Churchill Downs
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#2758
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C$8.44 B
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Churchill Downs - 10-Q quarterly report FY


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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)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
ASSETS 2001 2000 2000
---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
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):
<TABLE>
<CAPTION>
Calder
Churchill Hollywood Race Arlington Hoosier Ellis
Downs Park Course Park* Park Park
----- ---- ------ ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
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

</TABLE>
* 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