SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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 0-1469 61-0156015
-------- ------ ----------
(State or other (Commission File Number) (IRS Employer Identification
jurisdiction of No.)
incorporation or
organization)
700 Central Avenue, Louisville, KY 40208
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(502)-636-4400
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No____
The number of shares outstanding of registrant's common stock at May 15, 2001
was 13,084,451 shares.
1
CHURCHILL DOWNS INCORPORATED
I N D E X
PAGES
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets, March 31, 2001,
December 31, 2000 and March 31, 2000 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2001 and 2000 5
Condensed Notes to Consolidated Financial Statements 6-12
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-18
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings (Not applicable) 20
ITEM 2. Changes in Securities and Use of Proceeds (Not applicable) 20
ITEM 3. Defaults Upon Senior Securities (Not applicable) 20
ITEM 4. Submission of Matters to a Vote of Security Holders
(Not applicable) 20
ITEM 5. Other Information (Not applicable) 20
ITEM 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit Index 22
Exhibits 23
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31, March 31,
ASSETS 2001 2000 2000
---- ---- ----
(unaudited) (unaudited)
Current assets:
Cash and cash equivalents $ 8,066 $ 10,807 $ 8,577
Restricted cash 651 9,006 -
Accounts receivable 15,099 32,535 12,555
Prepaid income taxes 7,692 - 5,788
Other current assets 4,743 2,932 4,107
--------- --------- ---------
Total current assets 36,251 55,280 31,027
Other assets 8,546 8,116 7,229
Plant and equipment, net 342,629 342,767 276,712
Intangible assets, net 63,331 63,841 61,813
--------- --------- ---------
$450,757 $470,004 $376,781
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,010 $ 34,597 $ 12,797
Accrued expenses 25,963 30,914 14,926
Dividends payable - 6,508 -
Income taxes payable - 1,091 -
Deferred revenue 20,581 11,353 18,576
Long-term debt, current portion 2,541 2,324 511
--------- --------- ---------
Total current liabilities 71,095 86,787 46,810
Long-term debt, due after one year 160,774 155,716 175,075
Other liabilities 14,290 9,837 9,977
Deferred income taxes 13,959 15,179 15,534
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: 13,084 shares March 31,
2001, 13,019 shares December 31, 2000, and
9,854 shares March 31, 2000 124,485 123,227 71,634
Retained earnings 68,363 79,323 57,902
Accumulated other comprehensive income (2,144) - -
Deferred compensation costs - - (86)
Note receivable for common stock (65) (65) (65)
--------- --------- ---------
190,639 202,485 129,385
--------- --------- ---------
$450,757 $470,004 $376,781
========= ========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended March 31,
(Unaudited)
(In thousands, except per share data)
2001 2000
---- ----
Net revenues $ 31,715 $25,919
Operating expenses 39,263 31,368
--------- --------
Gross loss (7,548) (5,449)
Selling, general and administrative expenses 7,916 6,091
--------- --------
Operating loss (15,464) (11,540)
--------- --------
Other income (expense):
Interest income 113 266
Interest expense (3,515) (3,751)
Miscellaneous, net 131 42
--------- --------
(3,271) (3,443)
--------- --------
Loss before income tax benefit (18,735) (14,983)
Income tax benefit 7,775 6,218
--------- --------
Net loss $(10,960) $(8,765)
========= ========
Basic and diluted net loss per common share $(0.84) $(0.89)
========= ========
Basic and diluted weighted average
shares outstanding 13,045 9,854
========= ========
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 three months ended March 31,
(Unaudited)
(in thousands)
2001 2000
---- ----
Cash flows from operating activities:
Net loss $(10,960) $ (8,765)
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization, including amortization
of loan origination costs classified as interest
expense of $152 in 2001 and 2000 5,077 4,093
Deferred income taxes 201 99
Deferred compensation - 28
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Restricted cash 8,355 -
Accounts receivable 20,358 13,190
Income taxes receivable (7,692) (5,788)
Other current assets (1,867) (1,395)
Accounts payable (12,587) (10,215)
Accrued expenses (4,951) (677)
Income taxes payable (1,091) (336)
Deferred revenue 6,306 6,252
Other assets and liabilities 418 (852)
--------- ---------
Net cash provided by (used in) operating activities 1,567 (4,366)
--------- ---------
Cash flows from investing activities:
Additions to plant and equipment, net (4,333) (5,326)
--------- ---------
Net cash used in investing activities (4,333) (5,326)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in long-term debt, net 170 (164)
Borrowings on bank line of credit 42,119 7,000
Repayments of bank line of credit (37,014) (12,700)
Payment of dividends (6,508) (4,927)
Common stock issued 1,258 -
--------- ---------
Net cash provided by (used in) financing activities 25 (10,791)
--------- ---------
Net decrease in cash and cash equivalents (2,741) (20,483)
Cash and cash equivalents, beginning of period 10,807 29,060
--------- ---------
Cash and cash equivalents, end of period $ 8,066 $ 8,577
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,319 $ 3,541
Income taxes $ 802 $ 452
Schedule of non-cash activities:
Invoicing for future events $ 2,922 $ 1,465
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 three months ended March 31, 2001 and 2000 (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 of America 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
of America. 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, 2000 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 our business and recent merger 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. The accompanying condensed consolidated financial statements
reflect a disproportionate share of annual net earnings (loss) as we
normally earn a substantial portion of our net earnings in the second and
third quarters of each year during which all our operations are open for
some or all of this period and the Kentucky Derby and Kentucky Oaks
are run.
2. Long-Term Debt
--------------
The Company has a $250 million line of credit 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. The weighted average interest rate was 6.78% on the outstanding
balance at March 31, 2001. There was $158.3 million outstanding on the
line of credit at March 31, 2001, compared to $153.2 million outstanding
at December 31, 2000, and $172.3 million outstanding at March 31, 2000.
The line of credit is collateralized by substantially all of the assets of
the Company and its wholly owned subsidiaries, and matures in 2004.
6
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the three months ended March 31, 2001 and 2000 (Unaudited)
($ in thousands, except per share data)
3. Financial Instruments
---------------------
In order to mitigate a portion of the market risk on its variable rate
debt, the Company has entered into interest rate swap contracts with major
financial institutions. Under terms of these separate contracts we receive
a LIBOR based variable interest rate and pay a fixed interest rate of
7.015% and 7.30% on notional amounts of $35.0 million each which mature in
March 2003 and May 2002, respectively. The Company has also entered into a
contract which pays a fixed interest rate of 6.40% on a notional amount of
$30.0 million and matures in November 2002. The variable interest rate
paid on the contracts is determined based on LIBOR on the last day of each
month, which is consistent with the variable rate determination on the
underlying debt.
Effective January 1, 2001 the Company adopted Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Financial
Instruments and Hedging Activities" (SFAS 133) which establishes
accounting and reporting standards requiring that every derivative
financial instrument be recorded on the balance sheet at its fair value.
The statement further requires that the gains and losses related to
changes in the fair value of the derivative financial instruments be
recorded in the income statement unless certain hedge criteria are met.
Gains and losses for qualifying hedges can be deferred in accumulated
other comprehensive income and recognized in the income statement along
with the related results of the hedged item. The statement requires that
the Company formally document, designate and assess the effectiveness of
such transactions in order to qualify for such hedge accounting treatment.
The Company has designated its interest rate swaps as cash flow hedges of
anticipated interest payments under its variable rate agreements. Gains
and losses on these swaps that are recorded in other comprehensive income
will be reclassified into net income as interest expense, net in the
periods in which the related variable interest is paid.
The Company recorded a cumulative-effect-type deferred net loss adjustment
of $0.6 million in accumulated other comprehensive income to recognize the
fair value of these swaps upon adoption of SFAS 133 on January 1, 2001. The
Company expects to reclassify approximately $0.2 million of the January 1,
2001 net loss from other comprehensive income into net income as interest
expense, net before December 31, 2001. The Company also expects to
reclassify approximately $1.2 million of the March 31, 2001 net loss of
$2.1 million recorded in accumulated other comprehensive income into net
income as interest expense, net over the next twelve months.
Comprehensive loss consists of the following:
Three months ended March 31,
2001 2000
---- ----
Net Loss $(10,960) $(8,765)
Cash flow hedging
(net of related tax benefit of $1,365 in 2000) (2,144) -
--------- --------
Comprehensive loss $(13,104) $(8,765)
========= ========
7
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the three months ended March 31, 2001 and 2000 (Unaudited)
($ in thousands, except per share data)
4. Acquisitions
------------
On September 8, 2000, three of the Company's wholly owned subsidiaries
merged with Arlington International Racecourse, Inc., Arlington Management
Services, Inc. and Turf Club of Illinois, Inc. (collectively referred to
as "Arlington Park"). The Company issued 3.15 million shares of its common
stock, with a fair value of $51.3 million, to Duchossois Industries, Inc.
("DII") and could issue up to an additional 1.25 million shares of common
stock dependent upon the opening of the riverboat casino at Rosemont,
Illinois, and the amount of subsidies received by Arlington Park as a
result thereof. The purchase price was recorded based upon the fair value
of shares issued to DII at the announcement of the mergers on June 23,
2000, plus approximately $2.2 million in merger-related costs. The
acquired tangible and intangible assets of $87.7 million and assumed
liabilities of $34.1 million of Arlington Park were recorded at their
estimated fair values as of the merger date. 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 certain
liabilities assumed in the merger. The Company also earned $5.8 million in
management fees related to the Arlington Park management contract that was
in effect from July 1 through the closing of the Arlington Park merger on
September 8, 2000. The merger was accounted for by the Company as an asset
purchase and, accordingly, the financial position and results of operations
of Arlington Park have been included in the Company's consolidated
financial statements since the date of merger.
Following are the unaudited pro forma results of operations as if the
September 8, 2000 merger with Arlington Park had occurred on January 1,
2000:
Three Months Ended
March 31, 2000
------------------
Net revenues $32,300
Net loss $(10,101)
Basic and diluted net loss per share $(0.78)
Basic and diluted weighted average shares 13,004
This unaudited proforma financial information is not necessarily indicative
of the operating results that would have occurred had the transaction been
consummated as of January 1, 2000, nor is it necessarily indicative of
future operating results.
8
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the three months ended March 31, 2001 and 2000 (Unaudited)
($ in thousands, except per share data)
5. Earnings Per Share
------------------
The following is a reconciliation of the numerator and denominator of the
earnings per common share computations:
Three months ended
March 31,
2001 2000
---- ----
Loss (numerator) amounts used for basic
and diluted per share computations: $(10,960) $(8,765)
--------- --------
Basic and diluted weighted average shares (denominator)
of common stock outstanding per share: 13,045 9,854
Basic and diluted net loss per common share $(0.84) $(0.89)
Options to purchase 752 and 608 shares for the three months ended March 31,
2001 and 2000, respectively, are excluded from the computation of diluted
net earnings (loss) per common share since their effect is antidilutive
because of net losses for the periods.
9
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the three months ended March 31, 2001 and 2000 (Unaudited)
($ in thousands, except per share data)
6. Segment Information
-------------------
The Company has determined that it currently operates in the following
seven segments: (1) Churchill Downs racetrack and its off-track betting
("OTB") facility (2) Hollywood Park racetrack and its on-site simulcast
facility (3) Calder Race Course (4) Arlington Park and its OTBs (5) Ellis
Park racetrack and its on-site simulcast facility (6) Hoosier Park
racetrack and its on-site simulcast facility and the other three Indiana
simulcast facilities and (7) 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 which, for the three months ended March
31, 2001 and 2000, are also reported separately.
Most of the Company's recurring revenues are generated from commissions on
pari-mutuel wagering at the Company's racetracks and OTBs, plus simulcast
fees, Indiana riverboat admissions subsidy revenue, admissions, concessions
revenue, sponsorship revenues, licensing rights and broadcast fees, lease
income 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, 2000. Earnings
before interest, taxes, depreciation and amortization ("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 of America) as a measure of our operating results or
cash flows (as determined in accordance with accounting principles
generally accepted in the United States of America) or as a measure of our
liquidity.
10
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the three months ended March 31, 2000 and 1999 (Unaudited)
($ in thousands, except per share data)
6. Segment Information (cont'd)
-------------------
The table below presents information about reported segments for the three
months ended March 31, 2001 and 2000:
Three Months Ended March 31,
2001 2000
---- ----
Net Revenues:
Churchill Downs $ 4,249 $ 4,557
Hollywood Park 5,489 5,759
Calder Race Course 1,322 1,877
Arlington Park 6,392 -
Hoosier Park 12,433 11,185
Ellis Park 1,423 1,585
Other investments 915 1,308
--------- ---------
32,223 26,271
Corporate revenues 1 13
Eliminations (509) (365)
--------- ---------
$31,715 $ 25,919
========= =========
EBITDA:
Churchill Downs $ (3,714) $ (3,530)
Hollywood Park (1,535) (1,621)
Calder Race Course (2,405) (2,029)
Arlington Park (1,548) -
Hoosier Park 1,717 1,887
Ellis Park (603) (391)
Other investments 228 135
--------- ---------
(7,860) (5,549)
Corporate expenses (2,548) (2,008)
--------- ---------
$(10,408) $ (7,557)
========= =========
Operating income (loss):
Churchill Downs $ (4,798) $ (4,453)
Hollywood Park (2,804) (2,680)
Calder Race Course (3,303) (2,919)
Arlington Park (2,103) -
Hoosier Park 1,321 1,556
Ellis Park (956) (751)
Other investments (268) (285)
--------- ---------
(12,911) (9,532)
Corporate expenses (2,553) (2,008)
--------- ---------
$(15,464) $(11,540)
========= =========
11
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the three months ended March 31, 2000 and 1999 (Unaudited)
($ in thousands, except per share data)
6. Segment Information (cont'd)
-------------------
As of As of As of
March 31, 2001 December 31, 2000 March 31, 2000
-------------- ----------------- --------------
Total assets:
Churchill Downs $380,087 $358,081 $355,548
Hollywood Park 165,752 174,232 149,156
Calder Race Course 98,935 127,666 96,440
Arlington Park 71,230 74,554 -
Hoosier Park 35,734 32,718 33,665
Ellis Park 21,018 21,381 24,513
Other investments 45,708 45,390 311,375
-------- --------- ---------
818,464 834,022 970,697
Eliminations (367,707) (364,018) (593,916)
--------- --------- ---------
$450,757 $470,004 $376,781
========= ========= =========
Following is a reconciliation of total EBITDA to income before provision
for income taxes:
Three Months Ended March 31,
2001 2000
---- ----
Total EBITDA $(10,408) $(7,557)
Depreciation and amortization (4,925) (3,941)
Interest income (expense), net (3,402) (3,485)
--------- ---------
Earnings before provision for income taxes $(18,735) $(14,983)
========= =========
12
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Information set forth in this discussion and analysis contain various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private
Securities Litigation Reform Act of 1995 ( the "Act") provides certain "safe
harbor" provisions for forward-looking statements. All forward-looking
statements made in this Quarterly Report on Form 10-Q are made pursuant to the
Act. These statements represent our judgment concerning the future and are
subject to risks and uncertainties that could cause our actual operating results
and financial condition to differ materially. Forward-looking statements are
typically identified by the use of terms such as "anticipate," "believe,"
"could," "estimate," "expect," "intend," "may," "might," "plan," "predict,"
"project," "should," "will," 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 our racing operations; 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;
litigation surrounding the Rosemont, Illinois, riverboat casino; changes in
Illinois law that impact revenues of racing operations in Illinois; a decrease
in riverboat admissions subsidy 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; the economic environment; our ability to
adequately integrate acquired businesses; market reaction to our expansion
projects; 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.
You should read this discussion with the financial statements included in this
report and the Company's Form 10-K for the period ended December 31, 2000, for
further information.
Overview
We conduct pari-mutuel wagering on live Thoroughbred, Quarter Horse and
Standardbred 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 the
home of the Kentucky Derby. We also own and operate Hollywood Park, a
Thoroughbred racetrack in Inglewood, California; Arlington Park, a pari-mutuel
horse racing operation in Arlington Heights, Illinois; Calder Race Course, a
Thoroughbred racetrack in Miami, Florida; and Ellis Park, a Thoroughbred
13
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
racetrack in Henderson, Kentucky. Additionally, we are the majority owner and
operator of Hoosier Park in Anderson, Indiana, which conducts Thoroughbred,
Quarter Horse and Standardbred horse racing. We conduct simulcast wagering on
horse racing at nine simulcast wagering facilities in Kentucky, Indiana and
Illinois, as well as at our six racetracks.
Because of the seasonal nature of our business and recent acquisitions and
merger 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 and third quarters of each year during which all our operations are open
for some or all of this period and the Kentucky Derby and the Kentucky Oaks are
run.
Our revenues are generated from commissions on pari-mutuel wagering at our
racetracks and off-track betting facilities, plus simulcast fees, Indiana
riverboat admissions subsidy revenue, admissions, concessions revenue,
sponsorship revenues, licensing rights and broadcast fees, lease income and
other sources.
14
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
Pari-mutuel wagering information, including intercompany transactions, for our
six live racing facilities and nine separate OTBs, which are included in their
respective racetracks, during the three months ended March 31, 2001 and 2000, is
as follows ($ in thousands):
Calder
Churchill Hollywood Race Arlington Hoosier Ellis
Downs Park Course Park* Park Park
----- ---- ------ ----- ---- ----
Live Racing
2001 handle - - $2,093 - $1,528 -
2001 no. of days - - 2 - 19 -
2000 handle - - $3,114 - - -
2000 no. of days - - 2 - - -
Export simulcasting
2001 handle - - $9,013 - $4,507 -
2001 no. of days - - 2 - 19 -
2000 handle - - $12,252 - - -
2000 no. of days - - 2 - - -
Import simulcasting
2001 handle $35,548 $78,095 - $69,020 $34,209 $10,545
2001 no. of days 77 66 - 90 295 77
2000 handle $40,704 $86,362 - - $35,758 $11,401
2000 no. of days 78 65 - - 299 91
Number of OTBs 1 - - 5 3 -
Totals
2001 handle $35,548 $78,095 $11,106 $69,020 $40,244 $10,545
2000 handle $40,704 $86,362 $15,366 - $35,758 $11,401
* Pari-mutuel wagering information for Arlington Park represents amounts
wagered since the September 8, 2000 merger date.
15
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
- --------------------------------------------------------------------------------
Net Revenues
- ------------
Net revenues during the three months ended March 31, 2001 increased $5.8 million
(22%) from $25.9 million in 2000 to $31.7 million in 2001. The increase was
primarily due to $6.4 million in 2001 revenues contributed by the September 8,
2000 merger with Arlington Park. Hoosier Park revenues increased $1.3 million
due to 19 days of Standardbred live racing being conducted during the first
quarter of 2001 compared to none during 2000. We also had a $0.5 million
decrease in revenues attributed to the timing of the April 2000 sale of the
Kentucky Horse Center assets and operations. The remaining decrease was a result
of slight decreases at Churchill Downs, Ellis Park, Calder Race Course and
Hollywood Park principally due to lower handle on incoming signals at our
simulcast facilities.
Operating Expenses
- ------------------
Operating expenses increased $7.9 million (25%) from $31.4 million in 2000 to
$39.3 million in 2001 primarily due to $6.9 million of operating expenses of
Arlington Park due to the timing of the merger. Hoosier Park operating expenses
also increased $1.2 million due to the increase in racing days during 2001.
Gross Loss
- -----------
Gross loss increased $2.1 million from $5.4 million loss in 2000 to $7.5 million
loss in 2001, primarily as a result of the addition of Arlington Park. Gross
losses were incurred as a result of limited live racing during the first
quarter, which included 19 days of Standardbred live racing at Hoosier Park and
only two days of live racing at Calder Race Course. Live racing will be held at
five of our six racetracks during the second quarter.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses increased by $1.8 million
(30%) from $6.1 million in 2000 to $7.9 million in 2001. The merger of Arlington
Park resulted in an increase of $1.6 million.
Other Income and Expense
- ------------------------
Interest income and expense decreased slightly in 2001 primarily due to the use
of available cash to pay down our line of credit. We began implementing our cash
management system during the third quarter of 2000. This system accumulates
available cash from our wholly owned subsidiaries to pay down the line of credit
facility on a daily basis.
16
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Income Tax Provision
- --------------------
Our income tax benefit increased by $1.6 million for the three months ended
March 31, 2001, as compared to March 31, 2000, as a result of an increase in
pre-tax losses with our estimated effective tax rate remaining constant at
41.5%.
Significant Changes in the Balance Sheet March 31, 2001 to December 31, 2000
- ----------------------------------------------------------------------------
Restricted cash decreased $8.3 million due to the timing of the Calder Race
Course live meet. Restricted cash represents refundable deposits and amounts due
to horsemen for purses, stakes and awards.
Accounts receivable balances decreased by $17.4 million in 2001 primarily due to
the collection of 2000 live meet receivables for Calder Race Course, Hollywood
Park and Churchill Downs with decreases in accounts receivables of $8.2 million,
$4.7 million and $3.2 million, respectively.
Prepaid income taxes increased $7.7 million as a result of the estimated income
tax benefit associated with the quarterly net loss.
Accounts payable decreased $12.6 million primarily due to the decrease of
horsemen accounts and purses payable related to live racing at Calder Race
Course and Hollywood Park.
Dividends payable decreased $6.5 million at March 31, 2001 due to the payment of
dividends in the first quarter of 2001.
Deferred revenue increased $9.2 million at March 31, 2001, primarily due to
Churchill Downs increase of $7.6 million for the collection of revenues for
corporate sponsor event tickets, season box and membership sales and future
wagering related to the 2001 Kentucky Derby and Kentucky Oaks race days to be
held in the second quarter of 2001.
Significant Changes in the Balance Sheet March 31, 2001 to March 31, 2000
- -------------------------------------------------------------------------
The net plant and equipment increase of $65.9 million included $64.4 million for
the merger with Arlington Park. The remaining increase was due to capital
spending offset by depreciation expense.
Accounts payable increased $9.2 million primarily as a result of an increase for
Hoosier Park due to the timing of live racing operations and the merger with
Arlington Park.
Accrued expenses increased $11.0 million primarily due to the timing of the
merger with Arlington Park.
17
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The long-term debt decrease of $14.3 million was due primarily to the
implementation of our cash management system during the third quarter of 2000.
Common stock increased by $52.9 million primarily due to the issuance of 3.15
million shares of common stock to complete the merger with Arlington Park during
the third quarter of 2000.
Liquidity and Capital Resources
- -------------------------------
The change in working capital between March 31, 2001 and 2000 is a result of the
Arlington Park merger as well as the use of internally generated funds to reduce
long-term debt. Cash flows provided by (used in) operations were $1.6 and $(4.4)
million for the three months ended March 31, 2001 and 2000, respectively. The
net increase in cash provided by operations as compared to 2000 was primarily a
result of current period separate classification of restricted assets which
represent refundable deposits and amounts due to horsemen for purses, stakes and
awards. Management believes cash flows from operations and available borrowings
during 2001 will be sufficient to fund our cash requirements for the year,
including capital improvements and future acquisitions.
Cash flows used in investing activities were $4.3 and $5.3 million for the three
months ended March 31, 2001 and 2000, respectively. Capital spending of $4.3
million in 2001 was $1.0 million less than 2000 and is primarily the result of
the expansion of Churchill Downs' main entrance and corporate offices completed
during 2000.
Cash flows provided by (used in) financing activities were $.02 and $(10.8)
million for the three months ended March 31, 2001 and 2000, respectively. We
borrowed $42.1 million and repaid $37.0 million on our line of credit during
2001.
We have a $250 million line of credit under a revolving loan facility, of which
$158.3 million was outstanding at March 31, 2001. 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.
Significant Accounting Pronouncements
- -------------------------------------
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivatives and Hedging Activities (SFAS 133), as amended by SFAS
137 and SFAS 138, which established accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. The only derivatives typically used by the Company are interest rate
swaps. Management anticipates that the adoption of SFAS 133 will not have a
material effect on the Company's results of operations or financial position.
18
CHURCHILL DOWNS INCORPORATED
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
At March 31, 2001, we had $158.3 million of debt outstanding under our
revolving loan facility, which bears interest at LIBOR based variable
rates. We are exposed to market risk on variable rate debt due to
potential adverse changes in the LIBOR rate. Assuming the outstanding
balance on the revolving loan facility remains constant, a one
percentage point increase in the LIBOR rate would reduce annual
pre-tax earnings and cash flows by $1.6 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 and pay a
fixed interest rate of 7.015% and 7.30% on notional amounts of $35.0
million each which mature in March 2003 and May 2002, respectively. We
have also entered into a contract in which we pay a fixed interest
rate of 6.40% on a notional amount of $30.0 million which matures in
November 2002. Assuming the March 31, 2001, 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 $1.0 million.
19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable
ITEM 5. Other Information
-----------------
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K.
---------------------------------
A. Exhibits
See exhibit index on page 22.
B. Reports on Form 8-K
(1) Churchill Downs Incorporated filed a Current Report on Form
8-K dated February 28, 2001, attaching our fourth quarter
and fiscal year ended December 31, 2000, earnings release
dated February 27, 2001.
20
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
May 15, 2001 \s\Thomas H. Meeker
-------------------------------------
Thomas H. Meeker
President and Chief Executive Officer
(Principal Executive Officer)
May 15, 2001 \s\Robert L. Decker
-------------------------------------
Robert L. Decker
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
May 15, 2001 \s\Michael E. Miller
-------------------------------------
Michael E. Miller
Senior Vice President, Finance
(Principal Accounting Officer)
21
EXHIBIT INDEX
Numbers Description By Reference To
- ------- ----------- ---------------
(10)(a) Churchill Downs Incorporated Deferred Page 23, Report on Form 10-Q
Compensation Plan as Amended and for the fiscal quarter ended
Restated effective January 1, 2001 March 31, 2001
(b) Sixth Amendment to $250,000,000 Exhibit (10)(g) to Report on
Revolving Credit Facility credit Form 10-K for the year ended
Agreement dated March 15, 2001 December 31, 2000
22
CHURCHILL DOWNS INCORPORATED
DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective January 1, 2001)
23
CHURCHILL DOWNS INCORPORATED
DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective January 1, 2001)
Table of Contents
Page
SECTION 1 ESTABLISHMENT AND PURPOSE OF PLAN..................................1
1.1 Establishment and Restatement of Plan............................1
1.2 Purpose of Plan..................................................1
SECTION 2 DEFINITIONS........................................................1
2.1 "Account"........................................................1
2.2 "Board"..........................................................1
2.3 "Compensation"...................................................1
2.4 "Cause"..........................................................2
2.5 "Code" ..........................................................2
2.6 "Committee"......................................................2
2.7 "Company"........................................................2
2.8 "Director" ......................................................2
2.9. "Director Fees"..................................................2
2.10 "Disability" or "Disabled".......................................2
2.11 "Distribution Account"...........................................2
2.12 "Employee".......................................................2
2.13 "Employer".......................................................2
2.14 "Hardship".......................................................2
2.15 "In-Service Account".............................................3
2.16 "Participant"....................................................3
2.17 "Plan"...........................................................3
2.18 "Profit Sharing Plan"............................................3
SECTION 3 PARTICIPATION, CONTRIBUTIONS AND DEFERRALS.........................3
3.1 Eligibility......................................................3
3.2 Commencement of Participation....................................3
3.3 Revocation of Right to Participate in Plan.......................3
3.4 Participant Deferral Elections...................................4
3.5 No Deferrals During Long Term Disability.........................4
3.6 Revocation/Modification of Deferral Elections....................4
3.7 Employer Matching Contributions..................................4
3.8 Employer Discretionary Contributions.............................4
3.9 Transfer Contributions...........................................4
SECTION 4 VESTING AND ADMINISTRATION OF ACCOUNTS.............................5
4.1 Credits/Debts to Account.........................................5
4.2 Establishment of Rabbi Trust.....................................5
24
4.3 Vesting of Deferrals.............................................5
4.4 Vesting of Employer Contributions................................5
4.5 Ownership and Investment of Accounts.............................5
4.6 Participant's Right to Direct Investment of Account..............5
4.7 Form of Investment Election......................................6
4.8 Effective Date of Investment Election............................6
4.9 Changes to Investment Election...................................6
4.10 Assumption of Investment Risk....................................6
SECTION 5 DISPOSITION OF PARTICIPANT ACCOUNTS..............................6
5.1 Plan Distribution Elections......................................6
5.2 Distribution Date................................................7
5.3 Form of Distribution.............................................7
5.4 Hardship Distributions...........................................7
5.5 Disability Distributions.........................................8
5.6 Death Distributions..............................................8
5.7 Disposition of Account on Plan Termination.......................8
5.8 Disposition of Account If Participating Employer
Ceases To Be An Affiliated Company...............................9
5.9 Accelerated Distributions........................................9
5.10 In-Kind Distributions............................................9
5.11 Tax Withholding..................................................9
5.12 Presumed Competency..............................................9
5.13 Forfeiture of Unclaimed Benefits.................................9
SECTION 6 COMMITTEE ADMINISTRATION..........................................10
6.1 Plan Committee..................................................10
6.2 Committee Action................................................10
6.3 Plan Rules and Regulations......................................10
6.4 Determinations by Committee.....................................10
6.5 Plan Records....................................................10
ARTICLE 7 ADOPTION AND WITHDRAWAL...........................................10
7.1 Adoption by Employers...........................................10
7.2 Withdrawal of a Participating Employer..........................10
7.3 Obligation of Employers.........................................11
SECTION 8 CLAIM AND REVIEW PROCEDURES.......................................11
8.1 Claims Procedure................................................11
8.2 Review Procedure................................................11
SECTION 9 MISCELLANEOUS PROVISIONS..........................................12
9.1 Amendment or Termination........................................12
9.2 Participant's Rights Unsecured..................................12
9.3 Nontransferability/Nonalienability..............................12
9.4 Participant Obligation to Furnish Information...................12
25
9.5 No Right of Employment..........................................12
9.6 Plan Expenses...................................................12
9.7 Offsets.........................................................13
9.8 Limitation of Actions...........................................13
9.9 Governing Law...................................................13
26
CHURCHILL DOWNS INCORPORATED
DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective January 1, 2001)
SECTION 1.
ESTABLISHMENT AND PURPOSE OF PLAN
1.1 Establishment and Restatement of Plan. The Board established the Churchill
Downs Incorporated Deferred Compensation Plan effective April 1, 1999. The
plan is amended and restated herein effective January 1, 2001.
1.2 Purpose of Plan.
The purpose of the Plan is to provide eligible executives and directors of
Company and its affiliated companies an opportunity to defer to a future
date the receipt of base and bonus compensation for services as well as
director's fees.
1.3 Incentive Compensation Plan (1985) Merger. The Churchill Downs Incorporated
Incentive Compensation Plan (1985) (the "Incentive Plan") is merged into
this Plan effective January 1, 2001. Thomas H. Meeker is the sole
participant in the Incentive Plan and his Deferred Payment Account under
the Incentive Plan is 100% vested. His Deferred Payment Account under the
Incentive Plan shall be reflected as a fully vested bookkeeping account
under this Plan as transferred funds pursuant to Section 3.9 of this Plan.
Said Transferred Account shall be governed by the terms and conditions of
this Plan effective January 1, 2001. Meeker shall make an investment
election with respect to his Transferred Account in accordance with Section
4.6 and shall make an election for distribution of the Transferred Account
on or after his employment termination in accordance with Section 5.3;
provided that if Meeker's employment terminates within eighteen (18) months
of said distribution election, the distribution election he made with
respect to his Deferred Payment Account under the Incentive Plan shall
control.
SECTION 2.
DEFINITIONS
2.1 "Account" means the Participant's In-Service Distribution Account,
Distribution Account and Transferred Account which are bookkeeping accounts
established on the Company's records showing the amount of the
Participant's accrued: (1) Employer contributions; (2) Compensation and
Director's Fees deferred pursuant to the Participant's election; (3) in the
case of a Transferred Account, deferred compensation transferred to the
Plan pursuant to Section 3.9; and (4) any notional earnings and losses
accrued thereon.
2.2 "Board" means Company's Board of Directors.
27
2.3 "Compensation" means the regular base salary and annual bonus or incentive
compensation payable by the Employer to the Participant for services
performed for the Employer.
2.4 "Cause," in connection with the termination of the Participant's employment
with the Employer, means that, in the judgment of the Company's President,
based upon any information or evidence reasonably persuasive to the
President, the Participant: [i] willfully engaged in activities or
conducted himself or herself in a manner seriously detrimental to the
interests of the Employer, Company or its affiliates; or [ii] failed to
execute the duties reasonably assigned to him or her in a reasonably
timely, effective, or competent manner; provided, however, that the
termination of the Participant's employment because of Disability shall not
be deemed to be for Cause and the determination of Cause in the event of
the President's employment termination shall be determined by the Board.
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
2.6 "Committee" means the Compensation Committee of the Board.
2.7 "Company" means Churchill Downs Incorporated, a Kentucky corporation, with
its principal place of business at 700 Central Avenue, Louisville, Kentucky
40208.
2.8 "Director" means a member of an Employer's board of directors.
2.9 "Director Fees" means the retainer, meeting and other fees payable by the
Employer to a member of an Employer's board of directors for service
performed as a board member.
2.10 "Disability" or "Disabled" means a physical or mental condition of the
Participant which results in the Participant receiving benefits under an
Employer's long term disability insurance plan, or in the event that
Participant is not participating in an Employer's long term disability
insurance plan, means a physical or mental condition which in the judgment
of the Committee, based on medical reports and other evidence satisfactory
to the Committee, prevents the Participant from satisfactorily performing
Participant's usual duties for the Employer or duties of such other job or
position which the Employer makes available to Participant and for which
the Participant is qualified by reason of training, education or
experience.
2.11 "Distribution Account" means the Account established for the Participant
for distribution to the Participant on or after employment termination at
the Participant's election in accordance with Section 5.
2.12 "Employee" means an individual who is an employee of an Employer and who is
part of a select group of management or highly compensated employees of the
Employer within the meaning of Labor Reg. 2520.104-23.
28
2.13 "Employer" means the Company and any subsidiary or affiliated company that
adopts the Plan as to its eligible Employees and Directors pursuant to
Section 7.
2.14 "Hardship" means a severe financial hardship to the Participant resulting
from a sudden and unexpected illness or accident of the Participant or the
Participant's dependent (as defined in Code Section 152(a)), loss of the
Participant's property due to casualty or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the
Participant's control. The need to send a Participant's child to college or
the desire to purchase a home are not considered unforeseeable emergencies
that qualify as a "hardship."
2.15 "In-Service Account" means the Account established for the Participant for
distribution to the Participant before the Participant's employment
termination with the Employer at the Participant's election in accordance
with Section 5.
2.16 "Participant" means an Employee or Director who is or has been designated
by the Committee as being eligible to participate in the Plan and who has
an amount credited to an Account for his or her benefit under the Plan.
2.17."Plan" means the Churchill Downs Deferred Compensation Plan as described
herein, and as amended from time to time.
2.18 "Profit Sharing Plan" means the Churchill Downs Incorporated Profit Sharing
Plan.
2.19 "Transferred Account" means the Account established for the Participant,
and reflecting deferred compensation transferred to the Plan pursuant to
Section 3.9, for distribution to the Participant on or after employment
termination at the Participant's election in accordance with Section 5 or
as otherwise specified by the Committee pursuant to Section 3.9.
SECTION 3.
PARTICIPATION, CONTRIBUTIONS AND DEFERRALS
3.1 Eligibility. The Plan is intended to constitute, and shall be administered
to qualify as, a "top hat" plan exempt from the requirements of the
Employee Retirement Income Security Act of 1974, as amended, pursuant to
Labor Reg. 2520.104-23 and shall be maintained strictly for a select group
of management or highly compensated employees as contemplated by said
regulation. Subject to the requirements of said regulation, the Committee
may designate any of an Employer's management or highly compensated
Employees or an Employer's Directors as being eligible to participate in
the Plan. The Committee shall communicate designation of eligibility to the
Employee or Director in writing as soon as administratively practicable.
29
3.2 Commencement of Participation. An Employee or Director who is designated as
eligible to participate in the Plan in accordance with Section 3.1 shall
commence participation on the next January 1 following the date the
Employee or Director files his or her deferral election with the Committee,
or its designated agent, in accordance with Section 3.4.
3.3 Revocation of Right to Participate in Plan. The Committee may revoke the
right of any Participant to participate in the Plan, which revocation shall
be effective with respect to Compensation and Director's Fees earned and
payable after the date of such revocation. The revocation shall not alter
or diminish the rights of the Participant with respect to amounts credited
to the Participant's Account before the revocation.
3.4 Participant Deferral Elections. An Employee or Director who has been
designated as eligible to participate in the Plan may elect, in writing on
forms approved by the Committee, to defer the receipt of all or a portion
(in one percent (1%) increments) of his or her Compensation and Director's
Fees earned and payable after the effective date of such election and have
such amount credited to the Participant's Account pursuant to the terms of
the Plan. The deferral election shall continue from year to year until
revoked or modified by the Participant. Deferral elections, and revocation
or modifications thereto, must be made during the period of time
established by the Committee before the beginning of the calendar year and
shall be effective on the January 1 following receipt by the Committee of
the completed election form.
3.5 No Deferrals During Long Term Disability. A Participant may not make
deferrals under this Plan during any period that the Participant is
receiving benefits under a long term disability plan of an Employer.
3.6 Revocation/Modification of Deferral Elections. Deferral elections may be
revoked or modified by the Participant by notifying the Committee in
writing of such revocation or modification on forms available from the
Committee. Any revocation or modification of a deferral election shall be
effective on the January 1 following receipt by the Committee of a
completed revocation/modification form. Deferral elections shall be
automatically revoked on the effective date of Plan termination and on the
date the Participant becomes ineligible to participate in the Plan.
3.7 Employer Matching Contributions. The Participant's Account shall be
credited with an Employer matching contribution on base compensation
deferrals made to this Plan equal to the matching contribution the
Participant would have received under the Profit Sharing Plan (whether or
not the Participant participates in the Profit Sharing Plan) but for the
dollar limits applicable under the Profit Sharing Plan less any matching
contribution allocated to the Participant's account under the Profit
Sharing Plan. No matching contributions shall be made on Transferred
Accounts.
30
3.8 Employer Discretionary Contributions. The Employer may make additional
contributions to the Account or any one or more Participants at its sole
discretion. Unless expressly so provided by the Committee, Employer
contributions shall not be made to Transferred Accounts. The amount of
Employer contributions credited to a Participant's Account pursuant to this
Section 3.8, if any, shall be determined by the Employer in its sole
discretion.
3.9 Transfer Contributions. A Participant may request a transfer to the Plan of
contributions deferred under another deferred compensation plan which
qualified as an unfunded "top hat" arrangement under Title I of ERISA as
well as for income tax purposes. The Committee, in its sole discretion, may
elect whether or not to accept transfers from other deferred compensation
plans. Unless otherwise specified by the Committee, deferred accounts
transferred to this Plan shall be subject to the terms and conditions of
this Plan, including but not limited to the time and method of distribution
and the Participant shall make a distribution election in accordance with
Section 5. No matching contributions shall be made on deferred compensation
transferred to the Plan pursuant to this Section 3.9.
SECTION 4.
VESTING AND ADMINISTRATION OF ACCOUNTS
4.1 Credits/Debts to Account. Compensation and Director's Fees deferred under
this Plan pursuant to the Participant's election in accordance with Section
3.4 shall be credited to the Participant's Account as soon as
administratively practical after the date the deferrals would otherwise
have been payable to the Participant in accordance with the Employer's
normal payroll practices. Matching contributions under Section 3.7 shall be
credited to the Participant's Account at the time matching contributions
are allocated to participant accounts under the Profit Sharing Plan.
Employer discretionary contributions made by the Employer pursuant to
Section 3.8 shall be credited to the Participant's Account at the time
specified by the Employer.
4.2 Establishment of Rabbi Trust. The Committee may establish an irrevocable
grantor trust to provide itself a source of funds to assist it in
satisfying its liability to Participants and their beneficiaries under this
Plan. In the event such rabbi trust is established, the Employer shall make
cash contributions to the trust in such amounts and at such times as
deferrals are made under the Plan and such other amounts and at such other
times as the Committee deems appropriate in its sole discretion. Each
Employer shall be the sole owner of the assets of the trust as to its
participating Employees and Directors, and the assets of the trust shall be
subject to the claims of the general creditors of the Employer. The sole
interest of Participant and the Participant's beneficiaries to the assets
of the trust shall be as a general creditor of the Employer.
31
4.3 Vesting of Deferrals. Compensation and Director's Fees credited to a
Participant's Account, and notional earnings thereon, shall be one hundred
percent (100%) vested and nonforfeitable at all times, subject to
adjustment for notional investment losses and deemed transaction fees in
accordance with Section 4.6. Transferred Accounts shall be one hundred
percent (100%) vested unless otherwise specified by the Committee pursuant
to Section 3.9.
4.4 Vesting of Employer Contributions. A Participant shall be vested in
matching contributions credited to his or her Account pursuant to Section
3.7 and Employer discretionary contributions credited to his or her Account
pursuant to Section 3.8, and earnings thereon, pursuant to the same vesting
schedule applicable to matching contributions and employer discretionary
contributions under the Profit Sharing Plan.
4.5 Ownership and Investment of Accounts. Amounts credited to a Participant's
Account may be kept in any investment vehicles or assets as may be selected
by the Committee in its discretion, subject to the right of the Participant
to make an investment election in accordance with Section 4.6. Each
Employer shall be the owner of all amounts credited to the Accounts of its
participating Employees and Directors until paid to the Participant
pursuant to Section 5.
4.6 Participant's Right to Direct Investment of Account. A Participant may
elect to have his or her Account notionally invested in such investment
options as are selected by the Committee and made available to Participants
for notional investment purposes under the Plan from time to time. The
value of a Participant's Account at any time shall be the value of such
underlying notional investments. The Committee shall be under no obligation
to make such investments; however, the Committee shall debit or credit, as
the case may be, the Participant's Account with notional earnings or losses
as if said investments had actually been made. The Participant's Account
shall be reduced by an amount equal to the brokerage or other transaction
costs that would have been incurred in connection with the deemed purchase
or sale of an investment. Until such time as investment options are made
available by the Committee, a Participant's Account will be credited with
notional interest equal to the prime rate listed in the Money Rates section
of The Wall Street Journal on the first business day of the applicable
month, plus 100 base points.
4.7 Form of Investment Election. The investment election, if any, must be in
writing in a form approved by the Committee, and must be delivered to the
Committee and otherwise comply with the rules pertaining to such elections
as established by the Committee, on or before such date as the Committee
may specify to be valid. The election must designate the percentage of the
Account to be notionally invested in each investment option selected;
provided, however, that the minimum allocable to any notional investment
option shall be one percent (1%) and all percentage designations must be in
multiples of one percent (1%). If the Participant fails to make a timely
election pursuant to this Section 4.7, such Participant's deferrals shall
be invested in a money market fund or its equivalent as designated by the
Committee.
32
4.8 Effective Date of Investment Election. Any investment election made by the
Participant pursuant to this Section 4 shall be effective as soon as
administratively practicable after receipt by the Committee, pursuant to
procedure established by the Committee and communicated to Participants.
4.9 Changes to Investment Election. Participants may change their investment
allocation elections no more than twelve (12) times during any calendar
year. Changes are made either by delivering a new investment election form
to the Committee, or via an Internet website designed by the Committee, in
accordance with the rules of Section 4 and procedures established by the
Committee. Investment allocation changes must be in increments of one
percent (1%) and shall be effective in accordance with the rules of Section
4.8.
4.10 Assumption of Investment Risk. The Participant agrees to assume all risk in
connection with any change, including any decrease, in the value of
Participant's Account which is notionally invested pursuant to the
Participant's investment election in accordance with the provisions of this
Section 4.
SECTION 5.
DISPOSITION OF PARTICIPANT ACCOUNTS
5.1 Plan Distribution Elections. Except as otherwise expressly provided herein,
amounts credited to a Participant's Account shall be paid to the
Participant in accordance with the Participant's distribution election;
provided, however, that if on the elected distribution date, any notional
investment gains or losses cannot then be determined, such distribution
shall be delayed until such accounting can be completed. Distribution
elections shall be in writing on forms approved by the Committee, shall
specify a distribution date in accordance with Section 5.2, shall specify
the form of distribution in accordance with Section 5.3, and shall be filed
with the Committee upon first becoming eligible to participate in the Plan.
A Participant's In-Service Account distribution election shall specify both
an in-service distribution date and a the form of distribution if the
Participant's employment ends before the designated date. A Participant's
In-Service Account distribution election is irrevocable. A Participant may
change his or her Distribution Account or Transferred Account (unless
otherwise specified by the Committee in accordance with Section 3.9)
distribution election at any time; provided, however, that only the most
recent election that is at least eighteen (18) months from the
Participant's elected distribution date shall control (or the Participant's
first distribution election if Participant has less than eighteen (18)
months of Plan participation); any distribution election that is changed
within eighteen (18) months of the distribution date shall be ignored.
33
5.2 Distribution Date.
(a) Distribution and Transferred Accounts. A Participant's Distribution
Account, and the Participant's Transferred Account unless specified
otherwise by the Committee pursuant to Section 3.9, shall be distributed to
the Participant, in the manner elected by the Participant in accordance
with Section 5.3, as soon as administratively practical, but not less than
thirty (30) days, after the Participant's employment termination date. For
purposes of Section 5, the separation from service of a Participant with
one Employer will not interrupt the continuity of participation of such
Participant if, concurrently with or immediately after such separation, the
Participant is employed by one or more of the other Employers who are
participating Employers in accordance with Section 7.
(b) In-Service Account. A Participant's In-Service Account shall be distributed
to the Participant in a single sum, as soon as administratively practical
following the date elected by the Participant that is any December 31 on or
after the sixth anniversary of the date the Participant first makes
deferrals to his or her In-Service Account, provided the Participant is
still employed with the Employer on that date. If the Participant's
employment terminates before the designated date, distribution shall be
made to the Participant, in the form elected by the Participant in
accordance with Section 5.3, as soon as administratively practical, but not
less than thirty (30) days, after the Participant's employment termination
date.
5.3 Form of Distribution. Amounts credited to a Participant's Distribution
Account and Transferred Account shall, at the Participant's election, be
payable to the Participant in a single sum cash payment or in equal monthly
cash installments over five (5) or ten (10) years. Amounts credited to a
Participant's In-Service Account shall be distributed to the Participant in
a single sum cash payment valued as of the December 31 elected by the
Participant in accordance with Section 5.2 or, in the event of the
Participant's employment termination before said date, at the Participant's
election, shall be payable to the Participant in a single sum cash payment
or in equal monthly cash installments over five (5) or ten (10) years.
5.4 Hardship Distributions. In the event of Hardship, all deferrals pursuant to
Section 3.3 shall cease and amounts credited to the Participant's Account
as of the date of such Hardship shall be paid to the Participant in a
single sum payment as soon as administratively practicable after the date
of the Hardship. Notwithstanding the foregoing: [i] payment shall be
limited to the amount reasonable necessary to satisfy the Hardship, and
[ii] payment shall not be made to the extent that the Hardship is or may be
relieved through reimbursement or compensation by insurance or otherwise,
by liquidation of the Participant's assets, to the extent the liquidation
of such assets would not itself cause several financial hardship, or by
cessation of deferrals under this Plan. Any decision of the Committee with
respect to the application of the provisions of this section shall have a
presumption of correctness, and the burden shall be on Participant to rebut
such presumption by a preponderance of the evidence.
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The Participant shall be provided with a reasonable opportunity to present
any and all evidence on his or her behalf.
5.5 Disability Distributions. If a Participant becomes Disabled, amounts
credited to the Account of the such Participant shall be distributed to the
Participant as soon as administratively practicable following a
determination of such Disability. The form of distribution shall be in
accordance with the Participant's distribution election made in accordance
with Section 5.3.
5.6 Death Distributions. If a Participant dies before distribution of all the
amounts credited to his or her Account, any amounts remaining in the
Participant's Account shall be distributed to such deceased Participant's
designated beneficiary or beneficiaries in the form specified by the
Participant in accordance with Section 5.3. Payments shall commence as soon
as administratively practical after the date of the Participant's death. If
distributions have already commenced before the Participant's death, the
Participant's designated beneficiary will continue to receive payments
according to the same schedule as had been made to the Participant before
his or her death. All beneficiary designations shall be in writing on forms
approved by the Committee and shall be filed with the Committee. A
Participant may, at any time, revoke or change any beneficiary designation
by filing a new written designation with the Committee. If there is no
effective beneficiary designation filed with the Committee at the time of
the Participant's death, distribution of amounts otherwise payable to the
deceased Participant under the Plan shall be paid in a single sum cash
distribution to the personal representative of the Participant's estate as
a part of the Participant's estate. If a beneficiary designated by the
Participant to receive the Participant's benefits shall survive the
Participant but die before receiving all distributions hereunder, the
balance thereof shall be paid in a single sum cash distribution to such
deceased beneficiary's estate, unless either (i) the deceased beneficiary
designates otherwise by a written beneficiary designation filed with the
Committee, in which case such designation shall govern, or (ii) the
Participant shall have expressly provided otherwise in the Participant's
beneficiary designation. The Committee, upon making a reasonable effort to
ascertain the identity of the proper beneficiary or beneficiaries to
receive any amounts payable pursuant to these provisions shall be entitled
to rely on information reasonably available to it, and upon making any
payments provided herein to any beneficiary believed in good faith by the
Committee to be entitled thereto, shall have no further liability to any
person for such payments.
5.7 Disposition of Account on Plan Termination. Upon termination of the Plan,
distribution of Accounts shall be made, at the time and in the form elected
by the Participant, according to the distribution election on file with the
Committee at the time of such termination.
5.8 Disposition of Account If Participating Employer Ceases To Be An Affiliated
Company. In the event the Employer employing the Participant ceases to be a
subsidiary or affiliated company with Company and thus ceases to be a
35
participating Employer as provided by Section 7.2, the Participant's
deferral election and active participation in the Plan shall cease on the
effective date of such event. Distribution of the Participant's Account
shall be made at the time and in the form elected by the Participant
pursuant to this Section 5, unless the Committee and the Employer agree to
transfer the Accounts of affected Participants to a deferred compensation
plan of such Employer to be distributed to affected Participants pursuant
to the terms of such plan.
5.9 Accelerated Distributions. Notwithstanding anything herein to the contrary,
the Committee, in its sole discretion, may accelerate the time for
distribution of Accounts and, notwithstanding the Participant's
distribution election, may distribute any vested amounts credited to a
Participant's Account in a single sum payment if the Participant is
discharged by the Employer for Cause.
5.10 In-Kind Distributions. Notwithstanding the provisions of this Section 5,
the Committee may, in its discretion, and subject to the requirements of
the asset, make payment to the Participant or Participant's beneficiaries
in kind in lieu of cash to the extent amounts credited to the Participant's
Account are actually invested in an asset.
5.11 Tax Withholding. The Committee shall deduct from the distributions under
the Plan any federal, state or local withholding or other taxes or charges
which the Employer is required to deduct under applicable law. The Employer
shall be entitled to deduct from other compensation payable to the
Participant, any employment or other tax required to be withheld as amounts
are deferred under the Plan.
5.12 Presumed Competency. Every person receiving or claiming payments under the
Plan shall be conclusively presumed to be mentally competent until the date
on which the Committee receives a written notice in a form and manner
acceptable to the Committee that such person is incompetent and that a
guardian, conservator or other person legally vested with the interest of
his or her estate has been appointed. In the event a guardian or
conservator of the estate or any person receiving or claiming payments
under the Plan shall be appointed by a court of competent jurisdiction,
payments under the Plan may be made to such guardian or conservator
provided that the proper proof of appointment and continuing qualification
is furnished in a form and manner acceptable to the Committee. Any such
payments so made shall be a complete discharge of any liability or
obligation of Employer or the Committee regarding such payments.
5.13 Forfeiture of Unclaimed Benefits. Each Participant shall keep the Committee
informed of his or her current address and the current address of his or
her beneficiary. The Committee shall not be obligated to search for the
whereabouts of any person. If the Committee is unable to locate any person
to whom a payment is due under the Plan or a distribution payment check is
not presented for payment, such payment shall be irrevocably forfeited at
the earlier of: (1) the day preceding the date such payment would otherwise
escheat pursuant to any applicable escheat law; or (2) the later of: [i]
three (3) years after the date on which the payment was first due; or [ii]
ninety (90) days after issuance of the check. Forfeited payments shall be
36
returned to the source of the payment (e.g., if benefits are funded through
contributions by the Employer from its general assets, the forfeited
payment shall be returned to the Employer; if the forfeited benefit payment
is made from trust funds, the forfeited payment shall revert to the trust
from which the payment was made).
SECTION 6.
COMMITTEE ADMINISTRATION
6.1 Plan Committee. The Plan shall be administered by the Committee. A
Participant who is also a member of the Committee shall not participate in
any decision involving an election made by him or her or relating in any
way to his or her individual rights, duties and obligations as a
Participant under the Plan. The Committee may appoint one or more employees
or agents to assist it in administration of the Plan and may delegate its
duties under the Plan to such employees or agents.
6.2 Committee Action. A majority of the Committee shall constitute a quorum for
the transaction of business. All actions taken by the Committee at a
meeting shall be by the vote of a majority of those present at such meeting
but any action may be taken by the Committee without a meeting upon written
consent signed by all of the members of the Committee.
6.3 Plan Rules and Regulations. The Committee may from time to time establish
rules and regulations for the administration of the Plan and adopt standard
forms for such matters as elections, beneficiary designations and
applications for benefits, provided such rules and forms are not
inconsistent with the provisions of the Plan.
6.4. Determinations by Committee. All determinations of the Committee,
including, but not limited to, all questions of construction and
interpretation, shall be final, binding and conclusive on all parties and
the Committee shall have complete discretion in making such determinations.
6.5. Plan Records. The Committee shall be responsible for maintaining books and
records for the Plan.
ARTICLE 7.
ADOPTION AND WITHDRAWAL
7.1 Adoption by Employers. An Employer authorized by the Committee to
participate in this Plan shall adopt the same by written acknowledgment to
the Committee. By so adopting the Plan, such Employer designates the
Company as the Employer entitled to administer the Plan and to amend or
terminate the Plan through the Committee.
37
7.2 Withdrawal of a Participating Employer. A participating Employer may
withdraw from the Plan as of any date upon ninety (90) days' advance
written notice to the Committee, or upon such shorter notice as the
Committee, in its sole discretion, may permit. If an Employer shall cease
to exist or ceases to be an affiliate of Company, it shall automatically be
withdrawn from participation in the Plan effective as of the date it ceases
to exist or ceases to be an affiliated company unless a successor
organization adopts the Plan with the consent of the Committee in
accordance with the provisions of this section.
7.3 Obligation of Employers. Each Employer by adopting the Plan agrees to make
all payments required under the Plan to be made or provided to or on behalf
of the Participants employed by such Employer, and agrees that the
liability for making such payments and providing such benefits shall be the
sole and exclusive obligation of such Employer. In addition, each Employer
by adopting this Plan agrees to pay all fees and reimburse all expenses to
Company as required by the Committee and as agreed to by the parties in
connection with the administration of this Plan.
SECTION 8.
CLAIM AND REVIEW PROCEDURES
8.1 Claims Procedure. Any person who believes he or she is being denied any
rights or benefits under the Plan may file a claim in writing with the
Committee. If the claim is denied (in whole or part), the Committee will
notify the claimant of its decision in writing. The notification will be
written in a manner intended to be understood by the claimant and will
contain [i] reasons for the denial, [ii] reference to pertinent Plan
provisions, [iii] a description of additional material or information that
is needed, and [iv] information as to the steps to be taken if the claimant
wishes to submit a request for review. The notification will be given
within ninety (90) days after the claim is received by the Committee (or
within one hundred eighty (180) days, if special circumstances require an
extension of time for processing the claim, and if written notice of the
extension and circumstances is given to the claimant within the initial
ninety (90) day period). If notification is not given within this period,
the claim will be considered denied as of the last day of such period and
the claimant may request review of the claim.
8.2 Review Procedure. Within sixty (60) days of the receipt by the claimant of
the written notice of denial of the claim, or within sixty (60) days after
the claim is deemed denied, if applicable, the claimant may file a written
request with the Committee that it conduct a review of the claim, including
the conducting of a hearing, if considered necessary by the Committee. In
connection with the claimant's appeal of the denial of a benefit, the
claimant may review pertinent documents and may submit issues and comments
in writing. The Committee shall make a decision on the claim appeal not
later than sixty (60) days after the receipt of the claimant's request for
38
review, unless special circumstances (such as the need to hold a hearing,
if necessary) require an extension of time for processing, in which case
the sixty (60) day period may be extended to one hundred and twenty (120)
days. The Committee shall notify the claimant in writing of any extension.
The decision upon review shall [i] include specific reasons for the
decision, [ii] be written in a manner intended to be understood by the
claimant, and [iii] contain references to the Plan provisions on which the
decision is based.
SECTION 9.
MISCELLANEOUS PROVISIONS
9.1 Amendment or Termination. Company reserves the right to amend, modify,
terminate or discontinue the Plan at any time by appropriate action taken
by the Committee, provided, however, that no such action shall reduce the
amounts then credited to any Account of any Participant, subject to
adjustment for notional investment losses and deemed transaction fees in
accordance with Section 4.6 and the claims of the Employer's general
creditors.
9.2 Participant's Rights Unsecured. The Employer shall remain the owner of
amounts deferred under the Plan by its Employees and Directors
participating in the Plan. The Participant and the Participant's
beneficiary have only the Employer's unsecured promise to pay. The rights
accruing to the Participant and the Participant's beneficiary are those of
an unsecured general creditor of the Employer. Any contract, policy or
other asset which the Employer may utilize to assure itself of the funds to
make payment shall not serve in any way as security to the Participant or
beneficiary for the Employer's performance under the Plan. Any account
established under the Plan is for bookkeeping purposes only and shall not
be considered to create a fund for the Participant or beneficiary.
9.3 Nontransferability/Nonalienability. No right of any Participant or
beneficiary to receive any Plan payment shall be subject to alienation,
transfer, sale, assignment, pledge, attachment, garnishment or encumbrance
of any kind. Any attempt to alienate, sell, transfer, assign, pledge or
otherwise encumber any such payments whether presently or thereafter
payable shall be void. Subject to Section 9.7, any Plan payment due shall
not in any manner be subject to debts or liabilities of any Participant,
beneficiary or other person.
9.4 Participant Obligation to Furnish Information. Each person entitled to
receive a Plan payment, whether a Participant, a duly designated
beneficiary, a guardian or otherwise, shall provide the Committee with such
information as it may from time to time deem necessary or in its best
interest in administering the Plan. Any such person shall also furnish the
Committee with such documents, evidence, data or other information as the
Committee may from time to time deem necessary or advisable.
39
9.5 No Right of Employment. The Plan shall not be deemed to constitute a
contract of employment between a Participant and the Employer, nor shall
any Plan provision restrict the right of the Employer to discharge a
Participant, or restrict the right of a Participant to terminate his or her
employment.
9.6 Plan Expenses. Unless paid by the Employer, expenses of administering the
Plan shall be paid by the Participants, except as otherwise provided
herein, and shall be debited among Participant Accounts in a reasonable
manner as determined by the Committee. Expenses that are specific to a
Participant's Account shall be debited solely to such Participant's Account
and shall not be spread among other Participants.
9.7 Offsets. As a condition to eligibility to participate in the Plan, each
Participant consents to the deduction from amounts otherwise payable under
the Plan to the Participant and the Participant beneficiaries all amounts
owed by the Participant to the Employer and the Company and its affiliates
to the maximum extent permitted by applicable law.
9.8 Limitation of Actions. No lawsuit with respect to any benefit payable or
other matter arising out or relating to the Plan may be brought before
exhaustion of the claim and review procedures set forth in Section 8 and
any lawsuit must filed no later than nine (9) months after a claim is
denied or be forever barred.
9.9 Governing Law. The Plan shall be construed, administered and governed in
all respects under and by the applicable laws of the Commonwealth of
Kentucky. By participating in the Plan, the Participant irrevocably
consents to the exclusive jurisdiction of the courts of the Commonwealth of
Kentucky and of any federal court located in Jefferson County, Kentucky in
connection with any action or proceeding arising out of or relating to the
Plan, any document or instrument delivered pursuant to or in connection
with the Plan.
Executed this ______ day of ___________________, 2001 but effective
January 1, 2001.
CHURCHILL DOWNS INCORPORATED
By:
Title:
Date Signed: ________________________
40
TOP HAT EXEMPTION STATEMENT
VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED
TO: Top Hat Plan Exemption
Pension and Welfare Benefits Administration
Room N-5644
U. S. Department of Labor
200 Constitution Avenue, NW
Washington, D.C. 20210
FROM: Churchill Downs Incorporated (Sponsoring Employer)
700 Central Avenue
Louisville, Kentucky 40208
EIN: 61-0156015
Churchill Downs Incorporated maintains the following arrangements primarily
for the purpose of providing deferred compensation to a select group of
management or highly compensated employees:
Churchill Downs Incorporated Deferred Compensation Plan
(coverage: twenty-nine (29) employees)
Churchill Downs Incorporated Incentive Compensation Plan
(coverage: one (1) employee) merged into Churchill Downs
Incorporated Deferred Compensation Plan effective 1/1/01
These are the only such arrangements maintained by Churchill Downs
Incorporated at this time.
Dated this___ day of ___________, 2001.
CHURCHILL DOWNS INCORPORATED
By:
Title:
41