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 September 30, 1997
Commission file number 0-10619 Commission file number_________
HOLLYWOOD PARK, INC. HOLLYWOOD PARK OPERATING COMPANY
(Exact Name of Registrant as Specified in Its Charter) (Exact Name of Registrant as Specified in Its Charter)
Delaware Delaware
(State or Other Jurisdiction of (State or Other Jurisdiction of
Incorporation of Organization) Incorporation of Organization)
95-3667491 95-3667220
(I.R.S. Employer Identification No.) (I.R.S. Employer 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 registrants: (1) have 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) have been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
The number of outstanding shares of the Hollywood Park, Inc.'s common stock, as
of the date of the close of business on November 13, 1997: 26,207,574.
Hollywood Park, Inc.
Table of Contents
Part I
Item 1. Financial Information
Hollywood Park, Inc.
--------------------
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996.. 1
Consolidated Statements of Operations for the three and nine months ended
September 30, 1997 and 1996................................................ 2
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996................................................ 3
Notes to Consolidated Financial Statements.................................. 4
Crystal Park Hotel and Casino Development Company, LLC
------------------------------------------------------
Balance Sheets as of September 30, 1997 and December 31, 1996............... 9
Statements of Operations for the three and nine months ended
September 30, 1997......................................................... 10
Statements of Cash Flows for the nine months ended September 30,
1997 and inception to December 31, 1996.................................... 11
Notes to Financial Statements............................................... 12
Mississippi - I Gaming, L.P.
----------------------------
Balance Sheets as of September 30, 1997 and 1996............................ 14
Statements of Operations for the three and nine months ended
September 30, 1997 and 1996................................................ 15
Statements of Cash Flows for the nine months ended September 30, 1997
and 1996................................................................... 16
Notes to Financial Statements............................................... 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General..................................................................... 19
Results of Operations....................................................... 22
Liquidity and Capital Resources............................................. 24
Part II
Item 5. Other Information................................................................ 28
Item 6.a Exhibits......................................................................... 29
Other Financial Information...................................................... 30
Signatures....................................................................... 32
Hollywood Park, Inc.
Consolidated Balance Sheets
September 30, December 31,
1997 1996
------------ ------------
(unaudited)
ASSETS (in thousands)
Current Assets:
Cash and cash equivalents $ 22,007 $ 11,922
Restricted cash 1,209 4,486
Short term investments 0 4,766
Other receivables, net of allowance for doubtful accounts
of $1,111,000 in 1997, and $1,089,000 in 1996 10,049 7,110
Prepaid expenses and other assets 20,057 6,215
Deferred tax assets 8,103 6,422
Current portion of notes receivable 41 38
-------- --------
Total current assets 61,466 40,959
Notes receivable 9,450 819
Property, plant and equipment, net 293,737 130,835
Goodwill, net 33,342 20,370
Other assets 15,384 12,903
-------- --------
$413,379 $205,886
======== ========
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,625 $ 10,043
Accrued lawsuit settlement 2,750 2,750
Accrued compensation 6,843 4,198
Accrued liabilities 17,174 9,733
Gaming liabilities 3,696 2,499
Racing liabilities 2,610 6,106
Current portion of notes payable 4,005 35
-------- --------
Total current liabilities 47,703 35,364
Notes payable 132,163 282
Deferred tax liabilities 11,005 9,065
-------- --------
Total liabilities 190,871 44,711
Minority interests 3,033 3,015
Stockholders' Equity:
Capital stock --
Preferred - $1.00 par value, authorized 222,500 shares;
none issued and outstanding in 1997, and 27,499 0 28
issued and outstanding in 1996
Common - $.10 par value, authorized 40,000,000 shares;
26,186,724 issued and outstanding in 1997, and 18,332,016
in 1996 2,619 1,833
Capital in excess of par value 222,023 167,074
Accumulated deficit (5,167) (10,775)
-------- --------
Total stockholders' equity 219,475 158,160
-------- --------
$413,379 $205,886
======== ========
- -------
See accompanying notes to consolidated financial statements.
Hollywood Park, Inc.
Consolidated Statements of Operations
For the three months For the nine months
ended September 30, ended September 30,
----------------------------------------------
1997 1996 1997 1996
------- ------- -------- --------
(in thousands, except per share data - unaudited)
REVENUES:
Gaming $57,143 $13,114 $ 83,990 $ 37,917
Racing 12,216 12,544 48,084 50,897
Food and beverage 6,156 2,879 13,016 10,516
Hotel and recreational vehicle park 581 0 581 0
Truck stop and service station 4,897 0 4,897 0
Other income 4,217 1,710 7,781 5,197
------- ------- -------- --------
85,210 30,247 158,349 104,527
------- ------- -------- --------
EXPENSES:
Gaming 29,956 5,027 45,117 19,516
Racing 6,206 5,908 21,615 21,623
Food and beverage 8,101 4,976 16,920 14,058
Hotel and recreational vehicle park 199 0 199 0
Truck stop and service station 4,461 0 4,461 0
Administrative 20,303 9,705 38,622 31,575
Other 1,823 929 3,262 2,028
Depreciation and amortization 6,159 2,498 11,939 7,898
REIT restructuring 397 0 609 0
Write off of investment in Sunflower 0 0 0 11,412
------- ------- -------- --------
77,605 29,043 142,744 108,110
------- ------- -------- --------
Operating income (loss) 7,605 1,204 15,605 (3,583)
Interest expense 3,653 20 3,782 918
------- ------- -------- --------
Income (loss) before minority interests and income taxes 3,952 1,184 11,823 (4,501)
Minority interests 17 0 80 0
Income tax expense 1,524 581 4,624 3,025
------- ------- -------- --------
Net income (loss) $ 2,411 $ 603 $ 7,119 $ (7,526)
======= ======= ======== ========
========================================================================================================
Dividend requirements on convertible preferred stock $ 558 $ 481 $ 1,520 $ 1,443
Net income (loss) attributable to (allocated to)
common shareholders $ 1,853 $ 122 $ 5,599 $ (8,969)
Per common share:
Net income (loss) - primary $ 0.08 $ 0.01 $ 0.27 $ (0.48)
Net income (loss) - fully diluted -- $ 0.01 -- $ (0.48)
Number of shares - primary 24,706 18,535 20,596 18,605
Number of shares - fully diluted -- 20,826 -- 20,896
- -------------
See accompanying notes to consolidated financial statements.
Hollywood Park, Inc.
Consolidated Statements of Cash Flows
For the nine months ended September 30,
---------------------------------------
1997 1996
--------- --------
(in thousands - unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,119 $ (7,526)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 11,939 7,342
Minority interests 17 0
Changes in accounts due to deconsolidation of subsidiary
in bankruptcy:
Property, plant and equipment 0 58,380
Secured notes payable 0 (28,918)
Unsecured notes payable 0 (15,323)
Goodwill and lease with TRAK East 0 6,908
Unrealized gain on short term bond investing 10 11
Gain (loss) on sale or disposal of property, plant and equipment 488 (3)
Changes in assets and liabilities, net of the effects of the
purchase of a business:
Decrease in restricted cash 3,277 2,292
Decrease (increase) in other receivables, net (944) 1,891
Decrease in prepaid expenses and other assets 894 2,897
(Increase) decrease in deferred tax assets (1,681) 10
Decrease in accounts payable (2,151) (3,920)
Decrease in accrued lawsuit settlement 0 (2,482)
Decrease in accrued compensation (1,788) (262)
Decrease in accrued liabilities (10,391) (970)
Increase (decrease) in gaming liabilities 1,197 (1,192)
Decrease in racing liabilities (3,496) (2,313)
Increase (decrease) in deferred tax liabilities 1,569 (5,061)
--------- --------
Net cash provided by operating activities 6,059 11,761
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (23,059) (17,969)
Receipts from sale of property, plant and equipment 114 9
Principal collected on notes receivable 31 25
Purchase of short term investments (1,946) (14,009)
Proceeds from short term investments 6,712 16,958
Long term gaming assets 0 294
Cash acquired in the purchase of a business, net of
transaction and other costs 12,264 0
--------- --------
Net cash used in investing activities (5,884) (14,692)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock options exercised 1,667 0
Proceeds from secured Bank Credit Facility 112,000 0
Payment of secured Bank Credit Facility (112,000) 0
Payment of secured notes payable (4,282) (3,358)
Payment of unsecured notes payable (31) (30)
Proceeds from issuance of 9.5% Notes 125,000 0
Payment of 11.5% Boomtown First Mortgage Notes (110,924) 0
Receipts from minority interest partners 0 3,000
Common stock repurchase and retirement 0 (1,961)
Dividends paid to preferred stockholders (1,520) (1,443)
--------- --------
Net cash provided by (used in) financing activities 9,910 (3,792)
--------- --------
Increase (decrease) in cash and cash equivalents 10,085 (6,723)
Cash and cash equivalents at the beginning of the period 11,922 22,406
--------- --------
Cash and cash equivalents at the end of the period $ 22,007 $ 15,683
========= ========
- ------
See accompanying notes to consolidated financial statements.
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 it 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 September 30, 1997, and as of December
31, 1996, was for amounts due to horsemen for purses, stakes and awards.
GAMING REVENUE AND PROMOTIONAL ALLOWANCES Gaming revenues at the Boomtown, Inc.
("Boomtown") properties consisted of the difference between gaming wins and
losses, or net win from gaming activity, and at the Hollywood Park-Casino
consisted of fees collected from patrons on a per seat 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 and nine months ended
September 30, 1997, was $2,745,000, and $3,410,000 respectively. The estimated
cost of providing these promotional allowances during the three and nine months
ended September 30, 1996, was $915,000 and $2,583,000, respectively.
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
income (loss) available to (allocated to) common shareholders (net income (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.
REDEMPTION OF DEPOSITARY SHARES As of August 28, 1997, the Company's 2,749,900
outstanding depositary shares were converted into 2,291,492 shares of the
Company's common stock, thereby, eliminating the annual preferred stock cash
dividend payment of approximately $1,925,000 for future periods.
CASH FLOWS Cash and cash equivalents included 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.
4
NOTE 2 -- ACQUISITION OF BOOMTOWN, INC.
On June 30, 1997, pursuant to the Agreement and Plan of Merger dated as of April
23, 1996, by and among Hollywood Park, HP Acquisition, Inc., a wholly owned
subsidiary of the Company, and Boomtown, HP Acquisition, Inc. was merged with
and into Boomtown (the "Merger"). As a result of the Merger, Boomtown became a
wholly owned subsidiary of the Company and each share of Boomtown common stock
was converted into the right to receive 0.625 of a share of Hollywood Park's
common stock. Approximately 5,362,850 shares of Hollywood Park common stock,
valued at $9.8125 per share (excluding shares repurchased from Edward P. Roski,
Jr. ("Roski") and subsequently retired, as described below) were issued in the
Merger.
The Merger was accounted for under the purchase method of accounting for a
business combination. The purchase price of the Merger was allocated to the
identifiable assets acquired and liabilities assumed based on their estimated
fair values at the date of acquisition. Based on financial analyses prepared by
the Company which considered the impact of general economic, financial and
market conditions on the assets acquired and liabilities assumed, the Company
determined that the estimated fair values approximated their carrying value.
The Merger generated approximately $2,683,000 of excess acquisition cost over
the recorded value of the net assets acquired, all of which was allocated to
goodwill, to be amortized over 40 years. The amortization of the goodwill is
not deductible for income tax purposes. The Company anticipates finalizing any
reallocation of the purchase price within the next nine months.
The Company acquired three of the four Boomtown properties; Boomtown Reno,
Boomtown New Orleans, and Boomtown Biloxi. Boomtown's Las Vegas property was
divested following the Merger on July 1, 1997. Boomtown's Las Vegas property
was divested because it had generated significant operating losses since it
opened, thus reducing the overall profitability of Boomtown. Boomtown and its
subsidiaries exchanged substantially all of their interest in the Las Vegas
property, including substantially all of the operating assets and notes
receivable of approximately $27,300,000 from the landowner/lessor of the Las
Vegas property, IVAC, a California general partnership of which Roski, a former
Boomtown director, is a general partner, for, among other things, two unsecured
notes receivable totaling approximately $8,465,000, cash, assumption of certain
liabilities and release from certain lease obligations. The first note
receivable is for $5,000,000, bearing interest at Bank of America National Trust
and Savings Association's ("Bank of America") reference rate plus 1.5% per year,
with annual principal receipts of $1,000,000 plus accrued interest commencing on
July 1, 1998. The second note is for approximately $3,465,000, bearing interest
at Bank of America's reference rate plus 0.5% per year, with the principal and
accrued interest payable to the Company, in full, on July 1, 2000. In addition,
concurrently with the divestiture of the Las Vegas property, Hollywood Park
purchased and retired 446,491 shares of Hollywood Park common stock received by
Roski in the Merger for a price of approximately $3,465,000, payable in the form
of a Hollywood Park promissory note. The promissory note bears interest at Bank
of America's reference rate plus 1.0%. Interest is payable annually and annual
principal payments in five equal installments of approximately $693,000 are due
commencing July 1, 1998.
PRO FORMA RESULTS OF OPERATIONS The following pro forma results of operations
were prepared under the assumption that the acquisition of Boomtown had occurred
at the beginning of the period presented. The historical results of operations
of Boomtown (excluding the results of operations of Boomtown's Las Vegas
property, which was divested in connection with the Merger) were combined with
Hollywood Park's. Pro forma adjustments were made for the following:
elimination of the amortization of the issuance costs associated with Boomtown's
First Mortgage Notes; amortization of the issuance costs associated with the
$125,000,000 of Hollywood Park and Hollywood Park Operating Company Series A
9.5% Senior Subordinated Notes due 2007 (the "Series A Notes") (see Item 2.
Liquidity and Capital Resources); amortization of the excess purchase price over
net assets acquired in the Merger; elimination of the amortization of the
discount associated with the Boomtown First Mortgage Notes; interest expense
associated with the promissory notes from Hollywood Park to the former lessor of
Boomtown's Las Vegas property; elimination of the interest expense associated
with the Boomtown First Mortgage Notes; amortization of the up-front loan fees
5
associated with the Company's Bank Credit Facility; interest expense associated
with the Series A Notes at 9.5%; and the estimated 40% tax expense associated
with the pro forma adjustments.
HOLLYWOOD PARK, INC.
Unaudited Pro Forma Combined Consolidated Results of Operations
For the three months ended
September 30,
---------------------------------------
1997 (a) 1996
-------------- --------------
Revenues:
Gaming $ 57,143,000 $ 55,322,000
Racing 12,216,000 12,544,000
Other 15,851,000 13,862,000
------------ -------------
85,210,000 81,728,000
------------ -------------
Operating income 7,605,000 6,639,000
Net income $ 2,411,000 $ 807,000
============ =============
Dividend requirements on convertible preferred stock $ 558,000 $ 481,000
Net income available to common shareholders $ 1,853,000 $ 326,000
============ =============
Per common share:
Net income - primary $ 0.08 $ 0.01
Net income - fully diluted -- $ 0.01
For the nine months ended
September 30,
---------------------------------------
1997 1996
------------- --------------
Revenues:
Gaming $167,339,000 $ 158,734,000
Racing 48,084,000 50,897,000
Other 43,882,000 43,822,000
------------ -------------
259,305,000 253,453,000
------------ -------------
Operating income (loss) (b) 24,678,000 (22,968,000)
Net income (loss) $ 7,715,000 ($39,867,000)
============ =============
Dividend requirements on convertible preferred stock $ 1,520,000 $ 1,443,000
Net income (loss) available to (allocated to) common
shareholders $ 6,195,000 $ (41,310,000)
============ =============
Per common share:
Net income (loss) - primary $ 0.25 $ (1.72)
Net income (loss) - fully $ 0.25 $ (1.72)
diluted
_____
(a) The results for the three months ended September 30, 1997, are actual.
(b) The 1996 operating loss included the non-recurring write off of Hollywood
Park's investment in Sunflower of $11,412,000, and the non-recurring loss on
Boomtown's sale of its Las Vegas property of $36,562,000.
NOTE 3 -- SHORT TERM INVESTMENTS
As of September 30, 1997, the Company had liquidated its short term investments
in corporate bonds. For the nine months ended September 30, 1997, gross
realized gains and losses were approximately $9,000 and $88,000, respectively.
6
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held as of September 30, 1997, and December 31,
1996, consisted of the following:
September 30, December 31,
1997 (a) 1996
------------- ------------
Land and land improvements $ 49,830,000 $ 32,215,000
Buildings and building improvements 269,089,000 150,935,000
Equipment 75,234,000 31,531,000
Vessel 18,925,000 0
Construction in progress 16,022,000 128,000
------------ ------------
429,100,000 214,809,000
Less accumulated depreciation 135,363,000 83,974,000
------------ ------------
$293,737,000 $130,835,000
============ ============
_____
(a) Inclusive of Boomtown assets.
NOTE 5 -- SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of September 30, 1997, and December 31, 1996, consisted of
the following:
September 30, December 31,
1997 (a) 1996
-------------- -------------
Secured notes payable $ 3,845,000 $ 0
Unsecured 9.5% Series A Notes (b) 125,000,000 0
11.5% Boomtown First Mortgage Notes (b) 1,253,000 0
Unsecured notes payable 4,015,000 317,000
Capital lease obligations 2,055,000 0
------------ -----------
136,168,000 317,000
Less current maturities 4,005,000 35,000
------------ -----------
$132,163,000 $282,000
============ ===========
_____
(a) Includes notes payable related to Boomtown.
(b) See Item 2. Liquidity and Capital Resources.
NOTE 6 -- DEVELOPMENT EXPENSES
Included in Administrative expenses for the three and nine months ended
September 30, 1997, was $166,000 and $280,000 of development expenses,
respectively, which related primarily to the master site plan for the Inglewood
property, and the Hollywood Park - Hilton Indiana riverboat gaming project.
Included in Administrative expenses were development costs of approximately
$446,000 for the nine months ended September 30, 1996, and for the three months
ended September 30, 1996, there was a credit balance of approximately $197,000.
During the three months ended September 30, 1996, the Company was reimbursed for
development expenses of approximately $250,000, from a potential partner related
to an abandoned project. Expenses incurred through the nine months ended
September 30, 1996, primarily related to the Inglewood master site plan and card
clubs in California.
NOTE 7 -- 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
7
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.
In computing the stock-based compensation the following assumptions were made:
Risk-Free Expected Expected
Interest Rate Expected Life Volatility Dividends
------------- ------------- ---------- ---------
For options granted in the
following periods:
First quarter 1996 5.0% 3 years 36.1% None
Second quarter 1996 5.1% 3 years 46.4% None
The following table sets forth the pro forma financial results under the
implementation of SFAS 123:
For the nine months ended
September 30,
----------------------------
1997 1996
------------ -----------
Net income (loss) before stock-based compensation expense $ 7,119,000 $(7,526,000)
Stock-based compensation expense 519,000 61,000
----------- -----------
Pro forma net income (loss) $ 6,600,000 $(7,587,000)
=========== ===========
Dividend requirements on convertible preferred stock $ 1,520,000 $ 1,443,000
Net income (loss) available to (allocated to) common
shareholders $ 5,080,000 $(9,030,000)
=========== ===========
Per common share:
Pro forma net income (loss) - primary $ 0.25 ($0.49)
Pro forma net income (loss) - fully diluted -- ($0.49)
Number of shares - primary 20,596,000 18,605,000
Number of shares - fully diluted -- 20,896,000
_____
There was no stock-based compensation expense for the three months ended
September 30, 1997 or 1996.
8
- --------------------------------------------------------------------------------
The following financial statments of Crytal Park Hotel and Casino Development
Company, LLC are included in this Quarterly Report due to the fact that Crystal
Park Hotel and Casino Development Company, LLC is a non-wholly owned subsidiary
guarantor of the Series A 9.5% Senior Subordinated Notes, issued by Hollywood
Park, Inc. and Hollywood Park Operating Company.
- --------------------------------------------------------------------------------
Crystal Park Hotel and Casino Development Company, LLC
Balance Sheets
September 30, December 31,
1997 1996
------------- -------------
(unaudited)
(in thousands)
ASSETS
Real estate and leasehold interests held for investment:
Land and land lease $ 2,663 $ 2,663
Buildings 1,404 1,404
Leasehold interests and improvements 19,929 19,457
Less accumulated depreciation and amortization (1,380) (271)
------- -------
22,616 23,253
------- -------
Cash and cash equivalents 1,555 200
Rent and other receivables 361 229
Organization costs, net 384 452
Other assets, net 5,080 5,210
------- -------
$29,996 $29,344
======= =======
- ---------------------------------------------------------------------------------------------
LIABILITIES AND MEMBERS' EQUITY
Accounts payable $ 40 $ 1
Security deposit 200 200
------- -------
Total liabilities 240 201
Members' equity:
HP/Compton, Inc. 26,723 26,128
Redwood Gaming, LLC 2,022 2,010
First Park Investments, LLC 1,011 1,005
------- -------
Total members' equity 29,756 29,143
------- -------
$29,996 $29,344
======= =======
See accompanying notes to financial statements.
9
Crystal Park Hotel and Casino Development Company, LLC
Statements of Operations
For the three For the nine
months ended months ended
September 30, September 30,
1997 1997
-------------- --------------
(in thousands - unaudited)
Lease rental/occupancy revenue $702 $2,202
Expenses:
Administrative 25 66
Amortization of organization costs and other assets 78 214
Depreciation and amortization of real estate and leasehold interests 443 1,109
---- ------
546 1,389
---- ------
Net income $156 $ 813
==== ======
- --------------------
See accompanying notes to financial statements.
Crystal Park Hotel and Casino opened for business on October 25, 1996. Crystal
Park Hotel and Casino Development Company, LLC was formed July 18, 1996.
10
Crystal Park Hotel and Casino Development Company, LLC
Statements of Cash Flows
For the nine
months ended Inception to
September 30, December 31,
1997 1996 (a)
------------ ------------
(unaudited)
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 813 $ 125
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,323 319
Increase in rent and other receivables (132) (229)
Increase in organization costs and other assets (16) (216)
Increase in accounts payable 39 1
Increase in security deposit 0 200
------ -------
Net cash provided by operating activities 2,027 200
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES: 0
Additions to leasehold interests and improvements (57) 0
------ -------
Net cash used in investing activities (57) 0
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to majority member (552) 0
Payments to minority members (63) 0
------ --------
Net cash used for financing activities (615) 0
------ -------
Increase in cash and cash equivalents 1,355 200
Cash and cash equivalents at the beginning of the period 200 0
------ -------
Cash and cash equivalents at the end of the period $1,555 $ 200
====== =======
Supplemental disclosure of non-cash transactions:
Contribution of real estate and improvements by majority memb $ 415 $20,776
======= =======
Contribution of other assets by majority member -- $ 5,242
======= =======
Contribution by minority members -- $ 3,000
======= =======
- ---------
See accompanying notes to financial statements.
(a) Crystal Park Hotel and Casino opened for business on October 25, 1996.
Crystal Park Hotel and Casino Development Company, LLC was formed July 18, 1996.
Crystal Park Hotel and Casino Development Company, LLC
Notes to Financial Statements
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information included herein has been prepared in conformity with
generally accepted accounting principles. The information provided in this
Quarterly Report on Form 10-Q is unaudited, and 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 period.
GENERAL Crystal Park Hotel and Casino Development Company, LLC ("Crystal Park
LLC") was formed on July 18, 1996, by Hollywood Park, Inc. ("Hollywood Park"),
through its wholly owned subsidiary HP/Compton, Inc. ("HP/Compton"), Redwood
Gaming, LLC ("Redwood") and First Park Investments, LLC ("First Park") for the
purpose of constructing, owning and leasing the Crystal Park Hotel and Casino
(the "Crystal Park Casino"). HP/Compton, Redwood and First Park have an 89.8%,
6.8% and 3.4% membership interest, respectively, in Crystal Park LLC.
Under California law, a publicly traded company, such as Hollywood Park, cannot
operate a card club casino (other than on the same premises as a race track);
therefore, Crystal Park LLC executed a 60 month lease, which was amended twice
(the "Lease"), with Compton Entertainment, Inc. ("CEI") (an unaffiliated third
party operator) for the Crystal Park Casino. (See Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
ESTIMATES Financial statements prepared according to generally accepted
accounting principles require the use of management estimates, including
estimates used to evaluate the recoverability of real estate and leasehold
interests held for investment. These estimates are subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from those anticipated by management.
ORGANIZATION COSTS Organization costs were capitalized and are being amortized
on a straight-line basis over the initial five year term of the Lease.
NOTE 2 -- REAL ESTATE AND LEASEHOLD INTERESTS HELD FOR INVESTMENT
On August 2, 1995, Hollywood Park paid approximately $2,006,000 to the City of
Compton to purchase the convention center and surrounding parking at the Crystal
Park site, and entered into a 50 year lease with the City of Compton for the
hotel, additional parking and expansion parcels at the Crystal Park site. The
cost of the initial improvements to the Crystal Park Casino are credited against
the annual base rent due from Crystal Park LLC to the City of Compton. The
annual lease rent payments start at $600,000 and increase every fifth year until
year 46, when they stabilize at $2,850,000. No cash rent payments are expected
to be made until after the nineteenth year of the lease, or 2014. Crystal Park
LLC has the option to either (i) purchase all of the leasehold parcels at an
amount based on a formula defined in the lease agreement, or (ii) purchase only
the hotel and parking leasehold parcels at a fixed price. Management expects
that in the normal course of business, and after the rent credits are fully
utilized, it is probable that it will exercise the option to purchase the hotel
and parking leasehold parcels only. If the option is exercised after the rent
credits are fully utilized, the future minimum lease payments for the remaining
lease term total approximately $3,350,000. The present value of the future
minimum lease payments, after a reduction of $2,700,000 for imputed interest
based on Crystal Park LLC's incremental borrowing rate, approximates $650,000.
The rent payment credits were considered in determining the future minimum lease
payments.
12
NOTE 3 -- OTHER ASSETS
Other assets consist of payments made by Hollywood Park (and subsequently
contributed by Hollywood Park to Crystal Park LLC) to CEI as required under the
Amended and Restated Agreement Respecting Pyramid Casino (subsequently changed
to Crystal Park Hotel and Casino). Payments totaling approximately $5,000,000
were made to CEI to acquire its real property rights to the Crystal Park site,
the initial construction plans, and rights to the gaming license that CEI held
with the City of Compton.
These payments made to CEI have been capitalized and are being amortized on a
straight-line basis over their estimated useful lives of 40 years.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
On August 6, 1997, Hollywood Park and Hollywood Park Operating Company (a wholly
owned subsidiary of Hollywood Park), as co-obligors, issued $125,000,000 of the
Series A Notes. The Series A Notes are fully and unconditionally, jointly and
severally, guaranteed on a senior subordinated basis by all of Hollywood Park's
material subsidiaries, including Crystal Park Hotel and Casino Development
Company, LLC.
13
- --------------------------------------------------------------------------------
The following financial statements of Mississippi - I Gaming, L.P. are included
in this Quarterly Report due to the fact that Mississippi - I Gaming, L.P. is a
non-wholly owned subsidiary guarantor of the Series A 9.5% Senior Subordinated
Notes, issued by Hollywood Park, Inc. and Hollywood Park Operating Company.
- --------------------------------------------------------------------------------
Mississippi - I Gaming, L.P.
Balance Sheets
September 30, September 30,
1997 1996
------------- -------------
(unaudited)
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 3,281 $ 2,907
Other receivables, net 71 148
Prepaid expenses and other assets 2,429 2,947
------- -------
Total current assets 5,781 6,002
Property, plant and equipment, net 44,755 35,671
Other assets 2,067 4,479
------- -------
$52,603 $46,152
======= =======
- --------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' DEFICIT
Current Liabilities:
Accounts payable $ 602 $ 481
Accrued compensation 971 765
Accrued liabilities 3,513 2,918
Accrued interest payable, Boomtown, Inc. 4,188 2,651
Current portion of notes payable, Boomtown, Inc. 44,113 41,432
Current portion of notes payable, other 1,295 1,570
------- -------
Total current liabilities 54,682 49,817
Notes payable, other 2,512 60
Partners' deficit:
General partner 0 0
Limited partner (4,591) (3,725)
------- -------
Total partners' deficit (4,591) (3,725)
------- -------
$52,603 $46,152
======= =======
- --------
See accompanying notes to financial statements.
14
Mississippi - I Gaming, L.P.
Statements of Operations
For the three months ended For the nine months ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands - unaudited)
REVENUES:
Gaming $13,305 $12,512 $39,327 $35,359
Food and beverage 915 862 2,483 2,362
Other 816 860 2,170 2,211
------- ------- ------- -------
15,036 14,234 43,980 39,932
------- ------- ------- -------
EXPENSES:
Gaming 7,193 7,277 21,453 20,798
Food and beverage 1,194 996 3,170 2,974
Administrative 3,857 3,869 11,438 11,310
Other 399 404 1,138 1,052
Depreciation and amortizati 820 492 2,628 1,328
------- ------- ------- -------
13,463 13,038 39,827 37,462
------- ------- ------- -------
Operating income 1,573 1,196 4,153 2,470
Interest expense 1,374 1,286 4,007 3,728
------- ------- ------- -------
Net income (loss) $ 199 $ (90) $ 146 $(1,258)
======= ======= ======= =======
- -------
See accompanying notes to financial statements.
15
Mississippi - I Gaming, L.P.
Statements of Cash Flows
For the nine months ended
September 30,
-------------------------
1997 1996
--------- --------
(in thousands - unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 148 $(1,259)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 2,692 1,329
Decrease in other receivables, net 3 34
Increase in prepaid expenses and other assets (577) (647)
Decrease in other assets 2,322 209
(Decrease) increase in accounts payable (9) 48
(Decrease) increase in accrued compensation (64) 13
Decrease in accrued liabilities 453 208
Increase in accrued interest payable, Boomtown, Inc. 1,214 195
------- -------
Net cash provided by operating activities 6,182 130
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,634) (3,190)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds note payable, Boomtown, Inc. 2,389 852
Payment notes payable, other (2,993) 0
Proceeds notes payable, other 0 1,094
------- -------
Net cash (used for) provided by financing activities (604) 1,946
------- -------
Decrease in cash and cash equivalents (56) (1,114)
Cash and cash equivalents at the beginning of the period 3,337 3,128
------- -------
Cash and cash equivalents at the end of the period $ 3,281 $ 2,014
======= =======
- --------
See accompanying notes to financial statements.
Mississippi - I Gaming, L.P.
Notes to Financial Statements
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information included herein has been prepared in conformity with
generally accepted accounting principles. The information provided in this
Quarterly Report on Form 10-Q is unaudited, and 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 period.
GENERAL Mississippi - I Gaming, L.P. (the "Mississippi Partnership"), is a
Mississippi limited partnership, which is majority owned and controlled by
Hollywood Park, Inc. ("Hollywood Park"), through its wholly owned subsidiaries,
Boomtown, Inc. ("Boomtown") and Bayview Yacht Club, Inc., which own 80% and 5%,
respectively, of the Mississippi Partnership, with the remaining 15% being owned
by Eric Skrmetta ("Skrmetta"). The Mississippi Partnership operates a casino,
known as Boomtown ("Boomtown Biloxi"), on a 40,000-square foot barge, which is
permanently moored to a land-based facility located on the historic Back Bay of
Biloxi, Mississippi.
Historically, the Mississippi Partnership reported financial results with a year
end of September 30. Subsequent to Hollywood Park's June 30, 1997, acquisition
of Boomtown (the "Merger"), the Mississippi Partnership will be reporting
results on a calendar year end of December 31.
ESTIMATES Financial statements prepared according to generally accepted
accounting principles require the use of management estimates, including
estimates used to evaluate the recoverability of real estate and leasehold
interests held for investment. These estimates are subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from those anticipated by management.
RECLASSIFICATIONS Certain reclassifications have been made to the 1996 balances
to be consistent with the 1997 financial statement presentation.
NOTE 2 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held as of September 30, 1997, and September 30,
1996, consisted of the following:
September 30, September 30,
1997 1996
------------ -------------
Land and land improvements $ 226,000 $ 226,000
Buildings and building improvements 41,278,000 32,864,000
Equipment 9,173,000 5,671,000
Construction in progress 292,000 16,000
----------- -----------
50,969,000 38,777,000
Less accumulated depreciation 6,214,000 3,106,000
----------- -----------
$44,755,000 $35,671,000
=========== ===========
17
NOTE 3 -- SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of September 30, 1997, and September 30, 1996, consisted of the
following:
September 30, September 30,
1997 1996
------------- -------------
Secured notes payable $3,750,000 $ 320,000
Capital lease obligations 57,000 1,310,000
---------- ----------
3,807,000 1,630,000
Less current maturities 1,295,000 1,570,000
---------- ----------
$2,512,000 $ 60,000
========== ==========
As of September 30, 1997, and 1996, the Mississippi Partnership also had an
outstanding note payable to Boomtown in the amounts of $44,113,000 and
$41,432,000, respectively. These amounts primarily related to funds invested by
Boomtown for the initial construction of the property, and the net of subsequent
cash transfers to Boomtown from the Mississippi Partnership, and from Boomtown
to the Mississippi Partnership. Interest on the notes payable to Boomtown was
fixed at 11.5%.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
On August 6, 1997, Hollywood Park and Hollywood Park Operating Company (a wholly
owned subsidiary of Hollywood Park), as co-obligors, issued $125,000,000 of the
Series A Notes. The Series A Notes are fully and unconditionally, jointly and
severally, guaranteed on a senior subordinated basis by all of Hollywood Park's
material subsidiaries, including Mississippi - I Gaming, L.P.
In connection with the Merger, Hollywood Park supplied the funds to Boomtown to
repurchase and retire an aggregate of approximately $102,700,000 in principal
amount of Boomtown's First Mortgage Notes. The remaining balance of $1,253,000
is fully and unconditionally guaranteed by Mississippi - I Gaming, L.P.
The Mississippi Gaming Commission requires, as a condition of licensing or
license renewal, gaming companies to make a one time capital investment in
facilities for general public use, such as restaurants and other non-gaming
facilities, equal to 25% of the initial casino construction and gaming equipment
costs. The Mississippi Partnership believes that it's current land-based
facility satisfies this Mississippi Gaming Commission requirement. The
Mississippi Partnership expects to receive confirmation that it has met the 25%
requirement during the fourth quarter of 1997, but there can be no assurance
that the Mississippi Gaming Commission will not require additional expenditures,
and if required, that the Mississippi Partnership will be able to satisfy or
possibly receive waivers for such requirements.
18
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 or retain gaming
licenses or regulatory approvals, failure to utilize Hollywood Park's financial
resources to improve the financial position of its newly acquired subsidiary
Boomtown, failure to complete or successfully operate anticipated expansion
projects, the failure to find a suitable lessee for the Crystal Park Hotel and
Casino, the failure to obtain adequate financing to meet the Company's strategic
goals, difficulties in completing integration of Hollywood Park and Boomtown,
and the failure to implement a REIT/Paired-Share Structure (as described
herein), or to realize the potential benefits to be derived therefrom. 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, the Company's other filings including the Joint Proxy/Prospectus
dated September 20, 1996, and the Statement on Form S-4 filed October 30, 1997.
GENERAL Hollywood Park is a gaming, sports and entertainment company engaged in
the ownership and operation of casinos, California card club casinos, pari-
mutuel racing facilities, and the development of other gaming, sports and
entertainment opportunities. As of the June 30, 1997 Merger, the Company owns
and operates a casino and hotel in Verdi, Nevada ("Boomtown Reno"), a riverboat
casino in Harvey, Louisiana ("Boomtown New Orleans") and a dockside casino in
Biloxi, Mississippi ("Boomtown Biloxi"). The Company also owns and operates the
Hollywood Park-Casino, a California card club located in the Los Angeles
metropolitan area, and owns 89.8% 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 (the "Crystal Park
Casino"), 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 hosted the prestigious 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 proceedings (See Item
2. Liquidity and Capital Resources).
Hollywood Park's strategic plan is to grow its gaming, sports and entertainment
businesses by (i) increasing the utilization of its existing properties, (ii)
developing excess real estate at its existing sites, and (iii) making
acquisitions, principally in the gaming industry, to diversify its operations
and to achieve economies of scale.
BOOMTOWN EXPANSION/RENOVATIONS With the June 30, 1997, acquisition of Boomtown,
Hollywood Park has undertaken various renovations, expansion plans and asset
acquisitions for the direct benefit of the Boomtown properties.
Boomtown Reno The $25,000,000 expansion and renovation of Boomtown Reno is
- -------------
underway, and includes a 200 room hotel addition, a complete renovation of the
existing gaming floors, 7,500 square feet of new conference and banquet
facilities, additional new gaming floor space, a new bus tour lobby and
remodeling of the food and beverage facilities.
19
Boomtown New Orleans As of August 8, 1997, Boomtown New Orleans became wholly
- --------------------
owned by the Company. Previously, Boomtown New Orleans was owned and operated
by a Louisiana limited partnership (the "Louisiana Partnership"), of which 92.5%
was owned by Hollywood Park with the remaining 7.5% owned by Eric Skrmetta
("Skrmetta"). On November 18, 1996, Boomtown entered into an agreement with
Skrmetta under which it would pay approximately $5,670,000 in return for
Skrmetta's interest in the Louisiana Partnership. Under the terms of the
agreement, in 1996 Boomtown made a down payment of $500,000, and the Company
paid the remaining $5,170,000 on August 8, 1997.
On September 25, 1997, Hollywood Park purchased the Crescent City Queen (to be
renamed Boomtown Belle II) riverboat from Casino Magic Corporation for
approximately $11,700,000, which upon approval from the Louisiana Gaming Control
Board will replace the current Boomtown Belle riverboat. Boomtown Belle II is
130 feet longer and 15 feet wider than the current riverboat. The gaming floors
of Boomtown Belle II incorporate a more elegant decor, including escalators to
enhance patron traffic flow and will allow for more spacious gaming floors.
Boomtown Belle II also includes a third deck with 5,000 square feet of banquet
or special use facilities. Hollywood Park will invest approximately $4,700,000
to renovate and equip Boomtown Belle II. Boomtown Belle II is expected to be
placed into service mid-December 1997. In addition to the purchase of Boomtown
Belle II, a $10,000,000 renovation and build-out of the Boomtown New Orleans
land based facility is moving forward and the project is expected to be
completed in July 1998. The renovation will include a second floor banquet
facility, a restaurant and bar with an arcade venue catering to adults. Upon
completion of the renovations, Boomtown New Orleans will be a complete
entertainment complex offering entertainment experiences for a wide range of
customers.
Boomtown Biloxi Boomtown Biloxi is operated by a Mississippi limited
- ---------------
partnership (the "Mississippi Partnership"), of which 85% is owned and
controlled by Hollywood Park, with the remaining 15% owned by Skrmetta. Both
Hollywood Park and Skrmetta have an option, exercisable over a four year period
to exchange Skrmetta's interest in the Mississippi Partnership, at Skrmetta's
option, for either cash and/or shares of Hollywood Park common stock with an
aggregate value equal to the value of Skrmetta's 15% interest in the Mississippi
Partnership, with such value determined by a formula set forth in the relevant
partnership agreements. On August 13, 1997, Hollywood Park exercised this
option and subsequently supplied Skrmetta with the calculation of the value of
his 15% interest in the Mississippi Partnership. Skrmetta did not agree to this
valuation of his 15% interest, and Hollywood Park and Skrmetta are currently
attempting to reach agreement on a value. In the event that Hollywood Park and
Skrmetta are unable to reach an agreement, Hollywood Park plans to initiate
arbitration proceedings.
The Boomtown Biloxi barge and building shell were owned by National Gaming
Mississippi, Inc., a subsidiary of Chartwell Leisure, Inc. ("National Gaming").
Boomtown Biloxi leased these assets from National Gaming under a 25-year lease
with a 25-year renewal option, and also received marketing services from
National Gaming. National Gaming received 16% of the adjusted earnings before
interest, taxes, depreciation and amortization ("Adjusted EBITDA"), as defined
in the relevant contract. On August 4, 1997, Hollywood Park executed an
agreement pursuant to which one of the Hollywood Park entities purchased the
assets for $5,250,000, payable through a down payment of approximately
$1,500,000, with the balance paid in three equal annual installments of
$1,250,000. The Adjusted EBITDA participation and other related agreements were
terminated upon repurchase of the assets.
In October 1997, Boomtown Biloxi exercised its option to purchase for $1,000,000
a half-acre parcel adjacent to the existing property, which is currently used
for valet parking, and may be used for other expansion opportunities in the
future.
YAKAMA EXPANSION Hollywood Park, through its wholly owned subsidiaries HP
Yakama, Inc. ("HP Yakama") and HP Yakama Consulting, Inc. ("HPY Consulting"),
has entered into agreements with the Yakama Tribal Gaming Corporation (the
"Tribal Corporation") and The Confederated Tribes and Bands of the Yakama Indian
Nation (the "Tribes") to fund (through HP Yakama) and consult on (through HPY
Consulting) the construction, development and operation of a casino in Yakima
County, Washington. HP Yakama has committed to fund up to $9,000,000 to
construct and equip the casino, and the Tribal Corporation has signed a
promissory note to repay up to $9,000,000, at a 10% annual interest rate over
seven years from the date of completion. The Development Agreement and the
Consulting Agreement between HPY Consulting and the Tribal Corporation are for
development and gaming operations consulting services, respectively, to the
Tribal Corporation at a cost of $1.00 per year each, plus certain consulting
expenses, not to exceed $2,000 per month under either agreement. The Consulting
Agreement is for a seven year period.
20
HP Yakama has also entered into a Master Lease to lease the completed casino and
underlying land (the "Facility") from the Tribes, for a seven year term
commencing with the opening of the casino, for $12,000 per year, and then to
Sublease the Facility to the Tribal Corporation, for the same seven year term.
Rent due from the Tribal Corporation Nation to HP Yakama, under the Sublease is
initially set at 28% of Net Revenues (as defined), until such time as the
aggregate accrued Net Revenues equal $26,000,000 and then the rent decreases to
25% of Net Revenues, until such time as the aggregate accrued Net Revenues equal
$41,000,000, and then rent decreases to 22% for the remainder of the Sublease
period. "Net Revenues" is defined as Gross Revenues less normal and necessary
operating expenses as determined under generally accepted accounting principles,
to include interest payments due from the Tribal Corporation to HP Yakama, and
to exclude rent due under the Sublease.
Hollywood Park has entered into a Profit Participation Agreement with North
American Sports Management, Inc. ("NORAM"), which entered into the original
Memorandum of Understanding with the Tribes. NORAM will receive 22% of the
portion of the Net Revenues (as described above) actually received by HP Yakama
under the Sublease.
PROPOSED INDIANA PROJECT The Company, through 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
Company filed an updated application (as a result of the Merger) in August 1997.
On October 23, 1997, the Company made a formal presentation to the Indiana
Gaming Commission (the "Indiana Commission"), after which the Indiana Commission
indicated it would hold a meeting between November 15, 1997 and December 15,
1997 to make its determinations. The Indiana Commission could once again defer
any decision regarding granting of the license. There can be no assurance that
Hollywood Park will be granted the gaming license, and if granted the initial
gaming license, will receive all other required approvals and environmental
permits necessary to proceed with this project.
POSSIBLE RESTORATION OF REAL ESTATE INVESTMENT TRUST/PAIRED-SHARE STRUCTURE
From 1982 to 1991, the Company was operated as a Real Estate Investment Trust
("REIT") known as Hollywood Park Realty Enterprises, Inc. ("HP Realty"), and its
stock was paired with, or stapled to, that of Hollywood Park Operating Company
("HP Operating Company"). HP Realty was primarily an owner and lessor of real
property. HP Operating Company was primarily engaged in the active conduct of
racing operations and leased a significant amount of real property from HP
Realty to conduct those racing operations. Generally, a REIT is required to
distribute, as dividends to its stockholders, 95% of its taxable income (other
than net capital gains), and such amounts distributed are not subject to federal
income tax at the corporate level. Effective as of January 1, 1992, as part of
a corporate reorganization, HP Realty and HP Operating Company ceased operating
in a REIT/Paired-Share Structure, and HP Operating Company became a wholly owned
subsidiary of HP Realty and HP Realty was renamed Hollywood Park, Inc.
21
In May 1997, the Company announced that it was exploring the possibility of
restoring the REIT/Paired-Share Structure. Any decisions to proceed with
restoring the REIT/Paired-Share Structure will depend on a variety of factors,
including tax consequences and receipt of stockholder, regulatory and other
required approvals. The Company submitted a ruling request to the Internal
Revenue Service on certain aspects of the restored REIT/Paired-Share Structure.
There can be no assurance that the Company will elect to proceed with the
restoration of the REIT/Paired-Share Structure, or that the benefits expected
from the restoration will be achieved.
CRYSTAL PARK HOTEL AND CASINO On October 11, 1997, the California Attorney
General revoked CEI's conditional gaming registration, and the City of Compton
revoked CEI's city gaming license. Crystal Park LLC believes that CEI is
attempting to have its California conditional gaming registration and city
gaming license reinstated.
On November 4, 1997, Crystal Park LLC obtained a judgment in an action for
unlawful detainer against CEI, due to CEI's failure to pay a portion of the June
1997 rent and to make required additional rent payments. In addition to the
judgment for possession and for damages of approximately $150,000, Crystal Park
LLC has a claim against CEI for additional damages relating to subsequent unpaid
rent and additional unpaid amounts.
Crystal Park LLC is presently negotiating a new lease for the Crystal Park
Casino with California Casino Management, Inc. ("CCM"), a California
corporation, owned by Mr. Leo Chu, which would take effect in the event that CEI
is unable to continue as operator/lessee of Crystal Park. Mr. Chu presently has
a gaming registration application pending with the California Attorney General
to operate the Crystal Park Casino, and will also require a gaming license from
the City of Compton. Mr. Chu presently holds a California gaming registration
to operate a small card club in Northern California. It is expected that CCM
would assume operations of the Crystal Park Casino no later than January 1,
1998; however, there can be no assurance that CCM will receive the necessary
approvals from the City of Compton and the California Attorney General to
operate the Crystal Park Casino, or that Crystal Park LLC will be able to locate
a replacement operator/lessee who will be granted the required approvals.
In the event that CCM assumes operations of the Crystal Park Casino, HP/Compton,
Inc., a wholly owned subsidiary of the Company, may purchase First Park
Investments, LLC's (owned by Mr. and Mrs. Chu) 3.4% membership in Crystal Park
LLC in order to provide Mr. Chu with additional working capital with which to
operate the Crystal Park Casino. The purchase price is expected to be
$1,000,000 (the amount initially invested by First Park Investments, LLC);
however, there can be no assurance that the parties would be able to agree upon
a price and other terms of such a purchase.
RESULTS OF OPERATIONS
Three months ended September 30, 1997, compared to the three months ended
-------------------------------------------------------------------------
September 30, 1996
------------------
As of June 30, 1997, the results of operations of Boomtown were consolidated
with those of Hollywood Park, and since the Merger was accounted for under the
purchase method of accounting for a business combination there is no
corresponding Boomtown activity in the 1996 results of operations.
Total revenues for the three months ended September 30, 1997, increased by
$54,963,000, as compared to the three months ended September 30, 1996, due
primarily to Boomtown revenues of $55,441,000 recorded during 1997 with no
corresponding revenues recorded in 1996. Gaming revenues increased by
$44,029,000, or 335.7%, due primarily to $43,765,000 of Boomtown gaming revenues
and $702,000 of Crystal Park revenues in 1997, with no corresponding revenues in
1996. The Crystal Park Casino opened on October 25, 1996, under a triple net
lease with CEI. Crystal Park LLC recorded a 100% valuation allowance against
the $350,000 of rent revenue due from CEI for the month of September 30, 1997,
due to the California Attorney General revoking CEI's conditional California
gaming registration on October 11, 1997. The Company is presently in lease
negotiations with CCM to assume the lease of the Crystal Park Casino, if CEI is
unable to regain its conditional California gaming registration, subject to CCM
obtaining all required gaming
22
registrations and licenses to operate the Crystal Park Casino (as more fully
discussed above). Racing revenues decreased by $328,000, or 2.6%, due primarily
to on-track attendance declines and fewer simulcast events at Hollywood Park
Race Track. Food and beverage revenues increased by $3,277,000, or 113.8%, due
primarily to the inclusion of Boomtown food and beverage revenues in 1997 with
no corresponding revenues recorded in 1996. The hotel and recreational vehicle
park, and truck stop and service station revenues were related to operations at
Boomtown Reno, and there are no corresponding revenues in the 1996 results.
Other revenues increased by $2,507,000, or 146.6%, due primarily to Boomtown
revenues related to the family fun centers, gift shops and other miscellaneous
revenues.
Total operating expenses increased by $48,562,000, due primarily to Boomtown
operating expenses of approximately $44,003,000, during the three months ended
September 30, 1997, with no corresponding Boomtown expenses reflected in the
operating expenses for the three months ended September 30, 1996. Gaming
expenses increased by $24,929,000, or 495.5%, due primarily to $23,356,000 of
Boomtown related expenses and increased tournament marketing costs at the
Hollywood Park-Casino. Racing expenses increased by $298,000, or 5.0% primarily
due to increased marketing spending at the Hollywood Park Race Track. Food and
beverage expenses increased by $3,125,000, or 62.8%, due primarily to the
Boomtown food and beverage expenses of approximately $4,039,000, netted against
cost savings at the Hollywood Park-Casino generated by the implementation of a
food and beverage cost of sales control program in 1997. The hotel and
recreational vehicle park and truck stop and service station expenses related to
operations at Boomtown Reno with no corresponding expenses in the 1996 results.
Administrative expenses increased by $10,598,000, or 109.2%, due primarily to
the inclusion of $10,717,000 of Boomtown expenses netted against cost savings at
the Hollywood Park Race Track and Hollywood Park-Casino, as a result of the
Company's cost savings program. REIT reorganization expense consisted primarily
of legal, and tax expenses incurred by Hollywood Park with respect to the
reinstatement of the Company's REIT, as previously discussed. Other expenses
increased by $894,000, or 96.2%, due primarily to Boomtown expenses of
approximately $1,231,000, netted against cost savings at the Hollywood Park-
Casino gift shop and health club. Depreciation and amortization increased by
$3,661,000, or 146.6%, due primarily to Boomtown and Crystal Park expenses in
1997, for which there are no corresponding expenses in 1996. Interest expense
increased by $3,633,000, due to the interest expense associated with the Series
A Notes and interest expense related to Boomtown. Income taxes increased by
$943,000, or 162.3%, due to increased pre-tax income in 1997 as compared to
1996.
Nine months ended September 30, 1997 compared to the nine months ended
----------------------------------------------------------------------
September 30, 1996
------------------
As of June 30, 1997, the results of operations of Boomtown were consolidated
with those of Hollywood Park, and since the Merger was accounted for under the
purchase method of accounting for a business combination, there is no
corresponding Boomtown activity in the 1996 results of operations. As of April
1, 1996, Sunflower's results of operations were no longer consolidated with
Hollywood Park's results; therefore, the results of operations for the nine
months ended September 30, 1997, are exclusive of Sunflower's results of
operations, but the financial results for the nine months ended September 30,
1996, included Sunflower's results of operations through March 31, 1996. Also
included in the results of operations for the nine months ended September 30,
1996, was the $11,412,000 one time non-cash write off of Hollywood Park's
investment in Sunflower.
Total revenues for the nine months ended September 30, 1997, increased by
$53,822,000, or 51.5%, as compared to the nine months ended September 30, 1996,
due primarily to the inclusion of $55,441,000 of Boomtown revenues in 1997, with
no corresponding revenues recorded during 1996. Gaming revenues increased by
$46,073,000, or 121.5%, due primarily to Boomtown gaming revenues of
$43,765,000, and Crystal Park LLC rent revenues of $2,202,000, in 1997, with no
corresponding Boomtown or Crystal Park LLC revenues in 1996. The Crystal Park
Casino opened on October 25, 1996, under a triple net lease with CEI. Crystal
Park LLC recorded a 100% valuation allowance against the $350,000 of rent
revenue due from CEI for the month of September 1997, due to the California
Attorney General revoking CEI's conditional California gaming registration. The
Company is presently in lease negotiations with CCM to assume the lease of the
23
Crystal Park Casino, if CEI is unable to regain its conditional California
gaming registration, subject to CCM obtaining all required gaming registrations
and licenses to operate the Crystal Park Casino (as more fully discussed above).
Racing revenues decreased by $2,813,000, or 5.5%, due primarily to one fewer
live race day at Hollywood Park, and the inclusion of $1,317,000 of racing
revenues attributable to Sunflower in 1996, and no corresponding Sunflower
Racing revenues in 1997. Food and beverage revenues increased by $2,500,000, or
23.8%, due primarily to the inclusion of Boomtown food and beverage revenues in
1997, with no corresponding revenues in 1996. Hotel and recreational vehicle
park and truck stop and service station revenues related to Boomtown's Reno
property, and there are no corresponding revenues in 1996. Other income
increased by $2,584,000, or 49.7%, due primarily to the inclusion of Boomtown
revenues in 1997 with no corresponding revenues in 1996.
Total operating expenses (inclusive of approximately $44,003,000 of Boomtown
expenses in 1997) increased by $34,634,000, or 32.0%, during the nine months
ended September 30, 1997, as compared to the nine months ended September 30,
1996. Gaming expenses increased by $25,601,000, or 131.2%, primarily due to the
inclusion of Boomtown gaming expenses of $23,356,000 and increased tournament
costs at the Hollywood Park-Casino. Food and beverage expenses increased by
$2,862,000, or 20.4%, due primarily to Boomtown food and beverage expenses of
$4,039,000, netted against expense reductions, generated by cost saving programs
implemented at the Hollywood Park-Casino. Hotel and recreational vehicle
expenses and truck stop and service station expenses related to Boomtown Reno
and there are no corresponding expenses in 1996. Administrative expenses
increased by $7,047,000, or 22.3%, which included $10,717,000 of Boomtown
expenses, netted against reduced expansion expenses in 1997, and savings
generated by cost saving programs implemented at all Hollywood Park properties.
REIT reorganization expense consisted primarily of legal and tax expenses
incurred by Hollywood Park with respect to the reinstatement of the Company's
REIT as previously discussed. Other expenses increased by $1,234,000, or 60.8%,
due primarily to the inclusion of Boomtown expenses in 1997 with no
corresponding expenses in 1996. Depreciation and amortization increased by
$4,041,000, primarily due to the Boomtown and Crystal Park LLC depreciation
expense in 1997 with no corresponding expenses in 1996. Interest expense
increased by $2,864,000, or 312.0%, due to the interest on the Series A Notes,
short term bank borrowings (all of which have been repaid) and bank commitment
fees (See Item 2. Liquidity and Capital Resources). Income tax expense
increased by $1,599,000, or 52.9%, due to increased income before income taxes
in 1997 as compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
Hollywood Park's principal source of liquidity as of September 30, 1997, was
cash and cash equivalents of $22,007,000. Cash and cash equivalents increased
by $10,085,000 during the nine months ended September 30, 1997. Net cash
provided by operating activities was $6,059,000. Net cash used by investing
activities was $5,884,000. Cash used for capital assets of $23,059,000 included
amounts spent for the purchase of a new riverboat for Boomtown New Orleans, the
down payment on the purchase of the barge for Boomtown Biloxi, and normal and
necessary capital improvements. Cash provided by investing activities related
to the cash acquired from Boomtown in the Merger (net of Hollywood Park's Merger
costs) and by the liquidation of the Company's short term corporate bond
investments. Net cash provided by financing activities was $9,910,000. Cash of
$125,000,000 was raised with the issuance of the Series A Notes issued on August
6, 1997. Cash of approximately $110,924,000 was used to redeem a majority of
the 11.5% Boomtown First Mortgage Notes. Cash was disbursed for the payment of
the preferred stock dividend through the date of conversion. Cash payments were
also made on a variety of secured notes for gaming and other operating assets
held by the various Boomtown properties, including the approximately $2,107,000
payment of a Boomtown New Orleans note payable on the original riverboat.
Cash and cash equivalents decreased by $6,723,000 during the nine months ended
September 30, 1996. Net cash provided by operating activities was $11,761,000.
Net cash used in investing activities was $14,692,000, which included
disbursements for the construction of the Crystal Park Casino, along with normal
and necessary capital improvements. Net cash used in financing activities was
$3,792,000, which included
24
the payment of a secured note, the payment of dividends on the preferred stock,
and the repurchase of the Company's common stock, netted against cash received
from the minority members of Crystal Park LLC.
HOLLYWOOD PARK On June 30, 1997, Hollywood Park and a bank syndicate lead by
Bank of America finalized the reducing revolving credit facility (the "Bank
Credit Facility") for up to $225,000,000. On August 7, 1997, the Bank Credit
Facility was reduced by $125,000,000 (representing the funds received in the
issuance of the Series A Notes) to $100,000,000. Of such $100,000,000
approximately $83,586,000 was available at September 30, 1997, as a result of
covenant limitations. The Bank Credit Facility is secured by substantially all
of the assets of Hollywood Park and its significant subsidiaries, and imposes
certain customary affirmative and negative covenants.
The Bank Credit Facility has been amended twice. The first amendment, among
other matters, reduced the availability of the facility until the Bank Credit
Facility was approved by the Louisiana Gaming Control Board. The Company
received this approval on July 10, 1997. The second amendment, among other
matters, allowed the co-issuance of the Notes by HP Operating Company with
Hollywood Park.
Debt service requirements on the Bank Credit Facility consist of current
interest payments on outstanding indebtedness through September 30, 1999. As of
September 30, 1999, and on the last day of each third calendar month thereafter,
through June 30, 2001, the Bank Credit Facility will decrease by 7.5% of the
commitment in effect on September 30, 1999. As of September 30, 2001, and on
the last day of each third calendar month thereafter, the Bank Credit Facility
will decrease by 10% of the commitment in effect on September 30, 1999. Any
principal amounts outstanding in excess of the Bank Credit Facility commitment,
as so reduced, will be payable on such quarterly reduction rates.
The Bank Credit Facility provides for a letter of credit sub-facility of
$10,000,000, of which $2,035,000 is currently outstanding for the benefit of
Hollywood Park's California self insured workers' compensation program. The
facility also provides for a swing line sub-facility of up to $10,000,000.
Borrowings under the Bank Credit Facility bear interest at an annual rate
determined, at the election of the Company, by reference to the "Eurodollar
Rate" (for interest periods of 1, 2, 3 or 6 months) or the "Reference Rate", as
such terms are respectively defined in the Bank Credit Facility, plus margins
which vary depending upon Hollywood Park's ratio of funded debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA"). The margins
start at 1.25% for Eurodollar loans and at 0.25% for Base Rate loans, at funded
debt to EBITDA ratio of less than 1.50%. Thereafter, the margin for each type
of loan increases by 25 basis points for each increase in the ratio of funded
debt to EBITDA of 50 basis points or more, up to 2.625% for Eurodollar loans and
1.625% for Base Rate loans. However, if the ratio of senior funded debt to
EBITDA exceeds 2.50%, the applicable margins will increase to 3.25% for
Eurodollar loans, and 2.25% for Base Rate loans. Thereafter, the margins would
increase by 25 basis points for each increase in the ratio of senior funded debt
to EBITDA of 50 basis points or more, up to a maximum of 4.25% for Eurodollar
loans and 3.25% for Base Rate loans. The applicable margins as of September 30,
1997, were 1.75% with respect to the Eurodollar Rate based interest rate and
0.75% with respect to the Base Rate interest rate.
The Bank Credit Facility allows for interest rate swap agreements, or other
interest rate protection agreements, up to a maximum notional amount of
$125,000,000. Presently, Hollywood Park does not utilize such financial
instruments, though it may in the future.
Hollywood Park pays a quarterly commitment fee for the average daily amount of
unused portions of the Bank Credit Facility. The commitment fee is also
dependent upon the Company's ratio of funded debt to EBITDA. The commitment fee
for the Bank Credit Facility starts at 31.25 basis points when the ratio is less
than 1.00, and increases by 6.25 basis points for each increase in the ratio of
0.50, up to a maximum of 50 basis points. For the quarter beginning October 1,
1997, this fee is 43.75 basis points.
25
On July 3, 1997, Hollywood Park borrowed $112,000,000 from the Bank Credit
Facility to fund Boomtown's offer to purchase its 11.5% First Mortgage Notes,
and repaid this amount on August 7, 1997, with a portion of the proceeds from
the issuance of $125,000,000 of the Series A Notes. The Series A Notes were co-
issued by Hollywood Park and HP Operating Company (the "Obligors"). The balance
of the proceeds from the issuance of the Notes was primarily used for the
purchase of a new riverboat in Boomtown New Orleans, and other general corporate
needs.
Interest on the Series A Notes is payable semi-annually, on February 1st and
August 1st. The Notes will be redeemable at the option of the Company, in whole
or in part, on or after August 1, 2002, at a premium to face amount, plus
accrued interest, with the premium to the face amount decreasing on each
subsequent anniversary date. The Series A Notes are unsecured obligations of
the Obligors, guaranteed by all other material restricted subsidiaries of either
Hollywood Park or HP Operating Company.
The indenture governing the Series A Notes contains certain covenants that,
among other things, limit the ability of the Obligors and their restricted
subsidiaries to incur additional indebtness and issue preferred stock, pay
dividends or make other distributions, repurchase equity interests or
subordinated indebtness, create certain liens, enter into certain transactions
with affiliates, sell assets, issue or sell equity interests in their respective
subsidiaries or enter into certain mergers and consolidations.
On July 1, 1997, in connection with the divestiture of Boomtown's Las Vegas
property, Hollywood Park issued an unsecured promissory note of approximately
$3,465,000. The promissory note bears interest equal to the Bank of America
reference rate plus 1.0%. Interest is payable annually with five annual
principal payments of approximately $693,000 commencing July 1, 1998.
During the nine months ended September 30, 1997, the Company paid dividends of
$1,520,000 on its convertible preferred stock, representing $70.00 per share, or
$0.70 per depositary share. Effective August 28, 1997 the Company converted the
2,749,900 outstanding depositary shares into 2,291,492 shares of the Company's
common stock, thereby, eliminating the annual preferred cash dividend payment of
approximately $1,925,000 for future periods.
As of September 30, 1997, Hollywood Park liquidated its investments in corporate
bonds. During the nine months ended September 30, 1997, proceeds from the sale
or redemption of the corporate bond investments were approximately $4,766,000,
with gross realized gains and losses of approximately $9,000, and $88,000,
respectively.
BOOMTOWN In November 1993, Boomtown sold $103,500,000 of 11.5% First Mortgage
Notes due November 1, 2003 (the "First Mortgage Notes"). On July 3, 1997,
pursuant to a tender offer, Boomtown repurchased and retired approximately
$102,142,000 in principal amount of the 11.5% First Mortgage Notes, at a
purchase price of $1,085 per $1,000 in principal amount, along with accrued
interest thereon.
As a result of the Merger, Boomtown, as required under the indenture governing
the 11.5% First Mortgage Notes, initiated a change in control purchase offer at
a price of $1,010 for each $1,000 for the remaining approximately $1,358,000
aggregate principal amount of 11.5% First Mortgage Notes outstanding. This
change in control purchase offer was completed on August 12, 1997, with only
$105,000 of the remaining 11.5% First Mortgage Notes tendered.
On August 4, 1997, Hollywood Park executed a promissory note pursuant to which
one of the Hollywood Park entities purchased the barge and the building shell at
Boomtown Biloxi for at total cost of $5,250,000. A payment of $1,500,000 was
made on August 4, 1997, with the balance due of $3,750,000 payable in three
equal annual installments of $1,250,000. Interest on the promissory note is
equal to the prime interest rate in effect on the first day of the quarterly
period. The principal amount of the promissory note, together with accrued
interest, may be repaid, without penalty, in whole or in part, at any time.
26
On August 7, 1997, Boomtown New Orleans prepaid the 13.0% note payable secured
by the original riverboat, currently in use. The cost of the prepayment
(inclusive of a 1.0% prepayment penalty) was approximately $2,107,000.
As of August 8, 1997, Boomtown New Orleans is wholly owned by the Company.
Previously, Boomtown New Orleans was owned and operated by the Louisiana
Partnership, of which 92.5% was owned by Hollywood Park with the remaining 7.5%
owned by Skrmetta. On November 18, 1996, Boomtown entered into an agreement
with Skrmetta under which it would pay approximately $5,670,000 in return for
Skrmetta's interest in the Louisiana Partnership. Under the terms of the
agreement, Boomtown made a down payment of $500,000, and the Company paid the
remaining $5,170,000 on August 8, 1997.
On September 25, 1997, Hollywood Park acquired the Crescent City Queen (to be
renamed Boomtown Belle II) riverboat from Casino Magic Corporation, at a cost of
approximately $11,700,000. Hollywood Park will invest approximately $4,700,000
to renovate and equip the Boomtown Belle II, which is expected to be placed in
service mid-December 1997.
As of September 30, 1997, Boomtown had two notes payable for gaming and other
operating equipment which total approximately $359,000. Boomtown also has
various capital lease obligations for gaming and other operating equipment,
totaling approximately $2,055,000.
In connection with the sale its Las Vegas property, Boomtown took back two notes
receivable from Roski, the former lessor of the Las Vegas property, totaling
approximately $8,465,000. The first note receivable is for $5,000,000, bearing
interest at Bank of America's reference rate plus 1.5% per year, with annual
principal receipts of $1,000,000 plus accrued interest commencing on July 1,
1998. The second note is for approximately $3,465,000, bearing interest at Bank
of America's reference rate plus 0.5% per year, with the principal and accrued
interest payable, in full, on July 1, 2000.
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
September 30, 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 suspended any interest or
principal payments on the Sunflower Senior Credit until August 12, 1997. The
Bankruptcy Court issued an order extending the Cash Collateral Agreement until
the confirmation hearing, which is scheduled for December 18, 1997. The
extension of the Cash Collateral Agreement was subject to Sunflower making
certain cash payments to Wyandotte County, Kansas, the creditor group and TRAK
East (the unaffiliated operator of racing at Sunflower).
On July 15, 1997, Sunflower presented to the Bankruptcy Court a plan of
reorganization (the "Plan") which provides for the sale of Sunflower's property
to the Wyandotte Indians of Oklahoma (the "Wyandotte Indians"). Under the Plan,
the land would be held by the United States Government in trust for the
Wyandotte Indians, and a casino would be built on the property. Upon completion
of the casino, Hollywood Park and a partner (North American Sports Management)
would operate the facility in return for 30% of the profits. The Company would
guarantee certain bank debt of Sunflower of up to $28,667,000 to allow the
property to be released as collateral and then transferred to the Wyandotte
Indians. The Company's guaranty would not go into effect unless and until all
material regulatory approvals have been obtained for operation of the casino and
approval has been obtained under the Bank Credit Facility. The Bankruptcy Court
is expected to rule on the Plan early in 1998.
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
27
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.
CAPITAL COMMITMENTS As of September 30, 1997, Hollywood Park has one material
capital commitment of approximately $9,000,000 with respect to construction of
the casino for the Yakama expansion, as previously described.
Expansion Costs In addition to the financing needs discussed above, and the
- ---------------
construction of the casino for the Yakama expansion, Hollywood Park has other
potential capital needs with respect to Boomtown Reno and Boomtown New Orleans.
The Company expects to spend approximately $25,000,000 on the expansion and
renovation of Boomtown Reno, including additional hotel rooms, expanded gaming
space and other amenities, which is expected to be completed by the end of 1998.
The Company also expects to spend approximately $10,000,000 on the expansion and
upgrade of Boomtown New Orleans including the build-out of the second floor of
the land-based facility which expected to be completed by mid-1998. The
Boomtown New Orleans Boomtown Belle II riverboat renovation is expected cost
$4,700,000 and is expected to be completed by mid-December 1997.
GENERAL Hollywood Park is continually evaluating future growth opportunities in
the gaming, sports and entertainment industries. The Company expects that
funding for growth opportunities, payment of interest on the Notes, payments on
notes payable and 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.
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 enacted a comprehensive scheme for the regulation of gaming under
the jurisdiction of a gaming control commission, prior to January 1, 1999, the
Company would have no longer been allowed to operate the Hollywood Park-Casino,
and would have had to once again lease it for a fixed monthly rent to an
unaffiliated third party operator.
In September 1997, Senate Bill 8 ("SB 8") was enacted into law. SB 8, which
becomes effective January 1, 1998, comprehensively regulates card clubs in
California, and allows the Company to operate the Hollywood Park-Casino
indefinitely beyond January 1, 1999.
28
ITEM 6.A EXHIBITS
- -----------------
Exhibit
Number Description of Exhibit
- ------- ----------------------
2.1 Agreement and Plan of Reorganization, by and among Hollywood Park,
Inc. and Pacific Casino Management, Inc., dated November 17, 1995, is
hereby incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K, filed November 30, 1995.
2.2 Agreement and Plan of Merger, by and among Hollywood Park, Inc., HP
Acquisition, Inc. and Boomtown, Inc., dated April 23, 1996, is hereby
incorporated by reference to the Company's Current Report on Form 8-
K, filed May 3, 1996.
3.1 Certificate of Incorporation of Hollywood Park, Inc., is hereby
incorporated by reference to Exhibit 2.1 to the Company's
Registration Statement on Form S-1, dated January 29, 1993.
3.2 Amended By-laws of Hollywood Park, Inc., are hereby incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement on
Form S-1, dated January 29, 1993.
3.3 Certificate of Incorporation of Hollywood Park Operating Company, is
hereby incorporated by reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-4, dated August 27, 1997.
3.4 Amended By-laws of Hollywood Park Operating Company, are hereby
incorporated by reference to Exhibit 3.4 to the Company's
Registration Statement on Form S-4, dated August 27, 1997.
4.5 Convertible Preferred Stock Depositary Stock Agreement, between
Hollywood Park, Inc. and Chase Mellon Shareholder Services, dated
February 9, 1993, is hereby incorporated by reference to Exhibit 4.5
to the Company's Registration Statement on Form S-1, dated January
29, 1993.
4.7 Hollywood Park 1996 Stock Option Plan is hereby incorporated by
reference to Exhibit 10.24 to the Company's Registration Statement on
Form S-4, dated September 18, 1996.
4.8 Hollywood Park 1993 Stock Option Plan is hereby incorporated by
reference to Appendix A to the Notice of Annual Meeting to
Shareholders and Proxy Statement relating to the Annual Meeting of
Stockholders of Hollywood Park, Inc., held on May 17, 1993.
4.9 Indenture, dated August 1, 1997, by and among Hollywood Park, Inc.,
Hollywood Park Operating Company, Hollywood Park Food Services, Inc.,
HP/Compton, Inc., Crystal Park Hotel and Casino Development Company,
LLC, HP Yakama, Inc., Turf Paradise, Inc., Boomtown, Inc., Boomtown
Hotel & Casino, Inc., Louisiana - I Gaming, Louisiana Gaming
Enterprises, Inc., Mississippi - I Gaming, L.P., Bayview Yacht Club,
Inc. and The Bank of New York, as trustee, is hereby incorporated by
reference to Exhibit 10.37 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997.
4.10 Form of Series B 9.5% Senior Subordinated Note due 2007 (included in
Exhibit 4.9), is hereby incorporated by reference to the Company's
Amendment No. 1 to Registration Statement on Form S-4 dated, October
30, 1997.
10.39 Agreement, by and between Crystal Park Hotel and Casino Development
Company, LLC and Compton Entertainment, Inc., dated September 12,
1997.
10.40 Profit Participation Agreement, by and between Hollywood Park, Inc.
and North American Sports Management, Inc., dated July 14, 1997.
10.41 Loan Agreement, by and between Yakama Tribal Gaming Corporation and
HP Yakama, Inc., dated September 11, 1997.
10.42 Security Agreement, by and between Yakama Tribal Gaming Corporation
and HP Yakama, Inc., dated September 11, 1997.
10.43 Master Lease, by and between The Confederated Tribes and Bands of the
Yakama Indian Nation and HP Yakama, Inc., dated September 11, 1997.
10.44 Sublease, by and between HP Yakama, Inc. and Yakama Tribal Gaming
Corporation, dated September 11, 1997.
10.45 Construction and Development Agreement, by and between Yakama Tribal
Gaming Corporation and HP Yakama Consulting, Inc., dated
September 11, 1997.
10.46 Consulting Agreement, by and between Yakama Tribal Gaming Corporation
and HP Yakama Consulting, Inc., dated September 11, 1997.
27.1 Financial Data Schedule
(b) A Reports on Form 8-K Current Report on Form 8-K was filed July 15,
1997, to report the June 30, 1997, acquisition of Boomtown, Inc. and
the disposition of Boomtown's Las Vegas property, and which included
historical financial statements of Boomtown, Inc. as well as
financial statements for the combined company on a pro forma basis
giving effect to the Merger on January 1, 1996.
A Current Report on Form 8-K was filed August 12, 1997, to report the
redemption of each Depositary Share in exchange for 0.8333 shares of
Common Stock.
29
Hollywood Park, Inc.
Calculation of Earnings Per Share
For the three months ended September 30,
-----------------------------------------------------
Primary Assuming full dilution (a)
-------------------- --------------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands, except per share data)
Average number of common shares outstanding 24,706 18,535 24,706 18,535
Average common shares due to assumed conversion
of convertible preferred shares 0 0 -- 2,291
------- ------- ------- -------
Total shares 24,706 18,535 24,706 20,826
======= ======= ======= =======
Net income $ 2,411 $ 603 $ 2,411 $ 603
Less dividend requirements on convertible preferred shares 558 481 0 0
------- ------- ------- -------
Net income available to common shareholders $ 1,853 $ 122 $ 2,411 $ 603
======= ======= ======= =======
Net income per share $ 0.08 $ 0.01 $ 0.10 $ 0.03
======= ======= ======= =======
For the nine months ended September 30,
-----------------------------------------------------
Primary Assuming full dilution (a)
-------------------- --------------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands, except per share data)
Average number of common shares outstanding 20,596 18,605 20,596 18,605
Average common shares due to assumed conversion
of convertible preferred shares 0 0 -- 2,291
------- ------- ------- -------
Total shares 20,596 18,605 20,596 20,896
======= ======= ======= =======
Net income (loss) $ 7,119 $(7,526) $ 7,119 $(7,526)
Less dividend requirements on convertible preferred shares 1,520 1,443 0 0
------- ------- ------- -------
Net income (loss) attributable to (allocated to) common shareholders $ 5,599 $(8,969) $ 7,119 $(7,526)
======= ======= ======= =======
Net income (loss) per share $ 0.27 $ (0.48) $ 0.35 $ (0.36)
======= ======= ======= =======
- -------
Note: As of August 28, 1997, the Company's 2,749,900 outstanding depositary
shares were converted into 2,291,492 shares of the Company's common
stock.
(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.
Hollywood Park, Inc.
Selected Financial Data by Operational Location
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(in thousands, except per share data - unaudited)
REVENUES:
Hollywood Park, Inc. - Casino Division $14,759 $15,205 $ 44,076 $ 44,151
HP/Compton, Inc. - Crystal Park Hotel and Casino 702 0 2,202 0
Boomtown Reno 20,978 0 20,978 0
Boomtown New Orleans 19,380 0 19,380 0
Boomtown Biloxi 15,028 0 15,028 0
Hollywood Park Race Track 12,334 12,978 44,527 45,970
Turf Paradise, Inc. 1,647 1,546 11,352 11,362
Sunflower Racing, Inc. 0 0 0 1,782
Hollywood Park, Inc. - Corporate 327 518 751 1,262
Boomtown, Inc. - Corporate 55 0 55 0
----------- ----------- ----------- -----------
85,210 30,247 158,349 104,527
----------- ----------- ----------- -----------
EXPENSES:
Hollywood Park, Inc. - Casino Division 12,071 12,676 37,577 37,549
HP/Compton, Inc. - Crystal Park Hotel and Casino 25 0 66 0
Boomtown Reno 16,665 0 16,665 0
Boomtown New Orleans 13,860 0 13,860 0
Boomtown Biloxi 12,642 0 12,642 0
Hollywood Park Race Track 11,183 10,792 35,201 36,016
Turf Paradise, Inc. 2,023 2,013 8,923 8,835
Sunflower Racing, Inc. 0 0 0 1,703
Hollywood Park, Inc. - Corporate 1,744 1,064 4,426 4,697
Boomtown, Inc. - Corporate 836 0 836 0
----------- ----------- ----------- -----------
71,049 26,545 130,196 88,800
----------- ----------- ----------- -----------
NON-RECURRING EXPENSES:
REIT restructuring 397 0 609 0
Write off of investment in Sunflower Racing, Inc. 0 0 0 11,412
----------- ----------- ----------- -----------
397 0 609 11,412
----------- ----------- ----------- -----------
DEPRECIATION AND AMORTIZATION:
Hollywood Park, Inc. - Casino Division 685 740 2,215 2,151
HP/Compton, Inc. - Crystal Park Hotel and Casino 521 0 1,323 0
Boomtown Reno 1,353 0 1,353 0
Boomtown New Orleans 1,031 0 1,031 0
Boomtown Biloxi 820 0 820 0
Hollywood Park Race Track 1,013 964 3,004 2,924
Turf Paradise, Inc. 288 301 880 911
Sunflower Racing, Inc. 0 0 0 536
Hollywood Park, Inc. - Corporate 431 493 1,296 1,376
Boomtown, Inc. - Corporate 17 0 17 0
----------- ----------- ----------- -----------
6,159 2,498 11,939 7,898
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS):
Hollywood Park, Inc. - Casino Division 2,003 1,789 4,284 4,451
HP/Compton, Inc. - Crystal Park Hotel and Casino 156 0 813 0
Boomtown Reno 2,960 0 2,960 0
Boomtown New Orleans 4,489 0 4,489 0
Boomtown Biloxi 1,566 0 1,566 0
Hollywood Park Race Track 138 1,222 6,322 7,030
Turf Paradise, Inc. (664) (768) 1,549 1,616
Sunflower Racing, Inc. 0 0 0 (457)
Hollywood Park, Inc. - Corporate (1,848) (1,039) (4,971) (4,811)
Boomtown, Inc. - Corporate (798) 0 (798) 0
REIT restructuring (397) 0 (609) 0
Write off of investment in Sunflower Racing, Inc. 0 0 0 (11,412)
----------- ----------- ----------- -----------
7,605 1,204 15,605 (3,583)
----------- ----------- ----------- -----------
Interest expense 3,653 20 3,782 918
MINORITY INTERESTS:
HP/Compton, Inc. - Crystal Park Hotel and Casino 17 0 80 0
----------- ----------- ----------- -----------
Income (loss) before income tax expense 3,935 1,184 11,743 (4,501)
Income tax expense 1,524 581 4,624 3,025
----------- ----------- ----------- -----------
Net income (loss) $ 2,411 $ 603 $ 7,119 $ (7,526)
=========== =========== =========== ===========
Dividend requirements on convertible preferred stock $ 558 $ 481 $ 1,520 $ 1,443
----------- ----------- ----------- -----------
Net income (loss) available to (allocated to) common shareholders $ 1,853 $ 122 $ 5,599 $ (8,969)
=========== =========== =========== ===========
Per common share:
Net income (loss) - primary $ 0.08 $ 0.01 $ 0.27 $ (0.48)
Net income (loss) - fully diluted -- $ 0.01 -- $ (0.48)
Number of shares - primary 24,706 18,535 20,596 18,605
Number of shares - fully diluted -- 20,826 -- 20,896
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: November 13, 1997
---------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan Dated: November 13, 1997
---------------------------------
G. Michael Finnigan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
HOLLYWOOD PARK OPERATING COMPANY
(Registrant)
By: /s/ R.D. Hubbard Dated: November 13, 1997
---------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan Dated: November 13, 1997
---------------------------------
G. Michael Finnigan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
32
Hollywood Park, Inc.
Exhibit Index
Exhibit Description Page
- ------- ----------- ----
10.39 Agreement, by and between Crystal Park Hotel and Casino
Development Company, LLC and Compton Entertainment, Inc.,
dated September 12, 1997. 1
10.40 Profit Participation Agreement, by and between Hollywood
Park, Inc. and North American Sports Management, Inc.,
dated July 14, 1997. 5
10.41 Loan Agreement, by and between Yakama Tribal Gaming
Corporation and HP Yakama, Inc., dated September 11, 1997. 12
10.42 Security Agreement, by and between Yakama Tribal Gaming
Corporation and HP Yakama, Inc., dated September 11, 1997. 45
10.43 Master Lease, by and between The Confederated Tribes and
Bands of the Yakama Indian Nation and HP Yakama, Inc.,
dated September 11, 1997. 53
10.44 Sublease by and between HP Yakama, Inc. and Yakama Tribal
Gaming Corporation, dated September 11, 1997. 71
10.45 Construction and Development Agreement, by and between
Yakama Tribal Gaming Corporation and HP Yakama Consulting,
Inc., dated September 11, 1997. 83
10.46 Consulting Agreement, by and between Yakama Tribal Gaming
Corporation and HP Yakama Consulting, Inc., dated
September 11, 1997. 100
27.1 Financial Data Schedule