FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 of Incorporation) (I.R.S. Employer
Identification No.)
700 CENTRAL AVENUE, LOUISVILLE, KENTUCKY 40208
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: 502/636-4400
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
NO PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 28, 1996, the estimated aggregate market value of the shares of the
Registrant's Common Stock held by non-affiliates of the Registrant was
approximately $105,000,000.
As of March 28, 1996, 3,784,605 shares of the Registrant's Common Stock were
outstanding.
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on June 13, 1996 are incorporated by reference herein in
response to Items 10, 11, 12, and 13 of Part III of Form 10-K.
This Report consists of 20 consecutively numbered pages.
The date of this Report is April 29, 1996.
1
CONTENTS
PAGE
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA........................3
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT ......................................................18
ITEM 11. EXECUTIVE COMPENSATION ..........................................18
Exhibit 23 CONSENT OF COOPERS & LYBRAND, L.L.P..............................20
INDEPENDENT ACCOUNTANTS
2
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Churchill Downs Incorporated
We have audited the accompanying consolidated balance sheets of Churchill Downs
Incorporated and subsidiaries as of December 31, 1995, December 31, 1994, and
December 31, 1993 and the related consolidated statements of earnings,
stockholders' equity and cash flows, and the consolidated financial statement
schedule, for the years ended December 31, 1995, December 31, 1994, and for the
eleven month period ended December 31, 1993 as listed in Item 14 of this Form
10-K. These consolidated financial statements and financial statement schedule
are the responsibility of management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Churchill Downs
Incorporated and subsidiaries as of December 31, 1995, December 31, 1994, and
December 31, 1993 and the results of their operations and cash flows for the
years ended December 31, 1995, December 31, 1994, and for the eleven month
period ended December 31, 1993 in conformity with generally accepted accounting
principles. In addition, in our opinion, the consolidated financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects, the
information required to be included therein for the years ended December 31,
1995, December 31, 1994, and for the eleven month period ended December 31,
1993.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for income taxes as of February 1, 1993.
/s/Coopers & Lybrand L.L.P.
- ---------------------------
Coopers & Lybrand L.L.P.
Louisville, Kentucky
March 8, 1996
3
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31, December 31, December 31,
ASSETS 1995 1994 1993
----------- ----------- ------------
Current assets:
Cash and cash equivalents $ 5,856,188 $ 2,521,033 $11,117,716
Accounts receivable 2,098,901 2,277,218 3,716,202
Other current assets 549,820 741,560 682,754
----------- ----------- -----------
Total current assets 8,504,909 5,539,811 15,516,672
Other assets 4,632,044 5,058,524 1,973,009
Racing plant and equipment 97,451,463 89,537,701 66,227,497
Less accumulated depreciation (33,101,934) (29,960,196) (26,897,219)
----------- ----------- -----------
64,349,529 59,577,505 39,330,278
----------- ----------- -----------
$77,486,482 $70,175,840 $56,819,959
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,517,508 $4,567,292 $2,248,825
Accrued expenses 3,310,882 2,347,668 2,310,696
Dividends payable 1,892,302 1,891,759 1,886,965
Income taxes payable 1,049,508 - 1,492,740
Deferred revenue 6,098,541 6,142,111 8,134,737
Notes payable 70,097 722,235 219,465
----------- ----------- -----------
Total current liabilities 18,938,838 15,671,065 16,293,428
Notes payable 6,351,079 7,961,079 524,431
Outstanding mutuel tickets (payable
after one year) 2,256,696 1,523,600 953,881
Deferred compensation 871,212 690,178 633,366
Deferred income taxes 2,415,500 2,248,000 1,419,000
Minority interest in equity of consolidated subsidiary - 78,771 -
Stockholders' equity:
Preferred stock, no par value; authorized, 250,000 shares;
issued, none
Common stock, no par value; authorized,
10,000,000 shares, issued 3,784,605 shares, 1995,
3,783,318 shares, 1994, and 3,773,930 shares, 1993 3,504,388 3,437,911 2,977,911
Retained earnings 43,486,460 39,175,627 34,901,033
Deferred compensation costs (272,691) (545,391) (818,091)
Note receivable for common stock (65,000) (65,000) (65,000)
----------- ----------- -----------
46,653,157 42,003,147 36,995,853
----------- ----------- -----------
$77,486,482 $70,175,840 $56,819,959
=========== =========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
4
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
Eleven Months
Year Ended Year Ended Ended
December 31, December 31, December 31,
1995 1994 1993
----------- ------------ ------------
Net revenues $92,434,216 $66,419,460 $55,809,889
Operating expenses:
Purses and stakes 27,651,482 20,422,174 16,690,246
Other direct expenses 46,117,000 28,914,924 24,140,553
----------- ----------- ----------
73,768,482 49,337,098 40,830,799
----------- ----------- ----------
Gross profit 18,665,734 17,082,362 14,979,100
Selling, general and administrative 8,360,524 7,221,276 6,019,880
----------- ----------- ----------
Operating income 10,305,210 9,861,086 8,959,220
----------- ----------- ----------
Other income (expense):
Interest income 233,556 292,115 324,017
Interest expense (572,779) (175,534) -
Miscellaneous income 288,148 174,386 195,597
----------- ----------- ----------
(51,075) 290,967 519,614
----------- ----------- ----------
Earnings before income taxes 10,254,135 10,152,053 9,478,834
----------- ----------- ----------
Income taxes:
Current 3,883,500 3,856,700 3,787,000
Deferred 167,500 129,000 (153,200)
----------- ----------- -----------
4,051,000 3,985,700 3,633,800
---------- ----------- ----------
Earnings before cumulative effect
of accounting change 6,203,135 6,166,353 5,845,034
Cumulative effect of accounting change - - 61,000
---------- ----------- ----------
Net earnings $6,203,135 $ 6,166,353 $5,906,034
========== =========== ==========
Earnings per share before
cumulative effect of accounting change $1.64 $1.63 $1.55
Cumulative effect of accounting change - - .01
---------- ----------- -----------
Net earnings per share (based on weighted
average shares outstanding of 3,784,140,
3,778,350 and 3,775,444, respectively) $1.64 $1.63 $1.56
=========== =========== ============
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
5
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1995, December 31, 1994 and the eleven months
ended December 31, 1993
Note Deferred
Common Retained Receivable for Compensation
Stock Earnings Common Stock Costs Total
Balances January 31, 1993 $2,159,820 $30,881,964 $ (65,000) $32,976,784
Net earnings 5,906,034 5,906,034
Deferred compensation 818,091 $(818,091)
Cash dividends, $.50 per share (1,886,965) (1,886,965)
--------- ----------- ------------- ---------- ------------
Balances December 31, 1993 2,977,911 34,901,033 (65,000) (818,091) 36,995,853
Net earnings 6,166,353 6,166,353
Deferred compensation
amortization 272,700 272,700
Cash dividends, $.50 per share (1,891,759) (1,891,759)
Issuance of 9,388 shares of
common stock at
$49.00 per share 460,000 460,000
---------- ----------- ------------- ---------- -----------
Balances December 31, 1994 3,437,911 39,175,627 (65,000) (545,391) 42,003,147
Net earnings 6,203,135 6,203,135
Deferred Compensation
Amortization 272,700 272,700
Issuance of 1,287 shares of
common stock at
$51.65 per share 66,477 66,477
Cash dividends, $.50 per share (1,892,302) (1,892,302)
---------- ----------- ------------ ---------- -----------
Balances December 31, 1995 $3,504,388 $43,486,460 $(65,000) $(272,691) $46,653,157
========== =========== ============ ========== ===========
<FN>
The accompanying notes are integral part of the consolidated financial
statements.
</FN>
6
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Eleven Months
Year Ended Year Ended Ended
December 31, December 31, December 31,
1995 1994 1993
Cash flows from operating activities:
Net earnings $ 6,203,135 $ 6,166,353 $ 5,906,034
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 4,506,427 3,327,731 2,387,618
Deferred income taxes 167,500 129,000 (214,200)
Deferred compensation 142,534 640,712 -
Increase (decrease) in cash resulting from
changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable 178,317 1,438,984 (1,843,885)
Other currents assets 191,740 (44,526) (65,606)
Income taxes payable 1,049,508 (1,492,740) 837,758
Deferred revenue (43,570) (1,992,626) (131,748)
Accounts payable, accrued expenses and other 4,144,532 3,227,085 1,850,625
---------- ----------- ----------
Net cash provided by operating activities 16,540,123 11,399,973 8,726,596
---------- ----------- ----------
Cash flows from investing activities:
Additions to racing plant and equipment, net (8,589,535) (23,310,204) (1,409,888)
Acquisition of Anderson Park, net of note payable
of $1,100,000 - (850,000) -
Additions in intangible assets (461,536) (1,248,905) -
Purchase of investments - - (450,000)
----------- ----------- ----------
Net cash used in investing activities (9,051,071) (25,409,109) (1,859,888)
----------- ----------- ----------
Cash flows from financing activities:
Increase (decrease) in bank notes payable, net (2,262,138) 7,299,418 (501,205)
Dividends paid (1,891,759) (1,886,965) -
---------- ---------- ----------
Net cash used in financing activities (4,153,897) 5,412,453 (501,205)
---------- ----------- ----------
Net increase (decrease) in cash and cash equivalents 3,335,155 (8,596,683) 6,365,503
Cash and cash equivalents, beginning of period 2,521,033 11,117,716 4,752,213
---------- ----------- -----------
Cash and cash equivalents, end of period $5,856,188 $ 2,521,033 $11,117,716
========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 485,908 $ 102,626 $ 103,691
Income taxes $2,790,000 $ 5,393,000 $2,840,000
<FN>
Noncash investing and financing activities:
During 1994, $460,000 of notes payable was paid by the issuance of common
stock.
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
7
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
Churchill Downs Incorporated (the "Company") conducts Spring and Fall
live race meetings for Thoroughbred horses and participates in
intertrack and interstate simulcast wagering as a host track and as a
receiving track in Kentucky. In Indiana, the Company, through its
subsidiary, Hoosier Park L.P. (Hoosier Park), conducts live Thoroughbred
and Standardbred race meetings and participates in simulcast wagering.
Both its Kentucky and Indiana operations are subject to regulation by
the racing commissions of the respective states.
The accompanying consolidated financial statements include the accounts
of the Company, its wholly owned subsidiaries, Churchill Downs
Management Company and Anderson Park Inc. and its majority owned
subsidiary, Hoosier Park, L.P. All significant intercompany balances and
transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOLLOWS:
CASH EQUIVALENTS:
The Company considers investments with original maturities of three
months or less to be cash equivalents. The Company has, from time to
time, had cash in bank in excess of federally insured limits.
RACING PLANT AND EQUIPMENT:
Racing plant and equipment are recorded at cost. Depreciation is
provided by accelerated and straight-line methods over the estimated
useful lives of the related assets.
DEFERRED REVENUE:
Deferred revenue includes advance sales of tickets.
8
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
RECLASSIFICATION:
Certain prior year accounts have been reclassified to conform to the
current year presentation.
EARNINGS PER SHARE:
Earnings per share has been computed by dividing net earnings by the
weighted average number of common shares and equivalents outstanding.
Common share equivalents included in the computation represent shares
issuable upon assumed exercise of stock options which would have a
dilutive effect on earnings. Such equivalents had no material effect on
the computation for the periods ended December 31, 1995, 1994 and 1993.
IMPACT OF REPORTING PERIOD:
In 1993, the Company changed to a calendar year from a fiscal year
ending January 31. The change of fiscal year resulted in a transition
period of eleven months which began February 1, 1993 and ended December
31, 1993.
Twelve Months Ended
December 31
1994 1993 Unaudited
----------- --------------
Net revenues 66,419,460 57,596,544
Gross profit 17,082,362 15,489,722
Income taxes 3,985,700 3,495,000
Earnings before cumulative
effect of accounting change 6,166,353 5,421,253
Cumulative effect of accounting
change - 61,000
Net earnings 6,166,353 5,482,253
Earnings per share before
cumulative effect of
accounting change 1.63 1.44
Cumulative effect of
accounting change - .01
Earnings per share 1.63 1.45
9
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. RACING PLANT AND EQUIPMENT:
Racing plant and equipment are summarized as follows:
December 31, December 31, December 31,
1995 1994 1993
----------- ----------- -----------
Land 5,930,242 $ 5,864,863 $ 5,033,145
Grandstands and buildings 55,946,326 48,749,083 35,291,747
Equipment 2,685,026 2,110,793 1,526,524
Furniture and fixtures 3,435,761 3,586,659 2,961,423
Tracks and other improvements 29,332,188 28,364,732 20,706,395
Construction in process 121,920 861,571 708,263
----------- ----------- -----------
$97,451,463 $89,537,701 $66,227,497
=========== =========== ===========
Depreciation expense was $3,817,511 and $3,062,978 for the years ended
December 31, 1995 and 1994 and $2,387,618 for the eleven months ended
December 31, 1993.
3. INCOME TAXES:
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, ACCOUNTING FOR INCOME TAXES, as of February 1, 1993. SFAS No.
109 changes the method of accounting for income taxes from the deferred
to the liability method. Under the liability method, deferred income
taxes at the end of each period are determined by using the enacted tax
rates for the years in which the taxes are expected to be paid or
recovered. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be recovered. Under the
deferred method, deferred income taxes were recognized using the tax
rates in effect when the tax was first recorded.
The adoption of SFAS No. 109 required revaluation of the Company's
deferred income tax liability to reflect the provisions of this
statement. The cumulative effect of this change as of February 1, 1993
increased net earnings for the eleven months ended December 31, 1993 by
approximately $61,000, or $.01 per share. Prior year financial
statements were not restated for this accounting change.
10
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The components of the net deferred tax liability recognized in the
accompanying balance sheet as of December 31 follow:
1995 1994 1993
---------- ---------- -----------
Deferred tax liability $2,841,000 $2,737,000 $1,907,000
Deferred tax asset (529,500) (489,000) (488,000)
Valuation allowance 104,000 - -
---------- ---------- ----------
$2,415,500 $2,248,000 $1,419,000
========== ========== ==========
At December 31, 1995, the Company has operating loss carry forwards of
approximately $3,000,000 for Indiana State income tax purposes expiring
from 2009 through 2010. Based on the weight of evidence, both negative
and positive, including the lack of historical earnings in the state of
Indiana, the Company has provided a valuation allowance because it is
unable to assert that it is more likely than not to realize some portion
or all of the deferred tax asset attributable to the Indiana State
income tax net operating loss carry forwards.
Significant components of the Company's deferred tax assets and
liabilities at December 31 follows:
1995 1994 1993
---------- ----------- ----------
Excess of book over tax basis of
property & equipment $2,161,000 $2,037,000 $1,907,000
Book basis of racing license
in excess of tax basis 680,000 700,000 -
Accrual for supplemental benefit plan (252,900) (230,000) (210,000)
Net operating loss carryforwards (104,000) - -
Allowance for uncollectible receivables (54,000) (86,000) (86,000)
Other accruals (118,600) (173,000) (192,000)
---------- ---------- ----------
2,311,500 2,248,000 1,419,000
Valuation allowance for deferred
tax assets 104,000 - -
---------- ---------- ----------
$2,415,500 $2,248,000 $1,419,000
========== ========== ==========
11
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Company's income tax expense is different from the amount computed
by applying the statutory federal income tax rate to income before taxes
as follows:
Year Ended Year Ended Eleven Months Ended
December 31, 1995 December 31, 1994 December 31, 1993
----------------------- ---------------------- -------------------
Percent of Percent of Percent of
Amount Pretax Income Amount Pretax Income Amount Pretax Income
---------- ------------- --------- ------------- ------ -------------
Statutory tax on earnings
before income tax $3,486,000 34.0% $3,452,000 34.0% $3,223,000 34.0%
State income taxes, net
of federal income tax
benefit 552,400 5.4% 533,700 5.3% 498,000 5.2%
Other 12,600 .1% - - (87,200) (.9%)
---------- ----- ---------- ----- ---------- -----
$4,051,000 39.5% $3,985,700 39.3% $3,633,800 38.3%
========== ===== ========== ===== ========== =====
4. EMPLOYEE BENEFIT PLANS:
The Company has a profit-sharing plan which covers all full-time
employees with one year or more of service. The Company will match
contributions made by the employee up to 2% of the employee's annual
compensation and contribute a discretionary amount determined annually
by the Board of Directors. The cost of the plan for the years ended
December 31, 1995, December 31, 1994 and the eleven months ended
December 31, 1993 was $280,000, $276,000, and $258,000, respectively.
The estimated present value of future payments under a supplemental
benefit plan is charged to expense over the period of active employment
of the employees covered under the plan. Supplemental benefit plan
expense for the year ended December 31, 1995, December 31, 1994 and the
eleven months ended December 31, 1993 were $57,000, $49,000, and
$44,000, respectively.
The Company is a member of a noncontributory defined benefit
multi-employer retirement plan for all members of the Pari-mutuel
Clerk's Union of Kentucky. Contributions are made in accordance with
negotiated labor contracts. Retirement plan expense for the year ended
December 31, 1995, December 31, 1994 and the eleven months ended
December 31, 1993 were$193,774,$190,626 and $179,770, respectively. The
Company's policy is to fund this expense as accrued.
5. NOTES PAYABLE:
The Company has an unsecured $20,000,000 bank line of credit with
various options for the interest rate, none of which are greater than
the bank's prime rate. The rate in effect at December 31, 1995 was
6.85%. Borrowings are payable on January 31, 1997. There was $6.0
million outstanding at December 31, 1995 and $7.5 million outstanding at
December 31, 1994. No borrowings were outstanding at December 31, 1993.
12
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. NOTES PAYABLE: (cont'd)
The Company also has two non-interest bearing notes payable in the
aggregate face amount of $900,000 relating to the purchase of an
intertrack wagering license from the former owners of the Sports
Spectrum property. Interest has been imputed at 8%. At December 31,
1995, the balance of these notes was $420,000 net of an unamortized
discount of $152,000. The notes require aggregate annual payments of
$110,000 from September, 1993. As described in the contingency footnote
(Note 10) any remediation costs for environmental cleanup can be offset
against any amounts due under these notes payable.
Maturities of all notes payable for the five years following December
31, 1995 follow:
PRINCIPLE AMOUNT
1996 - $ 68,000
1997 - 6,074,000
1998 - 80,000
1999 - 86,000
2000 and thereafter - 113,000
6. COMMITMENTS:
The Company contracts for totalisator equipment and service. A contract
with a new vendor was entered into on November 1, 1993 and extends
through October, 1998. The contract provides for rentals based on a
percentage of pari-mutuel wagers registered by the totalisator
equipment. Hoosier Park entered into a separate contract for totalisator
equipment and service under an agreement which expires in 2001 and
provides for variable rentals based on the level of activity.
Total rental expense follows:
Eleven Months
Year Ended Year Ended Ended
December 31, December 31, December 31,
1995 1994 1993
---------- ---------- -----------
Minimum rentals $ - $ - $427,000
Variable rentals 1,093,000 577,000 414,000
---------- -------- --------
$1,093,000 $577,000 $841,000
========== ======== ========
14
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. STOCK OPTIONS:
At the June, 1994 annual meeting of stockholders, a stock option plan
for key employees was approved. Options may be granted on no more than
200,000 shares of the Company's common stock.
The plan provides for granting of options to buy shares of the Company's
common stock intended either to qualify as "incentive stock options"
under the Internal Revenue Code of 1986 or "nonqualified stock options"
not intended to so qualify. In accordance with the plan, options are
exercisable over a 10 year period from date of grant.
Stock option activity follows:
Option Price Number Of Shares Exercisable In
Per Share 1996 1997 1998 1999 Total
--------- ------- ----- ----- ----- -------
1993 ACTIVITY
Granted $46.00-$55.00 101,700 -- -- -- 101,700
------- ----- ----- ----- -------
Total outstanding
December 31, 1993 101,700 -- -- -- 101,700
1994 ACTIVITY
Granted $42.50-$44.00 -- 10,800 10,750 -- 21,550
Cancelled $44.00-$46.00 (9,000) (1,000) -- -- (10,000)
------- ------ ------ ----- ------
Total outstanding
December 31, 1994 92,700 9,800 10,750 -- 113,250
1995 Activity
Granted $31.50 -- -- 10,600 -- 10,600
------- ------ ------ ------ --------
Total outstanding
December 31, 1995 92,700 9,800 21,350 10,600 123,850
======= ====== ====== ====== =======
All incentive stock options and nonqualified stock options granted
during 1995 and 1994 were granted at the closing high bid quotation on
the business day immediately preceding the date of grant. In November
1993, nonqualified stock options were granted at $46.00, the February 1,
1993 market price. The excess of the current market value of the stock
at the date of grant over the option price has been accounted for as
deferred compensation and is being expensed over the vesting period,
three years.
14
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", is effective for the Company's year ended
December 31, 1996. This statement introduces a fair-value based method
of accounting for stock-based compensation, but allows companies that
choose not to adopt the new rules to continue to apply the existing
accounting rules contained in Accounting Principals Board Opinion No. 25
"Accounting For Stock Issued to Employees", provided proforma net income
and earnings per share disclosures are provided under the new method.
Management has not decided whether it will adopt FASB No. 123 to compute
compensation charges, but does not believe that the statement will have
a material effect on the Company's consolidated financial position or
the consolidated results of its operations.
8. FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board ("FASB") Statement No. 107,
"Disclosure about Fair Value of Financial Instruments," is a part of a
continuing process by the FASB to improve information on financial
instruments. The following methods and assumptions were used by the
Company in estimating its fair value disclosures for such financial
instruments as defined by the Statement:
CASH AND SHORT-TERM INVESTMENTS
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value.
LONG-TERM DEBT
The carrying amounts of the Company's borrowings under its line of
credit agreements and other long-term debt approximates fair value,
based upon current interest rates.
9. ACQUISITION
On January 26, 1994 the Company purchased Anderson Park, Inc. ("API")
for approximately $1,950,000. API owned an Indiana Standardbred racing
license and was in the process of constructing a racing facility in
Anderson, Indiana. Subsequently, the facility was completed and
contemporaneously with the commencement of operations on September 1,
1994, the net assets of API were contributed to a newly formed
partnership, Hoosier Park, L.P. in return for an 87% general partnership
interest.
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CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. CONTINGENCIES
On January 22, 1992, the company acquired certain assets of Louisville
Downs, Incorporated for $5,000,000. In conjunction with this purchase,
the Company withheld $1,000,000 from the amount due to the sellers to
offset certain costs related to the remediation of environmental
contamination associated with underground storage tanks at the site.
Substantially all of the $1,000,000 hold back has been utilized as of
December 31, 1995. The remediation has also been approved to receive
funds up to $995,000 from the Kentucky Petroleum Storage Tank
Environmental Assurance Fund (the "Fund"). In addition, the Company may
offset any additional costs against additional amounts payable to the
sellers for the acquisition of the property.
It is not anticipated that the Company will have any liability as a
result of compliance with environmental laws with respect to the
property. Compliance with environmental laws has not otherwise affected
development and operation the property and the Company is not otherwise
subject to any material compliance costs in connection with federal or
state environmental laws.
11. AGREEMENT TO SELL 10% OF HOOSIER PARK
In December 1995, the Company entered into a Partnership Interest
Purchase Agreement with Conseco HPLP, L.L.C. ("Conseco") for the sale of
10% of the Company's partnership interest in HPLP to Conseco. The
purchase price for the 10% partnership interest will be $218,000 and the
acquisition of a 10% interest in the debt owed by HPLP to CDMC at face
value of debt at the date of the closing (approximately $2,530,000). The
purchase is subject to the approval of the Indiana Horse Racing
Commission. Following the purchase, Conseco and Pegasus will be limited
partners of HPLP and Anderson will continue to be the sole general
partner of HPLP. Such a sale is not anticipated to have any material
effect on operations in 1996.
From the date of the closing through December 31, 1998, Conseco will
have an option to purchase from Anderson an additional 47% partnership
interest in HPLP. The purchase price of the additional partnership
interest will be $22,156,000 of which approximately $6,222,000 will be
allocated to the purchase of the partnership interest and approximately
$15,934,000 will be allocated to the acquisition of debt owed by HPLP to
CDMC. This purchase is also subject to the approval of the IHRC.
Following this purchase, Conseco will be the sole general partner of
HPLP, Anderson and Pegasus will be limited partners of HPLP. CDMC will
continue to have a long-term management agreement with HPLP pursuant to
which CDMC has operational control of the day-to-day affairs of Hoosier
Park and its related simulcast operations.
16
COMMON STOCK INFORMATION
Per Share of Common Stock
SUPPLEMENTARY FINANCIAL INFORMATION Net Cash Market Price
Net Operating Net Income Income Dividends
Revenue Income(Deficit) (Loss) (Loss) (Paid) High Low
1995 $92,434,216 $10,305,210 $ 6,203,135 $1.64
Fourth Quarter $21,264,267 $ (905,283) $ (500,096) $-0.13 $0.50 $38.50 $31.00
Third Quarter 13,222,206 (3,572,224) (2,174,704) -0.57 43.25 35.50
Second Quarter 49,335,136 17,645,591 10,650,212 2.81 46.00 41.00
First Quarter 8,612,607 (2,862,874) (1,772,277) -0.47 47.00 42.50
1994 $66,419,460 $ 9,861,086 $ 6,166,353 $1.63
Fourth Quarter $16,509,087 $ (515,409) $ (304,012) $-0.08 $0.50 $43.00 $41.50
Third Quarter 7,515,621 (3,024,070) (1,794,462) -0.48 43.50 42.00
Second Quarter 39,968,720 17,128,385 10,469,618 2.77 45.00 42.00
First Quarter 2,426,032 (3,727,820) (2,204,791) -0.58 52.00 43.00
1993 $55,809,889 $ 8,959,220 $ 5,906,034 $ 1.56
Fourth Quarter $ 9,021,217 $(1,032,107) $ (421,207) $-0.10 $0.50 $54.00 $51.00
Third Quarter 4,986,547 (3,300,241) (1,933,201) -0.51 53.00 50.00
Second Quarter 38,656,798 16,077,896 9,863,277 2.61 62.50 49.00
First Quarter 3,145,327 (2,786,328) (1,602,835) -0.44 65.00 43.50
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is incorporated by reference from
sections of the Company's Proxy Statement titled "Common Stock Owned by Certain
Persons," "Election of Directors," and "Executive Officers of the Company,"
which Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to instruction G(3) of the General Instructions to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference from
sections of the Company's Proxy Statement titled "Election of Directors -
Compensation and Committees of the Board of Directors," "Compensation Committee
Report on Executive Compensation," "Compensation Committee Interlocks and
Insider Participation," "Performance Graph," and "Executive Compensation," which
Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to instruction G(3) of the General Instructions to Form 10-K.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has caused this amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
CHURCHILL DOWNS INCORPORATED
April 29, 1996 /S/ VICKI L. BAUMGARDNER
-------------------------
Vicki L.Baumgardner, Vice President,
Finance/Treasurer (Principal Financial
Officer)
19