county if the OTB is to be located on private
property. This legislation may affect Hoosier Park's ability to locate its
fourth facility in certain counties.
Kentucky Off-Track Betting, Inc.
In 1992, the Company and three other Kentucky Thoroughbred racetracks formed
Kentucky Off- Track Betting, Inc. ("KOTB"), of which we are a 50% shareholder.
KOTB's purpose is to own and operate facilities for the simulcasting of races
and the acceptance of wagers on such races at locations other than a racetrack.
These OTBs may be located no closer than 75 miles from an existing racetrack
without the track's consent and in no event closer than 50 miles to an existing
track. Each OTB must first be approved by the Kentucky Racing Commission ("KRC")
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and the local government where the facility is to be located. KOTB currently
owns or leases and operates OTBs in Corbin, Maysville, Jamestown, and Pineville,
Kentucky.
OTBs developed by KOTB provide additional markets for the intrastate
simulcasting of and wagering on Churchill Downs' and Ellis Park's live races and
interstate simulcasting of and wagering on out-of-state signals. KOTB did not
contribute significantly to our operations in 1999 and is not anticipated to
have a substantial impact on operations in the future.
In-Home Wagering
Technological innovations have opened the distribution channels for live racing
products to include in-home wagering. Television Games Network ("TVG"), a
subsidiary of TV Guide, Inc., offers high quality live racing video signals in
conjunction with its interactive television wagering system. We have entered
into agreements to broadcast our racetrack simulcast products as part of TVG's
programming content. This new network is anticipated to eventually offer 24-hour
- -a-day programming throughout the United States that will be primarily devoted
to developing new fans for racing. In jurisdictions where lawful, in- home
patrons of TVG can wager on our live races as well as other race signals. As the
originator of the live racing signal, we will receive a simulcast fee on in-home
wagers placed on our races.
In June 1999, the U.S. Justice Department raised concerns whether interactive
wagering conducted through TVG's wagering hub would be legal under existing
federal gambling laws. In addition, certain state attorney generals have
expressed concern over the legality of TVG's business. TVG related revenues are
not material to our operations at this time.
D. OTHER SOURCES OF REVENUE
In addition to revenues from live racing and simulcasting, we generate revenues
from additional sources.
Riverboat Admissions Tax
To compensate for the adverse impact of riverboat competition, the horse
industry in Indiana presently receives $0.65 per $3 admission to riverboats in
the state. By IHRC rule we are required to allocate 70% of any revenue received
from the subsidy directly for purse expenses, breed development and
reimbursement of approved marketing costs. The balance, or 30%, is received by
Hoosier Park as the only horse racetrack currently operating in Indiana. In
November 1999, the Company and the IHRC agreed to a $6.8 million ceiling on
Hoosier Park's share of the subsidy. The ceiling represents a 9% decrease from
the $7.4 million Hoosier Park earned for 1999.
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Kentucky Horse Center
We own the real property and improvements known as Kentucky Horse Center,
located in Lexington, Kentucky ("KHC"). KHC is a Thoroughbred training and
boarding facility. KHC, which sits on 245 acres of land, offers a one-mile dirt
track with a starting gate, a five-eighths (5/8) mile training track and
stabling for 1,100 horses. Additionally, KHC has facilities for meetings and
larger special events, including a 920-seat auditorium known as the Pavilion.
Escorted tours of KHC's training facilities are offered to the public. KHC's
revenues are not material to our operations. We currently have a definitive
agreement to sell KHC in 2000.
Charlson Broadcast Technologies
During 1999 we purchased a majority interest in CBT located in Erlanger,
Kentucky, a Cincinnati, Ohio suburb. CBT provides television production and
computer graphic services to the racing industry. CBT's proprietary software
displays odds, statistical data and other racing information on televisions in
real-time for customers at racetracks and OTBs.
E. LICENSING
Kentucky's racetracks, including Churchill Downs and Ellis Park, are subject to
the licensing and regulation of the KRC. The KRC consists of 11 members
appointed by the governor of Kentucky. Licenses to conduct live Thoroughbred
race meets and to participate in simulcasting are approved annually by the KRC
based upon applications submitted by the racetracks in Kentucky. Although to
some extent Churchill Downs and Ellis Park compete with other racetracks in
Kentucky for the award of racing dates, the KRC is required by state law to
consider and seek to preserve each racetrack's usual and customary live racing
dates. Generally, there is no substantial change from year to year in the racing
dates awarded to each racetrack.
We received approval from the KRC to conduct two live Thoroughbred racing meets
at Churchill Downs from April 29 through July 9, 2000 ("Spring Meet"), and from
October 29 through November 25, 2000 ("Fall Meet"), for a total of 76 days,
excluding the Breeders' Cup on November 4, 2000. The KRC also awarded Ellis
Park approval to conduct live Thoroughbred racing from July 12 through September
4, 2000, for a total of 41 live racing days.
In California, licenses to conduct live Thoroughbred racing and to participate
in simulcasting are approved annually by the California Horse Racing Board based
upon applications submitted by California racetracks. Generally, there is no
substantial change from year to year in the racing dates awarded to each
racetrack. Hollywood Park, which was acquired on September 10, 1999, has been
approved to conduct two live Thoroughbred race meets from April 28 through July
24, 2000 ("Spring/Summer Meet"), and from November 8 through December 24, 2000
("Autumn Meet"), for a total of 100 live racing days.
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In Florida, licenses to conduct live Thoroughbred racing and to participate in
simulcasting are approved by the Department of Business and Professional
Regulation, Division of Pari-Mutuel Wagering ("DPW"). The DPW is responsible for
overseeing the network of state offices located at every pari-mutuel wagering
facility, as well as issuing the permits necessary to operate a pari-mutuel
wagering facility. The DPW also approves annual licenses for Thoroughbred,
Standardbred and Quarter Horse races. Calder Race Course, Inc. and Tropical
Park, Inc., which were acquired on April 23, 1999, hold licenses to conduct two
consecutive live Thoroughbred race meets at Calder Race Course. Calder Race
Course, Inc. was approved for live racing from May 23 through November 2, 2000,
and Tropical Park, Inc. was approved for live racing from November 3, 2000
through January 2, 2001, for a total of 174 days of live racing.
In Indiana, licenses to conduct live Standardbred and Thoroughbred race meets,
including Quarter Horse races, and to participate in simulcasting are approved
annually by the IHRC, which consists of five members appointed by the governor
of Indiana. Licenses are approved annually by the IHRC based upon applications
submitted by Hoosier Park. Currently, Hoosier Park is the only facility in
Indiana licensed to conduct pari-mutuel wagering on live Standardbred, Quarter
Horse or Thoroughbred racing and to participate in simulcasting. The IHRC has
approved Hoosier Park to conduct live Standardbred racing from April 7 through
August 23, 2000, and live Thoroughbred racing from September 8 through December
3, 2000, for a total of 167 live racing dates.
The total number of days on which each racetrack conducts live racing fluctuates
annually according to the calendar year. A substantial change in the allocation
of live racing days at Churchill Downs, Hollywood Park, Calder Race Course,
Hoosier Park or Ellis Park could adversely impact our operations and earnings in
future years.
Service Marks
We hold several state and federal service mark registrations on specific names
and designs in various categories including entertainment business, apparel,
paper goods, printed matter and housewares and glass. We license the use of
these service marks and derive revenue from such license agreements.
F. OTHER FACTORS AFFECTING THE COMPANY'S BUSINESS
North American bloodstock sales climbed again in 1999, continuing a trend that
began in 1995. According to The Blood-Horse magazine, expenditures for
Thoroughbred weanlings, yearlings, two year olds and broodmares totaled $987.5
million in 1999 compared to $816.9 million in 1998, which was the previous
record. Since 1995, the number of Thoroughbred foals born each year has
increased. These increases in Thoroughbred sales and the number of foals are
indicators of a resurgence of the Thoroughbred breeding industry, reversing a
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trend of declines from 1986 to 1995. The increase in the number of Thoroughbreds
enables racetracks to increase the number of horses participating in live
racing.
We generally do not directly compete with other racetracks or OTBs for patrons
due to geographic separation of facilities or differences in seasonal timing of
meets. However, we compete with other sports, entertainment and gaming options,
including riverboat, cruise ship and land-based casinos and lotteries, for
patrons for both live racing and simulcasting (For a further discussion of the
Company's competitive environment, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
We have successfully grown our live racing product and positioned ourselves to
compete by strengthening our flagship operations, increasing our share of the
interstate simulcast market, and geographically expanding our racing operations.
We also continue to seek industry consensus for a plan to allow video lottery
terminals at our racetrack facilities in Kentucky as a means to attract new
patrons and generate additional revenue for purses and capital investment.
G. ENVIRONMENTAL MATTERS
Hollywood Park has received cease and desist orders from the California Regional
Water Quality Control Board addressing storm water runoff and dry weather
discharge issues. We have retained an engineering firm to develop a plan for
compliance and to construct certain drainage and waste disposal systems. As part
of the 1999 asset acquisition of Hollywood Park, the seller has agreed to
indemnify us in the amount of $5.0 million for costs incurred in relation to the
waste water runoff issue. It is not possible at this time to accurately assess
the total potential costs associated with this matter but we do not believe it
will be materially in excess of the indemnification amount.
The septic system at our Ellis Park facility is in need of repair. The cost of
the repairs is not yet known, but we believe it will be less than $400,000.
In 1992, we acquired certain assets of Louisville Downs Incorporated for $5.0
million including the site of the Louisville Sports Spectrum. In conjunction
with this purchase, we withheld $995,000 from the amount due to the sellers
to offset certain costs related to the remediation of environmental
contamination associated with underground storage tanks at the site. All of
the $995,000 hold back had been utilized as of December 31, 1999 and additional
costs of remediation have not yet been conclusively determined. The sellers
have now received a reimbursement from the commonwealth of Kentucky of $995,000
for remediation costs, and that amount is now being held in an escrow account
to pay further costs of remediation. Approximately $1.2 million, including
interest on the escrow principal, remains in the account. The seller has
submitted a corrective action plan to the state and it is anticipated that the
Kentucky Cabinet of Natural Resources will consent to a closure, either with
or without monitoring. In addition to the hold back, we have obtained an
indemnity to cover the full cost of remediation from the prior owner of the
property. We do not believe the cost of further investigation and remediation
will exceed the amount of funds in the escrow.
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In January 1995, Hoosier Park opened the Indiana Sports Spectrum in
Merrillville, Indiana. The 27,300 square-foot facility is designed exclusively
for the simulcast of horse races and pari-mutuel wagering. The Merrillville,
Indiana, facility was subject to contamination related to prior business
operations adjacent to the property. In conjunction with the purchase, Hoosier
Park withheld $50,000 from the amount due to the seller to offset costs related
to remediation of the contamination. In connection with the remediation the
seller received a certificate of completion of the voluntary remediation work
from the Indiana Department of Environmental Management and a covenant not to
sue from the state of Indiana. We believe that any potential loss relating to
this matter will not be material.
It is not anticipated that we will have any material liability as a result of
compliance with environmental laws with respect to any of our properties.
Compliance with environmental laws has not materially affected the ability to
develop and operate our properties and we are not otherwise subject to any
material compliance costs in connection with federal or state environmental
laws.
H. EMPLOYEES
As of December 31, 1999, we employed approximately 1,030 full-time employees
Company-wide. Due to the seasonal nature of our live racing business, the number
of seasonal and part-time persons employed will vary throughout the year. During
1999, peak employment occurred during Kentucky Derby week when we employed as
many as 3,300 persons Company-wide. During 1999, average full-time and seasonal
employment per pay period was approximately 950 individuals Company-wide.
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ITEM 2. PROPERTIES
Information concerning property owned by us required by this Item is
incorporated by reference to the information contained in Item 1. "Business" of
this Report.
Our real and personal property (but not including the property of Hoosier Park,
KOTB or Charlson) is encumbered by liens securing our $250 million line of
credit facility. The shares of stock of certain of our subsidiaries are also
pledged to secure this facility.
The Kentucky Derby Museum is operated on property adjacent to Churchill Downs.
The Museum is owned and operated by the Kentucky Derby Museum Corporation, a
tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code of
1986.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to our business, to which we are a party or of which any
of our property is the subject and no such proceedings are known to be
contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our shareholders during the fourth quarter
of the fiscal year covered by this Report.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our common stock is traded on the National Association of Securities Dealers,
Inc.'s National Market automated quotation system ("Nasdaq") under the symbol
CHDN. As of March 14, 2000, there were approximately 3,350 shareholders of
record.
The following table sets forth the high and low bid quotations, as reported by
Nasdaq, and dividend payment information for our common stock during the last
two years:
1999 - By Quarter 1998 - By Quarter
----------------- -----------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
--- --- --- --- --- --- --- ---
High Bid $38.75 $35.75 $33.63 $26.00 $25.31 $43.25 $41.44 $36.44
Low Bid $26.25 $26.00 $22.50 $20.13 $19.31 $24.00 $27.63 $27.25
Dividend per share: $.50 $.50
Stock quotations and dividend per share amounts reflect retroactive adjustments
for the 2-for-1 stock split with a record date of March 30, 1998.
In July 1999, we issued 2,300,000 shares of common stock at a public offering
price of $29 a share.
Quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not necessarily reflect actual transactions.
We presently expect that comparable annual cash dividends (adjusted for any
stock splits or other similar transactions) will continue to be paid in the
future.
14
ITEM 6. CONSOLIDATED SELECTED FINANCIAL DATA
(In thousands, expect per share data)
Years ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Operations:
Net revenues $258,427 $147,300 $118,907 $107,859 $92,434
Operating income $32,513 $17,143 $14,405 $12,315 $10,305
Net earnings $14,976 $10,518 $9,148 $8,072 $6,203
Basic net earnings per share $1.74 $1.41 $1.25 $1.08 $.82
Diluted net earnings per share $1.72 $1.40 $1.25 $1.08 $.82
Dividend paid per share
Annual $.50 $.50 $.25 $.25 $.25
Special - - $.25 $.08 -
Balance Sheet Data at Period End:
Total assets $398,046 $114,651 $85,849 $80,729 $77,486
Working capital surplus $800 $(7,791) $(8,032) $(10,789) $(10,434)
(deficiency)
Long-term debt $181,450 $13,665 $2,713 $2,953 $6,421
Other Data:
Shareholders' equity $138,121 $65,231 $53,393 $47,781 $46,653
Shareholders' equity per share $14.02 $8.67 $7.30 $6.54 $6.17
Additions to racing plant and
equipment, exclusive of business
acquisitions $12,083 $3,524 $4,568 $2,571 $8,590
Earnings, dividend and shareholders' equity per share amounts have been
retroactively adjusted for the 2-for-1 stock split with a record date of March
30, 1998.
15
CHURCHILL DOWNS INCORPORATED
ITEM 7. 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 Annual Report on Form 10-K 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 Race Track, 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");
Ellis Park Race Course, a Thoroughbred racetrack in Henderson, Kentucky ("Ellis
Park"); and Kentucky Horse Center, a Thoroughbred training center in Lexington,
Kentucky ("KHC"). We have entered into a definitive agreement with Keeneland
Association, Inc.("Keeneland") whereby Keeneland will purchase the assets of KHC
for a cash payment of $5 million. The sale is subject to certain closing
conditions, and closing is expected during March or April of 2000.
16
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Additionally, we are the majority owner and operator of Hoosier Park at Anderson
in Anderson, 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 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, 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 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 Indiana riverboat
admissions subsidy revenue, simulcast fees, lease income, admissions and
concessions revenue.
The Kentucky Derby and the Kentucky Oaks, both held at Churchill Downs, continue
to be our premier racing events. The Kentucky Derby offers a minimum$1.0 million
in purse money and the Kentucky Oaks offers a minimum $0.5 million in purse
money. Calder Race Course is home to the Festival of the Sun, Florida's richest
day in Thoroughbred racing offering approximately $1.5 million in total purse
money. Hollywood Park is home to the Sempra Energy Hollywood Gold Cup, which
offers $1.0 million in purse money. Hollywood Park's Autumn Meet is highlighted
by the annual $2.1 million Autumn Turf Festival, comprised of six graded stakes
races. Other races that make us unique are the Indiana Derby for Thoroughbreds
and the Dan Patch Invitational for Standardbreds held at Hoosier Park, as well
as the Gardenia Stakes for older fillies and mares held at Ellis Park.
Churchill Downs hosted the Breeders' Cup Championship ("Breeders' Cup") in 1988,
1991, 1994 and 1998, and will host the event for a record fifth time on November
4, 2000. Hollywood Park has also hosted the Breeders' Cup in 1984, 1987 and
1997. The Breeders' Cup is sponsored by Breeders' Cup Limited, a tax-exempt
organization chartered to promote Thoroughbred racing and breeding.The Breeders'
Cup races, which feature $13.0 million in purses, are held annually for the
purpose of determining Thoroughbred champions in eight different events.
Racetracks across North
17
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
America compete for the privilege of hosting the Breeders' Cup races each year.
Although most of the income earned from this event is allocated to Breeders' Cup
Limited, hosting the 1998 event had a positive impact on our 1998 results, and
hosting the event in 2000 is expected to have a positive impact on our 2000
results.
Kentucky's racetracks, including Churchill Downs and Ellis Park, are subject to
the licensing and regulation of the Kentucky Racing Commission ("KRC"). The KRC
consists of 11 members appointed by the governor of Kentucky. Licenses to
conduct live Thoroughbred race meets and to participate in simulcasting are
approved annually by the KRC based upon applications submitted by the racetracks
in Kentucky. Although to some extent Churchill Downs and Ellis Park compete with
other racetracks in Kentucky for the award of racing dates, the KRC is required
by state law to consider and seek to preserve each racetrack's usual and
customary live racing dates. Generally, there is no substantial change from year
to year in the racing dates awarded to each racetrack.
We received approval from the KRC to conduct two live Thoroughbred racing meets
at Churchill Downs from April 29 through July 9, 2000 ("Spring Meet"), and from
October 29 through November 25, 2000 ("Fall Meet"), for a total of 76 days,
excluding the Breeders' Cup on November 4, 2000. Churchill Downs conducted live
racing from April 24 through June 27, 1999, and from October 31 through November
27, 1999, for a total of 71 racing days compared to a total of 71 racing days in
1998. KRC approved a one week increase in Churchill Downs' Spring Meet during
2000, which is a reduction to Ellis Park's customary racing schedule.
The KRC also awarded Ellis Park approval to conduct live Thoroughbred racing
from July 12 through September 4, 2000, for a total of 41 live racing days.
Ellis Park conducted live racing from June 28 through September 6, 1999, for a
total of 61 racing days compared to 61 racing days in 1998. The decrease of 20
live race dates for 2000 compared to 1999 is the result of reducing the live
racing week from 6 days of live racing to 5 days of live racing and the movement
of one week of live racing to Churchill Downs' Spring Meet. We expect the change
in live race dates to better utilize the operations of both racetracks.
In California, licenses to conduct live Thoroughbred racing and to participate
in simulcasting are approved by the California Horse Racing Board annually based
upon applications submitted by California racetracks. Generally, there is no
substantial change from year to year in the racing dates awarded to each
racetrack. Hollywood Park, which was acquired on September 10, 1999, has been
approved to conduct two live Thoroughbred race meets from April 28 through July
24, 2000 ("Spring/Summer Meet"), and from November 8 through December 24, 2000
("Autumn Meet"), for a total of 100 days combined. Hollywood Park conducted 97
days of racing during 1999 compared to 97 days of racing during 1998.
18
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS F
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In Florida, licenses to conduct live Thoroughbred racing and to participate in
simulcasting are approved by the Department of Business and Professional
Regulation, Division of Pari-Mutuel Wagering ("DPW"). The DPW is responsible for
overseeing the network of state offices located at every pari-mutuel wagering
facility, as well as issuing the permits necessary to operate a pari-mutuel
wagering facility. The DPW also approves annual licenses for Thoroughbred,
Standardbred and Quarter Horse races. Calder Race Course, Inc. and Tropical
Park, Inc., which were acquired April 23, 1999, hold licenses to conduct two
consecutive live Thoroughbred race meets at Calder Race Course. Calder Race
Course, Inc. has been approved for live racing from May 23 through November 2,
2000, and Tropical Park, Inc. was approved from November 3, 2000 through January
2, 2001, for a collective total of 174 days of live racing. In 1999, Calder Race
Course conducted 169 days of racing, which included 2 days of racing in January
2000 compared to 173 days of racing during 1998, which included 2 days of racing
in January 1999. During 1999, 1 day of approved live racing was lost as a result
of inclement weather.
Tax laws in Florida currently discourage the three Miami-area racetracks in
Florida from applying for licenses for race dates outside of their traditional
racing season, which currently do not overlap. Effective July 1, 2001, a new tax
structure will eliminate this deterrent. Accordingly, Calder Race Course may
face direct competition from other Florida racetracks and may have the ability
to increase live racing dates or lose live racing dates in the future.
In Indiana, licenses to conduct live Standardbred and Thoroughbred race meets,
including Quarter Horse races, and to participate in simulcasting are approved
annually by the Indiana Horse Racing Commission ("IHRC"), which consists of five
members appointed by the governor of Indiana. Licenses are approved annually by
the IHRC based upon applications submitted by Hoosier Park. Currently, Hoosier
Park is the only facility in Indiana licensed to conduct pari-mutuel wagering on
live Standardbred, Quarter Horse or Thoroughbred racing and to participate in
simulcasting. The IHRC has approved Hoosier Park to conduct live Standardbred
racing from April 7 through August 23, 2000, and live Thoroughbred racing from
September 8 through December 3, 2000, for a combined total of 167 live racing
dates in 2000. Hoosier Park conducted live racing from April 9, 1999 through
December 5, 1999, for a combined total of 167 days of racing during 1999
compared to 153 total days of racing during 1998. Indiana law requires us to
conduct live racing for at least 120 days each year in order to simulcast races.
In December 1999, the IHRC accepted an application from a group of investors who
seek to build a Standardbred racetrack in Lawrence, Indiana. The application is
now in the review process. It is our belief that the Indianapolis market cannot
support two racetracks, and Hoosier Park is compiling market data to respond to
the proposal. The addition of a second racetrack in Indiana could potentially
impact Hoosier Park's share of the riverboat admissions revenue, create
an increase in competition in the market and reduce the quality of racing. A
reduction in Hoosier Park's live racing dates as a result of a second race-
track could also result in an adverse impact on long term profitability of the
facility.
19
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The total number of days on which each racetrack conducts live racing fluctuates
annually according to the calender year. A substantial change in the allocation
of live racing days at Churchill Downs, Hollywood Park, Calder Race Course,
Hoosier Park or Ellis Park could adversely impact our operations and earnings in
future years.
As of December 31, 1999, we employed approximately 1,030 full-time employees
Company-wide. Due to the seasonal nature of our live racing business, the number
of seasonal and part-time persons employed will vary throughout the year. During
1999, peak employment occurred during Kentucky Derby week when we employed as
many as 3,300 persons Company-wide. During 1999, average full-time and seasonal
employment per pay period was approximately 950 individuals Company-wide.
We generally do not directly compete with other racetracks or OTBs for local
patrons due to geographic separation of facilities or differences in seasonal
timing of meets. Calder Race Course, for example, is in close proximity to two
other racetracks, but the tracks currently do not directly compete with each
other because they offer live races and simulcasting during different times of
the year. However, we compete with other sports, entertainment and gaming
options, including riverboat, cruise ship and land-based casinos and lotteries,
for patrons for both live racing and simulcasting. We attempt to attract patrons
by providing high quality racing products in attractive entertainment facilities
with fairly priced, appealing concession services.
The development of riverboat gaming facilities began in Indiana pursuant to
authorizing legislation passed by the state of Indiana in 1993. Illinois had
previously authorized riverboat gaming. There are currently five riverboat
casinos operating on the Ohio River along Kentucky's border, including two in
the southeastern Indiana cities of Lawrenceburg and Rising Sun, one in
southwestern Indiana in Evansville and one in Metropolis, Illinois. The fifth
riverboat casino, licensed to RDI/Caesars, opened in November 1998 in Harrison
County, Indiana, 10 miles from Louisville. We experienced some decreases in
attendance and pari-mutuel wagering at the Churchill Downs Sports Spectrum
("Louisville Sports Spectrum") during 1999 as compared to 1998. However, we
experienced an increase in pari-mutuel wagering on Churchill Downs races,
including export simulcasting, during the same period. It is impossible to
accurately determine the extent of the riverboat's impact on our business at
these facilities. Other factors, such as unfavorable weather conditions, may
also have had an impact.
The Indiana Gaming Commission voted in September 1998 to grant a license to open
a fifth Indiana riverboat along the Ohio River in Switzerland County, about 70
miles from Louisville. The license holder, Pinnacle Entertainment, Inc.,
formerly Hollywood Park, Inc., plans to build a riverboat casino, hotel and
resort complex, which is projected to open in the third quarter of 2000.
20
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to those riverboats operating along the Ohio River, five riverboat
casinos have opened along the Indiana shore of Lake Michigan near our Indiana
Sports Spectrum in Merrillville, Indiana. The opening of these Lake Michigan
riverboats adversely impacted our pari-mutuel wagering activities at the
Merrillville facility. Given its proximity to Chicago, the Merrillville Indiana
Sports Spectrum also faces competition from OTBs and riverboat casinos near
Chicago. We also compete with cruise ship casinos in Florida and state
lotteries.
Additionally, several Native American tribes in Florida have expressed interest
in opening casinos in southern Florida, which could compete with Calder Race
Course. Also, the state of Michigan has approved a proposal by the Pokagon Band
of the Potawatomi Indian Tribe to develop a casino in New Buffalo, Michigan,
which is approximately 45 miles from our Merrillville facility. The development
of this casino may negatively impact pari-mutuel activities at Hoosier Park's
Indiana facilities.
In Kentucky, a Breeders' Cup incentive bill is being considered by the Kentucky
General Assembly. This proposed legislation seeks to attract the Breeders' Cup
to Kentucky more frequently by eliminating the excise tax on pari-mutuel
wagering for live races on Breeders' Cup Day at any Kentucky racetrack hosting
the event. It remains uncertain whether this proposal will be enacted.
The potential integration of alternative gaming products at our racetrack
facilities is one of our four core business strategies developed to position us
to compete in this changing environment. We have successfully grown our live
racing product by implementing our other core business strategies by
strengthening our flagship operations, increasing our share of the interstate
simulcast market and geographically expanding our racing operations in Kentucky,
Indiana, Florida and California. Alternative gaming in the form of video lottery
terminals may enable us to more effectively compete with Indiana riverboat
casinos and provide new revenue for purse money and capital investment. We
continue to seek industry consensus for a plan to allow video lottery terminals
at our racetrack facilities in Kentucky. Currently, we are working with members
of the Kentucky horse industry to establish a consensus for a plan to operate
video lottery terminals exclusively at Kentucky's racetracks.
The horse industry in Indiana presently receives $.65 per $3 admission to
Indiana riverboats to compensate for the effect of riverboat competition. By
IHRC rule we are required to allocate 70% of such revenue directly for purse
expenses, breed development and reimbursement of approved marketing costs. The
balance, or 30%, is received by Hoosier Park as the only horse racetrack
currently operating in Indiana. Riverboat admissions revenue from our Indiana
21
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
operations increased $2.0 million for the year ended December 31, 1999 compared
to 1998, as a result of the expansion of existing riverboats. The net increase
in riverboat admissions revenue, after required purse and marketing expense
increases of approximately $1.2 million, is $0.8 million.
In November 1999, the Company and the IHRC agreed to a $6.8 million ceiling on
Hoosier Park's share of the subsidy. The ceiling represents a 9% decrease from
the $7.4 million revenues Hoosier Park earned for 1999. A more significant
change in Hoosier Park's share of the subsidy, as a result of a possible second
track approved in Indiana, would impact funding for operating expenditures,
potentially reducing the number of race dates at Hoosier Park and, in all
likelihood, re-emphasize the need for the integration of alternative gaming
products at the Hoosier Park racetrack in order for it to remian a profitable
enterprise.
Technological innovations have opened the distribution channels for live racing
products to include in-home wagering. Television Games Network ("TVG"), a
subsidiary of TV Guide, Inc., offers high quality live racing video signals in
conjunction with its interactive television wagering system. We have entered
into agreements to broadcast our racetrack simulcast products as part of TVG's
programming content. This new network is anticipated to eventually offer 24-hour
- -a-day programming throughout the United States that will be primarily devoted
to developing new fans for racing. In jurisdictions where lawful, in- home
patrons of TVG can wager on our live races as well as other race signals. As the
originator of the live racing signal, we will receive a simulcast fee on in-home
wagers placed on our races.
In June 1999, the U.S. Justice Department raised concerns whether interactive
wagering conducted through TVG's wagering hub would be legal under existing
federal gambling laws. In addition, certain state attorney generals have
expressed concern over the legality of TVG's business. TVG related revenues are
not material to our operations at this time.
22
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 years ended December 31, 1999 and 1998 is as
follows ($ in thousands):
Churchill
Downs Hollywood Calder Race
racetrack Park* Course* Hoosier Park Ellis Park*
Live racing
1999 handle $125,258 $198,683 $183,439 $15,888 $19,790
1999 no. of days 71 97 169 167 61
1998 handle $128,250 $199,338 $187,477 $16,092 $20,944
1998 no. of days 71 97 173 153 61
Export simulcasting
1999 handle $459,545 $730,479 $489,519 $68,994 $159,964
1999 no. of days 71 97 169 167 61
1998 handle $421,200 $732,510 $456,860 $62,720 $116,735
1998 no. of days 70 97 173 153 61
Import simulcasting
1999 handle $121,160 $228,556 - $139,379 $38,040
1999 no. of days 234 175 - 1,205 290
1998 handle $138,443 $214,799 - $133,770 $38,065
1998 no. of days 232 179 - 1,219 288
Totals
1999 handle $705,963 $1,157,718 $672,958 $224,261 $217,794
1998 handle $687,893 $1,146,647 $644,337 $212,582 $175,744
* Pari-mutuel wagering information is provided for years ended December 31, 1999
and 1998. Although the summary reflects handle for the full year, only revenues
generated since the subsidiaries' acquisition dates have been included in the
Company's results of operations.
23
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Revenues
Net revenues increased $111.1 million (75%) from $147.3 million in 1998 to
$258.4 million in 1999. Calder Race Course contributed $72.4 million and
Hollywood Park contributed $30.5 million to the increase in 1999 net revenues.
Churchill Downs revenues increased $1.5 million (2%) due primarily 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. Hoosier Park revenues increased $3.5 million (7%)
primarily due to increased simulcasting revenues and a $2.0 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 1999
increased $2.3 million (13%) primarily due to the timing of the 1998 acquisition
and increased pari-mutuel wagering revenue for 1999. Other operations, which
include Charlson Broadcast Technologies, LLC ("CBT") and Kentucky Horse Center,
comprised the remaining $0.9 million of the increase.
Operating Expenses
Operating expenses increased $88.4 million (74%) from $119.0 million in 1998 to
$207.4 million in 1999, including Calder Race Course and Hollywood Park
operating expenses of $54.4 million and $26.5 million, respectively. Churchill
Downs operating expenses increased $1.9 million (3%). Hoosier Park operating
expenses increased $2.8 million (7%) due primarily to increases in purses
payable consistent with the increase in pari-mutuel revenue and an increase in
required purses and marketing expenses related to the riverboat admissions
subsidy. Ellis Park operating expenses increased $2.8 million (18%) during 1999
as compared to expenses after the acquisition date of April 21, 1998 for the
prior year.
Gross Profit
Gross profit increased $22.7 million (80%) from $28.3 million in 1998 to $51.0
million in 1999. The increase was primarily due to a $18.0 million and $4.0
million increase in gross profit from Calder Race Course and Hollywood Park,
respectively.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased by $7.4 million
(66%) from $11.2 million in 1998 to $18.6 million in 1999. Calder Race Course
and Hollywood Park added $2.4 million and $1.5 million, respectively, and the
inclusion of Ellis Park during all of 1999 contributed $0.2 million of the
increase. SG&A expenses at Churchill Downs racetrack and corporate expenses
24
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increased $1.7 million (21%) due primarily to increased corporate staffing and
compensation expenses reflecting the Company's strengthened corporate services
to meet the needs of new business units. Other operations accounted for the
remaining $1.6 million of the increase in SG&A expenses. SG&A expenses as a
percentage of net revenues decreased slightly from 7.5% in 1998 to 7.2% in 1999.
Other Income and Expense
Interest expense increased $6.9 million from $0.9 million in 1998 to $7.8
million in 1999 primarily as a result of borrowings to finance the acquisitions
of Calder Race Course, Hollywood Park and CBT during 1999 and the acquisition of
Ellis Park in April 1998.
Income Tax Provision
Our income tax provision increased by $4.1 million during 1999 as compared to
1998 as a result of increased pre-tax earnings and an increase in the estimated
effective tax rate from 39.1% in 1998 to 42.1% in 1999 due primarily to
non-deductible goodwill amortization expense related to the acquisitions of
Calder Race Course and CBT.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Revenues
Net revenues increased $28.4 million (24%) from $118.9 million in 1997 to $147.3
million in 1998. Churchill Downs revenues increased $3.5 million (5%) due
primarily to increases in simulcast revenues and license, rights, broadcast
revenues and increased corporate sponsorship of the Kentucky Derby. Hoosier Park
revenues increased $6.2 million (15%) primarily due to increased simulcasting
revenues and a $5.1 million increase in the riverboat gross admissions subsidy
of which a portion was required to be spent on purses and marketing expenses.
Ellis Park contributed $17.4 million to 1998 net revenues since its acquisition
in the second quarter. Other operations, including Kentucky Horse Center which
was also acquired in the second quarter, comprised the remaining $1.3 million of
the increase.
Operating Expenses
Operating expenses increased $23.7 million (25%) from $95.4 million in 1997 to
$119.1 million in 1998. Churchill Downs operating expenses increased $1.9
million (3%) due primarily to increased marketing, simulcast, totalisator and
video expenses. Hoosier Park operating expenses increased $5.0 million (14%) due
primarily to required increases in purses and marketing expenses of $2.8
25
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
million and $0.8 million, respectively, related to the riverboat admissions
subsidy. Ellis Park increased 1998 operating expenses by $15.4 million since its
acquisition. Other operations, including Kentucky Horse Center, accounted for
the remaining $1.4 million of the increase in operating expenses.
Gross Profit
Gross profit increased $4.7 million (20%) from $23.5 million in 1997 to $28.2
million in 1998. The Ellis Park acquisition contributed $2.0 million to 1998
gross profit. Churchill Downs gross profit increased $1.6 million and Hoosier
Park gross profit increased $1.2 million for the reasons described above.
Selling, General and Administrative Expenses
SG&A expenses increased by $2.0 million (22%) from $9.1 million in 1997 to $11.1
million in 1998. SG&A expenses at Churchill Downs increased $1.3 million (19%)
due primarily to increased corporate staffing, compensation and business
development expenses. Hoosier Park SG&A expenses decreased by $0.2 million (9%)
due primarily to declines in professional fees and wages. The acquisition of
Ellis Park contributed $0.6 million to the increase in 1998 SG&A expenses. Other
operations accounted for the remaining $0.3 million of the increase. SG&A
expenses as a percentage of net revenues decreased slightly from 7.6% in 1997 to
7.5% in 1998.
Other Income and Expense
Interest expense increased $0.6 million from $0.3 million in 1997 to $0.9
million in 1998 as a result of borrowings to finance our second quarter
acquisition of Ellis Park and Kentucky Horse Center.
Income Tax Provision
Our income tax provision increased by $1.0 million from $5.8 million in 1997 to
$6.8 million in 1998 primarily as the result of an increase in pre-tax earnings
of $2.3 million. The effective income tax rate increased slightly from 38.9% in
1997 to 39.1% in 1998 due primarily to non-deductible goodwill amortization
expense related to the acquisition of Ellis Park and Kentucky Horse Center and
increases in other permanent differences, partially offset by the reversal of
the valuation allowance on certain state income tax net operating loss
carryforwards.
Significant Changes in the Balance Sheet December 31, 1999 to December 31, 1998
The net plant and equipment increase of $191.8 million during 1999 included
$189.2 million for the acquisitions of Hollywood Park, Calder Race Course and
CBT. The remaining increase was due to routine capital spending at our operating
units offset by current year depreciation expense.
26
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Intangible assets increased $54.0 million primarily a result of the addition of
approximately $52.0 million of goodwill due to the acquisitions of Calder Race
Course and CBT. In addition, deferred financing costs of $3.1 million related to
our new $250 million revolving loan facility are included. These increases were
partially offset by current year amortization expense.
The long-term debt increase of $167.4 million was the result of additional
borrowings on our bank line of credit during 1999 used to fund the 1999
acquisitions of Hollywood Park, Calder Race Course and CBT.
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.
Significant Changes in the Balance Sheet December 31, 1998 to December 31, 1997
Plant and equipment increased $25.0 million during 1998 which included $22.0
million for the acquisition of Ellis Park and Kentucky Horse Center. Routine
capital spending at our operating units made up the remainder of the increase.
Accumulated depreciation increased $5.5 million for current year depreciation
expense.
Intangible assets increased $6.5 million as a result of the acquisition of Ellis
Park and Kentucky Horse Center.
We borrowed on our bank line of credit during 1998 primarily to fund the Ellis
Park acquisition during the second quarter.
Deferred income tax liabilities increased to $6.9 million in 1998, an increase
of $4.6 million from 1997 balances, primarily as a result of the acquisition of
Ellis Park and Kentucky Horse Center.
Liquidity and Capital Resources
The working capital surplus (deficiency) was $0.8, $(7.8) and $(8.0) million for
the years ended December 31, 1999, 1998 and 1997, respectively. Working capital
surplus \ deficiency results from the nature and seasonality of our business.
Cash flows provided by operations were $39.7, $10.8 and $10.5 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The
27
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
significant increase in operating cash flow for 1999 was primarily a result of
the current year acquisitions. The net increase of $0.3 million in 1998 resulted
from a $1.4 million increase in net earnings and $1.2 million increase in
depreciation and amortization coupled with the timing of accounts receivable,
accounts payable, income taxes payable and deferred revenue balances. 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 any acquisitions.
Cash flows used in investing activities were $240.4, $20.8 and $6.9 million for
the years ended December 31, 1999, 1998 and 1997, respectively. Cash used for
1999 business acquisitions consisted of $142.5 million for the acquisition of
Hollywood Park during the third quarter, $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 CBT during the first
quarter. We used $12.6 million for capital spending at our facilities including
$1.8 million for the construction of the main entrance and corporate offices,
$2.2 million for the construction of a stable area dormitory and $0.7 million
for the renovation of the racing offices at the Churchill Downs racetrack
facility. The additional increase in capital spending from prior year spending
is primarily the result of routine capital spending at CBT and Calder Race
Course, which were acquired during 1999. The capital additions for all
locations, including the expansion of Churchill Downs' main entrance and
expansion of our corporate offices, are expected to approximate $16.6 million
for 2000.
Cash flows provided by (used in) financing activities were $223.3, $7.0 and
$(2.5) million for the years ended December 31, 1999, 1998 and 1997,
respectively. We borrowed $269.5 million on our line of credit during 1999
primarily to finance the purchase of Hollywood Park, Calder Race Course and CBT.
We received net proceeds of $62.1 million in connection with the July 15, 1999
common stock public offering and an additional $0.6 million for the issuance of
common stock under our stock purchase plan and the exercise of stock options.
Proceeds from the stock offering and operations were used to repay $102.5
million on our line of credit. In addition, cash dividends of $3.8 million were
paid to shareholders in 1999 (declared in 1998) versus $3.7 million paid in 1998
(declared in 1997).
In April 1999, our total line of credit was increased to $250 million under a
new revolving loan facility, of which $178 million was outstanding at December
31, 1999. 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 a portion of our
interest in Hoosier Park and the sale of KHC are expected to be used to repay a
portion of this credit facility. The new revolving loan facility matures in
2004.
Impact of the Year 2000 Issue
During 1999, we completed a company-wide program to make our computer systems
Year 2000 compliant. 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
were not Year 2000 compliant, they may not have been able to distinguish the
year 2000 from the year 1900. This could have resulted in system failure or
miscalculations leading to a disruption of business operations.
28
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of December 31, 1999, we had completed the Year 2000 compliance evaluation
for our owned systems as well as issues involving third party service providers.
In addition, we have also completed the Year 2000 compliance evaluation for our
recent acquisitions of Calder Race Course and Hollywood Park and the remediation
plans were completed on all critical operating systems. We have not experienced
any disruptions to our business operations as a result of the Year 2000 issue.
While we will continue to monitor our systems for continued Year 2000 compliance
and continue to verify the Year 2000 preparedness of our third party service
providers, we do not anticipate any significant business disruptions related to
this matter.
Total cost to remediate Year 2000 compliance issues was approximately $275,000.
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.
Subsequent Events
We have entered into a definitive agreement with Keeneland Association, Inc.
("Keeneland") whereby Keeneland will purchase our Thoroughbred training and
boarding facility known as Kentucky Horse Center ("KHC"). Keeneland has agreed
to purchase KHC for a cash payment of $5 million. Proceeds from the sale will be
used to repay a portion of our line of credit. The sale is subject to certain
closing conditions, and closing is expected during March or April 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 which 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 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. We do not expect our earnings to be significantly effected
by this sale. We expect any loss in Hoosier Park annual income to be
significantly offset by a reduction in interest expense as a result of using the
proceeds from the sale to repay a portion of our line of credit. Closing is
expected during the second quarter of 2000.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
At December 31, 1999, we had $178.0 million of debt
outstanding under our revolving loan facility which bears
interest at LIBOR based variable rates. We are exposed to
market risk on this 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
pre-tax earnings and cash flows by $1.8 million.
In order to mitigate a portion of the market risk associated
with our variable rate debt, we entered into interest rate
swap contracts with a major financial institution. Under terms
of the contracts we receive a LIBOR based variable interest
rate and pay a fixed interest rate of 5.89% and 5.92% on
notional amounts of $35.0 million and $70.0 million,
respectively. The $70.0 million interest rate swap matured in
March 2000 and the $35.0 million interest rate swap matures in
August 2000. At December 31, 1999, these interest rate swaps
approximated a mark-to-market value of $77,000 based on
current interest rates. Assuming the December 31, 1999
notional amounts under the interest rate swap contracts remain
constant, a one percentage point increase in the LIBOR rate
would increase pre-tax earnings and cash flows by $1.1
million.
Upon expiration of the $70 million interst rate swap in early
March 2000, we enterd into a 3-year interest rate swap in
which we pay a fixed interest rate of 7.015% on a notional
amount of $35 million. Management plans to engage in further
interest rate swap agreements in the future to protect our
interest rate exposure.
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Churchill Downs Incorporated
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1), present fairly, in all material respects, the
financial position of Churchill Downs Incorporated and its subsidiaries as of
December 31, 1999, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14 (a)(2), presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of management; our responsibility is
to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
\s\PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Louisville, Kentucky
February 23, 2000
31
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands)
ASSETS 1999 1998 1997
---- ---- ----
Current assets:
Cash and cash equivalents $ 29,060 $ 6,380 $ 9,280
Accounts receivable 24,279 11,968 7,087
Other current assets 2,751 1,049 541
--------- --------- --------
Total current assets 56,090 19,397 16,908
Other assets 4,740 3,796 3,884
Plant and equipment, net 274,882 83,088 63,163
Intangible assets, net 62,334 8,370 1,894
--------- --------- --------
$398,046 $114,651 $85,849
========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,794 $ 6,381 $ 6,549
Accrued expenses 23,821 8,248 7,121
Dividends payable 4,927 3,762 3,658
Income taxes payable 336 258 187
Deferred revenue 10,860 8,412 7,345
Long-term debt, current portion 552 127 80
--------- --------- --------
Total current liabilities 55,290 27,188 24,940
Long-term debt 180,898 13,538 2,633
Other liabilities 8,263 1,756 2,506
Deferred income taxes 15,474 6,938 2,377
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 in
1999; 7,525 shares in 1998;
and 7,317 shares in 1997 71,634 8,927 3,615
Retained earnings 66,667 56,599 49,843
Deferred compensation costs (115) (230) -
Note receivable for common stock (65) (65) (65)
--------- --------- --------
138,121 65,231 53,393
--------- --------- --------
$398,046 $114,651 $85,849
========= ========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
32
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31,
(in thousands, except per share data)
1999 1998 1997
---- ---- ----
Net revenues $258,427 $147,300 $118,907
Operating expenses:
Purses 97,585 50,193 39,718
Other direct expenses 109,783 68,788 55,706
--------- --------- ---------
207,368 118,981 95,424
--------- --------- ---------
Gross profit 51,059 28,319 23,483
Selling, general and administrative
expenses 18,546 11,176 9,078
--------- --------- ---------
Operating income 32,513 17,143 14,405
--------- --------- ---------
Other income (expense):
Interest income 847 680 575
Interest expense (7,839) (896) (332)
Miscellaneous, net 334 342 325
--------- --------- ---------
(6,658) 126 568
--------- --------- ---------
Earnings before provision for income
taxes 25,855 17,269 14,973
Provision for income taxes 10,879 6,751 5,825
--------- --------- ---------
Net earnings $ 14,976 $ 10,518 $ 9,148
========= ========= =========
Earnings per common share data:
Basic $1.74 $1.41 $1.25
Diluted $1.72 $1.40 $1.25
Weighted average shares outstanding:
Basic 8,598 7,460 7,312
Diluted 8,718 7,539 7,321
The accompanying notes are an integral part of the consolidated financial
statements.
33
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
(in thousands, except per share data)
Note Deferred
Common Stock Retained Receivable Compensation
Shares Amount Earnings Common Stock Costs Total
Balances December 31, 1996 7,309 $ 3,493 $44,353 $(65) - $47,781
Net earnings 9,148 9,148
Issuance of common stock
at $14.45 per share 8 122 122
Cash dividends, $.50 per share (3,658) (3,658)
------ ------- -------- -------- -------- ---------
Balances December 31, 1997 7,317 3,615 49,843 (65) - 53,393
Net earnings 10,518 10,518
Deferred compensation 344 $(344) -
Deferred compensation
amortization 114 114
Issuance of common stock at
$24.25 per share in conjunction
with RCA acquisition 200 4,850 4,850
Issuance of common stock
at $14.60 per share 8 118 118
Cash dividends, $.50 per share (3,762) (3,762)
------ ------- -------- -------- -------- ---------
Balances December 31, 1998 7,525 8,927 56,599 (65) (230) 65,231
Net earnings 14,976 14,976
Deferred compensation
amortization 115 115
Issuance of common stock
at $29.00 per share 2,300 62,122 62,122
Issuance of common stock
at $24.00 per share 7 170 170
Exercise of Stock Options 22 415 19 434
Cash dividends, $.50 per share (4,927) (4,927)
------ ------- -------- -------- -------- ---------
Balances December 31, 1999 9,854 $71,634 $66,667 $(65) $ (115) $138,121
====== ======= ======== ======== ======== =========
The accompanying notes are an integral part of the
consolidated financial statements.
34
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(in thousands)
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net earnings $ 14,976 $ 10,518 $ 9,148
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 11,306 5,744 4,559
Deferred income taxes (502) (121) 352
Deferred compensation 285 183 55
Increase (decrease) in cash resulting
from changes in operating assets
and liabilities:
Accounts receivable (8,971) (2,973) (2,053)
Other current assets (1,119) (293) (153)
Accounts payable 7,619 (2,211) 680
Accrued expenses 11,150 386 (434)
Income taxes payable (refundable) 98 71 (2,324)
Deferred revenue (231) 758 1,017
Other assets and liabilities 5,121 (1,246) (377)
--------- --------- --------
Net cash provided by operating
activities 39,732 10,816 10,470
--------- --------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash
acquired of $4,200 in 1999 and $517
in 1998 (228,303) (17,232) -
Additions to plant and equipment, net (12,083) (3,524) (4,568)
Purchase of minority-owned investment - - (2,338)
--------- --------- --------
Net cash used in investing activities (240,386) (20,756) (6,906)
--------- --------- --------
Cash flows from financing activities:
Decrease in long-term debt, net (1,295) (140) (240)
Borrowings on bank line of credit 269,500 22,000 -
Repayments of bank line of credit (102,500) (11,000) -
Payment of loan origination costs (2,867) (280) -
Payment of dividends (3,762) (3,658) (2,375)
Capital contribution by minority interest
in subsidiary 1,551 - -
Common stock issued 62,707 118 122
--------- --------- --------
Net cash provided by (used in)
financing activities 223,334 7,040 (2,493)
--------- --------- --------
Net increase (decrease) in cash and
cash equivalents 22,680 (2,900) 1,071
Cash and cash equivalents, beginning of period 6,380 9,280 8,209
--------- -------- --------
Cash and cash equivalents, end of period $ 29,060 $ 6,380 $ 9,280
========= ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,858 $ 497 $ 151
Income taxes $ 10,796 $ 7,130 $ 7,915
Schedule of Non-cash Activities:
Issuance of common stock related to the
acquisition of RCA - $ 4,850 -
Invoicing for future events $ 2,678 $ 678 $ 402
Plant & equipment additions included
in accounts payable $ 502 $ 95 -
Compensation expense - $ 344 -
The accompanying notes are an integral part of the consolidated financial
statements.
35
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Churchill Downs Incorporated (the "Company") conducts pari-mutuel wagering
on live race meetings for Thoroughbred horses and participates in intrastate
and interstate simulcast wagering at its racetracks in Kentucky, California
and Florida. In addition, the Company, through its subsidiary, Hoosier Park
L.P. ("Hoosier Park"), conducts pari-mutuel wagering on live Thoroughbred,
Quarter Horse and Standardbred horse races and participates in interstate
simulcast wagering. The Company's Kentucky, California, Florida and Indiana
operations are subject to regulation by the racing commissions of the
respective states.
The accompanying consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries, Churchill Downs California
Company d/b/a Hollywood Park Race Track ("Hollywood Park"), Calder Race
Course, Inc. and Tropical Park, Inc. which hold licenses to conduct horse
racing at Calder Race Course ("Calder Race Course"), Ellis Park Race Course
("Ellis Park"), Churchill Downs Management Company ("CDMC"), Churchill Downs
Investment Company ("CDIC"), Kentucky Horse Center and Anderson Park Inc.
("Anderson") and its majority-owned subsidiaries, Hoosier Park and Charlson
Broadcast Technologies, LLC ("CBT"). All significant intercompany balances
and transactions have been eliminated.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
A Summary of Significant Accounting Policies Followed
Cash Equivalents
The Company considers investments with original maturities of three months
or less to be cash equivalents. The Company has, from time to time, cash in
the bank in excess of federally insured limits.
Plant and Equipment
Plant and equipment are recorded at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the related
assets as follows: 10 to 30 years for grandstands and buildings, 3 to 11
years for equipment, 5 to 10 years for furniture and fixtures and 10 to 20
years for tracks and other improvements.
36
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
1. Basis of Presentation and Summary of Significant Accounting Policies(cont'd)
Intangible Assets
Amortization of the cost of acquisitions in excess of fair value of assets
acquired and the Indiana racing license is provided over 40 years using the
straight-line method. Loan origination costs on the Company's line of credit
are being amortized under the effective interest method over 60 months, the
term of the loan.
Long-lived Assets
In the event that facts and circumstances indicate that the carrying amount
of tangible or intangible long-lived assets or groups of assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the assets would be compared to the assets' carrying amount
to determine if a write-down to market value or discounted cash flow value
is required.
Interest Rate Swaps
The Company utilizes interest rate swap contracts to hedge exposure to
interest rate fluctuations on its variable rate debt. The differential
between the fixed interest rate paid and the variable interest rate received
under the interest rate swap contracts is recognized as an adjustment to
interest expense in the period in which the differential occurs.
Differential amounts incurred under the interest rate swap contracts but not
settled in cash at the end of a reporting period are recorded as receivables
or payables in the balance sheet. Any gains or losses realized on the early
termination of interest rate swap contracts are deferred and amortized as an
adjustment to interest expense over the remaining term of the underlying
debt instrument.
Deferred Revenue
Deferred revenue includes primarily advance sales related to the Kentucky
Derby and Oaks races in Kentucky and other advanced billings on racing
events.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees". In accordance with Statement of Financial Accounting Standards
(SFAS) No. 123 "Accounting for Stock-based Compensation" proforma disclosure
of net earnings and earnings per share are presented in Note 10 as if SFAS
No. 123 had been applied.
Reclassification
Certain financial statement amounts have been reclassified in the prior
years to conform to current year presentation.
37
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
2. Acquisitions
On September 10, 1999, the Company acquired the assets of the Hollywood Park
Race Track 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
to the seller 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 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 Race Track have been included in the Company's
consolidated financial statements since the date of acquisition. The
allocation of the purchase price is preliminary and 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.
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, plus
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. The allocation of the purchase
price is preliminary and may require adjustment in the Company's future
financial statements based on a final determination of the fair value of
assets acquired and 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. As
part of the transaction, TVI received 0.2 million shares of the Company's
common stock valued at $4.9 million with the remaining balance of $17.1
million paid from cash on hand and a draw on the Company's bank line of
credit. The acquisition was accounted for by the Company under the purchase
method of accounting and, accordingly, the results of operations of RCA
subsequent to April 20, 1998, are included in the Company's consolidated
results of operations.
38
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
2. Acquisitions (cont'd)
Following are the unaudited pro forma results of operations as if the
September 10, 1999 acquisition of Hollywood Park Race Track, the July 20,
1999 stock issuance, the April 23, 1999 acquisition of Calder Race Course
and the April 21, 1998 acquisition of RCA had occurred on January 1, 1998:
December 31,
1999 1998
---- ----
Net revenues $335,254 $318,017
Net earnings $20,200 $15,993
Earnings per common
share:
Basic $2.05 $1.63
Diluted $2.03 $1.62
Weighted average shares
outstanding:
Basic 9,834 9,820
Diluted 9,953 9,900
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.
3. Plant and Equipment
Plant and equipment is comprised of the following:
1999 1998 1997
---- ---- ----
Land $105,292 $ 7,632 $ 5,999
Grandstands and buildings 201,613 73,377 57,580
Equipment 17,120 4,979 3,416
Furniture and fixtures 7,741 5,341 4,328
Tracks and other
improvements 39,602 37,998 33,118
Construction in process 2,411 249 113
---------- -------- ---------
373,779 129,576 104,554
Accumulated depreciation (98,897) (46,488) (41,391)
---------- -------- ---------
$274,882 $83,088 $63,163
========== ======== =========
Depreciation expense was approximately $9,506, $5,490, and $4,288 for the
years ended December 31, 1999, 1998 and 1997.
39
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
4. Intangibles assets
The Company's intangible assets are comprised of the following:
1999 1998 1997
---- ---- ----
Cost of acquisitions in excess of fair value
of net assets acquired $59,433 $6,449 -
Indiana racing license 2,085 2,085 $2,085
Loan origination costs 3,076 280 -
-------- ------- -------
64,594 8,814 2,085
Accumulated amortization (2,260) (444) (191)
-------- ------- -------
$62,334 $8,370 $1,894
======== ======= =======
Amortization expense was approximately $1,353, $253 and $271 for the years
ended December 31, 1999, 1998 and 1997.
5. Income Taxes
Components of the provision for income taxes are as follows:
1999 1998 1997
---- ---- ----
Currently payable:
Federal $ 9,528 $5,795 $4,617
State & local 1,853 1,077 856
11,381 6,872 5,473
-------- ------- -------
Deferred:
Federal (439) 46 308
State & local (63) 6 44
-------- ------- -------
(502) 52 352
-------- ------- -------
Reversal of valuation
allowance - (173) -
-------- ------- -------
$10,879 $6,751 $5,825
======== ======= =======
40
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
5. Income Taxes (cont'd)
The Company's income tax expense is different from the amount computed by
applying the statutory federal income tax rate to income before taxes as
follows:
1999 1998 1997
----- ----- -----
Federal statutory tax on
earnings before income tax $ 9,049 $5,942 $5,141
State income taxes, net of
federal income tax benefit 1,154 747 612
Permanent differences and other 676 235 72
Reversal of valuation allowance - (173) -
------- ------- ------
$10,879 $6,751 $5,825
======= ======= ======
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $1,169 for Indiana state income tax purposes expiring from
2009 through 2011 and approximately $6,401 for Kentucky state income
tax purposes expiring from 2002 through 2011. Management has determined
that its ability to realize future benefits of the state net operating loss
carryforwards meets the "more likely than not" criteria of SFAS No. 109,
"Accounting for Income Taxes"; therefore, no valuation allowance has been
recorded at December 31, 1999.
Components of the Company's deferred tax assets and liabilities are as
follows:
1999 1998 1997
---- ---- ----
Deferred tax liabilities:
Property & equipment in excess
of tax basis $16,288 $7,805 $2,415
Racing license in excess of tax basis 650 650 636
Other 66 - -
------- ------ ------
Deferred tax liabilities 17,004 8,455 3,051
------- ------ ------
Deferred tax assets:
Supplemental benefit plan 337 316 295
State net operating loss
carryforwards 638 857 173
Allowance for uncollectible
receivables 345 87 71
Other 830 437 378
------- ------ ------
Deferred tax assets 2,150 1,697 917
------- ------ ------
Valuation allowance for state net operating
loss carryforwards - - 173
------- ------ ------
Net deferred tax liability $14,854 $6,758 $2,307
======= ====== ======
Income taxes are classified in the balance sheet as follows:
Net non-current deferred tax
liability $15,474 $6,938 $2,377
Net current deferred tax asset (620) (180) (70)
------- ------ ------
$14,854 $6,758 $2,307
======= ====== ======
41
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
6. Shareholders' Equity
On July 20, 1999 the Company issued 2,300 shares of the Company's common
stock at a price of $29 per share. The total proceeds net of offering
expenses was $62.1 million, and was used for the repayment of bank
borrowings.
On March 19, 1998, the Company's Board of Directors authorized a 2-for-1
stock split of its common stock effective March 30, 1998. All share and
per share amounts in the accompanying consolidated financial statements
have been restated to give effect to the stock split.
Additionally, the Company's Board of Directors approved a stockholder
"Rights Plan" (the "Plan") on March 19, 1998, which grants each stockholder
the right to purchase a fraction of a share of Series 1998 Preferred Stock
at the rate of one right for each share of the Company's common stock.
The rights will become exercisable 10 business days (or such later date as
determined by the Board of Directors) after any person or group acquires,
obtains a right to acquire or announces a tender offer for 15% or more of
the Company's outstanding common stock. The rights would allow the holder
to purchase preferred stock of the Company at a 50% discount. The Plan is
intended to protect stockholders from takeover tactics that may be used by
an acquirer that the Board believes are not in the best interests of the
shareholders. The Plan expires on March 19, 2008.
7. Employee Benefit Plans
The Company has a profit-sharing plan that covers all employees with one
year or more of service and one thousand or more worked hours. The Company
will match contributions made by the employee up to 3% of the employee's
annual compensation. The Company will also match at 50%, contributions
made by the employee up to an additional 2%.The Company may also contribute
a discretionary amount determined annually by the Board of Directors as
well as a year end discretionary match not to exceed 4%. The Company's
contribution to the plan for the years ended December 31, 1999, 1998 and
1997 was approximately $819, $806 and $535 respectively.
The Company is a member of a noncontributory defined benefit multi-employer
retirement plan for all members of the Pari-mutuel Clerk's Union of
Kentucky and several other collectively-bargained retirement plans which
are administered by unions. Contributions are made in accordance with
` negotiated labor contracts. Retirement plan expense for the years ended
December 31, 1999, 1998 and 1997 was approximately $665, $258 and $205,
respectively. The Company's policy is to fund this expense as accrued.
The estimated present value of future payments under a supplemental benefit
plan is charged to expense over the period of active employment of the
employees covered under the plan. Supplemental benefit plan expense for
the years ended December 31, 1999, 1998 and 1997 was approximately $55,
$55 and $51, respectively.
42
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
8. 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. 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 $178.0 million outstanding on the line of credit at
December 31, 1999 compared to $11.0 million outstanding at December
31, 1998 and no borrowings outstanding at December 31, 1997 under previous
lines of credit. The line of credit is collateralized by substantially all
of the assets of the Company and its wholly owned subsidiaries, and matures
in 2004.
During the third quarter of 1999 we entered into interest rate swap
contracts with a major financial institution which have termination dates
through August 31, 2000. Under the terms of the contracts we receive a
LIBOR based variable interest rate and pay a fixed interest rate of 5.89%
and 5.92% on notional amounts of $35.0 million and $70.0 million,
respectively. 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.
The Company also has two non-interest bearing notes payable in the
aggregate face amount of $900 relating to the purchase of an intrastate
wagering license from the former owners of the Louisville Sports Spectrum
property. Interest has been imputed at 8%. The balance of these notes
net of unamortized discount was $110, $196 and $276 at December 31,
1999, 1998 and 1997, respectively. The notes require aggregate annual
payments of $110.
On May 31, 1996, the Company entered into a Partnership Interest Purchase
Agreement with Conseco, LLC ("Conseco") for the sale of 10% of the
Company's partnership interest in Hoosier Park to Conseco. The transaction
also included assumption by Conseco of a loan to the Company of
approximately $2.6 million, of which the balance is $2.4 million at
December 31, 1999. The loan requires interest of prime plus 2% (10.5% at
December 31, 1999) payable monthly with principal due November 2004.
The note is collateralized by 10% of the assets of Hoosier Park.
Future aggregate maturities of long-term debt are as follows:
2000 $ 552
2001 359
2002 127
2003 17
2004 180,395
-------
$181,450
========
43
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
9. Operating Leases
The Company has a long-term operating lease for the land in Anderson,
Indiana on which its Hoosier Park facility is located, as well as
operating leases for the Indianapolis off-track betting facility and
certain totalisator and audio/visual and other equipment and services. The
Anderson lease expires in 2003, with an option to extend the lease for
three additional ten year terms. The Indianapolis lease expires in 2009,
with an option to extend the lease for two additional five year terms. The
leases include provisions for minimum lease payments as well as contingent
lease payments based on handle or revenues. Total annual rent expenses for
contingent lease payments including certain totalisator and audio/visual
equipment and services and land and facility rent was approximately $6,287,
$3,942 and $3,475 for the years ended December 31, 1999, 1998 and 1997.
Total rent expense for all operating leases was approximately $6,832,
$4,022 and $3,803 for the years ended December 31, 1999, 1998 and 1997.
Future minimum operating lease payments are as follows:
Minimum Lease
Payment
-------
2000 $1,088
2001 885
2002 646
2003 513
2004 405
Thereafter 1,841
-------
$5,378
=======
10. Stock-Based Compensation Plans
Employee Stock Options:
The Company sponsors both the "Churchill Downs Incorporated 1997 Stock
Option Plan" (the "97 Plan") and the "Churchill Downs Incorporated 1993
Stock Option Plan" (the "93 Plan"), stock-based incentive compensation
plans, which are described below. The Company applies APB Opinion 25 and
related interpretations in accounting for both the plans. However, pro
forma disclosures are as if the Company adopted the cost recognition
provisions of SFAS 123 are presented below.
The Company is authorized to issue up to 300 shares and 400 shares of
common stock (as adjusted for the stock split) under the 97 Plan and
93 Plan, respectively, pursuant to "Awards" granted in the form of
incentive stock options (intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended) and non-qualified stock options.
Awards may be granted to selected employees of the Company or any
subsidiary.
44
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
10. Stock-Based Compensation Plans (cont'd)
Both the 97 Plan and the 93 Plan provide that the exercise price of any
incentive stock option may not be less than the fair market value of the
common stock on the date of grant. The exercise price of any nonqualified
stock option is not so limited by the plans. The Company granted stock
options in 1999, 1998 and 1997. The stock options granted in those years
have contractual terms of 10 years and varying vesting dates, ranging from
one to three years following the date of grant. In accordance with APB 25,
the Company has not recognized any compensation cost for these stock
options.
A summary of the status of the Company's stock options as of December 31,
1999, 1998 and 1997 and the changes during the year ended on those dates is
presented below:
1999 1998 1997
----------------------- ------------------------ --------------------------
Weighted Weighted Weighted
# of Shares Average # of Shares Average # of Shares Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Prices Options Prices Options Prices
Outstanding at beginning
of the year 478 $20.86 426 $19.45 337 $19.08
Granted 154 $23.70 52 $32.50 89 $20.83
Exercised 22 $19.30 - - - -
Canceled - - - - - -
Forfeited 10 $22.53 - - - -
Expired - - - - - -
Outstanding at end
of year 600 $21.62 478 $20.86 426 $19.45
Exercisable at
end of year 311 $19.09 248 $21.02 207 $19.67
Weighted-average fair value per
share of options granted
during the year $12.01 $10.42 $6.34
The fair value of each stock option granted is estimated on the date of
grant using the Black- Scholes option-pricing model with the following
weighted-average assumptions for grants in 1999, 1998 and 1997,
respectively: dividend yields ranging from 1.20% to 1.54%; risk- free
interest rates are different for each grant and range from 5.75% to 6.76%;
and the expected lives of options are different for each grant and range
from approximately 6.5 to 7.0 years, and expected volatility rates of
43.74%, 24.86% and 19.38% for years ending December 31, 1999,1998 and 1997.
45
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
10. Stock-Based Compensation Plans (cont'd)
The following table summarizes information about stock options
outstanding at December 31, 1999:
Options Outstanding Options Exercisable
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/99 Contributing Life Exercise Price at 12/31/99 Exercise Price
- ---------------- ------------ ------------------ -------------- ------------ --------------
$13.40 to $16.75 20 6.0 $15.75 20 $15.75
$16.76 to $20.10 273 6.6 $18.93 253 $18.97
$20.11 to $23.45 240 8.5 $22.17 38 $21.61
$26.80 to $30.15 8 9.3 $29.88 - -
$30.16 to $33.50 59 9.0 $32.67 - -
--- --- ------ --- ------
TOTAL 600 7.6 $21.62 311 $19.09
Employee Stock Purchase Plan:
Under the Company's Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan"), the Company is authorized to sell, pursuant to short-term
stock options, shares of its common stock to its full-time(or part-time
for at least 20 hours per week and at least five months per year) employees
at a discount from the common stock's fair market value. The Employee Stock
Purchase Plan operates on the basis of recurring, consecutive one-year
periods. Each period commences on August 1 and ends on the next following
July 31.
On the first day of each 12-month period, August 1, the Company offers to
each eligible employee the opportunity to purchase common stock. Employees
elect to participate for each period to have a designated percentage of
their compensation withheld (after-tax) and applied to the purchase of
shares of common stock on the last day of the period, July 31. The Employee
Stock Purchase Plan allows withdrawals, terminations and reductions on
the amounts being deducted. The purchase price for the common stock is 85%
of the lesser of the fair market value of the common stock on (i) the first
day of the period, or (ii) the last day of the period. No employee may
purchase common stock under the Employee Stock Purchase Plan valued at
more than $25 for each calendar year.
Under the Employee Stock Purchase Plan, the Company sold 7 shares of common
stock to 131 employees pursuant to options granted on August 1, 1998, and
exercised on July 30, 1999. Because the plan year overlaps the Company's
fiscal year, the number of shares to be sold pursuant to options granted on
August 1, 1999, can only be estimated because the 1999 plan year is not yet
complete. The Company's estimate of options granted in 1999 under the Plan
is based on the number of shares sold to employees under the Plan for the
1998 plan year, adjusted to reflect the change in the number of employees
participating in the Plan in 1999.
46
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
10. Stock-Based Compensation Plans (cont'd)
A summary of the status of the Company's stock options under the
Employee Stock Purchase Plan as of December 31, 1999, 1998 and 1997 and the
changes during the year ended on those dates is presented below:
1999 1998 1997
----------------------- ----------------------- ------------------------
Weighted Weighted Weighted
# of Shares Average # of Shares Average # of Shares Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Prices Options Prices Options Prices
Outstanding at beginning
of the year 5 $24.00 8 $14.60 8 $14.45
Adjustment to prior year
estimated grants 2 $24.00 0 $14.60 0 $14.45
Granted 9 $23.90 5 $31.45 8 $18.94
Exercised 7 $24.00 8 $14.60 8 $14.95
Forfeited - - - - - -
Expired - - - - - -
Outstanding at end
of year 9 $23.90 5 $31.45 8 $18.94
Exercisable at end
of year - - - - - -
Weighted-average
Fair value per share
of options granted
during the year $8.67 $12.16 $5.36
Had the compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS 123, the Company's net earnings
and earnings per common share for 1999, 1998 and 1997 would approximate
the pro forma amounts presented below:
1999 1998 1997
---- ---- ----
Net earnings:
As reported $14,976 $10,518 $9,148
Pro-forma $14,262 $10,087 $8,605
Earnings per common share:
As reported
Basic $1.74 $1.41 $1.25
Diluted $1.72 $1.40 $1.25
Pro-forma
Basic $1.66 $1.35 $1.18
Diluted $1.64 $1.34 $1.18
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. The Company anticipates making awards in the
future under its stock-based compensation plans.
47
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
11. Fair Values of Financial Instruments
Financial Accounting Standards Board ("FASB") Statement No. 107,"Disclosure
about Fair Value of Financial Instruments," is a part of a continuing
process by the FASB to improve information on financial instruments. The
following methods and assumptions were used by the Company in estimating
its fair value disclosures for such financial instruments as defined by
the Statement:
Cash and Cash Equivalents - The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Long-Term Debt - The carrying amounts of the Company's borrowings under its
line of credit agreements and other long-term debt approximates fair value,
based upon current interest rates.
Interest Rate Swaps - The carrying amounts of the Company's interest rate
swaps approximates mark-to-market value of $77, based upon current interest
rates.
12. Contingencies
Hollywood Park has received cease and desist orders from the California
Regional Water Quality Control Board addressing storm water runoff and dry
weather discharge issues. We have retained an engineering firm to develop
a plan for compliance and to construct certain drainage and waste disposal
systems. As part of the 1999 asset acquisition of Hollywood Park, the
seller has agreed to indemnify our Company in the amount of $5.0 million
for costs incurred in relation to the waste water runoff issue. It is not
possible at this time accurately assess the total potential costs
associated with this matter but we do not believe it will be materially in
excess of the indemnification amount.
On January 22, 1992, the Company acquired certain assets of Louisville
Downs, Incorporated for $5.0 million including the site of the Louisville
Sports Spectrum. In conjunction with this purchase, the Company withheld
$1.0 million from the amount due to the sellers to offset certain costs
related to the remediation of environmental contamination associated with
underground storage tanks at the site. All of the $1.0 million hold back
had been utilized as of December 31, 1999 and additional costs of
remediation have not yet been conclusively determined. The sellers have now
received a reimbursement from the commonwealth of Kentucky of $1.0 million
for remediation costs and that amount is now being held in an escrow
account to pay further costs of remediation. Approximately $1.2 million,
including interest on the escrow principal, remains in the account. The
seller has submitted a corrective action plan to the state and it is
anticipated that the Kentucky Cabinet of Natural Resources will consent to
a closure, either with or without monitoring. In addition to the hold
back, we have obtained an indemnity to cover the full cost of remediation
from the prior owner of the property. We do not believe the cost of further
investigation and remediation will exceed the amount of funds in the
escrow.
48
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
12. Contingencies (cont'd)
It is not anticipated that the Company will have any liability as a result
of compliance with environmental laws with respect to any of the Company's
property. Except as discussed herein, compliance with environmental
laws has not affected the ability to develop and operate the Company's
properties and the Company is not otherwise subject to any material
compliance costs in connection with federal or state environmental laws.
13. Earnings Per Common Share Computations
The following is a reconciliation of the numerator and denominator of the
earnings per common share computations:
1999 1998 1997
---- ---- ----
Net earnings (numerator) amounts used
for basic and diluted per share computations: $14,976 $10,518 $9,148
======= ======= ======
Weighted average shares (denominator) of
common stock outstanding per share
computations:
Basic 8,598 7,460 7,312
Plus dilutive effect of stock options 120 79 9
------- ------- ------
Diluted 8,718 7,539 7,321
======= ======= ======
Earnings per common share:
Basic $1.74 $1.41 $1.25
Diluted $1.72 $1.40 $1.25
Options to purchase approximately 67, 52 and 10 shares for the years ended
December 31, 1999, 1998 and 1997, respectively, were not included in the
computation of earnings per common share-assuming dilution because the
options' exercise prices were greater than the average market price of the
common shares.
14. Segment Information
The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." The Company has determined that it
currently operates in the following six segments (1) Churchill Downs
racetrack, the Louisville Sports Spectrum simulcast facility and Churchill
Downs corporate expenses (2) Hollywood Park Race Track(3)Calder Race Course
(4) Ellis Park racetrack and its on-site simulcast facility, (5) Hoosier
Park racetrack and its on-site simulcast facility and the other three
Indiana simulcast facilities and (6) Other operations, including Kentucky
Horse Center, CBT and the Company's investments in various equity interests
in the net income of equity method investees, which are not material.
Eliminations include the elimination of management fee and other
intersegment transactions.
Most of the Company's revenues are generated from commissions on
pari-mutuel wagering at the Company's racetracks and OTBs, plus Indiana
riverboat admissions subsidy revenue, simulcast fees, lease income,
admissions and concessions revenue.
49
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
14. Segment Information (cont'd)
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.
The table below presents information about reported segments for the years ended
December 31, 1999, 1998 and 1997:
December 31,
------------
1999 1998 1997
---- ---- ----
Net revenues:
Churchill Downs including
corporate expenses $ 82,429 $ 80,925 $ 77,404
Hollywood Park 30,494 - -
Calder Race Course 72,418 - -
Hoosier Park 51,280 47,744 41,503
Ellis Park 19,653 17,386 -
Other Operations 6,151 2,497 1,299
--------- --------- ---------
262,425 148,552 120,206
Eliminations (3,998) (1,252) (1,299)
--------- --------- ---------
$258,427 $147,300 $118,907
========= ========= =========
EBITDA:
Churchill Downs including
corporate expenses $12,110 $14,417 $14,205
Hollywood Park 3,842 - -
Calder Race Course 17,946 - -
Hoosier Park 6,423 5,599 4,282
Ellis Park 2,071 2,305 -
Other Operations 1,314 909 802
--------- --------- ---------
$43,706 $23,230 $19,289
========= ========= =========
Operating income (loss):
Churchill Downs including
corporate expenses $8,561 $10,700 $10,557
Hollywood Park 2,574 - -
Calder Race Course 15,564 - -
Hoosier Park 5,246 4,499 3,088
Ellis Park 721 1,422 -
Other Operations (153) 522 760
--------- --------- ---------
$32,513 $17,143 $14,405
========= ========= =========
50
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
14. Segment Information (cont'd)
As of December 31,
-----------------
1999 1998 1997
---- ---- ----
Total Assets:
Churchill Downs $345,909 $ 89,427 $ 72,490
Hollywood Park 153,126 - -
Calder Race Course 114,396 - -
Hoosier Park 32,559 31,732 29,689
Ellis Park 25,015 23,038 -
Other Operations 312,272 71,109 31,180
--------- ---------- ---------
983,277 215,306 133,359
Eliminations (585,231) (100,655) (47,510)
--------- ---------- ---------
$398,046 $114,651 $ 85,849
========= ========== =========
Following is a reconciliation of total EBITDA to income before provision for
income taxes:
December 31,
1999 1998 1997
---- ---- ----
Total EBITDA $43,706 $23,230 $19,289
Depreciation and amortization (10,859) (5,744) (4,559)
Interest income (expense), net (6,992) (216) 243
-------- -------- --------
Earnings before provision for
income taxes $25,855 $17,270 $14,973
======== ======== ========
15. Subsequent Events
The Company and Keeneland Association, Inc. ("Keeneland") have entered into a
definitive agreement whereby Keeneland will purchase the Company's Thoroughbred
training and boarding facility known as Kentucky Horse Center ("KHC"). Keeneland
has agreed to purchase KHC for a cash payment of $5 million. Proceeds from the
sale will be used to repay a portion of the Company's line of credit. The sale
is subject to certain closing conditions, and closing is expected 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 which 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 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. The
Company does not expect earnings to be significantly effected by this sale, as
any loss in Hoosier Park annual income is expected to be significantly offset
by a reduction in interest expense as a result of using the proceeds from the
sale to repay a portion of the Company's line of credit. Closing is expected
during the second quarter of 2000.
51
Supplementary Financial Information(Unaudited) Common Stock Information
(In thousands, except per share data) Per Share of Common Stock
------------------------------------------------
Operating Net Basic Diluted
Net Income Earnings Earnings Earnings Market Price
Revenues (Loss) (Loss) (Loss) (Loss) Dividends High Low
-------- ------ ------------ -------- -------- --------- ---- ---
1999 $258,427 $32,513 $14,976 $1.74 $1.72
Fourth Quarter $93,548 $8,784 $3,128 $0.32 $0.31 $0.50 $26.00 $20.13
Third Quarter 63,076 3,635 1,192 0.13 0.12 33.63 22.50
Second Quarter 84,140 24,891 13,666 1.82 1.79 35.75 26.00
First Quarter 17,663 (4,797) (3,010) (0.40) (0.40) 38.75 26.25
- ---------------------------------------------------------------------------------------------------
1998 $147,300 $17,143 $10,518 $1.41 $1.40
Fourth Quarter $31,242 $(1,291) $(780) $(0.10) $(0.10) $0.50 $36.44 $27.25
Third Quarter 33,299 (1,016) (655) (0.09) (0.09) 41.44 27.63
Second Quarter 67,374 22,220 13,522 1.81 1.79 43.25 24.00
First Quarter 15,385 (2,770) (1,569) (0.21) (0.21) 25.31 19.31
- ---------------------------------------------------------------------------------------------------
1997 $118,907 $14,405 $9,148 $1.25 $1.25
Fourth Quarter $28,021 $(270) $31 $0.00 $0.00 $0.50 $23.38 $20.75
Third Quarter 16,827 (3,005) (1,819) (0.25) (0.25) 21.00 16.25
Second Quarter 60,780 20,816 12,785 1.75 1.75 19.00 16.50
First Quarter 13,279 (3,136) (1,849) (0.25) (0.25) 18.50 16.00
- ---------------------------------------------------------------------------------------------------
The Company's Common Stock is traded on the National Association of Securities
Dealers, Inc.'s National Market("Nasdaq") under the symbol CHDN. As of March 14,
2000, there were approximately 3,350 shareholders of record.
Earnings (loss) per share and other per share amounts have been retroactively
adjusted for the 2-for-1 stock split with a record date of March 30, 1998.
On July 20, 1999 the Company issued 2.3 million shares of common stock at a
public offering price of $29 per share.
Quarterly earnings (loss) per share figures may not equal total earnings (loss)
per share for the year due in part to the fluctuation of the market price of the
stock.
The above table sets forth the high and low bid quotations (as reported by
Nasdaq) and dividend payment information for the Company's Common Stock during
its last three years. Quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions, and may not necessarily reflect actual
transactions.
52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is incorporated by reference
from sections of the Company's Proxy Statement titled
"Section 16(a) Beneficial Ownership Reporting Compliance,"
"Election of Directors," and "Executive Officers of the
Company," which Proxy Statement will be filed with the
Securities and Exchange Commission pursuant to instruction
G(3) of the General Instructions to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference
from sections of the Company's Proxy Statement titled
"Election of Directors - Compensation and Committees of the
Board of Directors," "Compensation Committee Report on
Executive Compensation," "Compensation Committee Interlocks
and Insider Participation," "Performance Graph," and
"Executive Compensation," which Proxy Statement will be filed
with the Securities and Exchange Commission pursuant to
instruction G(3) of the General Instructions to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required herein is incorporated by reference
from the sections of the Company's Proxy Statement titled
"Common Stock Owned by Certain Persons," "Election of
Directors" and "Executive Officers of the Company," which
Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to instruction G(3) of the General
Instructions to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is incorporated by reference
from the section of the Company's Proxy Statement titled
"Certain Relationships and Related Transactions," which
Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to instruction G(3) of the General
Instructions to Form 10-K.
53
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
Pages
(a) (1) Consolidated Financial Statements
The following financial statements of Churchill
Downs Incorporated
for the years ended December 31, 1999, 1998 and
1997 are included in Part II, Item 8:
Report of Independent Accountants 31
Consolidated Balance Sheets 32
Consolidated Statements of Earnings 33
Consolidated Statements of Shareholders' Equity 34
Consolidated Statements of Cash Flows 35
Notes to Consolidated Financial Statements 36-51
(2) Schedule VIII - Valuation and Qualifying Accounts 56
All other schedules are omitted because they are
not applicable, not significant or not required,
or because the required information is included in
the financial statement notes thereto.
(3) For the list of required exhibits, see exhibit index.
(b) Reports on Form 8-K:
(1) Churchill Downs Incorporated filed a Current Report
on Form 8-K dated September 10, 1999, amended by Form
8-K/A dated November 24, 1999, reporting , under Item 2,
"Acquisition or disposition of assets", for the
acquisition of Hollywood Park Race Track horse racing
facility and the Hollywood Park Casino card club casino
pursuant to an Asset Purchase Agreement dated as of May
5, 1999, amended by Amendment No.1 dated August 31, 1999.
(c) Exhibits
See exhibit index.
(d) All financial statements and schedules except those
items listed under items 14(a)(l) and (2) above are
omitted because they are not applicable, or not required,
or because the required information is included in the
financial statements or notes thereto.
54
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
/s/Thomas H. Meeker
Thomas H. Meeker
President and Chief Executive
Officer
March 16, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/Thomas H. Meeker /s/Robert L. Decker /s/Michael E. Miller
Thomas H. Meeker, President and Robert L. Decker, Michael E. Miller,
Chief Executive Officer Executive Vice President and Senior Vice President, Finance
March 16, 2000 Chief Financial Officer March 16, 2000
(Director and Principal Executive March 16, 2000 (Principal Accounting Officer)
Officer) (Principal Financial Officer)
/s/Daniel P. Harrington /s/Frank B. Hower, Jr.
Daniel P. Harrington Frank B. Hower, Jr. Arthur B. Modell
March 16, 2000 March 16, 2000 March 16, 2000
(Director) (Director) (Director)
/s/William S. Farish /s/G. Watts Humphrey, Jr. /s/Carl F. Pollard
William S. Farish G. Watts Humphrey, Jr. Carl F. Pollard
March 16, 2000 March 16, 2000 March 16, 2000
(Director) (Director) (Director)
/s/J. David Grissom /s/W. Bruce Lunsford /s/Dennis D. Swanson
J. David Grissom W. Bruce Lunsford Dennis D. Swanson
March 16, 2000 March 16, 2000 March 16, 2000
(Director) (Director) (Director)
/s/Charles W. Bidwill, Jr. /s/Seth W. Hancock /s/Darrell R. Wells
Charles W. Bidwill, Jr. Seth W. Hancock Darrell R. Wells
March 16, 2000 March 16, 2000 March 16, 2000
(Director) (Director) (Director)
55
CHURCHILL DOWNS INCORPORATED
SCHEDULE VIII. - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance, Balance,
Beginning Charged to End
Description of Period Expenses Deductions of Period
Year ended December 31, 1999:
Allowance for doubtful
account and notes receivable $121 $272 $(140) $253
Valuation allowance for
deferred tax asset - - - -
----- ---- ------ ----
$121 $272 $(140) $253
===== ---- ====== ====
Year ended December 31, 1998:
Allowance for doubtful
account and notes receivable $176 $ 1 $ (56) $121
Valuation allowance for
deferred tax asset * 173 - (173) -
----- ---- ------ ----
$349 $ 1 $(229) $121
===== ==== ====== ====
Year ended December 31, 1997:
Allowance for doubtful
account and notes receivable $165 $61 $(50) $176
Valuation allowance for
deferred tax asset * 176 - (3) 173
---- ---- ------ ----
$341 $61 $(53) $349
==== ==== ====== ====
* Adjustments taken to income represent reversals of valuation allowance
previously established for state net operating loss carryforwards.
56
EXHIBIT INDEX
Numbers Description By Reference To
(2) (a) Stock Purchase Agreement and Joint Escrow Exhibit 2.1 to Report
Instructions dated as of January 21, 1999 on Form 8-K dated
by and among Churchill Downs Incorporated April 23, 1999
and KE Acquisition Corp.
(b) First Amendment to Stock Purchase Exhibit 2.2 to
Agreement dated as of April 19, 1999 by Report on Form 8-K
and between Churchill Downs Incorporated, dated April 23,
Churchill Downs Management Company and 1999
KE Acquisition Corp.
(c) Agreement and Plan of Merger and Exhibit 2.3 to Report
Amendment to Stock Purchase Agreement on Form 8-K dated
dated as of April 22,1999 by and among April 23, 1999
Churchill Downs Incorporated, Churchill
Downs Management Company, CR Acquisition
Corp., TP Acquisition Corp., Calder Race
Course, Inc., Tropical Park, Inc. and KE
Acquisition Corp.
(d) Asset Purchase Agreement dated May 5, Exhibit 2.1 to
1999 between Hollywood Park, Inc., a Registration
Delaware Corporation, and Churchill Downs Statement on Form S-3
Incorporated filed May 21, 1999
(No. 333-79031)
(e) Amendment No. 1 to Asset Purchase Exhibit 2.2 to Report
Agreement dated as of August 31, 1999 by on Form 8-K dated
and among Churchill Downs Incorporated, September 10, 1999
Churchill Downs California Company and
Hollywood Park, Inc.
(f) Stock Purchase Agreement dated as of Exhibit 2.1 to
March 28, 1998 between Churchill Downs Current Report on
Incorporated and TVI Corp. Form 8-K dated April
(g) Agreement and Plan of Merger dated as of Exhibit 2.2 to
April 17, 1998 by and among TVI Corp., Current Report on
Racing Corporation of America, Churchill Form 8-K dated April
Downs Incorporated and RCA Acquisition 21, 1998
Company
(h) Partnership Interest Purchase Agreement Page 61, Report on
dated as of February 16, 2000 by and Form 10-K for the
among Anderson Park, Inc., Churchill year ended December
Downs Management Company and Centaur, Inc. 31, 1999
(3) (a) Amended and Restated Articles of Page 91, Report on
Incorporation of Churchill Downs Form 10-K for the
Incorporated year ended December
31, 1999
57
(b) Restated Bylaws of Churchill Downs Exhibit (3)(a) to
Incorporated as amended Report on Form 10-Q
for the fiscal
quarter ended June
30, 1999
(4) Rights Agreement dated as of March 19, Exhibit 4.1 to
1998 between Churchill Downs, Inc. and Current Report on
Bank of Louisville Form 8-K dated March
19, 1998
(10)(a) $250,000,000 Revolving Credit Facility Exhibit (10)(a) to
Credit Agreement between Churchill Downs Report on Form 10-Q
Incorporated, and the guarantors party for the fiscal
hereto, and the Banks party hereto and quarter ended March
PNC Bank, National Association, as Agent, 31, 1999
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 Revolving Exhibit (10)(b) to
Credit Facility Credit Agreement dated Report on Form 10-Q
April 30, 1999 for the fiscal
quarter ended March
31, 1999
(c) Second Amendment to $250,000,000 Exhibit (10)(c) to
Revolving Credit Facility Credit Form 10-Q for the
Agreement dated June 14, 1999 fiscal quarter ended
June 30, 1999
(d) Third Amendment, Waiver and Consent to Page 109, Report on
$250,000,000 Revolving Credit Facility Form 10-K for the
Credit Agreement dated February 23, 2000 year ended December
31, 1999
(e) Underwriting agreement for 2,000,000 Exhibit 1.1 to
Shares of Churchill Downs Incorporated Registration
Common Stock between Churchill Downs Statement on Form
Incorporated and CIBC World Markets S-3/A filed July 15,
Corporation, Lehman Brothers, Inc., JC 1999 (No. 333-79031)
Bradford & Co., J.J.B. Hilliard, W.L.
Lyons, Inc. on behalf of several
underwriters
(f) Casino Lease Agreement dated as of Exhibit 10.1 to
September 10, 1999 by and between Report on Form 8-K
Churchill Downs California Company and dated September
Hollywood Park, Inc. 10, 1999
(g) Churchill Downs Incorporated Amended and Exhibit (10)(a) to
Restated Supplemental Benefit Plan dated Report on Form 10-K
December 1, 1998 * for the year ended
December 31, 1998
(h) Employment Agreement dated as of October Exhibit 19(a) to
1,1984, with Thomas H. Meeker, President* Report on Form 10-Q
for fiscal quarter
ended October
31, 1984
58
(i) Churchill Downs Incorporated Incentive Exhibit 10 (c) to
Compensation Plan (1997) * Report on Form 10-K
for the year ended
December 31, 1996
(j) Churchill Downs Incorporated 1993 Stock Exhibit 10(h) to
Option Plan * Report on Form 10-K
for the eleven months
ended December
31, 1993
(k) Amendment of Employment Agreement with Report on Form 10-K
Thomas H. Meeker, President, dated for the fiscal year
October 1, 1984 * ended January 31,
1986; Report on Form
10-K for the fiscal
year ended January
31, 1987; 1988, 1990,
1991, 1992 and 1993
(l) Amendment No. 1 to Churchill Downs Exhibit 10 (g) to
Incorporated 1993 Stock Option Plan * Report on Form 10-K
for the year ended
December 31, 1994
(m) Amended and Restated Lease Agreement Exhibit 10 (l) to
dated January 31, 1996 Report on Form 10-K
for the year ended
December 31, 1995
(n) Partnership Interest Purchase Agreement Exhibit 10(k) to
dated December 20, 1995 among Anderson Report on Form 10-K
Park, Inc., Conseco HPLP, LLC, Pegasus for the year ended
Group, Inc. and Hoosier Park, L.P. December 31, 1995
(o) Employment Agreement between Churchill Exhibit 10 (l) to
Downs Incorporated and Robert L. Decker* Report on Form 10-Q
for the fiscal
quarter ended March
31, 1997
(p) Amendment No. 2 to Churchill Downs Report on Form 10-K
Incorporated 1993 Stock Option Plan * for the year ended
December 31, 1997
(q) Churchill Downs Incorporated, Amended and Exhibit (10)(n) to
Restated Deferred Compensation Plan for Report on Form 10-K
Employees and Directors * for the year ended
December 31, 1998
(r) Amended and Restated Churchill Downs Page 127, Report on
Incorporated 1997 Stock Option Plan * Form 10-K for the
year ended December
31, 1999
59
(21) Subsidiaries of the registrant Page 137, Report on
Form 10-K for the
year ended December
31, 1999
(23) Consent of PricewaterhouseCoopers, LLP Page 138, Report on
Independent Accountants Form 10-K for the
year ended December
31, 1999
(27) Financial Data Schedule for the year Page 139, Report on
ended December 31, 1999 Form 10-K for the
year ended December
31, 1999
*Management contract or compensatory plan or arrangement.
60