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, 1997
Commission file number 0-10619
HOLLYWOOD PARK, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-3667491
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1050 South Prairie Avenue Inglewood, California 90301
(Address of Principal Executive Offices) (Zip Code)
(310) 419 - 1500
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (a) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
The number of outstanding shares of the registrant's common stock, as of the
date of the close of business on May 13, 1997: 18,388,933
Hollywood Park, Inc.
Table of Contents
Part I
Item 1. Financial Information
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996............................ 1
Consolidated Statements of Operations for the three months ended
March 31, 1997 and 1996.......................................................................... 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and 1996.......................................................................... 3
Notes to Consolidated Financial Statements........................................................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General.......................................................................................... 6
Results of Operations............................................................................ 7
Liquidity and Capital Resources.................................................................. 8
Part II
Item 5. Other Information................................................................................. 10
Item 6.a Exhibits.......................................................................................... 11
Other Financial Information....................................................................... 12
Signatures........................................................................................ 14
Hollywood Park, Inc.
Consolidated Balance Sheets
March 31, December 31,
1997 1996
------------- -------------
(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 9,825,000 $ 11,922,000
Restricted cash 322,000 4,486,000
Short term investments 5,135,000 4,766,000
Other receivables, net of allowance for doubtful accounts
of $787,000 in 1997, and $1,089,000 in 1996 6,474,000 7,110,000
Prepaid expenses and other assets 7,359,000 6,215,000
Deferred tax assets 6,667,000 6,422,000
Current portion of notes receivable 39,000 38,000
------------- -------------
Total current assets 35,821,000 40,959,000
Notes receivable 809,000 819,000
Property, plant and equipment, net 129,991,000 130,835,000
Goodwill, net 20,235,000 20,370,000
Other assets 12,658,000 12,903,000
============= =============
$ 199,514,000 $ 205,886,000
============= =============
- ------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 9,809,000 $ 10,043,000
Accrued lawsuit settlement 2,750,000 2,750,000
Accrued liabilities 9,415,000 10,584,000
Accrued workers' compensation 1,887,000 1,967,000
Accrued slip and fall claims 1,558,000 1,718,000
Gaming liabilities 2,478,000 2,499,000
Amounts due to horsemen for purses, stakes and awards 149,000 4,354,000
Outstanding pari-mutuel tickets 2,069,000 1,414,000
Current portion of notes payable 41,000 35,000
------------- -------------
Total current liabilities 30,156,000 35,364,000
Notes payable 282,000 282,000
Deferred tax liabilities 8,655,000 9,065,000
------------- -------------
Total liabilities 39,093,000 44,711,000
Minority interests 3,037,000 3,015,000
Stockholders' Equity:
Capital stock --
Preferred - $1.00 par value, authorized 250,000 shares;
27,499 issued and outstanding 28,000 28,000
Common - $.10 par value, authorized 40,000,000 shares;
18,378,933 issued and outstanding in 1997, and 18,332,016
in 1996 1,838,000 1,833,000
Capital in excess of par value 167,704,000 167,074,000
Accumulated deficit (12,186,000) (10,775,000)
------------- -------------
Total stockholders' equity 157,384,000 158,160,000
------------- -------------
$ 199,514,000 $ 205,886,000
============= =============
- -------
See accompanying notes to consolidated financial statements.
1
Hollywood Park, Inc.
Consolidated Statements of Operations
For the three months ended March 31,
------------------------------------
1997 1996
------------- ------------
(unaudited)
Revenues:
Pari-mutuel commissions $ 6,554,000 $ 6,718,000
Gaming - Casino 12,082,000 11,841,000
Lease - Casino 600,000 0
Lease and management fee - Sunflower 0 1,071,000
Admissions, programs and other racing income 3,075,000 3,436,000
Concession sales 2,543,000 3,174,000
Other income 1,961,000 1,613,000
------------ ------------
26,815,000 27,853,000
------------ ------------
Expenses:
Salaries, wages and employee benefits 11,550,000 12,601,000
Operations of facilities 1,930,000 2,201,000
Cost of concession sales 4,027,000 4,868,000
Professional services 2,163,000 2,260,000
Rent 247,000 282,000
Utilities 831,000 998,000
Marketing 1,950,000 873,000
Administrative 2,617,000 3,374,000
------------ ------------
25,315,000 27,457,000
------------ ------------
Income before interest, income taxes, depreciation,
amortization and other non-recurring expenses 1,500,000 396,000
Write off of investment in Sunflower 0 11,346,000
Depreciation and amortization 2,884,000 2,913,000
Interest expense 64,000 844,000
------------ ------------
Loss before minority interests and income taxes (1,448,000) (14,707,000)
Minority interests (22,000) 0
Income tax benefit 575,000 1,329,000
------------ ------------
Net loss ($ 895,000) ($13,378,000)
============ ============
===========================================================================================
Dividend requirements on convertible preferred stock $ 481,000 $ 481,000
Net loss allocated to common shareholders ($ 1,376,000) ($13,859,000)
Per common share:
Net loss - primary ($0.07) ($0.74)
Net loss - fully diluted ($0.07) ($0.74)
Cash dividend per common share $0.00 $0.00
Number of shares - primary 18,372,244 18,610,114
Number of shares - fully diluted 20,663,736 20,901,606
- -------
See accompanying notes to consolidated financial statements.
2
Hollywood Park, Inc.
Consolidated Statements of Cash Flows
For the three months ended March 31,
------------------------------------
1997 1996
------------ -------------
(unaudited)
Cash flows from operating activities:
Net loss ($ 895,000) ($13,378,000)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,884,000 3,050,000
Minority interests 22,000 0
Loss on write off of investment in Sunflower 0 11,346,000
Unrealized loss on short term bond investing (35,000) (16,000)
Gain on sale or disposal of property, plant and equipment (1,000) (5,000)
Decrease in restricted cash 4,164,000 2,331,000
Decrease in other receivables, net 636,000 3,085,000
(Increase) decrease in prepaid expenses and other assets (1,025,000) 279,000
Increase in deferred tax assets (245,000) (1,344,000)
Decrease in accounts payable (234,000) (4,137,000)
Decrease in accrued lawsuit settlement 0 (2,477,000)
Decrease in gaming liabilities (21,000) (514,000)
(Decrease) increase in accrued liabilities (1,169,000) 279,000
Decrease in accrued workers' compensation (80,000) (203,000)
Decrease in accrued slip and fall claims (160,000) (84,000)
Decrease in amounts due to horsemen for purses, stakes
and awards (4,205,000) (421,000)
Increase (decrease) in outstanding pari-mutuel tickets 655,000 (1,915,000)
(Decrease) increase in deferred tax liabilities (410,000) 5,000
------------ ------------
Net cash used in operating activities (119,000) (4,119,000)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (1,778,000) (3,551,000)
Receipts from sale of property, plant and equipment 0 6,000
Principal collected on notes receivable 9,000 8,000
Purchase of short term investments (1,261,000) (8,757,000)
Proceeds from short term investments 892,000 9,525,000
Long term gaming assets 0 323,000
------------ ------------
Net cash used in investing activities (2,138,000) (2,446,000)
------------ ------------
Cash flows from financing activities:
Proceeds from unsecured notes payable 6,000 7,000
Common stock issued for Pacific Casino Management, Inc. 500,000 0
Common stock options exercised 135,000 0
Dividends paid to preferred stockholders (481,000) (481,000)
------------ ------------
Net cash provided by (used in) financing activities 160,000 (474,000)
------------ ------------
Decrease in cash and cash equivalents (2,097,000) (7,039,000)
Cash and cash equivalents at the beginning of the period 11,922,000 22,406,000
============ ============
Cash and cash equivalents at the end of the period $ 9,825,000 $ 15,367,000
============ ============
- -------
See accompanying notes to consolidated financial statements.
3
Hollywood Park, Inc.
Notes to Consolidated Financial Statements
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information included herein has been prepared in conformity with
generally accepted accounting principles as reflected in the financial
statements included in Hollywood Park, Inc.'s ("Hollywood Park" or the
"Company") consolidated Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1996. This Quarterly Report
on Form 10-Q does not include certain footnotes and financial presentations
normally presented annually and should be read in conjunction with the Company's
1996 Annual Report on Form 10-K.
The information furnished herein is unaudited; however, in the opinion of
management reflects all normal and recurring adjustments that are necessary to
present a fair statement of the financial results for the interim periods. It
should be understood that accounting measurements at interim dates inherently
involve greater reliance on estimates than at year end. The interim racing
results of operations are not indicative of the results for the full year, due
to the seasonality of the horse racing business.
RESTRICTED CASH Restricted cash as of March 31, 1997, and as of December 31,
1996, was for amounts due to horsemen for purses, stakes and awards.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES Casino gaming revenue consisted of
fees collected from patrons on a per seat or per hand played basis. Revenues in
the accompanying statements of operations exclude the retail value of food and
beverage provided to players on a complimentary basis. The estimated cost of
providing these promotional allowances during the three months ended March 31,
1997, was $326,000, and $280,000 for the three months ended March 31, 1996.
ESTIMATES Financial statements prepared according to generally accepted
accounting principles require the use of management estimates, including
estimates used to evaluate the recoverability of property, plant and equipment,
to determine the fair value of financial instruments, to account for the
valuation allowance for deferred tax assets and to determine litigation related
obligations. Actual results could differ from these estimates.
EARNINGS PER SHARE Primary earnings per share were computed by dividing net
loss allocated to common shareholders (net loss less preferred dividend
requirements) by the weighted average number of common shares outstanding during
the period. Fully diluted per share amounts were similarly computed, but
include the effect, when dilutive, of the conversion of the convertible
preferred shares and exercise of stock options.
CASH FLOWS Cash and cash equivalents consisted of certificates of deposit and
short term investments with maturities of 90 days or less.
RECLASSIFICATIONS Certain reclassifications have been made to the 1996 balances
to be consistent with the 1997 financial statement presentation.
NOTE 2 -- SHORT TERM INVESTMENTS
As of March 31, 1997, short term investments consisted of corporate bonds valued
at $5,135,000, with Moody's ratings of Ba2 to B3, and Standard and Poors ratings
of BB+ to B-, though some of the bonds are not rated by either agency.
Investments in corporate bonds carry a greater amount of principal risk than
other investments previously made by the Company, and yield a correspondingly
higher return. The corporate bond investment as of March 31, 1997, had a
weighted average maturity of 1.3 years, and because the Company reasonably
expects to liquidate these investments in its normal operating cycle, the
investments
4
are classified as short term, are held as available for sale and are
recorded in the accompanying financial statements at their fair value, as
determined by the quoted market price.
For the three months ended March 31, 1997, proceeds from the sale or redemption
of corporate bond investments were approximately $892,000, all of which was
reinvested, and gross realized gains and gross realized losses were $1,000 and
$2,000, respectively. The net unrealized holding loss for the three months
ended March 31, 1997, was approximately $35,000.
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held as of March 31, 1997, and December 31, 1996,
consisted of the following:
March 31, December 31,
1997 1996
-------------- --------------
Land and land improvements $ 30,035,000 $ 32,215,000
Buildings and building improvements 152,525,000 150,935,000
Equipment 29,785,000 31,531,000
Construction in progress 1,148,000 128,000
--------------- -------------
213,493,000 214,809,000
Less accumulated depreciation 83,502,000 83,974,000
-----------------------------
$129,991,000 $130,835,000
=============== =============
NOTE 4 -- SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of March 31, 1997, and December 31, 1996, consisted of the
following:
March 31, December 31,
1997 1996
---------------- -------------
Unsecured note payable - Gold Cup $ 323,000 $ 317,000
Less current maturities 41,000 35,000
---------------- -------------
$ 282,000 $ 282,000
================ =============
NOTE 5 -- DEVELOPMENT EXPENSES
Included in Administrative expenses for the three months ended March 31, 1997,
was $50,000 of development expenses, primarily related to the master site plan
for the Inglewood property.
Included in Administrative expenses for the three months ended March 31, 1996,
was $356,000 of development expenses, primarily related to the proposed stadium,
the master site plan for the Inglewood property, and card clubs in Stockton and
Hawaiian Gardens.
NOTE 6 -- ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, ("SFAS 123") Accounting for
Stock-Based Compensation, requires that the Company disclose additional
information about employee stock-based compensation plans. The objective of
SFAS 123 is to estimate the fair value, based on the stock price at the grant
date, of the Company's stock options to which employees become entitled when
they have rendered the requisite service and satisfied any other conditions
necessary to earn the right to benefit from the stock options. The fair market
value of a stock option is to be estimated using an option-pricing model that
takes into account, as of the grant date, the exercise price and expected life
of the option, the current price of the underlying stock and its expected
volatility, expected dividends on the stock and the risk-free interest rate for
the expected term of the options.
The Company has calculated the pro forma financial results as required under
SFAS 123 and noted that the impact on net loss for the three months ended March
31, 1997 and 1996 was immaterial.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
- -------------
Except for the historical information contained herein, the matters addressed in
this Quarterly Report on Form 10-Q may constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements are subject to a variety of risks and uncertainties
that could cause actual results to differ materially from those anticipated by
the Company's management, including the failure to obtain gaming licenses, the
inability to directly operate the Hollywood-Park Casino beyond December 31,
1998, or to find a suitable operator if the Company can no longer directly
operate the Hollywood Park-Casino, failure to meet the conditions of the Merger
described below, failure to complete anticipated expansion projects, and the
failure to obtain adequate financing to meet the Company's strategic goals. 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. For more information on the potential factors which could affect the
Company's financial results, please review the Company's filings with the
Securities and Exchange Commission, including the Company's 1996 Annual Report
on Form 10-K, and the Company's other filings including the Joint
Proxy/Prospectus dated September 20, 1996.
GENERAL Hollywood Park is a gaming, sports and entertainment company engaged in
the ownership and operation of card club casinos, pari-mutuel racing facilities,
and the development of other gaming, sports and entertainment opportunities. The
Company owns and operates the Hollywood Park-Casino, a California card club
located in the Los Angeles metropolitan area, and owns 88% of Crystal Park Hotel
and Casino Development Company LLC, ("Crystal Park LLC") which built and
presently leases, to an unaffiliated third party, the Crystal Park Hotel and
Casino ("Crystal Park"), also located in the Los Angeles metropolitan area.
Hollywood Park owns and operates the Hollywood Park Race Track, located on the
same premises as the Hollywood Park-Casino, which for the past 58 years has been
ranked among the country's most distinguished thoroughbred racing facilities.
On November 8, 1997, Hollywood Park Race Track will host the Breeders' Cup
championship racing series for a third time. In 1994, the Company acquired Turf
Paradise, Inc. ("Turf Paradise"), a thoroughbred racing facility located in
Phoenix, Arizona, and Sunflower Racing, Inc. ("Sunflower"), a greyhound and
thoroughbred racing facility located in Kansas City, Kansas. On May 17, 1996,
as a result of intense competition from Missouri riverboat gaming, Sunflower
filed for reorganization under Chapter 11 of the Bankruptcy Code. Sunflower is
operating as a debtor in possession during the bankruptcy.
Hollywood Park's strategic plan is to continue to diversify its gaming, sports
and entertainment businesses through the development, acquisition, ownership
and/or operation of casinos, race tracks and other gaming, sports and
entertainment attractions. Hollywood Park's gaming investment strategy is to
identify and pursue smaller profitable casinos, with expansion opportunities
that will benefit from the Company's substantial financial resources.
PENDING MERGER WITH BOOMTOWN, INC. In furtherance of its gaming investment
strategy, on April 23, 1996, Hollywood Park and Boomtown, Inc. ("Boomtown"), a
publicly held company, entered into an Agreement and Plan of Merger (the
"Merger") pursuant to which a wholly owned subsidiary of Hollywood Park will
merge into Boomtown, and Boomtown will survive and become a wholly owned
subsidiary of the Company. The Merger, which has been approved by both
Hollywood Park's and Boomtown's common shareholders, is expected to be
consummated in the second quarter of 1997 and will significantly expand the
Company's gaming operations. The Merger will be accounted for under the
purchase method of accounting, with each issued and outstanding share of
Boomtown common stock to be converted into 0.625 shares of Hollywood Park common
stock. Approximately 5,798,000 shares of the Company's common stock are
expected to be newly issued in the Merger, although the Company has agreed to
repurchase and then retire approximately 446,491 of these shares concurrently
with Boomtown's divestiture of its Las Vegas property.
Boomtown owns and operates land-based, dockside and riverboat gaming operations
in Verdi, Nevada, (near Reno) Biloxi, Mississippi, Harvey, Louisiana (near New
Orleans), and Las Vegas, Nevada, although
6
Boomtown's Las Vegas property is expected to be divested immediately following
the Merger. Boomtown's properties offer full casino gaming, hotel accommodations
(at Boomtown's Reno and Las Vegas properties only), and other entertainment
amenities to primarily middle income, value oriented customers. Boomtown, in a
joint venture with Hilton Gaming Corporation, has an application pending for the
remaining riverboat gaming license to be awarded for operations on the Ohio
River in Indiana. The license is expected to be considered for award in the
third quarter of 1997.
On April 23, 1997, the Merger was approved by the Nevada Gaming Commission, and
on December 16, 1996, was approved by the Mississippi Gaming Commission. The
Merger application is presently being reviewed by Louisiana gaming authorities.
Upon approval in Louisiana, the Merger regulatory approval and gaming permit
process will be complete.
The Merger also remains subject to consent of the holders of the majority of the
principal amount of Boomtown's outstanding 11.5% First Mortgage Notes (the
"Notes"). On March 28, 1997, Boomtown circulated the Offer to Purchase and
Consent Solicitation Statement, under which the offer to purchase will expire on
May 22, 1997.
CRYSTAL PARK HOTEL AND CASINO Crystal Park, California's first hotel and
casino, opened on October 25, 1996, with 100 gaming tables, approximately 240
hotel rooms, including 41 VIP suites, a restaurant, gift shop, full service
health spa and a lobby sports bar and lounge. The hotel operates under a
Radisson Hotels International, Inc. ("Radisson") flag, under a 20 year License
Agreement between the Company and Radisson. Hollywood Park can terminate the
License Agreement, at no cost to the Company, at the end of the third, fifth or
tenth year.
Crystal Park was built by Crystal Park LLC, which was formed by Hollywood Park
through its wholly owned subsidiary HP/Compton, Inc., Redwood Gaming LLC,
(controlled by the Edward J. DeBartolo Family) and First Park Investments LLC
(controlled by Leo Chu and Ivy Chu) with an 88%, 8% and 4% partnership interest
therein, respectively. In addition to building and furnishing Crystal Park,
Crystal Park LLC also entered into a 50 year lease with the city of Compton for
the hotel, parking and expansion parcels at the Crystal Park site (Crystal Park
LLC owns the portion of the structure that houses the card club). The
approximately $30,000,000 of initial improvements made by Crystal Park LLC to
construct and equip Crystal Park is credited against the annual base lease rent.
Crystal Park LLC is not expected to make any cash rent payments until after the
nineteenth year of the lease, or 2014.
Current California law does not allow publicly traded companies, such as
Hollywood Park, to operate a card club (other than on the same property as the
race track); therefore, Crystal Park executed a 60 month lease with Compton
Entertainment, Inc. ("CEI"). Crystal Park LLC is not responsible for any
segment of the daily operations of Crystal Park. Over the 60 month lease term,
the fixed monthly rent payments are as follows: $200,000 per month for months
one through six; $350,000 per month for months seven through twelve; and
approximately $759,000 per month for the balance of the lease. CEI was current
on rent payments during the three months ended March 31, 1997. If there is a
change in California law, allowing the Company to operate card clubs at sites
other than its race track property, Crystal Park LLC would operate the card club
in partnership with CEI (the "Crystal Park Partnership"), with Crystal Park LLC
owning 67% of the business. Under the terms of the Crystal Park Partnership,
Crystal Park LLC would receive 90% of the distributable cash flow until it has
received its approximately $30,000,000 initial investment back, together with an
annualized 20% return on that investment.
RESULTS OF OPERATIONS
Three months ended March 31, 1997, compared to the three months ended March 31,
- -------------------------------------------------------------------------------
1996
- ----
The results of operations for the three months ended March 31, 1997, do not
include the results of operations at Sunflower, though Sunflower's financial
results are included in the results of operations for the three
7
months ended March 31, 1996. On May 17, 1996, Sunflower filed for reorganization
under Chapter 11 of the Bankruptcy Code, and as of April 1, 1996, Sunflower's
results of operations were no longer consolidated with Hollywood Park's
financial results.
Total revenues for the three months ended March 31, 1997, decreased by
$1,038,000, or 3.7%, as compared to the three months ended March 31, 1996, due
to the inclusion of $1,782,000 of Sunflower revenues in 1996 with no
corresponding revenues in the 1997 results. Crystal Park opened on October 25,
1996, under a triple net lease between Crystal Park LLC and CEI (the operator of
Crystal Park), and for the three months ended March 31, 1997, the Company
recorded Lease-Casino revenues of $600,000 with no corresponding revenue
recorded during the three months ended March 31, 1996. CEI has made all rent
payments to date. Admissions, programs and other racing income decreased by
$361,000, or 10.5%, primarily due to the inclusion of Sunflower's revenues in
1996 and no corresponding revenues in 1997, and one fewer simulcast race day at
Hollywood Park in 1997. Concession sales decreased by $631,000, or 19.9%,
primarily due to the inclusion of Sunflower's concession sales in 1996 with no
corresponding revenues in 1997. Other income increased by $348,000, or 21.6%,
primarily because as of October 1, 1996, the Company assumed operations of the
parking for events held at the Forum, which is located across the street from
the Hollywood Park Race Track. Previously, the Company leased the parking lot
to the Forum for a fixed annual rent.
Total operating expenses decreased by $2,142,000, or 7.8%, primarily due to the
inclusion of $1,703,000 of Sunflower expenses in 1996 with no corresponding
expenses in 1997. Salaries, wages and employee benefits decreased by
$1,051,000, or 8.3%, due in part to the inclusion of Sunflower's expenses in
1996 with no such expenses in 1997, with the balance of the savings attributable
to the implementation of cost saving measures (primarily at the Hollywood Park-
Casino). Operations of facilities decreased by $271,000, or 12.3%, primarily
due to the inclusion of Sunflower's expenses in 1996 with no such expenses in
1997. Cost of concession sales decreased by $841,000, or 17.3%, due in part to
the inclusion of $408,000 of costs related to Sunflower in 1996 with no
corresponding costs in 1997, with the balance of the savings primarily
attributable to cost saving measures implemented at the Hollywood Park-Casino.
Utilities expense decreased by $167,000, or 16.7%, primarily due to the
inclusion of Sunflower's expense in the 1996 results of operations and not in
the 1997 results. Marketing expense increased by $1,077,000, or 123.4%,
primarily due to increased tournament play, and other player development
programs at the Hollywood Park-Casino. Administrative expense decreased by
$757,000, or 22.4%, primarily due to decreased development costs in 1997, cost
saving measures implemented at the Hollywood Park-Casino, and the inclusion of
Sunflower's expense in 1996 and not in 1997.
Depreciation and amortization decreased by $29,000, or 1.0%, which represents
the inclusion of Sunflower's depreciation and amortization expense in 1996 and
not in 1997, netted against increased depreciation and amortization related to
Crystal Park. Interest expense decreased by $780,000, or 92.4%, due to the
inclusion of Sunflower's interest expense in 1996 and not in 1997.
Income tax benefit decreased by $754,000, or 56.7%, due to a greater pre-tax
loss in 1996 than in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Hollywood Park's principal source of liquidity as of March 31, 1997, was cash
and cash equivalents of $9,825,000. Cash and cash equivalents decreased by
$2,097,000 during the three months ended March 31, 1997, primarily a result of
the cost of normal capital improvements, and the payment of convertible
preferred stock dividends.
Cash and cash equivalents decreased by $7,039,000, during the three months ended
March 31, 1996, primarily a result of the cost of constructing Crystal Park,
normal capital improvements, payment of outstanding pari-mutuel tickets, and
convertible preferred stock dividend payments.
HOLLYWOOD PARK On March 27, 1997, the Company and a bank syndicate lead by Bank
of America National Trust and Savings Association ("Bank of America") executed a
Secured Reducing Revolving Loan Agreement
8
for up to $225,000,000 (the "Credit Facility"). Closing of the Credit Facility
is subject to certain conditions, including consummation of the Merger, all of
which must be satisfied on or before June 30, 1997. Upon consummation of the
Merger, the Credit Facility will replace the present credit facility described
below. The total amount available under the Credit Facility will initially be
$100,000,000, increasing, upon and subject to the minimum tender condition in
the Boomtown Note Offer to Purchase, to a maximum availability of $225,000,000
less the aggregate principal amount of Boomtown's Notes due 2003. which remain
outstanding following completion of both the ongoing Boomtown Note Offer to
Purchase and the required change of control repurchase offer with respect to
such Notes following the Merger.
On April 14, 1995, the Company executed an unsecured loan facility of up to
$75,000,000 with Bank of America (the "Business Loan Agreement"). The Business
Loan Agreement consists of a $60,000,000 line of credit (the "Line of Credit")
and a $15,000,000 revolver (the "Revolver"). The Business Loan Agreement has
been amended five times to, among other matters, extend the date for drawing
down the Line of Credit and for using the Revolver to June 30, 1997, to amend
the quick asset to current liability ratio covenant, and to adjust the tangible
net worth covenant.
The Line of Credit is an interest only revolving facility, under which the
Company may borrow, pay and reborrow principal amounts without penalty. Any
amount outstanding under the Line of Credit as of June 30, 1997, must be repaid
in eighty-four equal monthly installments starting on August 1, 1997. The Line
of Credit bears interest, at the option of the Company, at Bank of America's
prime rate plus 0.25%, or the offshore rate plus 2.0%, or an agreed upon fixed
rate.
The Revolver, inclusive of a within line facility for standby letters of credit
of up to a maximum of $5,000,000, allows the Company to borrow, pay and reborrow
principal amounts without penalty, until June 30, 1997. The Revolver bears
interest, at the option of the Company, at Bank of America's prime rate, or the
offshore rate plus 1.75%, or an agreed upon fixed rate.
The only borrowing under the Business Loan Agreement was a standby letter of
credit, used as security for the Company's workers' compensation self-insurance
of $2,617,000 on May 1, 1996, which was reduced to $2,037,000 on May 1, 1997.
During the three months ended March 31, 1997, the Company paid dividends of
$481,000 on its convertible preferred stock, representing $70.00 per share, or
$0.70 per depositary share. On April 1, 1997, the Company declared the regular
quarterly preferred stock dividend of $481,000, to be paid May 15, 1997. During
the three months ended March 31, 1996, the Company paid dividends of $481,000 on
its convertible preferred stock.
At the option of the Company, the convertible preferred stock can be converted
into shares of common stock at a conversion price of 83.33 shares of common
stock for each share of convertible preferred stock. The Company may exercise
this option only if, among other requirements, for 20 trading days, within any
30 consecutive trading days, the closing price of the Company's common stock
exceeds $15.00, subject to adjustments in certain circumstances. The Company
plans to convert the convertible preferred stock into common stock at the
earliest possible date.
As of March 31, 1997, the Company had invested $5,134,000 in corporate bonds,
with Moody's ratings of Ba2 to B3, and Standard and Poors ratings of BB+ to B-,
though some of the bonds are not rated by either agency. Investments in
corporate bonds carry a greater amount of principal risk than other investments
made by the Company, and yield a corresponding higher return. The corporate
bond investment as of March 31, 1997, had a weighted average maturity of 1.3
years, and because the Company reasonably expects to liquidate these investments
in its normal operating cycle the investments are classified as short term, are
held as available for sale, and recorded in the accompanying financial
statements at their fair value, as determined by the quoted market price.
9
SUNFLOWER On March 24, 1994, an Amended and Restated Credit and Security
Agreement (the "Sunflower Senior Credit") was executed between Sunflower and
five banks in connection with the Company's acquisition of Sunflower. As of
March 31, 1997, the outstanding balance of the Sunflower Senior Credit was
$28,667,000. The Sunflower Senior Credit is non-recourse to Hollywood Park.
On May 17, 1996, Sunflower filed for reorganization under Chapter 11 of the
Bankruptcy Code. The Cash Collateral Agreement, presently in place, suspends any
interest or principal payments on the Sunflower Senior Credit until June 1,
1997. The Sunflower Banks are seeking relief from the Cash Collateral Agreement,
and a non evidentiary hearing is set for May 21, 1997. Sunflower has requested
that the hearing be postponed until June 1997, and that the Cash Collateral
Agreement be extended through the hearing date, at which time Sunflower may also
present a plan of reorganization or other extension of use of cash collateral.
As of this filing, the Kansas Legislature had not enacted any laws that would
have permitted additional forms of gaming at Kansas pari-mutuel racing
facilities, including Sunflower. The Kansas Legislature is scheduled to
reconvene for its final adjournment, of the current session, on May 27, 1997.
The Company does not anticipate that the Kansas Legislature will pass any
material gaming legislation prior to the final adjournment.
In 1995, under a promissory note executed in December 1994, between Hollywood
Park and Sunflower, Hollywood Park advanced $2,500,000 to Sunflower to make
certain payments due on the Sunflower Senior Credit. The amounts borrowed under
the promissory note, along with accrued interest, are subordinate to the
Sunflower Senior Credit. Although the Company will continue to pursue payment
of the promissory note, for financial reporting purposes the outstanding balance
of the promissory note was written off as of March 31, 1996.
GENERAL Hollywood Park is continually evaluating future growth opportunities in
the gaming, sports and entertainment industries. The Company expects that
funding for growth opportunities, dividend requirements on the convertible
preferred stock, payments on notes payable or capital expenditure needs will
come from existing cash balances, cash generated from operating activities and
borrowings from the credit facilities. In the opinion of management, these
resources will be sufficient to meet the Company's anticipated cash requirements
for the foreseeable future and in any event for at least the next twelve months.
In the event the Merger with Boomtown is consummated, Hollywood Park believes
that the Credit Facility will be sufficient to meet Hollywood Park's and
Boomtown's anticipated cash requirements for the foreseeable future, and in any
event, for at least the twelve months following consummation of the Merger.
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
- ------- -----------------
As previously discussed in the Company's Annual Report on Form 10-K, under
current California law Hollywood Park can own and operate a card club only on
the same premises as the Hollywood Park Race Track, and unless the California
Legislature enacts a comprehensive scheme for the regulation of gaming under the
jurisdiction of a gaming control commission, prior to January 1, 1999, the
Company will no longer be allowed to operate the Hollywood Park-Casino, and will
have to once again lease it for a fixed monthly rent to an unaffiliated third
party operator.
The Company supports Senate Bill ("SB") 990, currently pending in the California
Legislature, which would among other things, allow the Company to operate the
Hollywood Park-Casino beyond December 31, 1998. SB 990 has passed out of its
initial committee hearing and is proceeding through the Senate. It is too early
in the legislative session to comment on the prospects of SB 990.
In addition to SB 990, there are two other bills pending in the California
Legislature (SB 8 and Assembly Bill 28) which would comprehensively regulate the
card gaming industry and at the same time afford the benefits of SB 990
described above. Both bills are proceeding through the legislative process
although no assurance can be given that either will be enacted.
10
ITEM 6.A EXHIBITS
- -----------------
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.27 Reducing Revolving Loan Agreement dated March 27, 1997, among Hollywood
Park, Inc., and Bank of Scotland, Bankers Trust Company, Societe
Generale, Bank of America National Trust and Savings Association.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
11
Hollywood Park, Inc.
Calculation of Earnings Per Share
For the three months ended March 31,
------------------------------------------------------------
Primary Assuming full dilution (a)
------------------------------------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Average number of common shares outstanding 18,372,244 18,610,114 18,372,244 18,610,114
Average common shares due to assumed conversion
of convertible preferred shares 0 0 2,291,492 2,291,492
------------ ------------ ------------ ------------
Total shares 18,372,244 18,610,114 20,663,736 20,901,606
============ ============ ============ ============
Net loss ($ 895,000) ($13,378,000) ($ 895,000) ($13,378,000)
Less dividend requirements on convertible preferred shares 481,000 481,000 0 0
------------ ------------ ------------ ------------
Net loss allocated to common shareholders ($ 1,376,000) ($13,859,000) ($ 895,000) ($13,378,000)
============ ============ ============ ============
Net loss per share ($ 0.07) ($ 0.74) ($ 0.04) ($ 0.64)
============ ============ ============ ============
- -------
(a) The computed values assuming full dilution are anti-dilutive; therefore, the
primary share values are presented on the face of the consolidated statements of
operations.
12
Hollywood Park, Inc.
Selected Financial Data by Operational Location
For the three months ended March 31,
-------------------------------------
1997 1996
------------ ------------
(unaudited)
Revenues:
Hollywood Park, Inc. and Race Track $ 5,659,000 $ 5,701,000
Hollywood Park, Inc. - Casino Division 13,994,000 13,773,000
HP/Compton, Inc. - Crystal Park Hotel and Casino 600,000 0
Turf Paradise, Inc. 6,562,000 6,597,000
Sunflower Racing, Inc. 0 1,782,000
------------ ------------
26,815,000 27,853,000
------------ ------------
Expenses:
Hollywood Park, Inc. and Race Track 8,617,000 9,335,000
Hollywood Park, Inc. - Casino Division 12,445,000 12,297,000
HP/Compton, Inc. - Crystal Park Hotel and Casino 23,000 0
Turf Paradise, Inc. 4,230,000 4,122,000
Sunflower Racing, Inc. 0 1,703,000
------------ ------------
25,315,000 27,457,000
------------ ------------
Income (loss) before interest, income taxes, depreciation,
amortization and other non-recurring expenses:
Hollywood Park, Inc. and Race Track (2,958,000) (3,634,000)
Hollywood Park, Inc. - Casino Division 1,549,000 1,476,000
HP/Compton, Inc. - Crystal Park Hotel and Casino 577,000 0
Turf Paradise, Inc. 2,332,000 2,475,000
Sunflower Racing, Inc. 0 79,000
------------ ------------
1,500,000 396,000
------------ ------------
Non-recurring expenses:
Write off of investment in Sunflower Racing, Inc. 0 11,346,000
Depreciation and amortization:
Hollywood Park, Inc. and Race Track 1,425,000 1,393,000
Hollywood Park, Inc. - Casino Division 764,000 675,000
HP/Compton, Inc. - Crystal Park Hotel and Casino 400,000 0
Turf Paradise, Inc. 295,000 309,000
Sunflower Racing, Inc. 0 536,000
------------ ------------
2,884,000 2,913,000
------------ ------------
Interest expense:
Hollywood Park, Inc. and Race Track 64,000 63,000
Sunflower Racing, Inc. 0 781,000
------------ ------------
64,000 844,000
------------ ------------
Minority interests:
HP/Compton, Inc. - Crystal Park Hotel and Casino 22,000 0
Income (loss) before income tax benefit:
Hollywood Park, Inc. and Race Track (4,447,000) (5,090,000)
Hollywood Park, Inc. - Casino Division 785,000 801,000
HP/Compton, Inc. - Crystal Park Hotel and Casino 155,000 0
Turf Paradise, Inc. 2,037,000 2,166,000
Sunflower Racing, Inc. 0 (1,238,000)
Write off of Investment in Sunflower Racing, Inc. 0 (11,346,000)
------------ ------------
(1,470,000) (14,707,000)
Income tax benefit 575,000 1,329,000
============ ============
Net loss ($ 895,000) ($13,378,000)
============ ============
Dividend requirements on convertible preferred stock $ 481,000 $ 481,000
------------ ------------
Net loss allocated to common shareholders ($ 1,376,000) ($13,859,000)
============ ============
Per common share:
Net loss - primary ($0.07) ($0.74)
Net loss - fully diluted ($0.07) ($0.74)
Number of shares - primary 18,372,244 18,610,114
Number of shares - fully dsiluted 20,663,736 20,901,606
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HOLLYWOOD PARK, INC.
(Registrant)
By: /s/ R.D. Hubbard
--------------------------------- Dated: May 13, 1997
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan
--------------------------------- Dated: May 13, 1997
G. Michael Finnigan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
14
Hollywood Park, Inc.
Exhibit Index
Exhibit Description Page
- ------- ----------- ----
10.27 Reducing Revolving Loan Agreement dated March 27, 1997, 1
among Hollywood Park, Inc., and Bank of Scotland,
Bankers Trust Company, Societe Generale, Bank of America
National Trust and Savings Association.
27.1 Financial Data Schedule 370
15