SEC Filing | Churchill Downs, Inc.

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-1469 CHURCHILL DOWNS INCORPORATED ------------------------------ (Exact name of registrant as specified in its charter) Kentucky 61-0156015 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 700 Central Avenue, Louisville, KY 40208 (Address of principal executive offices) (Zip Code) (502) 636-4400 ---------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No____ The number of shares outstanding of registrant's common stock at August 14, 2000 was 9,865,449 shares. 1

CHURCHILL DOWNS INCORPORATED I N D E X PART I. FINANCIAL INFORMATION PAGES ITEM 1. Financial Statements Condensed Consolidated Balance Sheets, June 30, 2000, 3 December 31, 1999 and June 30, 1999 Condensed Consolidated Statements of Earnings for the six 4 and three months ended June 30, 2000 and 1999 Condensed Consolidated Statements of Cash Flows for the 5 six months ended June 30, 2000 and 1999 Condensed Notes to Consolidated Financial Statements 6-12 ITEM 2. Management's Discussion and Analysis of Financial 13-20 Condition and Results of Operations ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 21 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings (Not applicable) 21 ITEM 2. Changes in Securities and Use of Proceeds (Not applicable) 21 ITEM 3. Defaults Upon Senior Securities (Not applicable) 21 ITEM 4. Submission of Matters to a Vote of Security Holders 21-22 ITEM 5. Other Information (Not applicable) 22 ITEM 6. Exhibits and Reports on Form 8-K 22 Signatures 23 Exhibit Index 24 Exhibits 25-49 2

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CHURCHILL DOWNS INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) June 30, December 31, June 30, ASSETS 2000 1999 1999 ---- ---- ---- Current assets: Cash and cash equivalents $ 21,931 $ 29,060 $ 21,927 Restricted cash 30,438 - - Accounts receivable 23,032 24,279 14,653 Other current assets 3,741 2,751 1,670 --------- --------- --------- Total current assets 79,142 56,090 38,250 Other assets 6,988 4,740 8,947 Plant and equipment, net 276,341 274,882 133,461 Intangible assets, net 61,216 62,334 62,269 --------- --------- --------- $423,687 $398,046 $242,927 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 33,979 $ 14,794 $ 15,190 Accrued expenses 38,833 23,821 18,510 Dividends payable - 4,927 - Income taxes payable 5,990 336 7,679 Deferred revenue 2,334 10,860 1,318 Long-term debt, current portion 2,904 552 479 --------- --------- --------- Total current liabilities 84,040 55,290 43,176 Long-term debt 166,658 180,898 103,271 Other liabilities 9,737 8,263 4,554 Deferred income taxes 15,569 15,474 15,982 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 June 30, 2000 and December 31, 1999, and 7,525 shares June 30, 1999 71,634 71,634 8,927 Retained earnings 76,172 66,667 67,255 Deferred compensation costs (58) (115) (173) Note receivable for common stock (65) (65) (65) --------- --------- --------- 147,683 138,121 75,944 --------- ---------- --------- $423,687 $398,046 $242,927 ========= ========= ========= The accompanying notes are an integral part of the condensed consolidated financial statements. 3

CHURCHILL DOWNS INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS for the six and three months ended June 30, 2000 and 1999 (Unaudited) (In thousands, except per share data) Six Months Ended June 30, Three Months Ended June 30, ------------------------ --------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net revenues $157,583 $101,803 $131,938 $84,140 Operating expenses 120,672 74,820 89,668 55,663 --------- --------- --------- -------- Gross profit 36,911 26,983 42,270 28,477 Selling, general and administrative expenses 12,963 6,889 6,782 3,586 --------- --------- --------- -------- Operating income 23,948 20,094 35,488 24,891 --------- --------- --------- -------- Other income (expense): Interest income 506 362 240 215 Interest expense (7,671) (2,209) (3,919) (1,774) Miscellaneous, net (416) 125 (459) 81 --------- --------- --------- -------- (7,581) (1,722) (4,138) (1,478) --------- --------- --------- -------- Earnings before income tax provision 16,367 18,372 31,350 23,413 --------- --------- --------- -------- Federal and state income tax provision (6,792) (7,716) (13,010) (9,747) --------- --------- --------- -------- Net earnings $ 9,575 $ 10,656 $ 18,340 $13,666 ========= ========= ========= ======== Earnings per common share data: Basic $0.97 $1.42 $1.86 $1.82 Diluted $0.97 $1.39 $1.85 $1.79 Weighted average shares outstanding: Basic 9,854 7,525 9,854 7,525 Diluted 9,908 7,671 9,906 7,649 The accompanying notes are an integral part of the condensed consolidated financial statements. 4

CHURCHILL DOWNS INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the six months ended June 30, (Unaudited) (In thousands) 2000 1999 ---- ---- Cash flows from operating activities: Net earnings $ 9,575 $10,656 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 8,268 4,511 Gain on sale of Training Facility (70) - Deferred compensation 270 150 Deferred income taxes 172 (101) Increase (decrease) in cash resulting from changes in operating assets and liabilities: Restricted cash (30,438) - Accounts receivable 1,247 (2,022) Other current assets (1,067) (39) Accounts payable 19,185 8,367 Accrued expenses 15,012 4,321 Income taxes payable 5,654 7,421 Deferred revenue (8,525) (7,095) Other assets and liabilities (1,063) (33) -------- -------- Net cash provided by operating activities 18,220 26,136 -------- -------- Cash flows from investing activities: Additions to plant and equipment, net (13,502) (8,080) Sale of Training Facility Assets 4,969 - Prepaid acquisition costs - Hollywood Park - (323) Acquisition of business, net of cash acquired of $4,200 in 1999 - (85,324) -------- -------- Net cash used in investing activities (8,533) (93,727) -------- -------- Cash flows from financing activities: Increase (decrease) in long-term debt, net 2,111 (995) Borrowings on bank line of credit 15,000 119,000 Repayments of bank line of credit (29,000) (30,000) Payment of loan origination costs - (2,656) Payment of dividends (4,927) (3,762) Capital contribution by minority interest in subsidiary - 1,551 -------- -------- Net cash (used in) provided by financing activities (16,816) 83,138 -------- -------- Net increase in cash and cash equivalents (7,129) 15,547 Cash and cash equivalents, beginning of period 29,060 6,380 -------- -------- Cash and cash equivalents, end of period $21,931 $21,927 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 7,420 $ 1,650 Income taxes $ 1,117 $ 775 Schedule of non-cash activities: Accrued acquisition costs related to Hollywood Park - $ 1,669 The accompanying notes are an integral part of the condensed consolidated financial statements. 5

CHURCHILL DOWNS INCORPORATED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the six months ended June 30, 2000 and 1999 (unaudited) ($ in thousands, except per share data) 1. Basis of Presentation The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States or those normally made in Churchill Downs Incorporated's (the "Company") annual report on Form 10-K. The year end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. Accordingly, the reader of this Form 10-Q may wish to refer to the Company's Form 10-K for the period ended December 31, 1999 for further information. The accompanying condensed consolidated financial statements have been prepared in accordance with the registrant's customary accounting practices and have not been audited. Certain prior period financial statement amounts have been reclassified to conform to the current period presentation. In the opinion of management, all adjustments necessary for a fair presentation of this information have been made and all such adjustments are of a normal recurring nature. Because of the seasonal nature of the Company's business and recent acquisition activity, revenues and operating results for any interim quarter are not indicative of the revenues and operating results for the year and are not necessarily comparable with results for the corresponding period of the previous year. The accompanying condensed consolidated financial statements reflect a disproportionate share of annual net earnings as the Company normally earns a substantial portion of its net earnings in the second quarter of each year during which four of its five racetracks are open, and the Kentucky Derby and Kentucky Oaks are run. The Kentucky Derby and Kentucky Oaks are run on the first weekend in May. 2. Restricted Cash Restricted cash represents refundable deposits and amounts due to horsemen for purses, stakes and awards. 3. Long-Term Debt On April 23, 1999, the Company increased its line of credit to $250 million under a revolving loan facility through a syndicate of banks to meet working capital and other short-term requirements and to provide funding for acquisitions. 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 $164.0 million outstanding on the line of credit at June 30, 2000 compared to $178.0 million outstanding at December 31, 1999 and $100.0 million outstanding at June 30, 1999. The line of credit is secured by substantially all of the assets of the Company and its wholly owned subsidiaries, and matures in 2004. 6

CHURCHILL DOWNS INCORPORATED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the six months ended June 30, 2000 and 1999 (unaudited) ($ in thousands, except per share data) 3. Long-Term Debt (cont'd) The Company has entered into interest rate swap contracts with major financial institutions which have termination dates through March 2003. Under terms of these separate contracts, we receive a LIBOR based variable interest rate on notional amounts of $35.0 million each and pay a fixed interest rate of 5.89%, 7.015% and 7.30%, which mature in August 2000, March 2003 and May 2002, respectively. The variable interest rate received 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. 4. Acquisitions and Other Transactions On April 21, 2000, Keeneland Association, Inc. purchased the Company's Thoroughbred training and boarding facility known as Kentucky Horse Center for a cash payment of $5 million. Proceeds from the sale were used to repay the Company's line of credit, and to fund operating expenses and capital expenditures during the second quarter of 2000. On September 10, 1999, the Company acquired the assets of the Hollywood Park racetrack and the Hollywood Park Casino in Inglewood, California, including approximately 240 acres of land upon which the racetrack and casino are located, for a purchase price of $140.0 million plus approximately $2.5 million in transaction costs. The Company leases the Hollywood Park Casino facility to the seller under a 10-year lease with one 10-year renewal option. The lease provides for annual rent of $3.0 million, subject to adjustment during the renewal period. The entire purchase price of $142.5 million was allocated to the acquired assets and liabilities based on their fair values on the acquisition date. The acquisition was accounted for by the Company as an asset purchase and, accordingly, the financial position and results of operations of Hollywood Park racetrack have been included in the Company's consolidated financial statements since the date of acquisition. The allocation of the purchase price may require adjustment in the Company's future financial statements based on a final determination of the fair value of assets acquired in the acquisition. On July 20, 1999, the Company issued 2.3 million shares of the Company's common stock at a price of $29 per share. The total proceeds net of offering expenses were $62.1 million, and were used for the repayment of bank borrowings. On April 23, 1999, the Company acquired all of the outstanding stock of Calder Race Course, Inc.and Tropical Park, Inc.from KE Acquisition Corp. for a purchase price of $86 million cash plus a closing net working capital adjustment of approximately $2.9 million cash and $0.6 million in transaction costs. The purchase included Calder Race Course in Miami and the licenses held by Calder Race Course, Inc. and Tropical Park, Inc. to conduct horse racing at Calder Race Course. The purchase price, including additional costs, of $89.5 million was allocated to the acquired assets and liabilities based on their fair values on the acquisition date with the excess of $49.4 million being recorded as goodwill, which is being amortized over 40 years. The acquisition was accounted for by the Company under the purchase method of accounting and, accordingly, the financial position and results of operations of Calder Race Course, Inc. and Tropical Park, Inc. have been included in the Company's consolidated financial statements since the date of acquisition. 7

CHURCHILL DOWNS INCORPORATED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the six months ended June 30, 2000 and 1999 (unaudited) ($ in thousands, except per share data) 4. Acquisitions and Other Transactions (cont'd) Following are the unaudited pro forma results of operations as if the September 10, 1999 acquisition of Hollywood Park racetrack, the July 20, 1999 stock issuance and the April 23, 1999 acquisition of Calder Race Course had occurred on January 1, 1999: Six Months Ended June 30, 1999 ---------------- Net revenues $160,790 Net earnings $13,191 Earnings per common share: Basic $1.34 Diluted $1.32 Weighted average shares Basic 9,825 Diluted 9,971 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, 1999, nor is it necessarily indicative of future operating results. 5. Earnings Per Share The following is a reconciliation of the numerator and denominator of the basic and diluted per share computations: Six months Three months ended June 30, ended June 30, -------------- -------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net earnings (numerator) amounts used for basic and diluted per share computations: $9,575 $10,656 $18,340 $13,666 ------ ------- ------- ------- Weighted average shares (denominator) of common stock outstanding per share: Basic 9,854 7,525 9,854 7,525 Plus dilutive effect of stock options 54 146 52 124 ------ ------- ------- ------- Diluted 9,908 7,671 9,906 7,649 Earnings per common share: Basic $0.97 $1.42 $1.86 $1.82 Diluted $0.97 $1.39 $1.85 $1.79 8

CHURCHILL DOWNS INCORPORATED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the six months ended June 30, 2000 and 1999 (unaudited) ($ in thousands, except per share data) 5. Earnings Per Share (cont'd) Options to purchase approximately 74 and 52 shares for the periods ending June 30, 2000 and 1999, 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 share. 6. Segment Information The Company has adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information." The Company has determined that it currently operates in the following six segments: (1) Churchill Downs racetrack and the Louisville Sports Spectrum simulcast facility (2) Hollywood Park racetrack and its on-site simulcast facility (3) Calder Race Course (4) Ellis Park racetrack and its on-site simulcast facility (5) Hoosier Park racetrack and its on-site simulcast facility and the other three Indiana off-track betting facilities ("OTBs") and (6) Other investments, including Charlson Broadcast Technologies LLC ("CBT") and the Company's other various equity interests, which are not material. Eliminations include the elimination of management fees and other intersegment transactions. As a result of a reorganization for internal reporting during 2000, the Company's segment disclosures are presented on a new basis to correspond with internal reporting for corporate revenues and expenses which, for the six and three months ended June 30, 1999 and 2000, are now reported separate of Churchill Downs racetrack revenues and expenses. Most of the Company's revenues are generated from commissions on pari-mutuel wagering at the Company's racetracks and OTBs, plus simulcast fees, Indiana riverboat admissions revenue, admissions, concessions revenue, sponsorship revenues, licensing rights and broadcast fees and other sources. The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies" in the Company's annual report to stockholders for the year ended December 31, 1999. EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with accounting principles generally accepted in the United States), as a measure of our operating results or cash flows (as determined in accordance with accounting principles generally accepted in the United States) or as a measure of our liquidity. 9

CHURCHILL DOWNS INCORPORATED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the six months ended June 30, 2000 and 1999 (unaudited) ($ in thousands, except per share data) 6. Segment Information (cont'd) The table below presents information about reported segments for the six months and three months ended June 30, 2000 and 1999: Six Months Ended June 30, Three Months Ended June 30, ------------------------- --------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net revenues: Churchill Downs $ 64,678 $61,133 $ 60,121 $56,490 Hollywood Park 50,879 - 45,120 - Calder Race Course 13,669 11,701 11,792 11,701 Hoosier Park 24,217 24,258 13,032 13,310 Ellis Park 2,682 2,963 1,370 1,797 Other investments 3,514 2,711 2,207 1,497 --------- --------- --------- ------- 159,639 102,766 133,642 84,795 Corporate revenues* 605 - 592 - Eliminations (2,661) (963) (2,296) (655) --------- --------- --------- -------- $157,583 $101,803 $131,938 $84,140 ========= ========= ========= ======== EBITDA: Churchill Downs $ 23,863 $ 22,014 $ 27,393 $25,297 Hollywood Park 9,472 - 11,093 - Calder Race Course (745) 1,888 1,284 1,888 Hoosier Park 3,442 3,387 1,555 1,709 Ellis Park (1,047) (803) (656) (421) Other investments 700 661 565 332 --------- --------- --------- -------- 35,685 27,147 41,234 28,805 Corporate expenses* (4,189) (2,545) (2,181) (1,353) --------- --------- --------- -------- $ 31,496 $ 24,602 $ 39,053 $27,452 ========= ========= ========= ======== Operating income (loss): Churchill Downs $ 22,003 $ 20,211 $ 26,456 $24,409 Hollywood Park 7,315 - 9,995 - Calder Race Course (2,527) 1,302 392 1,302 Hoosier Park 2,778 2,766 1,222 1,389 Ellis Park (1,769) (1,450) (1,018) (748) Other investments (24) (190) 261 (108) --------- --------- --------- -------- 27,776 22,639 37,308 26,244 Corporate expenses* (3,828) (2,545) (1,820) (1,353) --------- --------- --------- -------- $ 23,948 $ 20,094 $ 35,488 $24,891 ========= ========= ========= ======== * As a result of a reorganization for internal reporting during 2000, the Company's segment disclosures are presented on a new basis to correspond with internal reporting for corporate revenues and expenses. Corporate revenues and expenses for the six and three months ended June 30, 1999 and 2000 are reported separately. 10

CHURCHILL DOWNS INCORPORATED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the six months ended June 30, 2000 and 1999 (unaudited) ($ in thousands, except per share data) 6. Segment Information (cont'd) As of As of As of June 30, 2000 December 31, 1999 June 30, 1999 ------------- ----------------- ------------- Total assets: Churchill Downs $ 365,872 $345,909 $191,894 Hollywood Park 180,150 153,126 - Calder Race Course 104,839 114,396 108,593 Hoosier Park 36,235 32,559 34,737 Ellis Park 23,898 25,015 23,031 Other investments 303,567 312,272 171,655 ---------- --------- -------- 1,014,561 983,277 529,910 Eliminations (590,874) (585,231) (286,983) ---------- --------- --------- $ 423,687 $398,046 $242,927 ========== ========= ========= Following is a reconciliation of total EBITDA to income before provision for income taxes: Six Months Three Months ended June 30, ended June 30, -------------- --------------- (in thousands) 2000 1999 2000 1999 ---- ---- ---- ---- Total EBITDA $31,496 $24,602 $39,053 $27,452 Depreciation and amortization (7,964) (4,384) (4,023) (2,481) Interest income (expense), net (7,165) (1,846) (3,680) (1,558) -------- -------- -------- -------- Earnings before provision for income taxes $16,367 $18,372 $31,350 $23,413 ======== ======== ======== ======== 7. Pending Transactions The Company has entered into a definitive agreement with Centaur, Inc. ("Centaur") to sell a 26% interest in Hoosier Park, LP ("HPLP") for a purchase price of $8.5 million. HPLP is an Indiana limited partnership that owns Hoosier Park racetrack and related OTBs. Upon closing, the Company will retain a 51% interest in HPLP and continue to manage its day-to-day operations. Centaur, which already owned a portion of HPLP prior to the agreement, will then hold a 39% minority interest in HPLP. The transaction is subject to certain closing conditions, including the approval of the Indiana Horse Racing Commission. 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 on the basis of specific terms outlined in the definitive agreement. Closing is expected during the third quarter of 2000. 11

CHURCHILL DOWNS INCORPORATED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the six months ended June 30, 2000 and 1999 (unaudited) ($ in thousands, except per share data) 7. Pending Transactions (cont'd) The Company has entered into a definitive agreement with Duchossois Industries Inc. ("DII"), a privately held company that owns Arlington International Racecourse, under which Arlington International Racecourse Inc., Arlington Management Services Inc. and Turf Club of Illinois Inc. will merge with the Company. Under terms of the agreement, the Company will issue 3.15 million shares of its common stock upon closing to DII. The agreement also specifies the issuance of up to an additional 1.25 million shares of the Company's stock to DII depending on certain developments and conditions over a future period. DII has entered into a stockholder's agreement that will provide for restrictions on the voting and transfer of the shares of the Company's common stock received in the merger. The transaction remains subject to customary closing conditions, including the approval of the Illinois Racing Board, Florida Division of Pari- Mutuel Wagering, Department of Business and Professional Regulation and the Company's shareholders. Closing of the transaction is expected during September 2000. 12

CHURCHILL DOWNS INCORPORATED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Information set forth in this discussion and analysis contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 ( the "Act") provides certain "safe harbor" provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act. These statements represent our judgment concerning the future and are subject to risks and uncertainties that could cause our actual operating results and financial condition to differ materially. Forward-looking statements are typically identified by the use of terms such as "may," "will," "expect," "anticipate," "estimate," and similar words, although some forward-looking statements are expressed differently. Although we believe that the expectations reflected in such forward- looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from our expectations include: the financial performance of Arlington International Racecourse ("Arlington"); litigation surrounding the Rosemont, Illinois, riverboat casino; market reaction to our merger agreement with Arlington; changes in Illinois law that impact revenues of the racing operations in Illinois; the impact of gaming competition (including lotteries and riverboat, cruise ship and land-based casinos) and other sports and entertainment options in those markets in which we operate; a substantial change in law or regulations affecting our pari- mutuel activities; a substantial change in allocation of live racing days; a decrease in riverboat admissions revenue from our Indiana operations; the impact of an additional racetrack near our Indiana operations; our continued ability to effectively compete for the country's top horses and trainers necessary to field high-quality horse racing; our continued ability to grow our share of the interstate simulcast market; the impact of interest rate fluctuations; our ability to execute our acquisition strategy and to complete or successfully operate planned expansion projects; our ability to adequately integrate acquired businesses; the loss of our totalisator companies or their inability to keep their technology current; our accountability for environmental contamination; the loss of key personnel and the volatility of our stock price. Overview We conduct pari-mutuel wagering on live Thoroughbred, Standardbred and Quarter Horse horse racing and simulcast signals of races. Additionally, we offer racing services through our other interests. We own and operate the Churchill Downs racetrack in Louisville, Kentucky, which has conducted Thoroughbred racing since 1875 and is internationally known as home of the Kentucky Derby. We also own and operate Hollywood Park, a Thoroughbred racetrack in Inglewood, California ("Hollywood Park"); Calder Race Course, a Thoroughbred racetrack in Miami, Florida, which owns racing licenses held by Calder Race Course, Inc. and Tropical Park, Inc. ("Calder Race Course"); and Ellis Park, a Thoroughbred racetrack in Henderson, Kentucky ("Ellis Park"). 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 13

CHURCHILL DOWNS INCORPORATED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) day-to-day operations. Centaur, which already owned a portion of HPLP prior to the agreement, will then hold a 39% minority interest in HPLP. The transaction is subject to certain closing conditions, including the approval of the Indiana Horse Racing Commission ("IHRC") and various regulatory agencies, and closing is expected during the third 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. Additionally, we have entered into a definitive agreement with Duchossois Industries Inc. ("DII"), a privately held company that owns Arlington International Racecourse, under which Arlington International Racecourse Inc., Arlington Management Services Inc. and Turf Club of Illinois Inc. (collectively "Arlington") will merge with us. Under terms of the agreement, we will issue 3.15 million shares of our common stock upon closing to DII. The agreement also specifies the issuance of up to an additional 1.25 million shares of the our stock to DII depending on certain developments and conditions over a future period. DII has entered into a stockholder agreement that will provide for restrictions on the voting and transfer of the shares of the common stock received in the merger. The transaction remains subject to customary closing conditions, including the approval of the Illinois Racing Board, Florida Division of Pari-Mutuel Wagering, Department of Business and Professional Regulation, and our shareholders. Closing of the transaction is expected during September 2000. Because of the seasonal nature of our business and recent acquisition activity, revenues and operating results for any interim quarter are likely not indicative of the revenues and operating results for the year and are not necessarily comparable with results for the corresponding period of the previous year. We normally earn a substantial portion of our net earnings in the second quarter of each year during which four of our five racetracks are open and the Kentucky Derby and the Kentucky Oaks are run. The Kentucky Derby and the Kentucky Oaks are run on the first weekend in May. Our primary source of revenue is commissions on pari-mutuel wagering at our racetracks and OTBs. Other sources of revenue include simulcast fees, Indiana riverboat admissions subsidy revenue, lease income, admissions, concessions revenue, sponsorship revenues, licensing rights and broadcast fees. In Kentucky, two pieces of legislation significant to our operations were passed in the 2000 session of the Kentucky General Assembly. First, an excise tax credit for racetracks was included in the 2000-2002 Kentucky state budget. The measure, effective July 1, 2000, calls for the two-year phase-in of a graduated excise tax with average daily on-track handle of $1.2 million and below to be taxed at 2.5% and average daily on-track handle in excess of $1.2 million to be taxed at 3.5%. Under previous Kentucky law, tracks with average daily on-track handle of $1.2 million and above, such as Churchill Downs, were taxed at a flat rate of 3.5%. This credit of nearly $1.4 million in new revenue is earmarked for horsemen's incentives and necessary apital improvements at Churchill Downs racetrack over the next two years. Though this legislation is set to expire in 2002, we intend to lobby for a permanent 2% tax reduction in 2002. 14

CHURCHILL DOWNS INCORPORATED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Kentucky General Assembly also enacted legislation that eliminates the excise tax on Breeders' Cup Championship Day wagering at any Kentucky track that hosts the event. This legislation is aimed at attracting the Breeders' Cup to Kentucky, and Churchill Downs, on a more frequent basis. In 1998, Breeders' Cup Day wagering at Churchill Downs totaled $13.4 million and generated excise taxes of approximately $315,000. This tax exemption will not become effective until January 1, 2001, and therefore will not apply to the 2000 Breeders' Cup at Churchill Downs. The exemption will continue if the Breeders' Cup returns to Kentucky within three years of the previously held event. RESULTS OF OPERATIONS Pari-mutuel wagering information, including intercompany transactions, for our five live racing facilities and four separate OTBs, which are included in their respective racetracks, during the six months ended June 30, 2000 and 1999 is as follows ($ in thousands): Churchill Hollywood Calder Race Ellis Downs Park* Course* Hoosier Park Park Live Racing 2000 handle $ 90,856 $100,240 $ 33,838 $ 4,814 - 2000 no. of days 45 46 29 61 - 1999 handle $ 93,689 $108,470 $ 35,225 $ 4,943 $ 596 1999 no. of days 47 50 29 60 2 Export simulcasting 2000 handle $354,265 $374,889 $ 86,134 $14,494 - 2000 no. of days 45 46 41 61 - 1999 handle $334,555 $417,128 $ 68,409 $ 8,622 $ 4,736 1999 no. of days 47 50 41 60 2 Import simulcasting 2000 handle $ 58,045 $120,517 - $72,013 $23,179 2000 no. of days 104 129 - 597 181 1999 handle $ 57,047 $107,337 - $69,262 $23,894 1999 no. of days 101 131 - 581 179 Totals 2000 handle $503,166 $595,646 $119,972 $91,321 $23,179 1999 handle $485,291 $632,935 $103,634 $82,827 $29,226 * Pari-mutuel wagering information is provided for the six months ended June 30, 2000 and 1999. Although the summary reflects handle for the first six months of 2000 and 1999 as if the acquisitions had taken place at the beginning of the year, only revenues generated since the subsidiaries' acquisition dates have been included in the Company's consolidated statements of earnings. 15

CHURCHILL DOWNS INCORPORATED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Net Revenues Net revenues during the six months ended June 30, 2000 increased $55.8 million (55%) from $101.8 million in 1999 to $157.6 million in 2000. Churchill Downs racetrack revenues increased $4.1 million (7%) primarily due to $1.3 million of increased pari-mutuel wagering, and an increase in corporate sponsor event ticket prices, admissions and seat revenue and concessions revenue as a result of record attendance on Kentucky Oaks and Kentucky Derby days. Hollywood Park contributed $50.9 million to the first six months of 2000 net revenues, and Calder Race Course revenues increased $2.0 million to $13.7 million in 2000 from $11.7 million in 1999 due to the timing of the 1999 acquisition. Hollywood Park was acquired in the third quarter of 1999 and Calder Race Course was acquired in the second quarter of 1999. Operating Expenses Operating expenses increased $45.9 million (61%) from $74.8 million in 1999 to $120.7 million in 2000 primarily as a result of Hollywood Park's 2000 operating expenses of $41.3 million, and Calder Race Course operating expenses increasing $4.5 million, primarily due to the timing of the acquisition. Gross Profit Gross profit increased $9.9 million from $27.0 million in 1999 to $36.9 million in 2000. The increase in gross profit was primarily the result of the acquisition of Hollywood Park and the increase in gross profit for Churchill Downs racetrack due to record attendance on Kentucky Oaks and Kentucky Derby days. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses increased by $6.1 million (88%) from $6.9 million in 1999 to $13.0 million in 2000. SG&A expenses at Churchill Downs increased $2.1 million (50%) due primarily to increased corporate staffing and compensation expenses reflecting the Company's strengthened corporate services to meet the needs of new business units. The 1999 acquisitions of Calder Race Course and Hollywood Park resulted in increases of $1.2 million and $2.2 million, respectively. Other Income and Expense Interest expense increased $5.5 million from $2.2 million in 1999 to $7.7 million in 2000 primarily as a result of borrowings to finance the acquisition of Calder Race Course and Hollywood Park. Income Tax Provision The decrease in the income tax provision of $0.9 million for the six months ended June 30, 2000 as compared to June 30, 1999 is primarily a result of a decrease in pre-tax earnings. 16

CHURCHILL DOWNS INCORPORATED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Net Revenues Net revenues during the three months ended June 30, 2000 increased $47.8 million (57%) from $84.1 million in 1999 to $131.9 million in 2000. Churchill Downs racetrack revenues increased $4.2 million (7%) primarily due to $1.4 million of increased pari-mutuel wagering, and an increase in corporate sponsor event ticket prices, admissions and seat revenue and concessions revenue as a result of record attendance on Kentucky Oaks and Kentucky Derby days. Hollywood Park contributed $45.1 million to the three months ended June 30, 2000 net revenues. Operating Expenses Operating expenses increased $34.0 million (61%) from $55.7 million in 1999 to $89.7 million in 2000. Churchill Downs racetrack operating expenses increased $1.5 million (5%) primarily due to increases in purses, consistent with increases in pari-mutuel wagering revenues. Hollywood Park incurred 2000 operating expenses of $33.9 million. Gross Profit Gross profit increased $13.8 million from $28.5 million in 1999 to $42.3 million in 2000. The increase in gross profit was primarily the result of the inclusion of Hollywood Park and the increase in gross profit for Churchill Downs racetrack due to record attendance on Kentucky Oaks and Kentucky Derby days. Selling, General and Administrative Expenses SG&A expenses increased by $3.2 million (89%) from $3.6 million in 1999 to $6.8 million in 2000. SG&A expenses at Churchill Downs increased $1.2 million (52%) due primarily to increased corporate staffing and compensation expenses reflecting the Company's strengthened corporate services to meet the needs of new business units. The acquisition of Hollywood Park added $1.2 million. Other operations accounted for the remaining $0.8 million of the increase in SG&A expenses. Other Income and Expense Interest expense increased $2.1 million from $1.8 million in 1999 to $3.9 million in 2000 primarily as a result of borrowings to finance the 1999 acquisitions of Calder Race Course and Hollywood Park. Income Tax Provision Our income tax provision increased by $3.3 million for the three months ended June 30, 2000 as compared to June 30, 1999 primarily as a result of an increase in pre-tax earnings of $7.9 million. 17

CHURCHILL DOWNS INCORPORATED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Significant Changes in the Balance Sheet June 30, 2000 to December 31, 1999 Restricted cash increased $30.4 million as a result of current period separate classification of restricted assets primarily due to the timing of Hollywood Park's live racing meet. Accounts payable increased $19.2 million at June 30, 2000 primarily due to increases in purses payable and other expenses related to simulcast wagering for Churchill Downs racetrack, Hollywood Park and Hoosier Park. Accrued expenses increased $15.0 million primarily as a result of Hollywood Park live racing accrued payables. Dividends payable decreased $4.9 million at June 30, 2000 due to the payment of dividends of $4.9 million (declared in 1999) in first quarter 2000. Income taxes payable increased by $5.6 million at June 30, 2000 representing the estimated income tax expense attributed to income generated in the six months of 2000. Deferred revenue decreased $8.5 million at June 30, 2000, primarily due to the significant amount of admission and seat revenue that was received prior to December 31, 1999 recognized as income in May 2000 for the Kentucky Derby and Kentucky Oaks race days. The long-term debt decrease of $14.2 million was the result of the application of current cash flow to reduce borrowings under our bank line of credit during 2000. Significant Changes in the Balance Sheet June 30, 2000 to June 30, 1999 Restricted cash increased $30.4 million as a result of current period separate classification of restricted assets primarily due to the timing of Hollywood Park's live racing meet. Accounts receivable increased $8.4 million at June 30, 2000. The acquisition of Hollywood Park increased accounts receivable by $7.1 million. The remaining increase was primarily due to the timing of payments received for Churchill Downs racetrack's live Spring Meet. Net plant and equipment increased $142.9 million primarily as a result of the acquisition of Hollywood Park. Additional increases were due to routine capital spending at our operating units offset by depreciation expense and the sale of the Kentucky Horse Center assets during the second quarter of 2000. 18

CHURCHILL DOWNS INCORPORATED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The accounts payable increase of $18.8 million was primarily due to the acquisition of Hollywood Park which represents $7.6 million of the increase. The additional $11.2 million increase was due to the timing of payments for horsemen-related and simulcast payables for Churchill Downs racetrack Spring Meet. Accrued expenses increased $20.3 million, primarily due to a $19.1 million increase as a result of the Hollywood Park acquisition. The long-term debt net increase of $63.4 million was due primarily to line of credit borrowings used to fund the acquisition of Hollywood Park. Common stock increased $62.7 million primarily due to $62.1 million in net proceeds received from our public offering during the third quarter of 1999. Liquidity and Capital Resources The working capital deficiency was $4.9 million at June 30, 2000 and 1999 which results from the seasonality of our businesses. Cash flows provided by operations were $18.2 and $26.1 million for the six months ended June 30, 2000 and 1999, respectively. Management believes cash flows from operations and available borrowings during 2000 will be sufficient to fund our cash requirements for the year, including capital improvements and future acquisitions. Cash flows used in investing activities were $8.5 million and $93.7 million for the six months ended June 30, 2000 and 1999, respectively. Cash used for 1999 business acquisitions consisted of $82.4 million net of cash acquired for the acquisition of Calder Race Course during the second quarter and $2.9 million net of cash acquired for the acquisition of Charlson Broadcast Technologies, LLC during the first quarter. We used $13.5 million during 2000 for capital spending at our facilities including $4.9 million for the expansion of Churchill Downs' main entrance and corporate offices. Cash flows (used in) provided by financing activities were $(16.8) and $83.1 million for the six months ended June 30, 2000 and 1999, respectively. We borrowed $15 million and repaid $29 million on our line of credit during 2000. In April 1999, our total line of credit was increased to $250 million under a revolving loan facility, of which $164 million was outstanding at June 30, 2000. This line of credit is secured by substantially all of our assets and matures in 2004. This credit facility is intended to meet working capital and other short- term requirements and to provide funding for future acquisitions. 19

CHURCHILL DOWNS INCORPORATED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Impact of Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivatives and Hedging Activities (SFAS 133), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS 133, as amended by SFAS 137, is effective for the Company's year ending December 31, 2001. Management of the Company is currently analyzing the impact of SFAS 133 but anticipates that the adoption of SFAS 133 will not have a material effect on the Company's results of operations or financial position. On December 3, 1999, the staff of the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. SAB 101 summarizes some of the staff's interpretations of the application of generally accepted accounting principles to revenue recognition. The staff of the SEC issued Staff Accounting Bulletin No. 101B (SAB 101B) which delays the application of the accounting and disclosure requirements to no later than the fourth quarter of the fiscal year beginning after December 15, 1999. Management of the Company is currently analyzing the impact of SAB 101 and plans to adopt the accounting and disclosure requirements in the fourth quarter of 2000. Management does not anticipate the adoption of SAB 101 to have a material effect on the Company's results of operations or financial position. Pending Transactions We have entered into a definitive agreement with Centaur, Inc. ("Centaur") to sell a 26% interest in Hoosier Park, LP ("HPLP") for a purchase price of $8.5 million. HPLP is an Indiana limited partnership that owns Hoosier Park racetrack and related OTBs. Upon closing, we will retain a 51% interest in HPLP and continue to manage its day-to-day operations. Centaur, which already owned a portion of HPLP prior to the agreement, will then hold a 39% minority interest in HPLP. The transaction is subject to certain closing conditions, including the approval of the IHRC. 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. If Centaur does not exercise this option, both parties will have an opportunity to purchase the other's remaining interest on the basis of specific terms outlined in the definitive agreement. Closing is expected during the third quarter of 2000. We have also entered into a definitive agreement with Duchossois Industries Inc. ("DII"), a privately held company that owns Arlington International Racecourse, under which Arlington International Racecourse Inc., Arlington Management Services Inc. and Turf Club of Illinois Inc. will merge with us. Under terms of the agreement, we will issue 3.15 million shares of our common stock upon closing to DII. The agreement also specifies the issuance of up to an additional 1.25 million shares of our stock to DII depending on certain developments and conditions over a future period. DII has entered into a stockholder's agreement that will provide for restrictions on the voting and transfer of the shares of the common stock received in the merger. The transaction remains subject to customary closing conditions, including the approval of the Illinois Racing Board, Florida Division of Pari-Mutuel Wagering, Department of Business and Professional Regulation and our shareholders. Closing of the transaction is expected during September 2000. 20

CHURCHILL DOWNS INCORPORATED ITEM 3. Quantitative and Qualitative Disclosures about Market Risk At June 30, 2000, we had $164 million of debt outstanding under our revolving loan facility, which bears interest at LIBOR based variable rates. We are exposed to market risk on variable rate debt due to potential adverse changes in the LIBOR rate. Assuming the outstanding balance on the revolving loan facility remains constant, a one percentage point increase in the LIBOR rate would reduce annual pre-tax earnings and cash flows by $1.6 million. In order to mitigate a portion of the market risk associated with our variable rate debt, we have entered into interest rate swap contracts with major financial institutions. Under terms of these separate contracts we receive a LIBOR based variable interest rate on notional amounts of $35.0 million each and pay a fixed interest rate of 5.89%, 7.015% and 7.30%, which mature in August 2000, March 2003 and May 2002, respectively. Assuming the June 30, 2000 notional amounts under the interest rate swap contracts remain constant, a one percentage point increase in the LIBOR rate would increase annual pre-tax earnings and cash flows by $1.1 million. Management plans to engage in further interest rate swap agreements in the future to reduce our interest rate exposure. PART II. OTHER INFORMATION ITEM 1. Legal Proceedings Not Applicable ITEM 2. Changes in Securities and Use of Proceeds Not Applicable ITEM 3. Defaults Upon Senior Securities Not Applicable ITEM 4. Submission of Matters to a Vote of Security Holders The registrant's 2000 Annual Meeting of Shareholders was held on June 22, 2000. Proxies were solicited by the registrant's board of directors pursuant to Regulation 14 under the Securities Exchange Act of 1934. There was no solicitation in opposition to the board's nominees as listed in the proxy statement, and all nominees were elected by vote of the shareholders. Voting results for each nominee were as follows: 21

Class I Directors Votes For Votes Withheld ----------------- --------- -------------- William S. Farish 7,910,933 78,670 G. Watts Humphrey, Jr. 7,910,939 78,664 Brad M. Kelley 7,917,527 72,076 Dennis Swanson 7,908,529 81,074 A proposal (Proposal No. 2) to approve the Churchill Downs Incorporated 2000 Employee Stock Purchase Plan was approved by a vote of the majority of the shares of the registrant's common stock represented at the meeting: 7,698,853 shares were voted in favor of the proposal; 199,515 were voted against; and 91,235 abstained. A proposed amendment (Proposal No. 3) of the Churchill Downs Incorporated 1997 Stock Option Plan to increase the number of shares of common stock available for issuance under the plan from 300,000 shares to 600,000 shares was approved by a vote of the majority of the shares of the registrant's common stock represented at the meeting: 7,482,956 shares were voted in favor of the proposal; 463,890 were voted against; and 42,757 abstained. A proposal (Proposal No. 4) to approve the minutes of the 1999 Annual Meeting of Shareholders' was approved by a vote of the majority of the shares of the registrant's common stock represented at the meeting: 7,852,448 shares were voted in favor of the proposal; 50,313 were voted against; and 86,842 abstained. The total number of shares of common stock outstanding as of April 24, 2000, the record date of the Annual Meeting of Shareholders, was 9,853,627. ITEM 5. Other Information Not Applicable ITEM 6. Exhibits and Reports on Form 8-K. A. Exhibits See exhibit index on page 24. B. Reports on Form 8-K Churchill Downs Incorporated filed a Current Report on Form 8-K dated June 23, 2000, under Item 5,"Other Events", reporting the agreement and plan of merger with Duchossois Industries Inc., A. Acquisition Corp., A. Management Acquisition Corp., T. Club Acquisition Corp., Arlington International Racecourse, Inc., Arlington Management Services, Inc. and Turf Club of Illinois, Inc. Churchill Downs Incorporated filed a Current Report on Form 8-K dated May 9, 2000, under Item 5, "Other Events", reporting on Churchill Downs Incorporated first quarter results for 2000. 22

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHURCHILL DOWNS INCORPORATED August 14, 2000 \s\Thomas H. Meeker --------------------------------------------- Thomas H. Meeker President and Chief Executive Officer (Director and Principal Executive Officer) August 14, 2000 \s\Robert L. Decker ---------------------------------------------- Robert L. Decker Executive Vice President and Chief Financial Officer (Principal Financial Officer) August 14, 2000 \s\Michael E. Miller ---------------------------------------------- Michael E. Miller Senior Vice President, Finance (Principal Accounting Officer) 23

EXHIBIT INDEX Numbers Description By Reference To ------- ----------- --------------- (2)(a) Agreement and Plan of Merger dated as of June Exhibit 2 (i) to 23,2000 by Churchill Downs Incorporated, A. Report on Form 8-K Acquisition Corp., A. Management Acquisition dated June 23, 2000 Corp., T. Club Acquisition Corp., Arlington International Racecourse, Inc., Arlington Management Services, Inc., Turf Club of Illinois, Inc. and Duchossois Industries, Inc. (10)(a) Fourth Amendment to $250,000,000 Revolving Page 25, Report on Credit Facility Credit Agreement dated May Form 10-Q for the 12, 2000 fiscal quarter ended June 30, 2000 (b) Fifth Amendment to $250,000,000 Revolving Page 37, Report on Credit Facility Credit Agreement dated Form 10-Q for the June 19, 2000 fiscal quarter ended June 30, 2000 (27) Financial Data Schedule for the fiscal Page 49, Report on quarter ended June 30, 2000 Form 10-Q for the fiscal quarter ended June 30, 2000 24

FOURTH AMENDMENT to $250,000,000 REVOLVING CREDIT FACILITY CREDIT AGREEMENT by and among CHURCHILL DOWNS INCORPORATED, as the Borrower, and THE GUARANTORS PARTY HERETO and THE BANKS PARTY HERETO and PNC BANK, NATIONAL ASSOCIATION, As Agent, and CIBC OPPENHEIMER CORP., As Syndication Agent. and BANK ONE, KENTUCKY, N.A., As Documentation Agent Dated as of May 12, 2000 25

THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (the "Fourth Amendment") dated as of May 12, 2000, by and among CHURCHILL DOWNS INCORPORATED, as the Borrower (the "Borrower"), the GUARANTORS party to the Credit Agreement (as hereinafter defined), the BANKS party to the Credit Agreement (as hereinafter defined) and PNC BANK, NATIONAL ASSOCIATION, as the Agent (the "Agent"), and CIBC OPPENHEIMER CORP., as Syndication Agent.and BANK ONE, KENTUCKY, N.A., as Documentation Agent WHEREAS, reference is made to the Credit Agreement dated April 23, 1999, as amended prior to the date hereof (the "Credit Agreement") described above; WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement; and WHEREAS, the parties to the Credit Agreement desire to amend the Credit Agreement as set forth herein. NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows: 1. Amendments to Credit Agreement Relating to Working Cash Line. The following amendments to the Credit Agreement are effective on the date hereof and shall remain in force until the Termination Date (as defined below). A. Definitions (Section 1.1) ------------------ (i) Existing Definitions. --------------------- The following definition contained in Section 1.1 is hereby amended and restated to read as follows: Settlement Date shall mean with respect to each Swing ---------------- Loan, any Business Day on which the Agent elects to effect settlement pursuant to Section 4.6." (ii) New Definitions. ---------------- Section 1.1 of the Credit Agreement is hereby amended to include the following new definition: "Money Management Arrangements shall have the meaning -------------------------------- assigned to such term in Section 2.5.2." B. Swing Loan Requests (Section 2.4.2) -------------------------- Section 2.4.2 (Swing Loan Requests) is hereby deleted and the words 26

"Intentionally Omitted" are inserted in lieu thereof. The defined term, "Swing Loan Request" and all references thereto are hereby deleted. C. Making Swing Loans (Section 2.5.2) ------------------------- Section 2.5.2 [Making Swing Loans] of the Credit Agreement is hereby amended and restated to read as follows: "2.5.2 Making Swing Loans. ------------------ "If at any time on any Business Day the target balance of cash to be held in the Borrower's accounts with PNC Bank maintained in connection with the money management services provided by the PNC Bank for the Borrower (the "Money Management Arrangements") as agreed upon by the Borrower and PNC Bank shall exceed the actual balance in such accounts (such excess shall be referred to as the "Deficit Balance"), PNC Bank may, on behalf of the Borrower and without the requirement that the Borrower deliver any written request therefor, make a Swing Loan to the Borrower in an amount which shall not exceed the lesser of (i) the Deficit Balance, and (ii) the amount, if any, available under the Swing Loan Commitment, which amount shall be deposited in an account under the Money Market Arrangements. The aggregate amount of all disbursements of Swing Loans made and shown on the PNC Bank's electronic data processing equipment, over all of the payments of principal made by the Borrower and recorded on PNC Bank's electronic data processing equipment shall be prima facie evidence of the outstanding principal balance due under the Swing Loan Note absent manifest error. D. Borrowings to Repay Swing Loans (Section 2.9) -------------------------------------- Section 2.9 [Borrowings to Repay Swing Loans] of the Credit Agreement is hereby amended and restated to read as follows: "2.9 Borrowings to Repay Swing Loans. ------------------------------- Any aggregate positive balance of cash over the targeted amount of cash in the applicable accounts under the Money Market Arrangements shall, to the extent available at the end of a Business Day, be automatically applied to the repayment of the outstanding balance of the Swing Loans. In addition to the repayments referred to in the preceding sentence, PNC may at its option at any time demand repayment of the Swing Loans (including any such times as are specified in the Agent's Letter as amended from time to time), and upon any such demand each Bank shall make a Revolving Credit Loan in an amount equal to such Bank's Ratable Share of the aggregate principal amount of such outstanding Swing Loan, plus, if PNC so requests, accrued interest thereon, provided that no Bank shall be obligated in any event to make Revolving Credit Loans in excess of its Revolving Credit Commitment. 27

Revolving Credit Loans made pursuant to the preceding sentence shall bear interest at the Base Rate Option and shall be deemed to have been properly requested in accordance with Section 2.4.1 without regard to any of the requirements of that provision or other provisions of the Agreement. PNC shall provide notice to the Banks (which may be telephonic or written notice by letter, facsimile or telex) that such Revolving Credit Loans are to be made under this Section 2.9 and of the apportionment among the Banks, and the Banks shall be unconditionally obligated to fund such Revolving Credit Loans (whether or not the conditions specified in Section 6 are then satisfied) by the time PNC so requests, which may be on the Business Day that the Banks receive such notice from PNC. E. Revolving Credit Interest Rate Options.(Section 3.1) --------------------------------------------- The first sentence in Section 3.1 (Revolving Credit Interest Rate Options) is hereby amended to read as follows: "Swing Loans shall bear interest at the interest rate set forth in the Agent's Letter as amended on the date of the Fourth Amendment to this Agreement and as amended thereafter." F. Restrictions on Indebtedness (Section 7.2.1). --------------------------------------------------- A new clause (xii) is hereby added to Section 7.2.1 (Indebtedness) to read as set forth below. Such clause (xii) shall follow immediately after clause (xi) of such Section 7.2.1 and the period at the end of such clause (xi) is hereby deleted and the following is inserted in lieu thereof: ", and". "(xii) Loans incurred by the Loan Parties under the Money Market Arrangements which are required to be repaid on the same Business Day as that on which such loans are incurred, provided that the aggregate amount of such loans shall not exceed $10,000,000 in principal amount. G. Termination Date. ----------------------- All of the amendments to the Credit Agreement set forth in this Section 1 shall terminate and be of no further force and effect on the date on which both of the following events shall have occurred (such date shall be referred to as the "Termination Date"): (i) the Money Management Agreements (as defined in the Credit Agreement as amended by this Fourth Amendment) shall have been terminated by the parties thereto in accordance with the termination provisions therein and (ii) all obligations due to the Agent under Money Management Agreements shall have been repaid in full, including repayment of any Deficit Balance (as defined in the Credit Agreement as amended by this Fourth Amendment) and any expenses, fees or other amounts owing to the Agent. On and after the Termination Date, all provisions of the Credit Agreement in effect prior to the date hereof which are being terminated, amended or restated by this Fourth Amendment (including the right to request Swing Loans contained in Section 2.5.2) shall be in force and effect again without giving effect to such termination, amendment or restatement. 28

2. Amendments to Credit Agreement and Waivers Relating to Financial Covenants The following amendments to the Credit Agreement and waivers are effective as of March 31, 2000: A. Amendment to Section 7.2.21 (Minimum Fixed Charge Coverage ----------------------------------------------------------------- Ratio) and Waiver - ------------------- (i) Amendment to Section 7.2.21. The parties hereto hereby amend and restate Section 7.2.21 (Minimum Fixed Charge Coverage Ratio) to read as follows: 7.2.21 Minimum Fixed Charge Coverage Ratio. ----------------------------------- The Loan parties shall not permit the Fixed Charge Coverage Ratio for the four fiscal quarters ending on the last day of each fiscal quarter to be less than the applicable ratios set forth on Schedule 7.2 as of the dates set forth on such Schedule under column (4) (titled "Minimum Fixed Charge Coverage Ratio"). For purposes of this covenant, ConsolidatedEBITDA shall include the rolling four quarter EBITDA of any entity which has been or is being acquired by the Loan Parties if such entity is or will become a Loan Party hereunder. (ii) Waiver with Respect to Section 7.2.21. The --------------------------------------------- Banks hereby waive any violation of Section 7.2.21 during the period from March 31, 2000 through the date hereof. B. Amendment to Definition of Interest Coverage Ratio. --------------------------------------------------------- The parties hereto hereby amend and restate the definition of Interest Coverage Ratio contained in Section 1.1 of the Credit Agreement to read as follows: Interest Coverage Ratio shall mean the ratio of Consolidated EBIT to the sum of Consolidated Interest Expense, in each instance computed as of the end of each quarter for the four quarters then ended. C. Amendment to Schedule 7.2 (Financial Covenant Levels). ------------------------------------------------------------ The parties hereto hereby amend Schedule 7.2 (Financial Covenant Levels) by (i) deleting the figure of "2.00" under column (5) for the Fiscal Quarter Ended 3/31/00 and substituting the figure "1.90" in its place; (ii) deleting each figure of "2.50" under Column (5) for the Fiscal Quarters Ended 3/31/02, 29

6/30/02, 9/30/02 and 12/31/02 and substituting the figure "2.25" in place of each deleted figure; (iii) deleting each figure of "2.75" under column (5) for the Fiscal Quarters Ended 3/31/03, 6/30/03, 9/30/03 and 12/31/03 and substituting the figure "2.50" in place of each deleted figure; (iv) amending and restating the heading of column (5) to read "Minimum Interest Coverage Ratio"; and (v) deleting column (6) entirely. D. Amendment to Section 7.2.19 (Minimum Interest Coverage ----------------------------------------------------------------- Ratio) and Waiver. - ----------------- (i) Amendment to Section 7.2.19. The parties ---------------------------------- hereto hereby amend and restate Section 7.2.19 to read as follows: 7.2.19 Minimum Interest Coverage Ratio. ------------------------------- The Loan Parties shall not permit the Interest Coverage Ratio for the four fiscal quarters ending on the last day of each fiscal quarter to be ess than the ratio set forth on Schedule 7.2 under column (5) (titled "Minimum Interest Coverage Ratio") and as of the dates set forth on such schedule. (ii) Waiver with Respect to Section 7.2.19. The ---- ------------------------------------- Banks hereby waive any violation of Section 7.2.19 during the period from March 31, 2000 through the date hereof. 3. Warranties A. Warranties Under the Credit Agreement -------------------------------------------- The representations and warranties of Loan Parties contained in the Credit Agreement, after giving effect to the amendments thereto on the date hereof, are true and correct on and as of the date hereof with the same force and effect as though made by the Loan Parties on such date, except to the extent that any such representation or warranty expressly relates solely to a previous date. The Loan Parties are in compliance with all terms, conditions, provisions, and covenants contained in the Credit Agreement. B. Power and Authority; Validity and Binding Effect; No ----------------------------------------------------------------- Conflict. -------- Each Loan Party has full power to enter into, execute, deliver and carry out this Fourth Amendment, and such actions have been duly authorized by all necessary proceedings on its part. This Fourth Amendment has been duly and validly executed and delivered by each Loan Party. This Fourth Amendment 30

constitutes the legal, valid and binding obligation of each Loan Party which is enforceable against such Loan Party in accordance with its terms. Neither the execution and delivery of this Fourth Amendment nor the consummation of the transactions herein contemplated will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of any organizational documents of any Loan Party or (ii) any Law or any material agreement or instrument or other obligation to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound, or result in the creation or enforcement of any Lien upon any property of any Loan Party or any of its Subsidiaries other than as set forth herein. C. Consents and Approvals; No Event of Default. -------------------------------------------------- No consent, approval, exemption, order or authorization of any Person other than the parties hereto is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Fourth Amendment. No event has occurred and is continuing and no condition exists or will exist after giving effect to this Fourth Amendment which constitutes an Event of Default or Potential Default. 4. Conditions to Effectiveness. The effectiveness of this Fourth Amendment is subject to satisfaction of each of the following conditions on or before the date hereof: A. Representations and Warranties. ------------------------------------- Each of the representations and warranties under Section 3 hereof are true and correct on the date hereof. B. Execution by Required Banks, Agent and Loan Parties. ---------------------------------------------------------- This Fourth Amendment shall have been executed by all of the Banks, the Agent and the Loan Parties on or before the date hereof. C. Opinion of Counsel. ------------------------- The Loan Parties shall have delivered an opinion of their counsel (which may be "in house") confirming the warranties in Section 3 hereof. D. Amendment Fees. --------------------- The Borrower shall pay to the Agent for the ratable benefit of the Banks a fee in the amount of $62,500. 5. References to Credit Agreement, Loan Documents. Any reference to the Credit Agreement or other Loan Documents in any document, instrument, or agreement shall hereafter mean and include the 31

Credit Agreement or such Loan Document, including such schedules and exhibits, as amended hereby. In the event of irreconcilable inconsistency between the terms or provisions hereof and the terms or provisions of the Credit Agreement or such Loan Document, including such schedules and exhibits, the terms and provisions hereof shall control. 6. Force and Effect. The Borrower reconfirms, restates, and ratifies the Credit Agreement, the Swing Loan Note and all other documents executed in connection therewith except to the extent any such documents are expressly modified by this Fourth Amendment and Borrower confirms that all such documents have remained in full force and effect since the date of their execution. 7. Governing Law. This Fourth Amendment shall be deemed to be a contract under the laws of the Commonwealth of Kentucky and for all purposes shall be governed by and construed and enforced in accordance with the internal laws of the Commonwealth of Kentucky without regard to its conflict of laws principles. 8. Counterparts; Effective Date. This Fourth Amendment may be signed in any number of counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Fourth Amendment shall become effective when it has been executed by the Agent, the Loan Parties and all of the Banks and each of the other conditions set forth in Section 4 of this Fourth Amendment has been satisfied. [SIGNATURE PAGES TO FOLLOW] 32

[SIGNATURE PAGE 1 OF 4 TO FOURTH AMENDMENT] IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Fourth Amendment as of the day and year above written. BORROWER: CHURCHILL DOWNS INCORPORATED By: ------------------------------------------ Title: --------------------------------------- GUARANTORS: CHURCHILL DOWNS MANAGEMENT COMPANY By: ------------------------------------------ Title: --------------------------------------- CHURCHILL DOWNS INVESTMENT COMPANY By: ------------------------------------------ Title: --------------------------------------- RACING CORPORATION OF AMERICA By: ------------------------------------------ Title: --------------------------------------- ELLIS PARK RACE COURSE, INC. By: ------------------------------------------ Title: --------------------------------------- 33

[SIGNATURE PAGE 2 OF 4 TO FOURTH AMENDMENT] CALDER RACE COURSE, INC. By: ------------------------------------------ Title: --------------------------------------- TROPICAL PARK, INC. By: ------------------------------------------ Title: --------------------------------------- CHURCHILL DOWNS CALIFORNIA COMPANY By: ------------------------------------------ Title: --------------------------------------- CHURCHILL DOWNS CALIFORNIA FALL OPERATING COMPANY By: ------------------------------------------ Title: --------------------------------------- CHURCHILL DOWNS CALIFORNIA FOOD SERVICES COMPANY By: ------------------------------------------ Title: --------------------------------------- 34

[SIGNATURE PAGE 3 OF 4 TO FOURTH AMENDMENT] BANKS AND AGENT PNC BANK, NATIONAL ASSOCIATION, individually and as Agent By: ------------------------------------------ Title: --------------------------------------- BANK ONE, KENTUCKY, NA By: ------------------------------------------ Title: --------------------------------------- CIBC INC. By: ------------------------------------------ Title: --------------------------------------- COMERICA BANK By: ------------------------------------------ Title: --------------------------------------- FIFTH THIRD BANK By: ------------------------------------------ Title: --------------------------------------- 35

[SIGNATURE PAGE 4 OF 4 TO FOURTH AMENDMENT] NATIONAL CITY BANK OF KENTUCKY By: ------------------------------------------ Title: --------------------------------------- FIRSTAR BANK, N.A. By: ------------------------------------------ Title: --------------------------------------- BANK OF LOUISVILLE By: ------------------------------------------ Title: --------------------------------------- CIVITAS BANK By: ------------------------------------------ Title: --------------------------------------- WELLS FARGO BANK By: ------------------------------------------ Title: --------------------------------------- 36

WAIVER AND FIFTH AMENDMENT to $250,000,000 REVOLVING CREDIT FACILITY CREDIT AGREEMENT by and among CHURCHILL DOWNS INCORPORATED, as the Borrower, and THE GUARANTORS PARTY HERETO and THE BANKS PARTY HERETO and PNC BANK, NATIONAL ASSOCIATION, As Agent, and CIBC OPPENHEIMER CORP., As Syndication Agent. and BANK ONE, KENTUCKY, N.A., As Documentation Agent Dated as of June 19, 2000 37

THIS WAIVER AND FIFTH AMENDMENT TO $250,000,000 REVOLVING CREDIT FACILITY CREDIT AGREEMENT (the "Fifth Amendment") dated as of June 19, 2000, by and among CHURCHILL DOWNS INCORPORATED, as the Borrower (the "Borrower"), the GUARANTORS party to the Credit Agreement (as hereinafter defined), the BANKS party to the Credit Agreement (as hereinafter defined) and PNC BANK, NATIONAL ASSOCIATION, as the Agent (the "Agent"), and CIBC OPPENHEIMER CORP., As Syndication Agent. and BANK ONE, KENTUCKY, N.A., As Documentation Agent. WHEREAS, reference is made to the Credit Agreement dated April 23, 1999 as amended prior to the date hereof (the "Credit Agreement") described above; WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement; WHEREAS, the Borrower has entered into that certain Agreement and Plan Merger (the "Arlington Acquisition Agreement"), dated as of June 23, 2000, between Duchossois Industries, Inc. ("Duchossois"), the Borrower and Arlington International Racecourse, Inc., Arlington Management Services, Inc., Turf Club of Illinois, Inc., and three Borrower wholly owned acquisition Subsidiaries, , pursuant to which three Subsidiaries of the Borrower shall merge into the following three Subsidiaries of Duchossois: Arlington International Racecourse, Inc. ("AIRI"), an Illinois corporation Arlington Management Services, Inc. ("AMSI") , an Illinois corporation Turf Club of Illinois, Inc. ("Turf Club") , an Illinois corporation On the effective date of the above-referenced mergers (the "Acquisition Closing Date"), the Borrower shall receive, by virtue of the mergers, stock of AIRI, AMSI and Turf Club (collectively, together with the Subsidiaries of AIRI, AMSI and Turf Club, the "Arlington Companies to be Acquired") and the Borrower shall issue to Duchossois, by virtue of the mergers, 3,150,000 shares of its stock on the Acquisition Closing Date and up to 1,250,000 additional shares of such stock after the Acquisition Closing Date (collectively, the acquisition of the Arlington Companies to be Acquired, by the Borrower pursuant to the Arlington Acquisition Agreement shall be referred to as the "Arlington Park Acquisition"), as more fully set forth in the Arlington Acquisition Agreement; WHEREAS, the Arlington Companies to be Acquired own the Arlington Park racetrack located in Arlington Heights, Illinois ("Arlington Park Facility") and two-off track betting facilities (the "Arlington Owned OTB Facilities"), and lease two-off track betting facilities (collectively all leased facilities shall be referred to as the "Arlington Leased Facilities") as more fully described in the Arlington Acquisition Agreement and subject to the exceptions described therein; WHEREAS, Section 7.2.5 of the Credit Agreement further provides in part that the Loan Parties shall elect to treat each Person in which they acquire ownership interests in connection with a Permitted Acquisition either as a Loan Party or as an Excluded Entity. The Loan Parties desire to elect to treat each 38

of the Arlington Companies to be Acquired as a Loan Party (and not as an Excluded Entity) on and after the Acquisition Closing Date; WHEREAS, Section 7.2.5 of the Credit Agreement further provides in part that the Loan Parties may not become a party to any merger or consolidation unless they satisfy certain conditions which include delivering an Acquisition Compliance Certificate evidencing that the Loan Parties shall be in compliance with the financial covenants contained in Sections 7.2.1, 7.2.4 or 7.2.17 through 7.2.21 after making such acquisition; WHEREAS, Section 7.2.17 (Maximum Total Leverage Ratio), 7.2.18 (Maximum Senior Leverage Ratio) and Section 7.2.21 (Minimum Fixed Charge Coverage Ratio) each provide in part as follows: "For purposes of this covenant, EBITDA shall include the rolling four quarter results of any entity being acquired by the Loan Parties if such entity will become a Loan Party hereunder;" and WHEREAS, the Loan Parties request that the Banks waive the requirement that the Loan Parties shall include the results of the Arlington Companies to be Acquired for periods prior to the Acquisition Closing Date in their rolling four quarter computations of EBITDA for purposes of Section 7.2.17 (Maximum Total Leverage Ratio), Section 7.2.18 (Maximum Senior Leverage Ratio) and Section 7.2.21 (Minimum Fixed Charge Coverage Ratio) so that the computations of EBITDA for purposes of the covenants contained in such Sections shall include, for periods prior to the Acquisition Closing Date, the EBITDA of the Loan Parties but shall not include the EBITDA of the Arlington Companies to be Acquired. NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows: 1. Waiver and Amendment Under Credit Agreement. Subject to the conditions contained in this Fifth Amendment, the Banks hereby waive the requirement that the Loan Parties shall include the results of the Arlington Companies to be Acquired for periods prior to the Acquisition Closing Date in their rolling four quarter computations of EBITDA performed after the Acquisition Closing Date for purposes of Section 7.2.17 (Maximum Total Leverage Ratio), Section 7.2.18 (Maximum Senior Leverage Ratio) and Section 7.2.21 (Minimum Fixed Charge Coverage Ratio) of the Credit Agreement. The computations of EBITDA performed after the Acquisition Closing Date for purposes of such Sections shall include, (i) for periods prior to the Acquisition Closing Date, the EBITDA of the Loan Parties but not the EBITDA of the Arlington Companies to be Acquired, and (ii) for periods after the Acquisition Closing Date, the EBITDA of the Loan Parties including the Arlington Companies to be Acquired. 2. Warranties The Loan Parties, jointly and severally, represent and warrant as follows: 39

A. Recitals. --------------- The recitals hereto are true and correct in all material respects. B. Incorporation into Credit Agreement. The representations and warranties in this Section 2 are incorporated in Section 5 of the Credit Agreement and any breach of such representations or warranties is a breach under Section 5 of the Credit Agreement. C. Other Warranties Under the Credit Agreement The other representations and warranties of Loan Parties contained in the Credit Agreement, after giving effect to the amendments thereto on the date hereof, are true and correct on and as of the date hereof with the same force and effect as though made by the Loan Parties on such date, except to the extent that any such representation or warranty expressly relates solely to a previous date. The Loan Parties are in compliance with all terms, conditions, provisions, and covenants contained in the Credit Agreement. 3. Conditions to Effectiveness. This Fifth Amendment shall become effective provided that each of the following conditions is satisfied as of the date set forth in such condition: A. Representations and Warranties. ------------------------------------- Each of the Borrower's representations and warranties under Section 2 hereof shall be true and correct on the Fifth Amendment Effective Date, as that term is defined herein. B. Opinion of Counsel. ------------------------- On or before the Fifth Amendment Effective Date, there shall be delivered to the Agent for the benefit of each Bank written opinions of Wyatt, Tarrant & Combs (which may include reliance on applicable local counsel of the Loan Parties) and Rebecca C. Reed, counsel for the Loan Parties, in each case dated the Fifth Amendment Effective Date as to the warranties listed in Exhibit 3(B) hereto as such warranties relate to this Fifth Amendment and the documents executed in connection herewith and the consents required for this Fifth Amendment and such other documents. C. Execution by Required Banks, Agent and Loan Parties. ---------------------------------------------------------- 40

On or before the Fifth Amendment Effective Date, this Fifth Amendment shall have been executed by the Required Banks, the Agent and the Loan Parties. D. Acknowledgments Regarding Closing Conditions. --------------------------------------------------- At least five (5) Business Days before the Acquisition Closing Date, the Loan Parties shall acknowledge and agree that they shall execute and deliver the following to the Agent for the benefit of the Banks: (a) Acquisition Compliance Certificate. ----------------------------------------- An Acquisition Compliance Certificate in accordance with Section 7.2.5 of the Credit Agreement which shall be computed in accordance with the terms of the Credit Agreement as amended by this Fifth Amendment and using rolling four quarters tests through and including the most recent quarter for which the applicable financial statements are available, provided that if the Acquisition Closing Date occurs (i) on or after August 15, 2000 but within the third quarter of 2000 such Certificate shall be computed using rolling four quarters test through and including June 30, 2000, and (ii) in any quarter (the "Acquisition Closing Quarter") ending after September 30, 2000 , such Compliance Certificate shall be computed using rolling four quarters test (A) through and including the last day of the immediately preceding fiscal quarter if the Acquisition Closing Date occurs more than 45 days after the commencement of the Acquisition Closing Quarter, and (B) through and including the last day of the second preceding fiscal quarter if the Acquisition Closing Date occurs within the first 45 days of the Acquisition Closing Quarter. (b) Financial Statement Deliveries. ------------------------------------- The (1) audited financial statements of the Arlington Companies to be Acquired for the fiscal year ended December 31, 1999, (2) unaudited financial statements of the Borrower through and including the date on which the rolling four quarters test is to be measured as provided in Section 3(D)((a)) of this Fifth Amendment, (3) projections for the Borrower on a consolidated basis for the period ending December 31, 2001, and (4) the projected financial covenant ratios titled "Compliance Ratio Worksheet." (c) Opinion of Counsel. ---------------------- A written opinion of Wyatt, Tarrant & Combs and Skadden, Arps, Slate, Meagher, & Flom (Illinois) and any other applicable local counsel for the Loan Parties, dated as of the Acquisition Closing Date addressing the representations and warranties covered in the opinions delivered on the Closing Date of the Credit Agreement as such representations and warranties relate to the Guarantor Joinders, other Loan Documents and other documents to be delivered in connection with the Arlington Park Acquisition (except that the opinion on capitalization may provide that it is based in part on a certificate of an officer of the Arlington Companies to be Acquired). 41

(d) Other Documents. ---------------------- Each of the other documents required under the Credit Agreement in connection with the Arlington Park Acquisition, including Guarantor Joinders by any new Subsidiaries which shall become Loan Parties, a Mortgage on the Arlington Park Facility, at the request of the Agent, Mortgages on the Arlington Owned OTB Facilities and Borrower shall use its best efforts to grant a leasehold mortgage in a form acceptable to the Agent (a "Leasehold Mortgage") and an appropriate landlord waiver and estoppel on the Arlington Leased Facility located in Chicago, Illinois and related title insurance policies and surveys (except with respect to the Arlington Owned OTB Facilities, the Borrower shall use its best efforts to deliver satisfactory title insurance policies and surveys) and environmental reports (except with respect to the Arlington Owned OTB Facilities, the Borrower shall use its best efforts to deliver satisfactory environmental reports), the consents of the following Persons as may be required for the consummation of the transactions pursuant to the Arlington Acquisition Agreement and the grant of Liens to the Agent for the benefit of the Banks in the assets to be acquired in connection therewith, and the pledges to the Agent of the stock of the Arlington Companies to be Acquired: (i) the Illinois Racing Board (ii) the applicable state regulatory authorities in each of the other states in which the Loan Parties conduct racing businesses to the extent determined to be necessary, (iii) the shareholders of the Borrower and (iv) any other Persons from whom consent for such transactions may be required. E. Arlington Park Acquisition. --------------------------------- The Loan Parties shall consummate the Arlington Park Acquisition pursuant to the Arlington Acquisition Agreement on or before December 31, 2000. 4. References to Credit Agreement, Loan Documents. Any reference to the Credit Agreement or other Loan Documents in any document, instrument, or agreement shall hereafter mean and include the Credit Agreement or such Loan Document, including such schedules and exhibits, as amended hereby. In the event of irreconcilable inconsistency between the terms or provisions hereof and the terms or provisions of the Credit Agreement or such Loan Document, including such schedules and exhibits, the terms and provisions hereof shall control. 5. Force and Effect. The Borrower reconfirms, restates, and ratifies the Credit Agreement and all other documents executed in connection therewith except to the extent any such documents are expressly modified by this Fifth Amendment and Borrower confirms that all such documents have remained in full force and effect since the date of their execution. 42

6. Governing Law. This Fifth Amendment shall be deemed to be a contract under the laws of the Commonwealth of Kentucky and for all purposes shall be governed by and construed and enforced in accordance with the internal laws of the Commonwealth of Kentucky without regard to its conflict of laws principles. 7. Counterparts; Effective Date. This Fifth Amendment may be signed in any number of counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Fifth Amendment shall become effective when it has been executed by the Agent, the Loan Parties and the Required Banks and each of the other conditions set forth in Section 3 of this Fifth Amendment has been satisfied (the "Fifth Amendment Effective Date"). [SIGNATURE PAGES TO FOLLOW] 43

[SIGNATURE PAGE 1 OF 4 TO WAIVER AND FIFTH AMENDMENT] IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Fifth Amendment as of the day and year above written. BORROWER: CHURCHILL DOWNS INCORPORATED By: ------------------------------------------ Title: --------------------------------------- GUARANTORS: CHURCHILL DOWNS MANAGEMENT COMPANY By: ------------------------------------------ Title: --------------------------------------- CHURCHILL DOWNS INVESTMENT COMPANY By: ------------------------------------------ Title: --------------------------------------- RACING CORPORATION OF AMERICA By: ------------------------------------------ Title: --------------------------------------- ELLIS PARK RACE COURSE, INC. By: ------------------------------------------ Title: --------------------------------------- 44

[SIGNATURE PAGE 2 OF 4 TO WAIVER AND FIFTH AMENDMENT] CALDER RACE COURSE, INC. By: ------------------------------------------ Title: --------------------------------------- TROPICAL PARK, INC. By: ------------------------------------------ Title: --------------------------------------- CHURCHILL DOWNS CALIFORNIA COMPANY By: ------------------------------------------ Title: --------------------------------------- CHURCHILL DOWNS CALIFORNIA FALL OPERATING COMPANY By: ------------------------------------------ Title: --------------------------------------- CHURCHILL DOWNS CALIFORNIA FOOD SERVICES COMPANY By: ------------------------------------------ Title: --------------------------------------- 45

[SIGNATURE PAGE 3 OF 4 TO WAIVER AND FIFTH AMENDMENT] BANKS AND AGENT PNC BANK, NATIONAL ASSOCIATION, individually and as Agent By: ------------------------------------------ Title: --------------------------------------- BANK ONE, KENTUCKY, NA By: ------------------------------------------ Title: --------------------------------------- CIBC INC. By: ------------------------------------------ Title: --------------------------------------- COMERICA BANK By: ------------------------------------------ Title: --------------------------------------- FIFTH THIRD BANK By: ------------------------------------------ Title: --------------------------------------- 46

[SIGNATURE PAGE 4 OF 4 TO WAIVER AND FIFTH AMENDMENT] NATIONAL CITY BANK OF KENTUCKY By: ------------------------------------------ Title: --------------------------------------- FIRSTAR BANK, N.A. By: ------------------------------------------ Title: --------------------------------------- BANK OF LOUISVILLE By: ------------------------------------------ Title: --------------------------------------- FIFTH THIRD BANK INDIANA By: ------------------------------------------ Title: --------------------------------------- WELLS FARGO BANK By: ------------------------------------------ Title: --------------------------------------- 47

EXHIBIT 3(B) OPINION OF COUNSEL The opinion of Rebecca Reed shall confirm that the recitals hereto are true and correct in all material respects and that the other matters contained in the warranty in Section 2(B) hereto are true and the opinion of Wyatt, Tarrant & Combs shall confirm that the following representations and warranties in the Credit Agreement are true and correct as such warranties relate to this Fifth Amendment and the Credit Agreement as amended by this Fifth Amendment. Credit Agreement Section Warranty 5.1.1 Organization and Qualification 5.1.2 Capitalization and Ownership 5.1.4 Power and Authority 5.1.5 Validity and Binding Effect 5.1.6 No Conflict 5.1.12 Consents and Approvals 48

5 1,000 U.S. Dollars 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1 52,369 0 23,032 166 430 79,142 340,354 64,013 423,687 84,040 0 71,634 0 0 76,049 423,687 157,583 157,583 120,672 133,635 (90) 0 7,671 16,367 6,792 9,575 0 0 0 9,575 0.97 0.97