SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1997
Commission file number 0-10619 Commission file number 333-34471-02
HOLLYWOOD PARK, INC. HOLLYWOOD PARK OPERATING COMPANY
(Exact Name of Registrant as (Exact Name of Registrant as
Specified in Its Charter) Specified in Its Charter)
Delaware Delaware
(State or Other Jurisdiction of (State or Other Jurisdiction of
Incorporation or Organization) Incorporation or Organization)
95-3667491 95-3667220
(IRS Employer Identification No.) (IRS 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)
Securities registered pursuant to Section 12(b) of the Act:
Hollywood Park, Inc.
Common Stock, $.10 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 25, 1998, was $353,197,645 based on a closing price of
$13.437 per common share.
The number of outstanding shares of the registrant's common stock, as of the
close of business on March 25, 1998: 26,285,454.
HOLLYWOOD PARK, INC.
Table of Contents
Part I
Item 1. Description of Business..................................................... 1
General........................................................... 1
Casino Operations................................................. 2
Racing Operations................................................. 4
Expansion Plans................................................... 6
Possible Restoration of Real Estate Investment
Trust/Paired-Share Structure................................ 10
Other Uses of Property............................................ 10
Government Regulation............................................. 11
Casino Operations............................................ 11
Racing Operations............................................ 22
Competition....................................................... 22
Federal Income Tax Matters........................................ 23
Employees......................................................... 24
Other............................................................. 24
Item 2. Properties.................................................................. 24
Item 3. Legal Proceedings........................................................... 25
Item 4. Submission of Matters to a Vote of Security Holders......................... 26
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters... 27
Item 6. Selected Financial Data..................................................... 27
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 30
Results of Operations.......................................... 30
Liquidity and Capital Resources................................ 32
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................. 37
Item 8. Financial Statements........................................................ 37
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................ 37
Part III
Item 10. Directors and Executive Officers of the Registrant......................... 37
Item 11. Executive Compensation..................................................... 40
Summary Compensation Table........................................ 40
Stock Option Plan................................................. 40
Options/SAR Grants in Last Fiscal Year............................ 41
Aggregated Options/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Options/SAR Values.............................. 41
Pension Plan...................................................... 42
Board Committees and Director Compensation........................ 42
Directors Deferred Compensation Plan.............................. 43
Compensation Committee Interlocks and Insider Participation....... 44
Compensation Committee Report on Executive Compensation........... 44
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 46
Item 13. Certain Relationships and Related Transactions............................. 47
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 49
Signatures........................................................................... 55
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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GENERAL Hollywood Park, Inc. (the "Company" or "Hollywood Park") is a
diversified gaming, sports and entertainment company engaged in the ownership
and operation of casinos (including card club casinos) and pari-mutuel racing
facilities, and the development of other gaming and sports related
opportunities. Hollywood Park owns and operates, through its Boomtown, Inc.
("Boomtown") subsidiary, land-based, dockside and riverboat gaming operations in
Verdi, Nevada ("Boomtown Reno"), Biloxi, Mississippi ("Boomtown Biloxi") and
Harvey, Louisiana ("Boomtown New Orleans"), respectively. Hollywood Park also
owns two card club casinos in California, both located in the Los Angeles
metropolitan area. The Hollywood Park-Casino is operated by the Company, and
located on the same property as the Hollywood Park Race Track, and as of
December 31, 1997, the Company owned 100% of the Crystal Park Hotel and Casino
(the "Crystal Park Casino") (previously the Company owned approximately 93% of
the Crystal Park Casino), which is leased to an unaffiliated operator.
Presently, Hollywood Park is the only company that owns and operates both
California card club casinos and traditional casinos in gaming jurisdictions
such as Nevada, Mississippi and Louisiana. The Company's premier thoroughbred
racing facilities include, the Hollywood Park Race Track, which the Company has
owned for 59 years, and Turf Paradise, Inc. ("Turf Paradise"), located in
Phoenix, Arizona. The Hollywood Park Race Track was the host of the prestigious
1997 Breeders' Cup championship racing series. The Company also owns Sunflower
Racing, Inc. ("Sunflower"), a greyhound and thoroughbred racing facility located
in Kansas City, Kansas. On May 17, 1996, as a result of intense competition
from Missouri riverboat gaming, Sunflower filed for reorganization under Chapter
11 of the Bankruptcy Code. Sunflower is operating as a debtor in possession
during the bankruptcy.
Hollywood Park's strategic plan is to continue to grow its gaming, sports and
entertainment businesses by (i) expanding and increasing the utilization of its
existing properties, (ii) developing real estate at its existing properties and
developing projects at new sites, and (iii) making selected acquisitions,
principally in the gaming industry, to diversify its operations and to achieve
economies of scale.
In the realization of this strategy, in addition to Hollywood Park's June 30,
1997, acquisition of Boomtown (discussed in more detail below), on February 19,
1998, Hollywood Park and Casino Magic Corp. ("Casino Magic") and HP Acquisition
II, Inc. (a wholly owned subsidiary of Hollywood Park) executed an Agreement and
Plan of Merger (the "Casino Magic Merger") whereby, subject to the terms and
conditions of the Casino Magic Merger, HP Acquisition II, Inc. will merge into
Casino Magic, with Casino Magic surviving and becoming a wholly owned subsidiary
of Hollywood Park. Casino Magic owns and operates dockside and riverboat gaming
properties in Bay St. Louis, Mississippi, Biloxi, Mississippi and Bossier City,
Louisiana, respectively. Casino Magic also owns 51% of two land-based casinos,
which it operates in Argentina.
The Company is the successor to the Hollywood Park Turf Club, organized in 1938,
incorporated in 1981 under the name Hollywood Park Realty Enterprises, Inc., and
in 1992, as part of a restructuring, renamed Hollywood Park, Inc. Hollywood
Park's active subsidiaries are as follows: (1) Hollywood Park Operating Company,
which has two wholly owned subsidiaries, Hollywood Park Food Services, Inc. and
Hollywood Park Fall Operating Company; (2) Sunflower Racing, Inc., which has one
wholly owned subsidiary, SR Food and Beverage, Inc.; (3) Turf Paradise, Inc.;
(4) HP/Compton, Inc.; (5) HP Casino, Inc.; (6) HP Yakama, Inc.; (7) HP Kansas,
Inc.; and (8) Boomtown, Inc., which has six active subsidiaries: Boomtown Hotel
& Casino, Inc., Bayview Yacht Club, Inc., Mississippi - I Gaming, L.P.,
Louisiana Gaming Enterprises, Inc., Louisiana - I Gaming and Boomtown Hoosiers,
Inc. The Hollywood Park-Casino is a division of Hollywood Park, Inc.
In May 1997, the Company announced that it is exploring the possible restoration
of its former paired-share/REIT structure (the "Possible REIT Restructuring").
The Company now expects to proceed with the Possible REIT Restructuring subject
to, among other things, receipt of all required stockholder, regulatory and
other required approvals. However, the Company has not yet received the
stockholder approvals or regulatory approvals necessary to implement the
Possible REIT Restructuring, and there can be no assurance that the Company will
receive such approvals necessary to effect the Possible REIT Restructuring or
that, if
1
implemented, its expected benefits will be achieved. The Company has
retained the investment banking firm of Morgan Stanley & Co. Incorporated to
advise it in connection with matters pertaining to the Possible REIT
Restructuring, including assisting the Company's Board of Directors in
evaluating a proposed business combination with or investment by a potential
strategic partner. (See "Possible Restoration of Real Estate Investment
Trust/Paired-Share Structure.")
CASINO OPERATIONS Boomtown, Inc. On June 30, 1997, pursuant to the Agreement
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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 "Boomtown Merger"). As
result of the Boomtown 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 Boomtown Merger.
The Boomtown Merger was accounted for under the purchase method of accounting
for a business combination. The purchase price of the Boomtown Merger was
allocated to 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 the liabilities
assumed, the Company determined that the estimated fair values approximated
their carrying values. The Boomtown 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 acquired three of the four Boomtown properties; Boomtown Reno,
Boomtown New Orleans and Boomtown Biloxi. Boomtown's Las Vegas property was
divested following the Boomtown 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 payments 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 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 Boomtown 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 starting July 1, 1998.
Boomtown Reno has been operating for over 30 years on 569 acres in the rolling
foothills of the Sierra Nevada mountains, (current operations are utilizing
approximately 61 acres) in Verdi, Nevada (just two miles from the California
border and nine miles from Reno) on Interstate 80, the major highway connecting
Northern California and Nevada. Boomtown Reno caters to middle-income customers
and markets the property as a gaming and entertainment establishment for the
entire family. Boomtown Reno currently consists of a 40,000 square foot
western-themed casino, with 1,152 slot machines, 40 table games and Keno.
Boomtown Reno also offers its customers a 122 room hotel, a 35,000 square foot
family entertainment center and dining amenities. Boomtown Reno contains a
truck stop, a recreation vehicle park, and a service station with car wash and
mini-mart.
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The $25,000,000 expansion and renovation of Boomtown Reno is underway, and
includes 200 additional hotel rooms, a complete renovation of the existing
gaming floors, 10,000 square feet of new conference and banquet facilities,
expanded new gaming floor space, a new bus tour lobby and remodeling of food and
beverage facilities. The expansion is expected to be completed in late 1998.
Boomtown New Orleans opened in August 1994 on a 50 acre site in Harvey,
Louisiana, approximately ten miles from the French Quarter of New Orleans. As
of August 8, 1997, Boomtown New Orleans became wholly owned by the Company,
through its wholly owned subsidiaries Louisiana Gaming Enterprises, Inc. and
Boomtown by way of a Louisiana limited partnership (the "Louisiana
Partnership"). Previously, 7.5% of the Louisiana Partnership was 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 to Skrmetta 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.
Boomtown New Orleans conducts gaming on a riverboat, and as of mid-February
1998, operates on the Boomtown Belle II riverboat, purchased from Casino Magic
on September 25, 1997 for approximately $11,700,000. At 380 feet, Boomtown
Belle II is 130 feet longer than the previous riverboat and is 26 feet wider.
The gaming floors of Boomtown Belle II incorporate a more elegant decor,
including escalators to enhance patron traffic flow and allows for more spacious
gaming floors. Hollywood Park invested approximately $4,700,000 to renovate and
equip Boomtown Belle II, which offers 30,000 square feet of gaming space, with
1,089 slot machines and 49 table games. During 1997, Boomtown New Orlean's
former riverboat offered 911 slot machines and 54 table games. The land-based
facility adjacent to the riverboat dock is composed of a western-themed 88,000
square foot facility. The first floor of the building offers patrons a buffet
style restaurant, a 20,000 square foot family entertainment center and a western
saloon/dance hall. The Company is currently in the pre-construction phase of a
$10,000,000 renovation and build-out of the Boomtown New Orleans land based
facility, which is expected to be completed in late summer 1998. The renovation
will include a second floor banquet facility, a restaurant and bar with an adult
arcade theme.
Boomtown Biloxi opened in July 1994 and occupies 19 acres on Mississippi's
historic Back Bay of the Mississippi Gulf Coast. The Mississippi Gulf Coast is
marketed as the "Playground of the South" and has been a major tourist
destination, even prior to the advent of full casino gaming in 1992. The
Mississippi Gulf Coast comprises a land area of nearly 1,800 square miles, with
more than 30 miles of white sand beach fronting the Gulf of Mexico. Recent
statistics indicated that on an annual basis approximately 22 million patrons
visited the Gulf Coast casinos, of which 64% were drawn to the Mississippi Gulf
Coast from outside of the state. Boomtown Biloxi operates an "old west" themed
33,632 square foot casino, which sits on a permanently moored 400 x 110 foot
barge. Boomtown Biloxi offers 1,308 slot machines and 35 table games. The
land-based facility houses all non-gaming activities, including restaurants,
buffets, a family video fun center and gift shops.
Hollywood Park-Casino The Hollywood Park-Casino, located in Inglewood,
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California, opened in July 1994, under a third party leasing arrangement with
Pacific Casino Management, Inc. ("PCM"). On November 17, 1995, Hollywood Park
acquired substantially all the assets, property and business of PCM, and assumed
substantially all of PCM's liabilities. Prior to the acquisition, under a lease
with the Company, PCM operated the gaming floor activities of the Hollywood
Park-Casino. The Hollywood Park-Casino is located on the same premises as the
Hollywood Park Race Track. The Hollywood Park-Casino offers up to 150 gaming
tables in 30,000 square feet of gaming space. By law, a California card club
casino may neither bank card games nor offer certain of the familiar card games
permitted in Nevada and other traditional gaming jurisdictions. Instead, the
Hollywood Park-Casino offers only certain forms of card games, including Poker,
Pai Gow and California Blackjack. Patrons pay a fee for each hand played or a
fee for seats at gaming tables. Players bet solely against each other. The
Hollywood Park-Casino does not participate in the wagers made or in the outcome
of any of the games played. Revenues are also derived from food and beverage
sales, rental of facilities for bingo, gift shops and health club operations.
3
As of January 1, 1998's enactment of Senate Bill 8, Hollywood Park is able to
operate the Hollywood Park-Casino indefinitely. Under the previous law, as of
January 1, 1999, Hollywood Park would not have been able to operate the
Hollywood Park-Casino and would have had to once again lease the property.
Hollywood Park purchased the gaming floor business from PCM for $2,640,000,
which was paid for with 218,099 shares of the Company's common stock. The
approximately $21,568,000 of excess acquisition cost over the recorded value of
the net assets acquired from PCM was allocated to goodwill, and will be
amortized over 40 years. The amortization of the goodwill is not deductible for
income tax purposes.
Crystal Park Hotel and Casino The Crystal Park Casino, located in Compton,
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California opened on October 25, 1996, as Southern California's first major
hotel and casino. The hotel operates under a Radisson Hotels International,
Inc. flag. As of December 31, 1997, Hollywood Park owned 100% of Crystal Park
Hotel and Casino Development Company, LLC ("Crystal Park LLC"), the entity that
owns the Crystal Park property. In December 1997, Hollywood Park paid
$1,000,000 (or the initial amount the member contributed) for 3.4% of Crystal
Park LLC and in February 1998, paid an additional $2,000,000 (or the initial
amount the member contributed) for the remaining outstanding 6.8% of Crystal
Park LLC.
Current California law does not allow publicly traded companies, such as
Hollywood Park, to operate a card club casino (other than on the same premises
as a race track); therefore, Crystal Park LLC leases the facility to California
Casino Management, Inc. ("CCM") under a 48 month, triple net lease executed on
December 19, 1997. Previously, the Crystal Park Casino was under lease to
Compton Entertainment, Inc. ("CEI"). 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 October 1997, the California Attorney General revoked CEI's
conditional gaming registration, and the City of Compton revoked CEI's city
gaming license. CEI closed the Crystal Park Casino on October 11, 1997.
CCM reopened the Crystal Park Casino on December 26, 1997 with approximately 60
gaming tables, 280 hotel rooms including 40 VIP suites, a restaurant, gift shop,
and a lobby sports bar and lounge. Rent under the lease is fixed at $100,000
per month for the first six months, $350,000 for months 7 through 18, and
$550,000 for months 19 through 48. Crystal Park LLC does not participate in any
gaming or hotel revenues from the Crystal Park Casino. As of this filing CCM
was current on rent payments. Under the lease with CCM, if California law is
changed to allow Hollywood Park to operate the Crystal Park Casino, Crystal Park
LLC will operate the property in a partnership with CCM, with Crystal Park LLC
owning 90% of the business.
RACING OPERATIONS With pari-mutuel wagering, patrons bet against each other in
a pool rather than against the operator of the facility or with pre-set odds.
Revenues are also derived from concession sales, admissions and program sales.
At the Hollywood Park and Turf Paradise race tracks, the Company operates all
aspects of racing, while under Kansas State racing laws Sunflower is not granted
any race days and does not generate any pari-mutuel commissions. The Kansas
Racing Commission granted Sunflower the facility ownership and manager licenses;
with all race days until the year 2014 granted to TRAK East, a Kansas not-for-
profit corporation. Sunflower has an agreement with TRAK East to provide the
physical race tracks along with management and consulting services for twenty-
five years with options to renew for one or more successive five year terms.
The Agreement and Restatement of Lease and Management Agreement was entered into
as of September 14, 1989. 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. Sunflower has filed its plan of reorganization with the
bankruptcy court and is currently awaiting confirmation of that plan. (See
"Item 3 - Legal Proceedings.")
Hollywood Park Race Track The Hollywood Park Race Track, located in Inglewood,
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California, conducts two live on-track thoroughbred horse race meets per year.
Race dates must be applied for on an annual basis from the California Horse
Racing Board (the "CHRB"). The 1997 Spring/Summer Meet ran for 13 weeks, for a
total of 66 race days. The Autumn Meeting ran for seven weeks, for a total of
36 race days (race days include three charity days per meet). Live races run
Wednesday through Sunday, usually with nine live races
4
a day. The Company also sends the signal of its live races off-track to other
locations including fairgrounds, other race tracks, hotels and casinos. In
total, the Company simulcasts its live races to 861 locations in 40 states and
four countries. The Company also accepts the simulcast signal from live races
conducted at other race tracks, including the four other local southern
California tracks, and two northern California tracks, which has helped to
mitigate the seasonality of the Company's horse racing business by allowing for
year round operations. The Company has seen a shift from pari-mutuel wagers
placed on its live races, both on-track and off-track, to wagers placed on
northern California simulcast races, for which the Company receives a lower
pari-mutuel commission rate. The net effect of expanded simulcasting upon
pari-mutuel commissions to date has been positive, but there can be no assurance
that this effect will continue to be positive.
Hollywood Park derives revenues from a share of the pari-mutuel handle at rates
fixed by the state of California, admission fees and concession sales. The
approximate pari-mutuel percentage commission rates are fixed as follows:
Type of
Racing Percent Description
- ------------------- -------------- ----------------------------------------------------------------------------------------
On-track 6.60% Wagers placed at Hollywood Park on its live races.
Off-track 4.60% Wagers placed on live Hollywood Park races simulcast to California locations other
than northern California.
Off-track 1.25% Wagers placed on live Hollywood Park races simulcast to northern California.
Off-track 1.60% Wagers placed on live Hollywood Park races simulcast out-of-state.
Simulcast 2.00% Wagers placed at Hollywood Park on races simulcast from other tracks, except
northern California.
Simulcast 5.30% Wagers placed at Hollywood Park on races simulcast from northern California.
Simulcast 6.30% Wagers placed at Hollywood Park on races simulcast from out-of-state.
Simulcast 4.50% Wagers placed on races simulcast from northern California, when Hollywood Park is
conducting a live meet, and simulcasting the northern California race to its
off-track sites.
Turf Paradise Turf Paradise, located in Phoenix, Arizona, has one continuous
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live thoroughbred meet that starts in September and runs through May. In 1997,
Turf Paradise raced live for the period January 1 through May 4, operated as a
simulcast facility for the period from May 5 through May 22, and for the period
from September 3 through September 24. Turf Paradise resumed live racing on
September 27 running through December 31. Along with running live
thoroughbreds, Turf Paradise also offers two quarter horse races a day during
the first two months of the live meet, and a limited number of arabian races in
the winter. Live racing is primarily conducted Friday through Tuesday, with
live races sent to approximately 43 off-track sites in Arizona. The live racing
signal is also transmitted to approximately 45 out-of-state hubs, from which the
signal is further disseminated to 500 sites in four countries. On Monday and
Tuesday, Turf Paradise generally conducts 11 live races and accepts a limited
number simulcast races from other race tracks. Friday through Sunday, Turf
Paradise generally conducts 10 to 11 live races and accepts simulcasts from
other race tracks, for a total of approximately 20 to 24 races per day.
Wednesday and Thursday Turf Paradise generally operates as a simulcast facility,
usually accepting 18 to 24 races from northern and southern California. During
the period from late May to early September, Turf Paradise operates as a
simulcast facility for Arizona's Prescott Downs and Coconino County Fair.
At Turf Paradise, the state of Arizona fixes the pari-mutuel percentage
commissions for on-track, and within the state off-track racing as follows:
Win, Place, Two-Horse Three or More
Show Pool Horse Pool
-------------------- -------------------- --------------------
Live in-state handle 18% 19% 23%
Simulcast in-state handle 20% 21% 25%
Turf Paradise also receives approximately 2.0% to 3.5% of the out-of-state off-
track pari-mutuel handle wagered on its live races. When operating as a
simulcast facility for the smaller northern Arizona race tracks, Turf Paradise
receives 3.8% of the pari-mutuel handle generated at Turf Paradise. Turf
Paradise also receives
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any unclaimed pari-mutuel winnings, which totaled approximately $410,000 in
1997. At Hollywood Park, the unclaimed pari-mutuel winnings are turned over to
the state of California. Along with the pari-mutuel commission rates earned,
Turf Paradise presently receives an additional 1.0% of all in-state handle as
reimbursement for capital improvements made to the track in prior years. In
1997, Turf Paradise was reimbursed approximately $270,000 for such capital
improvements. The capital improvement credit is scheduled to expire in 1998. In
1997, Turf Paradise also received a hardship tax credit of $411,000 based on the
reduction of in-state handle caused by the advent of Indian gaming. Due to the
hardship tax credit and the capital improvement credit, Turf Paradise did not
have to pay pari-mutuel tax during 1997. It is anticipated that during 1998 Turf
Paradise will have to pay approximately $700,000 in pari-mutuel taxes.
Sunflower Sunflower owns the Woodlands Race Track located in Kansas City,
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Kansas. On May 17, 1996, Sunflower filed for reorganization under Chapter 11 of
the Bankruptcy Code, because the Kansas legislature failed to pass legislation
allowing additional forms of gaming at Sunflower, which would have permitted
Sunflower to more effectively compete with Missouri riverboat gaming.
Sunflower's operating results had dramatically worsened in recent periods due to
intense competitive pressure from recently legalized riverboat gaming in nearby
Missouri. On March 31, 1996, Hollywood Park recorded a non-cash write off of
its approximately $11,412,000 investment in Sunflower. Sunflower continues to
operate as a debtor in possession during the bankruptcy proceedings. Sunflower
has filed its plan of reorganization with the bankruptcy court and is currently
awaiting confirmation of that plan.
The plan for reorganization provides for, subject to the approval of federal,
state and tribal gaming authorities, the sale of Sunflower to the Wyandotte
Tribe of Oklahoma and the construction of a casino on the property. HP Kansas,
Inc. and a non-affiliated partner would make loans to fund (up to a currently
estimated amount of approximately $15,000,000 to $20,000,000) the acquisition
and the development of, provide consulting services to, and receive a share of
the revenues of the casino. (See "Item 3 - Legal Proceedings.")
Sunflower does not directly earn pari-mutuel commissions, but instead TRAK East
pays Sunflower a lease and management fee equal to TRAK East's earnings less
certain amounts that TRAK East must retain for distribution to charities.
Charity payments totaled $25,000 during 1997.
TRAK East conducts live greyhound and horse racing and accepts simulcasts of
both. Live greyhound racing runs from January 1 through December 31, with a
brief seven day period without racing from December 16 through December 25.
Greyhounds generally run Wednesday through Monday, with evening performances
every day except Sunday and matinee performances on Wednesday, Saturday and
Sunday. During 1997, TRAK East conducted 345 live greyhound performances over
248 race days. Usually there are 13 races per performance, except for Sunday
when there are 15 races. Horses ran live from September 21, 1997 through
October 24, 1997, racing Wednesday through Sunday, for a total of 22 race days.
TRAK East accepts greyhound simulcasting year round from various other tracks.
Simulcast racing is held Wednesday through Monday. Simulcasts from various
other horse race tracks are also accepted year round. The pari-mutuel
commissions earned by TRAK East are set by the state of Kansas. The following
percentages represent the final net commission retained by TRAK East:
Live greyhounds and horses 12.89%
Greyhound simulcasts 10.94%
Horse simulcasts 10.54%
Expansion Plans During 1997, Hollywood Park continued to actively pursue all
aspects of its strategic plan. The acquisition of Boomtown was finalized on
June 30, 1997, with renovations and major asset acquisitions for the benefit of
the Boomtown properties starting shortly thereafter. On February 19, 1998, the
Company and Casino Magic executed an Agreement and Plan of Merger. The Company
expects to continue to pursue its strategic plan during 1998.
Pending Merger with Casino Magic Corp. On February 19, 1998, the respective
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Boards of Directors of Hollywood Park and Casino Magic approved and signed an
Agreement and Plan of Merger among Casino Magic Corp., Hollywood Park, Inc., and
HP Acquisition II, Inc. (a wholly owned subsidiary of Hollywood Park),
6
pursuant to which HP Acquisition II, Inc., will merge into Casino Magic, and
Casino Magic will survive and become a wholly owned subsidiary of Hollywood
Park. Hollywood Park will pay cash of $2.27 for each issued and outstanding
share of Casino Magic common stock, or an aggregate of approximately
$81,000,000.
On February 23, 1998, Hollywood Park entered into a voting agreement (the
"Voting Agreement") with Marlin F. Torguson ("Mr. Torguson") pursuant to which,
among other things, Mr. Torguson has agreed to vote the 7,954,500 shares of
Casino Magic common stock he beneficially owns in favor of approval and adoption
of the Agreement and Plan of Merger and the Casino Magic Merger and any matter
that could reasonably be expected to facilitate the Casino Magic Merger. Mr.
Torguson also agreed to continue to serve as an employee of Casino Magic for
three years following the Casino Magic Merger, and not to compete with Hollywood
Park or Casino Magic in any jurisdictions in which either presently operates.
Casino Magic owns and operates dockside and riverboat gaming properties in Bay
St. Louis, Mississippi, ("Casino Magic Bay St. Louis") Biloxi, Mississippi
("Casino Magic Biloxi") and Bossier City, Louisiana, ("Casino Magic Bossier")
respectively, and is a 51% partner in two land-based casinos in Argentina.
Casino Magic Bay St. Louis, started operations in September 1992, on a
permanently moored barge in a 17 acre marina with the adjoining land based
facilities situated on 591 acres. Bay St. Louis is approximately 46 miles east
of New Orleans and 40 miles west of Biloxi. Casino Magic Bay St. Louis offers
approximately 39,500 square feet of gaming space, with 1,132 slot machines and
42 table games. The land based building is three stories with a restaurant,
buffet, snack bar, gift shop, and a live entertainment lounge. In December
1994, Casino Magic Bay St. Louis also opened the Casino Magic Inn; a 201 room
hotel, including four deluxe and 20 junior suites. The property also contains
the Magic Dome, an 1,800 seat arena, which hosts approximately 50 events
annually, including nationally televised boxing matches, concerts and other
special events. With the late 1997 addition of the 18 hole Bridges Golf Resort,
Casino Magic Bay St. Louis is positioned as a full service vacation destination.
Casino Magic Biloxi began casino operations in June 1993 and is located on the
Gulf of Mexico in the Mississippi Gulf Coast Region. The property is situated
on the Front Bay on the beach of the Gulf of Mexico in a strip with four other
casinos, and is located on the major highway running through the Mississippi
Gulf Coast. (Boomtown Biloxi is located on the Back Bay of Biloxi.) Casino
Magic Biloxi conducts gaming from a permanently moored barge with approximately
47,700 square feet of gaming space with 1,174 slot machines and 41 gaming
tables. The land based facility is located adjacent to the barge on the
approximately 11.5 acre site. In late spring 1998, Casino Magic Biloxi expects
to open its 378 room luxury hotel (Casino Magic is anticipating a four-star
rating for this hotel), to include 16 master suites, 70 junior suites, 6,600
square feet of convention and meeting space, a full service restaurant, and
numerous themed retail shops. Casino Magic Biloxi's land based facility is
approximately 21,600 square feet and offers buffets, full service restaurants,
and nationally franchised fast food services.
Casino Magic Bossier opened in October 1996, with casino operations conducted
from a dockside riverboat. The property is highly visible with convenient
access from Interstate Highway 20, a major thoroughfare between Bossier
City/Shreveport and the Dallas-Fort Worth area approximately 180 miles to the
west. The Casino Magic Bossier riverboat measures 254 feet long and 78 feet
wide with approximately 30,000 square feet of gaming space, and offers 980 slot
machines and 44 table games. The Casino Magic Bossier facility includes a
55,000 square foot entertainment pavilion connected to a garage providing
parking for approximately 1,400 vehicles. The entertainment pavilion includes
the 350 seat Abracadabra buffet restaurant, a gift shop, a bar and lounge area,
and a 300 seat live entertainment theater. The entertainment pavilion also
includes two smaller full service restaurants. Casino Magic Bossier is just
beginning construction on an 188 room hotel with four master suites, 88 junior
suites and additional full service restaurants.
In December 1994, Casino Magic, through its wholly owned subsidiary, Casino
Magic Neuquen SA, ("Casino Magic Argentina") entered into a twelve year
concession agreement with the Province of Neuquen, Argentina. Casino Magic
Argentina operates two casinos in the Province of Neuquen in the cities of
Neuquen and San
7
Martin de los Andes in west-central Argentina. Neuquen Province is the gateway
to the well established tour destinations and ski resorts of the Andes
Mountains. There are approximately 900,000 residents within a 50 mile radius of
the two cities. Casino Magic Argentina, which began operations in January 1995,
includes approximately 29,000 square feet of gaming space and contains
approximately 64 table games, 400 slot machines and a 384 seat bingo facility.
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, 10,000 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.
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 Boomtown Belle II riverboat
from Casino Magic for approximately $11,700,000. Boomtown Belle II is 130 feet
longer and 26 feet wider than the previous riverboat. The gaming floors of
Boomtown Belle II incorporate a more elegant decor, including escalators to
enhance patron traffic flow and allows 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 invested approximately $4,700,000 to
renovate and equip Boomtown Belle II. 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 with the project expected to be completed
late summer 1998. The renovation will include a second floor banquet facility,
and 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
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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, and Hollywood Park has initiated 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 $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 purchase
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.
8
Yakama Expansion Hollywood Park, through its wholly owned subsidiaries HP
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Yakama, Inc. ("HP Yakama") and HP Yakama Consulting, Inc. ("HPY Consulting"),
has entered into agreements with the Yakama Tribal Gaming Corporation (the
"Nation") 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 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
Nation has signed a promissory note to repay up to $9,000,000, at 10% interest
over seven years.
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 Nation, for the same seven year term. Rent due
from the Nation to HP Yakama, under the Sublease is initially set at 28% of Net
Revenues (as defined), until such time as the aggregate Net Revenues equal
$26,000,000 and then the rent decreases to 25% of Net Revenues, until such time
as the aggregate 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 Nation to HP Yakama, and to exclude rent due under the Sublease.
Furthermore, 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 6% of
the percentage of the Net Revenues (as described above) received by HP Yakama
under the Sublease.
Based on a determination from the National Indian Gaming Commission (the
"NIGC"), the Consulting Agreement for gaming operations consulting services was
terminated and several revisions to the remaining documents were made to remove
all references to the Consulting Agreement. As a consequence of such
termination and revisions, on or about January 13, 1998, the NIGC approved these
transactions. On February 12, 1998, the Washington Gambling Commission (the
"WGC") unanimously approved Hollywood Park and its subsidiaries for a Class III
Indian Gaming Financier license. No further approvals are necessary from either
the federal or the state levels.
Construction on the casino is underway, and is expected to open in the second
quarter of 1998. The casino will feature a 600 seat bingo hall, certain table
games including: Blackjack, Poker, Craps, Roulette, Mini-bac, Caribbean Stud,
and will offer electronic pull tabs and electronic bingo, but will not offer
slot machines. Gaming is played in the traditional Las Vegas style, where
players bet against the house. The casino is located approximately 130 miles
from both Seattle, Washington and Portland, Oregon, in a valley at the foot of
Mt. Adams, which is a major vacation site. The nearest gaming facility is 157
miles away in Pendelton, Oregon.
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 Boomtown Merger) in
August 1997. In December 1997, the Indiana Gaming Commission (the "Indiana
Commission") met and determined to delay issuing the license until at least
April 1998. When it meets then, 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 or, if granted the initial
gaming license, that it will receive all other required approvals and
environmental permits necessary to proceed with this project.
As amended, the application is for a license in Switzerland County, Indiana
which is located approximately 35 miles south of Cincinnati, Ohio. The Indiana
facility is planned to include a cruising riverboat with 38,000 square feet of
gaming space and supporting land-based facilities that will incorporate a
"western river-town" theme entertainment complex with up to 300 hotel rooms, a
700 seat multi-purpose special events room, several restaurants and retail
operations.
9
Pursuant to the terms of the joint venture with Hilton Switzerland, Hollywood
Park and Hilton Switzerland each own 48.5% of the joint venture entity, with the
remaining interests held by a non-voting local minority partner. So long as
Hilton Switzerland and Hollywood Park hold their original percentages, they will
share management control of the project. In the event the parties no longer
hold their original percentages, the party with the larger interest will have
management control of the project subject to certain minority protections.
Stadium/Arena The Company continues to have discussions with potential stadium
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and arena developers with respect to possible projects on Hollywood Park's
Inglewood property; as well as with developers proposing retail, entertainment
and other projects for both the Inglewood and Turf Paradise properties. An
environmental impact report for a football stadium at Hollywood Park was
certified by the city of Inglewood on December 6, 1995. The Company has not
entered into any definitive agreements concerning any of these projects. Any
decisions to begin these projects would be dependent upon, among other things,
the execution of definitive agreements, the availability of project financing
with acceptable terms, and the attainment of the necessary permits and
certifications, for which there can be no assurance.
POSSIBLE RESTORATION OF REAL ESTATE INVESTMENT TRUST/PAIRED-SHARE STRUCTURE
Prior to 1991, the Company operated as a "paired share" structure, with the
Company (under the name Hollywood Park Realty Enterprises, Inc.) acting as a
real estate investment trust ("REIT") and Hollywood Park Operating Company
("HPOC") operating the racing and related operations of the Company. The
Company has decided to pursue, subject to stockholder, regulatory and other
approval, a corporate reorganization (the "Reorganization") designed to
reinstate the paired share structure in which the Company would elect to be
treated as a REIT and HPOC, along with its subsidiaries, would conduct certain
business operations, including the Company's current gaming, racing and
entertainment businesses. In the Reorganization, the shares of HPOC would be
spun off to the Company's stockholders and the stock of the Company would be
paired with, or stapled to, that of HPOC. 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. In connection with the Reorganization, the
Company has submitted to its stockholders a Proxy Statement dated February 13,
1998 relating to its April 13, 1998 annual meeting of stockholders which
contains a number of proposals relating to the Reorganization (the "Proxy
Statement"). The Proxy Statement contains a detailed description of the
Reorganization, including a variety of significant risk factors, including that
no rulings will be issued by the Internal Revenue Service in connection with the
Reorganization and that stockholders should assume that the spin-off of HPOC and
the other Reorganization transactions will constitute taxable transactions which
will result in tax liabilities for both the Company and its stockholders. The
Company estimates that the corporate level tax liability associated with the
Reorganization would be approximately $54 million and the Company's stockholders
would be treated as having received a taxable non-cash distribution of
approximately $4.95 per share. These estimates are based on the Company's
estimate of the fair market value of the shares of HPOC. If such fair market
value were found to be significantly greater, it would result in increased
corporate level and stockholder level tax liabilities. The Proxy Statement also
describes other risks associated with the Reorganization, including the
consequences of failing to qualify as a REIT, constraints on future transactions
and equity financings, and the potential consequences of proposed legislation
which would, if enacted, severely limit the utility of the paired-share
structure. For information regarding the Reorganization and the potential tax
consequences thereof, interested persons should read the Proxy Statement, a copy
of which is filed as an exhibit to this Form 10-K and is incorporated by
reference herein. Copies of the Proxy Statement may be obtained directly from
the Company upon request.
On March 26, 1998, identical bills were introduced in the House and Senate which
among other provisions, would preclude Hollywood Park from qualifying as a
paired-share Real Estate Investment Trust. There can be no assurance that these
bills will be passed as presently proposed, nor in any amended form more
favorable to the Company.
OTHER USES OF PROPERTY As of October 1, 1996, the Company has been operating
the parking for events at the Forum, which is located across the street from the
Hollywood Park Race Track, where the Los Angeles Lakers basketball team and Los
Angeles Kings hockey team play. Prior to October 1, 1996, the Company leased
the parking rights to the Forum for a minimum annual rent of $1,200,000. The
Company earned parking revenues of $1,550,000 during 1997.
10
The Company is subject to state and local laws and regulations, ordinances and
similar provisions relating to zoning and other matters that may restrict the
possible uses of the Company's land and other assets. Any additional
development of the Company's land, including the expansion plans described
above, would require approval of such items as environmental impact reports and
similar certifications. There can be no assurance that other requisite
approvals would be obtained.
GOVERNMENT REGULATION Casino Operations Nevada The ownership and operation of
-----------------
casino gaming facilities in Nevada are subject to: (i) the Nevada Gaming Control
Act and the regulations promulgated thereunder (collectively, "Nevada Act"); and
(ii) various local regulations. The Company's gaming operations are subject to
the licensing and regulatory control of the Nevada Gaming Commission ("Nevada
Commission"), the Nevada State Gaming Control Board ("Nevada Board") and Washoe
County. The Nevada Commission, the Nevada Board and Washoe County are
collectively referred to as the "Nevada Gaming Authorities".
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on Boomtown's gaming operations.
Boomtown Hotel & Casino, Inc. (the "Gaming Subsidiary"), which operates Boomtown
Reno and two other gaming operations with slot machines only, is required to be
licensed by the Nevada Gaming Authorities. The gaming licenses require the
periodic payment of fees and taxes and are not transferable. The Company is
currently registered by the Nevada Commission as a publicly traded corporation
(a "Registered Corporation") and has been found suitable to own the stock of
Boomtown, which is registered as an intermediary company ("Intermediary
Company"). Boomtown has been found suitable to own the stock of the Gaming
Subsidiary, which is a corporate licensee (a "Corporate Licensee") under the
terms of the Nevada Act. As a Registered Corporation, the Company is required
periodically to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information which the Nevada Commission may
require. No person may become a stockholder of, or holder of an interest of, or
receive any percentage of profits from an Intermediary Company or a Corporate
Licensee without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company, Boomtown and the Gaming Subsidiary have obtained from
the Nevada Gaming Authorities the various registrations, findings of
suitability, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, the Company, Boomtown or the
Gaming Subsidiary in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of the Company, Boomtown and the Gaming
Subsidiary must file applications with the Nevada Gaming Authorities and may be
required to be licensed or found suitable by the Nevada Gaming Authorities.
Officers, directors and key employees of the Company and Boomtown who are
actively and directly involved in gaming activities of the Gaming Subsidiary may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing for any
cause which they deem reasonable. A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for licensing
or a finding of suitability must pay all the costs of the investigation. Changes
in licensed positions must be reported to the Nevada Gaming Authorities and in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in any person's corporate position or job title.
11
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, Boomtown or the Gaming Subsidiary, the companies
involved would have to sever all relationships with such person. In addition,
the Nevada Commission may require the Company, Boomtown or the Gaming Subsidiary
to terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
The Company and the Gaming Subsidiary are required to submit detailed financial
and operating reports to the Nevada Commission. Substantially all material
loans, leases, sales of securities and similar financing transactions by the
Gaming Subsidiary must be reported to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by the Gaming Subsidiary,
the gaming licenses it holds could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, the Company, Boomtown and the Gaming Subsidiary and the persons
involved could be subject to substantial fines for each separate violation of
the Nevada Act at the discretion of the Nevada Commission. Further, a
supervisor could be appointed by the Nevada Commission to operate Boomtown Reno
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for reasonable rental value of the casino) could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of the
gaming licenses of the Gaming Subsidiary or the appointment of a supervisor
could (and revocation of any gaming license would) materially adversely affect
the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have their suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
state of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of a Registered
Corporation's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
a Registered Corporation's voting securities apply to the Nevada Commission for
a finding of suitability within thirty days after the Chairman of the Nevada
Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor", as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of a Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the Registered Corporation's
corporate charter, bylaws, management, policies or operations of the Registered
Corporation, or any of its gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent.
If the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
12
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. The Company is subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a stockholder or to
have any other relationship with the Company, Boomtown or the Gaming Subsidiary,
the Company (i) pays that person any dividend or interest upon voting securities
of the Company, (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities including, if necessary, the immediate purchase
of said voting securities for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation or similar
transaction.
The Company is required to maintain a current stock ledger in Nevada which may
be examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require that the Company's stock certificates bear a legend indicating
that the securities are subject to the Nevada Act. However, to date the Nevada
Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the prior
approval of the Nevada Commission if the securities or proceeds therefrom are
intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. In
addition, (i) a Corporate Licensee or Intermediary Company may not guarantee a
security issued by a Registered Corporation pursuant to a public offering
without the prior approval of the Nevada Commission; and (ii) restrictions upon
the transfer of an equity security issued by a Corporate Licensee or an
Intermediary Company, and agreements not to encumber such securities
(collectively, "Stock Restrictions") are ineffective without the prior approval
of the Nevada Commission.
Changes in control of a Registered Corporation through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada Commission in a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control to be investigated and
licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed by
management, repurchases of voting securities and corporate defense tactics
affecting Nevada corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, may be injurious to stable and
13
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of gaming
or activity involved, are payable to the state of Nevada and to Washoe County,
in which the Gaming Subsidiary's operations are conducted. Depending upon the
particular fee or tax involved, these fees and taxes are payable either monthly,
quarterly or annually and are based upon either: (i) a percentage of the gross
revenues received; (ii) the number of gaming devices operated; or (iii) the
number of table games operated. A casino entertainment tax is also paid by
casino operations where entertainment is furnished in connection with the
serving or selling of food or refreshments or the selling of any merchandise.
Any person who is licensed, required to be licensed, registered, required to be
registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of such Licensee's participation in such foreign gaming. The
revolving fund is subject to increase or decrease in the discretion of the
Nevada Commission. Thereafter, Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the state of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the grounds of personal unsuitability.
Mississippi The ownership and operation of casino facilities in Mississippi are
subject to extensive state and local regulation. Regulation is primarily
effected through the licensing and regulatory control of the Mississippi Gaming
Commission and the Mississippi State Tax Commission (the "Mississippi Gaming
Authorities").
The Mississippi Gaming Control Act (the "Mississippi Act"), which legalized
dockside casino gaming in Mississippi, is similar to the Nevada Gaming Control
Act. The Mississippi Gaming Commission has adopted regulations which are also
similar in many respects to the Nevada gaming regulations.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to: (i) prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming at any time
or in any capacity; (ii) establish and maintain responsible accounting practices
and procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission; (iv) prevent
cheating and fraudulent practices; (v) provide a source of state and local
revenues through taxation and licensing fees; and (vi) ensure that gaming
licensees, to the extent practicable, employ Mississippi residents. The
regulations are subject to amendment and interpretation by the Mississippi
Gaming Commission. Changes in Mississippi laws or regulations could have an
adverse effect on the Company and the Company's Biloxi, Mississippi gaming
operations.
14
The Mississippi Act provides for legalized dockside gaming at the discretion of
the 14 counties that either border the Gulf Coast or the Mississippi River, but
only if the voters in such counties have not voted to prohibit gaming in that
county. As of August 1, 1997, dockside gaming was permissible in nine of the
fourteen eligible counties in the State and gaming operations had commenced in
Adams, Coahoma, Hancock, Harrison, Tunica, Warren and Washington counties.
Under Mississippi law, gaming vessels must be located on the Mississippi River
or on navigable waters in eligible counties along the Mississippi River or in
the waters lying south of the counties along the Mississippi Gulf Coast. The
law permits unlimited stakes gaming on permanently moored vessels on a 24-hour
basis and does not restrict the percentage of space which may be utilized for
gaming. The Mississippi Act permits substantially all traditional casino games
and gaming devices and, on August 11, 1997, a Mississippi lower court ruled that
the Mississippi Act also permits race books on the premises of licensed casinos.
The Mississippi Gaming Commission has not yet determined whether it will appeal
that decision.
The Company and any subsidiary of the Company (or partnership in which the
subsidiary is a partner) that operates a casino in Mississippi (a "Mississippi
Gaming Subsidiary"), is subject to the licensing and regulatory control of the
Mississippi Gaming Authorities. Hollywood Park is currently registered with the
Mississippi Gaming Commission as a publicly traded corporation and has been
found suitable to own the stock of Boomtown, which is currently registered with
the Mississippi Gaming Commission as an intermediary company. Boomtown has been
found suitable to own the limited partnership interests of Mississippi - I
Gaming, L.P., the operator of Boomtown Biloxi and a licensee of the Mississippi
Gaming Commission, and to own the stock of the corporate general partner of the
partnership. Hollywood Park is required periodically to submit detailed
financial and operating reports to the Mississippi Gaming Commission and furnish
any other information which the Mississippi Gaming Commission may require. If
the Company is unable to continue to satisfy the registration requirements of
the Mississippi Act, the Company and its Mississippi Gaming Subsidiaries cannot
own or operate gaming facilities in Mississippi. Each Mississippi Gaming
Subsidiary must obtain gaming licenses from the Mississippi Gaming Commission to
operate casinos in Mississippi. A gaming license is issued by the Mississippi
Gaming Commission subject to certain conditions, including continued compliance
with all applicable state laws and regulations and physical inspection of the
casinos prior to opening. There are no limitations on the number of gaming
licenses which may be issued in Mississippi.
Gaming licenses are not transferable, are initially issued for a two-year period
and must be renewed periodically thereafter. Boomtown Biloxi's gaming license
was renewed in 1996 for a two-year period expiring June 20, 1998. No person may
become a shareholder of or receive any percentage of profits from an
intermediary company or a gaming licensee subsidiary of a holding company
without first obtaining licenses and approvals from the Mississippi Gaming
Commission. The Company has obtained such approvals in connection with the
licensing of Boomtown Biloxi and the registration of Hollywood Park as a
publicly-traded holding company.
Certain officers and employees of Hollywood Park and the officers, directors and
certain key employees of the Company's Mississippi Gaming Subsidiary must be
found suitable or be investigated by the Mississippi Gaming Commission. The
Company believes that findings of suitability with respect to such persons
associated with Boomtown Biloxi have been applied for or obtained. However, the
Mississippi Gaming Commission in its discretion may require additional persons
to file applications for suitability. Employees associated with gaming must
obtain work permits that are subject to immediate suspension under certain
circumstances. In addition, any person having a material relationship or
involvement with the Company may be required to be found suitable or licensed,
in which case those persons must pay the costs and fees associated with such
investigation. The Mississippi Gaming Commission may deny an application for a
license for any cause that it deems reasonable. Changes in licensed positions
must be reported to the Mississippi Gaming Commission. In addition to its
authority to deny an application for a license, the Mississippi Gaming
Commission has jurisdiction to disapprove a change in any person's corporate
position or job title, such changes must be reported to the Mississippi Gaming
Commission. The Mississippi Gaming Commission has the power to require any
Mississippi Gaming Subsidiary and the Company to suspend or
15
dismiss officers, directors and other key employees or sever relationships with
other persons who refuse to file appropriate applications or whom the
authorities find unsuitable to act in such capacities.
At any time, the Mississippi Gaming Commission has the power to investigate and
require the finding of suitability of any record or beneficial shareholder of
the Company. Mississippi law requires any person who acquires more than 5% of
the common stock of a registered publicly traded holding company to report the
acquisition to the Mississippi Gaming Commission, and such person may be
required to be found suitable. Also, any person who becomes a beneficial owner
of more than 10% of a registered publicly-traded holding company's common stock,
as reported to the Securities and Exchange Commission, must apply for a finding
of suitability by the Mississippi Gaming Commission and must pay the costs and
fees that the Mississippi Gaming Commission incurs in conducting the
investigation. The Mississippi Gaming Commission has generally exercised its
discretion to require a finding of suitability of any beneficial owner of more
than 5% of a registered publicly-traded holding company's common stock.
However, the Mississippi Gaming Commission has adopted a policy that could
permit certain institutional investors to beneficially own up to 10% of a public
company's stock without a finding of suitability. If a shareholder who must be
found suitable is a corporation, partnership or trust, it must submit detailed
business and financial information, including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. The same restrictions apply to a record
owner, if the record owner, after request, fails to identify the beneficial
owner. Any person found unsuitable and who holds, directly or indirectly, any
beneficial ownership of the securities of the Company beyond such time as the
Mississippi Gaming Commission prescribes, may be guilty of a misdemeanor. The
Company is subject to disciplinary action if, after receiving notice that a
person is unsuitable to be a shareholder or to have any other relationship with
the Company or its Mississippi Gaming Subsidiaries, the Company: (i) pays the
unsuitable person any dividend or other distribution upon the voting securities
of the Company; (ii) recognizes the exercise, directly or indirectly, of any
voting rights conferred by securities of the Company held by the unsuitable
person; (iii) pays the unsuitable person any remuneration in any form for
services rendered or otherwise, except in certain limited and specific
circumstances; or (iv) fails to pursue all lawful efforts to require the
unsuitable person to divest himself of the securities, including, if necessary,
the immediate purchase of the securities for cash at a fair market value.
The Company may be required to disclose to the Mississippi Gaming Commission,
upon request, the identities of the holders of any of the Company's debt
securities. In addition, the Mississippi Gaming Commission under the
Mississippi Act may, in its discretion, (i) require holders of securities of
registered corporations, including debt securities, to file applications, (ii)
investigate such holders, and (iii) require such holders to be found suitable to
own such securities or receive distributions thereon. If the Mississippi Gaming
Commission determines that a person is unsuitable to own such security, then the
issuer may be sanctioned, including the loss of its approvals, if without the
prior approval of the Mississippi Gaming Commission, it (i) pays to the
unsuitable person any dividend, interest, or any distribution whatsoever; (ii)
recognizes any voting right by such unsuitable person in connection with such
securities; (iii) pays the unsuitable person remuneration in any form; or (iv)
makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation, or similar transaction. Although the
Mississippi Gaming Commission generally does not require the individual holders
of obligations such as the Notes to be investigated and found suitable, the
Mississippi Gaming Commission retains the discretion to do so for any reason,
including but not limited to a default, or where the holder of the debt
instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Gaming Commission in connection with such an investigation.
The Mississippi Gaming Subsidiary must maintain a current stock ledger in its
principal office in Mississippi and the Company must maintain a current list of
stockholders in the principal offices of the Mississippi Gaming Subsidiary which
must reflect the record ownership of each outstanding share of any class of
equity security issued by Hollywood Park. The stockholder list may thereafter
be maintained by adding reports
16
regarding the ownership of such securities that it receives from Hollywood
Park's transfer agent. The ledger and stockholder lists must be available for
inspection by the Mississippi Gaming Commission at any time. If any securities
of Hollywood Park are held in trust by an agent or by a nominee, the record
holder may be required to disclose the identity of the beneficial owner to the
Mississippi Gaming Commission. A failure to make such disclosure may be grounds
for finding the record holder unsuitable. Hollywood Park must also render
maximum assistance in determining the identity of the beneficial owners.
The Mississippi Act requires that the certificates representing securities of a
publicly-traded corporation (as defined in the Mississippi Act) bear a legend to
the general effect that such securities are subject to the Mississippi Act and
the regulations of the Mississippi Gaming Commission. The Mississippi Gaming
Commission has the power to impose additional restrictions on the holders of the
Company's securities at any time. The Company has received a waiver from this
legend requirement from the Mississippi Gaming Commission.
Substantially all loans, leases, sales of securities and similar financing
transactions by a Mississippi Gaming Subsidiary must be reported to or approved
by the Mississippi Gaming Commission. A Mississippi Gaming Subsidiary may not
make an issuance or a public offering of its securities. Similarly, the equity
interests of the Mississippi Gaming Subsidiary may not be pledged without the
prior approval of the Mississippi Gaming Commission. The Company may not make
an issuance or public offering of its securities without the prior approval of
the Mississippi Gaming Commission if any part of the proceeds of the offering
are to be used to finance the construction, acquisition or operation of gaming
facilities in Mississippi or to retire or extend obligations incurred for one or
more such purposes. Such approval, if given, does not constitute a
recommendation or approval of the investment merits of the securities subject to
the offering. Any representation to the contrary is unlawful.
Under the regulations of the Mississippi Gaming Commission, the Mississippi
Gaming Subsidiary may not guarantee a security issued by an affiliated company
pursuant to a public offering, or pledge its assets to secure payment or
performance of the obligations evidenced by the security issued by the
affiliated company, without the prior approval of the Mississippi Gaming
Commission. The pledge of the stock of a Mississippi Gaming Subsidiary and the
foreclosure of such a pledge is ineffective without the prior approval of the
Mississippi Gaming Commission. Moreover, restrictions on the transfer of an
equity security issued by a Mississippi Gaming Subsidiary and agreements not to
encumber such securities (the "Stock Restrictions") are ineffective without the
prior approval of the Mississippi Gaming Commission.
Change in control of the Company through merger, consolidation, acquisition of
assets, management or consulting agreements or any form of takeover, and certain
recapitalizations and stock purchases by Hollywood Park, cannot occur without
the prior approval of the Mississippi Gaming Commission. Entities seeking to
acquire control of a registered corporation must satisfy the Mississippi Gaming
Commission in a variety of stringent standards prior to assuming control of such
registered corporation. The Mississippi Gaming Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.
The Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
corporations whose stock is publicly traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to: (i) assure the financial
stability of corporate gaming operators and their affiliates; (ii) preserve the
beneficial aspects of conducting business in the corporate form; and (iii)
promote a neutral environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Mississippi Gaming
Commission before the Company may make exceptional repurchases of voting
securities above the current market price of its common stock (commonly called
"greenmail") or before a corporate acquisition opposed by management may be
consummated.
17
Mississippi's gaming regulations will also require prior approval by the
Mississippi Gaming Commission if the Company adopts a plan of recapitalization
proposed by its Board of Directors opposing a tender offer made directly to the
shareholders for the purpose of acquiring control of the Company.
Neither the Company nor any subsidiary may engage in gaming activities in
Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Gaming Commission. The Mississippi Gaming
Authorities may require determinations that, among other things, there are means
for the Mississippi Gaming Authorities to have access to information concerning
the out-of-state gaming operations of the Company and its affiliates. The
Mississippi Gaming Commission must approve any future gaming operations of the
Company outside Mississippi. The Mississippi Gaming Commission has approved the
Company's operations in Nevada, California and Louisiana but must approve the
Company's operations in any other jurisdictions.
If the Mississippi Gaming Commission decides that a Mississippi Gaming
Subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the
Mississippi Gaming Subsidiary, subject to compliance with certain statutory and
regulatory procedures. In addition, a Mississippi Gaming Subsidiary, the
Company and the persons involved could be subject to substantial fines for each
separate violation. Because of such a violation, the Mississippi Gaming
Commission could seek to appoint a supervisor to operate the casino facilities.
Limitation, conditioning or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
adversely affect the Company and the Mississippi Gaming Subsidiary's gaming
operations and the Company's results of operations.
License fees and taxes, computed in various ways depending on the type of gaming
involved, are payable to the State of Mississippi and to the counties and cities
in which a Mississippi Gaming Subsidiary's respective operations will be
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon (i) a
percentage of the gross gaming revenues received by the casino operation, (ii)
the number of slot machines operated by the casino or (iii) the number of table
games operated by the casino. The license fee payable to the State of
Mississippi is based upon "gaming receipts" (generally defined as gross receipts
less pay outs to customers as winnings) and equals 4% of gaming receipts of
$50,000 or less per month, 6% of gaming receipts over $50,000 and less than
$134,000 per month, and 8% of gaming receipts over $134,000. The foregoing
license fees are allowed as a credit against the licensee's Mississippi income
tax liability for the year paid.
In October 1994, the Mississippi Gaming Commission adopted two new regulations.
Under the first regulation, as condition of licensure or license renewal, casino
vessels on the Mississippi Gulf Coast that are not self-propelled must be moored
to withstand a Category 4 hurricane with 155 mile-per-hour winds and 15-foot
tidal surge. Boomtown Biloxi believes that it currently meets this requirement.
The second regulation requires as a condition of licensure or license renewal
that a gaming establishment's plan include a 500-car parking facility in close
proximity to the casino complex and infrastructure facilities, the expenditures
for which will amount to at least 25% of the casino cost. Such facilities shall
include any of the following: a 250-room hotel of at least a two-star rating as
defined by the current edition of the Mobil Travel Guide, a theme park, golf
courses, marinas, a tennis complex, entertainment facilities, or any other such
facility as approved by the Mississippi Gaming Commission as infrastructure.
Parking facilities, roads, sewage and water systems, or facilities normally
provided by cities and/or counties are excluded. The Mississippi Gaming
Commission may in its discretion reduce the number of rooms required, where it
is shown to the Commission's satisfaction that sufficient rooms are available to
accommodate the anticipated visitor load. The Company believes that Boomtown
Biloxi currently meets such requirements and was relicensed by the Mississippi
Gaming Commission effective June 20, 1996 for an additional two-year period.
The Company has commissioned a study to recommend alternatives for additional
development at Boomtown Biloxi, but the Company has made no definitive plans
with respect to any further development. In late 1997, members of the senior
staff of the Mississippi Gaming Commission and members of the Commission
informally advised the Company that they believe Boomtown Biloxi has complied
with the infrastructure requirement. However, Boomtown Biloxi is
18
subject to relicensing in June of 1998 and it is possible that the Mississippi
Gaming Commission could require further development at Boomtown Biloxi in
connection with the relicensing.
The sale of food or alcoholic beverages at the Boomtown Biloxi property is
subject to licensing, control and regulation by the applicable state and local
authorities. The agencies involved have full power to limit, condition, suspend
or revoke any such license, and any such disciplinary action could (and
revocation would) have a material adverse effect upon the operations of the
affected casino or casinos. Certain officers and managers of the Company and
Boomtown Biloxi must be investigated by the Alcoholic Beverage Control Division
of the State Tax Commission (the "ABC") in connection with Boomtown Biloxi's
liquor permits. Changes in licensed positions must be approved by the ABC.
Louisiana The ownership and operation of a riverboat gaming vessel is subject
to the Louisiana Riverboat Economic Development and Gaming Control Act (the
"Louisiana Act"). As of May 1, 1996, gaming activities are regulated by the
Louisiana Gaming Control Board (the "Board"). The Board is responsible for
issuing the gaming license and enforcing the laws, rules and regulations
relative to riverboat gaming activities. The Board is empowered to issue up to
15 licenses to conduct gaming activities on a riverboat of new construction in
accordance with applicable law. However, no more than six licenses may be
granted to riverboats operating from any one parish.
The laws and regulations of Louisiana seek to (i) prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming at any time
or in any capacity; (ii) establish and maintain responsible accounting practices
and procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing procedures for reliable record keeping and
making periodic reports to the Board; (iv) prevent cheating and fraudulent
practices; (v) provide a source of state and local revenues through fees; and
(vi) ensure that gaming licensees, to the extent practicable, employ and
contract with Louisiana residents, women and minorities.
The Louisiana Act specifies certain restrictions and conditions relating to the
operation of riverboat gaming, including but not limited to the following: (i)
gaming is not permitted while a riverboat is docked, other than for forty-five
minutes between excursions, unless dangerous weather or water conditions exist;
(ii) each round trip riverboat cruise may not be less than three nor more than
eight hours in duration, subject to specified exceptions; (iii) agents of the
Board are permitted on board at any time during gaming operations; (iv) gaming
devices, equipment and supplies may be purchased or leased from permitted
suppliers; (v) gaming may only take place in the designated river or waterway;
(vi) gaming equipment may not be possessed, maintained, or exhibited by any
person on a riverboat except in the specifically designated gaming area, or a
secure area used for inspection, repair, or storage of such equipment; (vii)
wagers may be received only from a person present on a licensed riverboat;
(viii) persons under 21 are not permitted in designated gaming areas; (ix)
except for slot machine play, wagers may be made only with tokens, chips, or
electronic cards purchased from the licensee aboard a riverboat: (x) licensees
may only use docking facilities and routes for which they are licensed and may
only board and discharge passengers at the riverboat's licensed berth; (xi)
licensees must have adequate protection and indemnity insurance; (xii) licensees
must have all necessary federal and state licenses, certificates and other
regulatory approvals prior to operating a riverboat; and (xiii) gaming may only
be conducted in accordance with the terms of the license and the rules and
regulations adopted by the Board.
No person may receive any percentage of the profits from Boomtown New Orleans
without first being found suitable. In March 1994, Boomtown New Orleans, its
officers, key personnel, partners and persons holding a 5% or greater interest
in the partnership were found suitable by the predecessor to the Board. A
gaming license is deemed to be a privilege under Louisiana law and as such may
be denied, revoked, suspended, conditioned or limited at anytime by the Board.
In issuing a license, the Board must find that the applicant is a person of good
character, honesty and integrity and the applicant is a person whose prior
activities, criminal record, if any, reputation, habits and associations do not
pose a threat to the public interest of the State of Louisiana or to the
effective regulation and control of gaming, or create or enhance the dangers of
unsuitable, unfair or illegal practices, methods, and activities in the conduct
of gaming or the carrying on of
19
business and financial arrangements in connection therewith. The Board will not
grant any licenses unless it finds that: (i) the applicant is capable of
conducting gaming operations, which means that the applicant can demonstrate the
capability, either through training, education, business experience, or a
combination of the above to operate a gaming casino; (ii) the proposed financing
of the riverboat and the gaming operations is adequate for the nature of the
proposed operation and from a source suitable and acceptable to the Board; (iii)
the applicant demonstrates a proven ability to operate a vessel of comparable
size, capacity and complexity to a riverboat in its application for a license;
(iv) the applicant designates the docking facilities to be used by the
riverboat; (v) the applicant shows adequate financial ability to construct and
maintain a riverboat; (vi) the applicant has a good faith plan to recruit, train
and upgrade minorities in all employment classifications; and (vii) the
applicant is of good moral character.
The Board may not award a license to any applicant who fails to provide
information and documentation to reveal any fact material to qualifications or
who supplies information which is untrue or misleading as to a material fact
pertaining to the qualification criteria; who has been convicted of or pled nolo
contendere to an offense punishable by imprisonment of more than one year; who
is currently being prosecuted for or regarding whom charges are pending in any
jurisdiction of an offense punishable by more than one year imprisonment; if any
holder of 5% or more in the profits and losses of the applicant has been
convicted of or pled guilty or nolo contendere to an offense which at the time
of conviction is punishable as a felony.
The transfer of a license is prohibited. The sale, assignment, transfer, pledge
or disposition of securities which represent 5% or more of the total outstanding
shares issued by a holder of a license is subject to prior Board approval. A
security issued by a holder of a license must generally disclose these
restrictions.
Section 2501 of the regulations enacted by the Riverboat Gaming Division of the
Louisiana State Police (the investigative and enforcement entity under the
Louisiana regulatory scheme) pursuant to the Louisiana Act (the "Regulations")
requires prior written approval of the Board of all persons involved in the
sale, purchase, assignment, lease, grant or foreclosure of a security interest,
hypothecation, transfer, conveyance or acquisition of an ownership interest
(other than in a corporation) or economic interest of five percent (5%) or more
in any licensee.
Section 2523 of the Regulations requires notification to and prior approval from
the Board of the (a) application for, receipt, acceptance or modification of a
loan, or the (b) use of any cash, property, credit, loan or line of credit, or
the (c) guarantee or granting of other forms of security for a loan by a
licensee or person acting on a licensee's behalf. Exceptions to prior written
approval apply to any transaction for less than $2,500,000 in which all of the
lending institutions are federally regulated or if the transaction involves
publicly registered debt and securities sold pursuant to a firm underwriting
agreement.
The failure of a licensee to comply with the requirements set forth above may
result in the suspension or revocation of that licensee's gaming license.
Additionally, if the Board finds that the individual owner or holder of a
security of a corporate license or intermediary company or any person with an
economic interest in a licensee is not qualified under the Louisiana Act, the
Board may require, under penalty of suspension or revocation of the license,
that the person not (a) receive dividends or interest on securities of the
corporation, (b) exercise directly or indirectly a right conferred by securities
of the corporation, (c) receive remuneration or economic benefit from the
licensee, or (d) continue in an ownership or economic interest in the licensee.
A licensee must periodically report the following information to the Board,
which is not confidential and is to be available for public inspection; the
licensee's net gaming proceeds from all authorized games; the amount of net
gaming proceeds tax paid; and all quarterly and annual financial statements
presenting historical data that are submitted to the Board, including annual
financial statements that have been audited by an independent certified public
accountant.
The Board has adopted rules governing the method for approval of the area of
operations, the rules and odds of authorized games and devices permitted, and
prescribing grounds and procedures for the revocation, limitation or suspension
of licenses and permits.
20
On April 19, 1996, the Louisiana legislature adopted legislation requiring
statewide local elections on a parish-by-parish basis to determine whether to
prohibit or continue to permit licensed riverboat gaming, licensed video poker
gaming, and licensed land-based gaming in Orleans Parish. The applicable local
election took place on November 5, 1996, and approximately two thirds of the
voters in the parish of Boomtown New Orleans voted to continue licensed
riverboat and video poker gaming. However, it is noteworthy that the current
legislation does not provide for any moratorium on future local elections on
gaming. Thus, although the Company does not anticipate another election in the
near future, there can be no assurance that a new election will not be called to
discontinue gaming within the parish.
California Operation of California card club casinos such as the Hollywood
Park-Casino and the Crystal Park Casino is governed by the California Gambling
Control Act (the "CGCA") and is subject to the oversight of the California
Attorney General (the "Attorney General"). Under the CGCA, a California card
club casino may only offer certain forms of card games, including Poker, Pai
Gow, and California Blackjack. A card club casino may not offer many of the
card games and other games of chance permitted in Nevada and other jurisdictions
where Boomtown conducts business.
Although the California Attorney General takes the position that, under the
CGCA, only individuals, partnerships or privately held companies (as opposed to
publicly traded companies such as Hollywood Park) are eligible to operate card
club casinos, the January 1, 1998, enactment of California Senate Bill 8 ("SB-
8") permitted a publicly owned racing association to own and operate a card club
casino if it also owned and operated a race track on the same premises.
Pursuant to the CGCA, the operator of a card club casino, and its officers,
directors and certain stockholders are required to be licensed by the Attorney
General and licensed by the municipality in which it is located. Hollywood Park
presently holds a provisional license to operate the Hollywood Park-Casino. A
permanent license will not be granted until the California Department of Justice
completes its review of the applications of Hollywood Park and its corporate
officers and directors. The Attorney General has broad discretion to deny a
gaming license and may impose reasonably necessary conditions upon the granting
of a gaming license. Grounds for denial include felony convictions, criminal
acts, convictions involving dishonesty, illegal gambling activities, and false
statements on a gaming application. Such grounds also generally include having
a financial interest in a business or organization that engages in gaming
activities that are illegal under California law; however, this provision
contains an exception for publicly traded racing associations such as Hollywood
Park. In addition, the Attorney General possesses broad authority to suspend or
revoke a gaming license on any of the foregoing grounds, as well as for
violation of any federal, state or local gambling law, failure to take
reasonable steps to prevent dishonest acts or illegal activities on the premises
of the card club casino, failure to cooperate with the Attorney General in its
oversight of the card club casino and failure to comply with any condition of
the gaming license.
Hollywood Park's operations at the Hollywood Park-Casino are also regulated by a
City of Inglewood ordinance (the "Inglewood Ordinance"). The Inglewood
Ordinance provides for a single card club casino located on the premises of the
Hollywood Park Race Track and requires Hollywood Park, as the operator of the
Hollywood Park-Casino, to be licensed by the City of Inglewood and to obtain a
card club operations certificate. The Inglewood City Council approved Hollywood
Park's application for a gaming license and on August 21, 1996 Hollywood Park
was granted the required card club operations certificate. Hollywood Park's
city gaming license and operations certificate are valid for five years unless
revoked, suspended or surrendered, and are renewable annually thereafter.
In addition to Hollywood Park, the Inglewood Ordinance also requires all
employees, each beneficial owner of at least 10% of the outstanding Hollywood
Park common stock, and certain key employees of Hollywood Park to have either a
permit or a valid registration from the City of Inglewood. The license to
operate the card club casino may be suspended or revoked if such a stockholder
or employee fails to obtain a permit. Without the prior consent of the City of
Inglewood, a 10% stockholder may not transfer or sell its Hollywood Park shares
to any person who is, or by reason of such transaction would become, a 10%
stockholder. These licensing
21
requirements and transfer restrictions apply to all 10% stockholders of
Hollywood Park, and no waiver from such requirements or restrictions are
provided for institutional or other investors who purchase for investment
purposes only.
The City of Compton has granted CCM, the operator of the Crystal Park Casino,
all municipal gaming licenses necessary for operating the Crystal Park Casino,
and CCM is operating under a conditional registration from the California
Department of Justice.
Racing Operations California The California Horse Racing Board ("CHRB") has
- -----------------
jurisdiction and supervision over all horse race meets in the State of
California. Licenses granted by the CHRB must be obtained annually by Hollywood
Park in order to conduct both the Spring/Summer and Autumn race meets. The CHRB
has the authority, when granting any license, to vary the number of weeks
allocated to any applicant and the time of year in which such allocation falls.
The CHRB may, at its discretion, refuse to issue a license to a race track
operator such as Hollywood Park that has a financial interest in another
licensed race track operation or in the conduct of horse racing meets by any
other person at any other race track in California. Although no future
assurance can be given, Hollywood Park has applied for and received a license to
conduct thoroughbred horse race meets every year since 1938, except for 1942 and
1943 due to wartime activities.
Arizona The Arizona Racing Commission ("ARC") has jurisdiction and supervision
over all racing activities in the State of Arizona. The ARC issues live racing
permits that are valid for three years, and off-track permits are granted on a
year to year basis. In June 1997, Turf Paradise received a live racing permit
from the ARC, which will remain in force through the 1999/2000 race year. The
permit specifies that live racing may be conducted between the first week of
September through the third week of May and that, so long as there is live
racing at Turf Paradise at least five days a week, Turf Paradise may have
simulcast wagering on days when there is no live racing.
Kansas The Kansas Racing Commission ("KRC") has jurisdiction and supervision
over all racing activity in the State of Kansas. The KRC has granted Sunflower
a license to own and manage the Woodlands facility; however, the license to
conduct races for all race days until the year 2014 has been granted to TRAK
East, an unaffiliated non-profit entity. Sunflower in turn provides management
services to TRAK East. Sunflower has an agreement with TRAK East to provide the
physical race tracks along with management and consulting services for twenty
five years, with options to renew for one or more successive five year terms.
(See "Item 1 - Description of Business - Racing Operations - Sunflower.")
COMPETITION Hollywood Park faces significant competition in each of the
jurisdictions in which it has established gaming operations, and such
competition is expected to intensify as new gaming operations enter these
markets and existing competitors expand their operations. The Company's
Boomtown properties compete directly with other casinos in Nevada, Mississippi
and Louisiana. To a lesser extent, Hollywood Park also competes for customers
with other casino operators in North American markets, including casinos located
on Indian reservations, and other forms of gaming such as lotteries. Several of
Hollywood Park's competitors have substantially greater name recognition and
marketing resources as well as access to lower cost sources of financing. In
many cases, these competitors have significantly greater capital which may
afford them a greater opportunity to obtain gaming licenses in jurisdictions
which limit the number of licenses. Moreover, consolidation of companies in the
gaming industry could increase the concentration of large gaming companies in
Louisiana and Mississippi, and other emerging gaming markets, and may result in
Hollywood Park's competitors having even greater resources, name recognition and
licensing prospects than such competitors currently enjoy. In Mississippi,
competing casino operations have expanded rapidly and, as a result, the
Mississippi Gulf Coast market is experiencing significant dilution in gaming win
per position, and a number of casinos in the Mississippi Gulf Coast market have
failed. Further, two additional rival casinos are being planned, a 1,800 room
hotel and casino in Biloxi by Mirage Resorts, and in nearby Bay St. Louis, a
1,500 room hotel and casino by Circus Circus. Also, Imperial Palace recently
opened a 1,050 room hotel and casino in Biloxi. While the Company believes it
has been able to effectively compete in these markets to date, there is no
assurance that increasing competition will not adversely affect Hollywood Park's
gaming operations in the future. Hollywood Park believes that increased
legalized gaming in other states,
22
particularly in areas close to its existing gaming properties, could adversely
affect its operations without necessarily being offset by increased revenues in
jurisdictions in which Hollywood Park operates. The Hollywood Park-Casino faces
competition from card club casinos in neighboring cities, including three card
club casinos of similar size to the Hollywood Park-Casino located within 12
miles of the Hollywood Park-Casino (two additional, though smaller, card clubs
within 15 miles of Hollywood Park-Casino are scheduled to open in 1998), from
card club casinos and other forms of gaming located on Indian reservations and
from full fledged casinos operating in Nevada. Many card club casinos in the Los
Angeles area have a significant geographical advantage over the Hollywood Park-
Casino, due in large part to their closer proximity to large Asian-American
populations who comprise a large percentage of card club casino patrons.
There is intense competition for gaming development opportunities in
jurisdictions that have recently legalized gaming, as most jurisdictions
strictly limit the number of gaming licenses granted, and therefore only a small
number of gaming facilities can be developed in any such jurisdiction. There
can be no assurance that Hollywood Park will be able to compete effectively in
the acquisition of new gaming licenses in the future. Failure to do so could
negatively affect the growth potential of Hollywood Park.
Hollywood Park's racing operations have been adversely impacted by the
proliferation of additional thoroughbred racing opportunities (including
simulcasting and off-track wagering) and the proliferation of other gaming
establishments. Hollywood Park believes that such establishments have had a
material impact on the operating results and growth prospects of its racing
operations.
FEDERAL INCOME TAX MATTERS The Company accounts for income taxes under
Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes,
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
As of December 31, 1997, the Company had federal net operating loss ("NOL") and
capital loss ("CL") carryforwards of approximately $17,800,000, and $8,600,000,
respectively, comprised principally of NOL carryforwards acquired in the
Boomtown Merger, and CL carryforwards resulting from the disposition of
Boomtown's Las Vegas property. The NOL carryforwards expire on various dates
through 2012, and the CL carryforwards expire on various dates through 2002. In
addition, the Company has approximately $400,000 of general business tax
credits, comprised principally of FICA credits, and approximately $3,800,000 of
alternative minimum tax credits available to reduce future federal income taxes.
These tax credits generally cannot reduce federal taxes paid below the amount of
alternative minimum tax. The general business tax credits expire in 2000. The
alternative minimum tax credits do not expire.
Under several provisions of the Internal Revenue Code (the "Code") and the
regulations promulgated thereunder, the utilization of NOL, CL and tax credit
carryforwards to reduce tax liability is restricted under certain circumstances.
Events which cause such a limitation include, but are not limited to, certain
changes in the ownership of a corporation. The Boomtown Merger caused such a
change in ownership with respect to Boomtown. As a result, the Company's use of
approximately $14,800,000 of Boomtown's NOL carryforwards, $1,400,000 of
Boomtown's CL carryforwards, and $3,400,000 of Boomtown's tax credit
carryforwards is subject to certain limitations imposed by Sections 382 and 383
of the Code and by the separate return limitation year rules of the consolidated
return regulations. These limitations restrict the amount of such carryforwards
that may be used by the Company in any taxable year and, consequently, are
expected to defer the Company's use of a substantial portion of such
carryforwards and may ultimately prevent the Company's use of a portion thereof.
Therefore, a valuation allowance has been recorded related to the Boomtown
carryforwards.
For California tax purposes, as of December 31, 1997, the Company also had
approximately $11,700,000 of Los Angeles Revitalization Zone ("LARZ") tax
credits. The LARZ tax credits can only be used to reduce certain California tax
liability and cannot be used to reduce federal tax liability. A valuation
allowance has been recorded with respect to the LARZ tax credits because the
Company may not generate enough income subject to California tax to utilize the
LARZ tax credits before they expire.
23
For a discussion of certain additional tax issues, see "Item 1. Description of
Business, Possible Restoration of Real Estate Investment Trust/Paired-Share
Structure."
EMPLOYEES The following is a summary of Hollywood Park's employees by property:
PERMANENT SEASONAL TOTAL STAFFING
Property STAFF STAFF RANGE
- ------------------------------------------------- ----------------- ---------------- --------------------
Hollywood Park-Casino 1,448 -- 1,448
Boomtown Reno 950 300 950 - 1,250
Boomtown New Orleans 1,007 -- 1,007
Boomtown Biloxi 981 -- 981
Hollywood Park Race Track 904 1,040 904 - 1,944
Turf Paradise 425 25 425 - 450
Sunflower 196 -- 196
Hollywood Park Corporate 15 -- 15
----------------- ---------------- --------------------
Total 5,926 1,365 5,926 - 7,291
================= ================ ====================
The Company does not employ the staff at the Crystal Park Casino.
The Company's staff is non-union, with the exception of the janitorial and food
service employees at the Hollywood Park-Casino and the majority of the seasonal
staff at the Hollywood Park Race Track. With respect to the Hollywood Park Race
Track union staff and the Hollywood Park-Casino janitorial staff, the Company is
presently in or about to begin discussions with the unions representing the
majority of the union staff (excluding pari-mutuel and food service staff).
Union contracts for these employees expire between April 1998 and June 1998.
The Company believes that these contracts will be renewed without incident,
though there can be no assurance that labor problems will be avoided.
OTHER Information concerning backlog, sources and availability of raw materials
is not essential to an understanding of the Company's business.
The Company does not engage in material research activities relating to
development of new products or services or improvement of existing products or
services.
Compliance with federal, state and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment have not had a material effect
upon capital expenditures, earnings or the competitive position of the Company.
The Company does not engage in material operations in any foreign country, nor
is a material portion of its sales or revenues derived from customers in any
foreign country.
ITEM 2. PROPERTIES
- ------------------
Hollywood Park owns approximately 378 acres in Inglewood, California, which is
located in the heart of the Los Angeles metropolitan area, with a population
base of approximately 14 million; making it the second most populous area in the
United States. The 60,000 square foot Hollywood Park-Casino is located next to
the Hollywood Park Race Track. The Hollywood Park-Casino has up to 150 tables
available for play at any given time, with ample expansion space. The race
track consists of the grandstand, clubhouse and Turf Club areas, which can
accommodate 25,000, 6,000 and 2,000 patrons, respectively. The stable area can
accommodate approximately 2,150 horses. There is abundant parking with spaces
for approximately 17,500 vehicles. The race track also houses the executive
offices of the Company.
The Race Track, Hollywood Park-Casino and required parking covers approximately
228 acres, leaving approximately 150 acres available for immediate development.
24
Crystal Park LLC owns approximately six acres, upon which sits a parking
structure, and owns the ground floor of the Crystal Park Casino, which houses
the approximately 40,000 square feet of gaming floor space.
Boomtown Reno owns 569 acres in Verdi, Nevada, with approximately 508 acres
presently undeveloped. In addition to the 40,000 square foot land-based casino,
Boomtown Reno offers a 122 room hotel (with a 200 room addition currently under
construction, and expected to open in late 1998), a 200 space recreational
vehicle park, a truck stop and gas station with a mini-mart and car wash.
As of February 13, 1998, Boomtown New Orleans conducts gaming activities on the
new 360 foot by 98 foot Boomtown Belle II riverboat (which is 130 feet longer
and 26 feet wider than the previous riverboat). The land-based facility, with
parking, sits on a 50 acre site.
Boomtown Biloxi conducts gaming operations on a permanently moored 400 foot by
100 foot barge, which the Company purchased in August 1997 (see "Item 1.
Description of Business, Expansion, Biloxi"). Boomtown Biloxi leases 18 of the
19 acres used for the land-based facility (which is owned by the Company). The
land upon which Boomtown Biloxi's land based facility sits is under a 99 year
lease and the majority of the parking lot is under lease for terms ranging from
five to fifteen years. Boomtown Biloxi has a ten year lease, with a five year
renewal option, for the submerged tidelands under the barge.
Turf Paradise owns approximately 275 acres in the popular northwest section of
Phoenix, Arizona with approximately 100 undeveloped acres, with a surrounding
area population of approximately 2.5 million. The race track contains a
grandstand, clubhouse and Turf Club section; with a combined seating capacity of
approximately 7,400. Overall capacity, including both standing and seating, is
estimated at 16,000. The stable area has the capacity to board approximately
1,940 horses. Parking is available for 4,200 vehicles.
Sunflower is located in Kansas City, Kansas, and owns 393 acres, of which 222
acres are currently developed, leaving 171 undeveloped acres. There are 1.6
million people living within 60 miles of Sunflower. The facility has two
separate grandstands, one for greyhound racing and one for live horse racing.
The horse grandstand is closed except for the limited days of live horse racing
each fall. Both grandstands contain a clubhouse and Turf Club section. The
greyhound grandstand has capacity for 7,832 patrons (both seating and standing)
and the horse grandstand has capacity for 7,157 patrons (both seating and
standing). The facility has 18 greyhound kennels and 26 barns. There is
combined parking available for approximately 6,500 vehicles.
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
FINAL SETTLEMENT OF DERIVATIVE ACTION AND DISMISSAL OF APPEALS As previously
reported by the Company, and described in the Company's Annual Report on Form
10-K for 1994, six purported class actions (the "Class Actions") were filed
beginning in September 1994, against the Company and certain of its directors
and officers in the United States District Court, Central District of California
(the "District Court") and consolidated in a single action entitled In re
-----
Hollywood Park Securities Litigation. On September 15, 1995, a related
- ------------------------------------
stockholder derivative action, entitled Barney v. Hubbard, et al. (the
-------------------------
"Derivative Action"), was filed in the California Superior Court for the County
of San Diego (the "State Court").
The Company and other defendants each denied any liability or wrongdoing and
asserted various defenses. The District Court ordered the parties to engage in
non-binding mediation in an effort to settle all related claims. As previously
reported, as a result of the court ordered mediation, the parties reached an
agreement-in-principle to settle all claims raised in the Class and Derivative
Actions. The Company entered into the settlements in order to avoid the
expense, uncertainty and distraction of further litigation.
On November 6 and 13, 1995, respectively, the parties executed definitive
settlement agreements in the Derivative and Class Actions. Those agreements
provided for the release and dismissal of all claims raised or which might have
been raised in the Class and Derivative actions, subject to approval by each of
the respective courts. In settlement of the Class Actions, a settlement fund in
the principal amount of $5,800,000
25
has been created for the benefit of the alleged class with contributions from
the Company and the insurance carrier for its directors and officers. After
giving consideration to the amounts to be received by the Company in settlement
of the Derivative Action, the Company's net settlement payment in the Class
Actions was less than $2,500,000. Under settlement of the Derivative Action, the
Company will receive a $2,000,000 payment from the insurance carrier which the
Company will use to pay plaintiff's attorneys fees and expenses and partially to
defray the Company's payment in the settlement of the Class Actions. The
Derivative Action settlement also includes provisions enhancing the Company's
financial controls and modifying certain terms of its acquisition of Sunflower.
On February 26, 1996, the District Court approved the settlement of the Class
Actions and entered a judgment dismissing the Class Actions in their entirety.
On May 6, 1996, the State Court approved the settlement of the Derivative Action
and entered a judgment dismissing the Derivative Action in its entirety. On or
about July 2, 1996, a notice of appeal was filed in connection with the
Derivative Action judgment. However, on January 22, 1998, the California State
Court of Appeals affirmed the trial court's approval of the settlement of the
Derivative Action, and the time in which the appellant could petition the
supreme court for further review has expired.
SUNFLOWER BANKRUPTCY PROCEEDINGS On May 17, 1996, Sunflower filed for
reorganization under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court, District of Kansas, Kansas City Division (the "Bankruptcy
Court") as case number 96-21187-11-JTF. The Cash Collateral Agreement suspended
any interest or principal payments on the Sunflower Senior Credit until August
12, 1997. The Bankruptcy Court has issued an order extending the Cash
Collateral Agreement until it issues its pending ruling regarding approval of
Sunflower's proposed plan of reorganization. The Cash Collateral Agreement
requires Sunflower to make certain cash payments to Wyandotte County, Kansas,
the creditor under the Sunflower Senior Credit Agreement and TRAK East (the
unaffiliated operator of racing at Sunflower).
On July 15, 1997, Sunflower presented the Bankruptcy Court a plan of
reorganization (as amended, the "Plan") which provides for the sale of
Sunflower's property to the Wyandotte Tribe of Oklahoma (the "Wyandotte Tribe").
Under the Plan, some or all of the land would be held by the United States
Government in trust for the Wyandotte Tribe, and a casino would be developed on
the property. Upon completion of the casino, HP Kansas, Inc. (a wholly owned
subsidiary of Hollywood Park) and a partner (North American Sports Management or
an affiliate) would provide consulting services to the casino. Under this
arrangement, HP Kansas, Inc. would be entitled to receive a share of revenues of
the casino. Under the Plan, in order to allow the property to be released as
collateral and sold to the Wyandotte Tribe, Sunflower would be required to have
standby letters of credit issued to support certain payments to be made to the
lenders under the Sunflower Senior Credit and the Wyandotte County Treasurer's
office. The aggregate amount of such letters of credit is anticipated to be in
excess of $29,000,000. Hollywood Park would arrange for the issuance of such
letters of credit on behalf of Sunflower.
The creditors under the Sunflower Senior Credit objected to confirmation of the
Plan and in January and February 1998, the Bankruptcy Court held hearings with
respect to the confirmation of the Plan. Such hearings have been concluded and
the matter is under submission with the Bankruptcy Court.
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 notes, along with accrued interest, are subordinated to the
Sunflower Senior Credit. Although Hollywood Park 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1997, through the solicitation of proxies or otherwise.
26
PART II
-------
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- -------------------------------------------------------------------------
Matters
-------
As of December 1, 1997, Hollywood Park's common stock was listed on the New York
Stock Exchange and is traded under the name Hollywood Park, Inc., identified by
the symbol "HPK". Previously, the Company's common stock was listed on the
NASDAQ National Market System.
The following table sets forth the high and low sales prices per common share of
the Company's common stock on the NASDAQ National Market System for the periods
prior to December 1, 1997, and on the New York Stock Exchange as of December 1,
1997. All sales prices are rounded to the nearest 1/8/th/. The prices shown are
between dealers and do not reflect retail markups, markdowns, or commissions,
nor do they necessarily represent actual transactions.
Price Range
--------------------------------------------
High Low
------------------- -------------------
1997
----
First Quarter $ 15 1/8 $ 11 7/8
Second Quarter 15 3/8 11 7/8
Third Quarter 19 3/8 14 3/4
Fourth Quarter 22 5/16 17 5/16
1996
----
First Quarter $ 10 3/4 $ 9
Second Quarter 11 3/4 9 1/8
Third Quarter 9 7/16 7 5/8
Fourth Quarter 15 3/8 7 5/8
There were approximately 3,751 stockholders of record of the Company's common
stock as of March 16, 1998.
On June 30, 1997, the Company finalized the acquisition of Boomtown, and issued
approximately 5,362,850 shares of Hollywood Park common stock. Concurrently
with the Boomtown Merger, Hollywood Park purchased and retired 446,491 shares of
Hollywood Park common stock received by Roski in the Boomtown Merger.
On November 17, 1995, the Company finalized the acquisition of PCM. The
acquisition was paid for with newly issued shares of the Hollywood Park common
stock issued in three installments: (1) 130,008 common shares issued on November
17, 1995; (2) 48,674 common shares issued on November 19, 1996; and (3) 33,417
common shares issued on February 10, 1997.
DIVIDENDS The Company did not pay any common stock dividends in 1997 or 1996.
Payments of future common stock dividends would be at the discretion of the
Company's Board of Directors and would depend upon, among other things, future
earnings, operational and capital requirements, the overall financial condition
of the Company and general business conditions. The Board of Directors does not
anticipate paying any cash dividends on the Company's common stock in the near
future; provided, however, that if the paired-share/REIT status is implemented,
the REIT would be required to pay certain dividends as describe in Item 1.
Description of Business, Expansion Plans.
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
The following selected financial information for the years 1993 through 1997 was
derived from the consolidated financial statements of the Company. Boomtown was
acquired on June 30, 1997, with the acquisition accounted for under the purchase
method of accounting for a business combination, and
27
therefore Boomtown's financial results were not included in periods prior to the
acquisition. Turf Paradise was acquired on August 11, 1994, and accounted for
under the pooling of interests method of accounting. Historically, Turf Paradise
had a fiscal year end of June 30, and therefore, the selected financial data for
the year 1993 was restated as a consolidation of Hollywood Park's results for
the year ended December 31, with Turf Paradise's results for the year ended June
30. The Hollywood Park-Casino began operations on July 1, 1994, with the gaming
floors operated by an unaffiliated third party. On November 17, 1995, Hollywood
Park acquired the gaming floor business from the unaffiliated operator. Crystal
Park began operations on October 25, 1996, under a lease with an unaffiliated
third party, and Sunflower was acquired on March 23, 1994, accounted for under
the purchase method of accounting. As of March 31, 1996, Sunflower's results of
operations were no longer consolidated with Hollywood Park's due to Sunflower's
May 17, 1996, filing for reorganization under Chapter 11 of the Bankruptcy Code.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
financial statements and related notes thereto.
28
Hollywood Park, Inc.
Selected Financial Data
For the years ended December 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ------------ ------------ ------------ ------------
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues:
Gaming $137,659 $ 50,717 $ 26,656 $ 11,745 $ 0
Racing 68,844 71,308 79,862 78,719 63,850
Food and beverage 19,894 13,947 19,783 20,540 10,908
Other 21,731 7,253 4,271 6,320 4,227
----------- ------------ ------------ ------------ ------------
248,128 143,225 130,572 117,324 78,985
----------- ------------ ------------ ------------ ------------
Expenses:
Gaming 74,733 27,249 5,291 0 0
Racing 30,304 30,167 30,960 23,393 20,860
Food and beverage 25,745 19,573 24,749 21,852 9,400
Administrative and other 74,887 43,962 48,647 51,151 32,538
Depreciation and amortization 18,157 10,695 11,384 9,563 6,402
REIT restructuring 2,483 0 0 0 0
Write off of investment in Sunflower 0 11,412 0 0 0
Lawsuit settlement 0 0 6,088 0 0
Hollywood Park-Casino pre-opening 0 0 0 2,337 850
Turf Paradise acquisition costs 0 0 0 627 0
----------- ------------ ------------ ------------ ------------
226,309 143,058 127,119 108,923 70,050
----------- ------------ ------------ ------------ ------------
Operating income 21,819 167 3,453 8,401 8,935
Interest expense 7,302 942 3,922 3,061 1,517
----------- ------------ ------------ ------------ ------------
Income (loss) before income taxes and
minority interests 14,517 (775) (469) 5,340 7,418
Minority interests (3) 15 0 0 0
Income tax expense 5,850 3,459 693 1,568 1,025
----------- ------------ ------------ ------------ ------------
Net income (loss) $ 8,670 ($4,249) ($1,162) $ 3,772 $ 6,393
=========== ============ ============ ============ ============
=====================================================================================================================
Dividends on convertible preferred stock $ 1,520 $ 1,925 $ 1,925 $ 1,925 $ 1,718
----------- ------------ ------------ ------------ ------------
Net income (loss) available to (allocated to)
common shareholders $ 7,150 ($6,174) ($3,087) $ 1,847 $ 4,675
=========== ============ ============ ============ ============
Per common share:
Net income (loss):
Basic $0.33 ($0.33) ($0.17) $0.10 $0.30
Diluted $0.32 ($0.33) ($0.17) $0.10 $0.30
Dividends $0.00 $0.00 $0.00 $0.00 $0.00
OTHER DATA:
Cash flows provided by (used in):
Operating activities $ 18,454 $ 13,137 $ 20,291 ($7,287) $ 13,280
Investing activities (16,236) (19,893) (31,322) (7,331) (32,677)
Financing activities 9,609 (3,728) (3,685) (8,877) 74,391
Capital expenditures 32,505 23,786 25,150 27,584 12,902
BALANCE SHEET DATA:
Total assets $419,029 $205,886 $283,303 $246,573 $176,424
Other liabilities 66,122 47,444 101,928 36,518 21,876
Long term obligations 131,553 282 15,629 42,800 348
Stockholders' equity 221,354 158,160 165,746 167,255 154,200
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Except for the historical information contained herein, the matters addressed in
this Annual Report on Form 10-K 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. Factors that may cause actual performance of
Hollywood Park to differ materially from that contemplated by such forward-
looking statements include, among others, possible inability to reinstate a
paired-share/REIT structure or a decision by the Company not to consummate the
Reorganization, a failure by the Company to qualify as a REIT under the Internal
Revenue Code if the Reorganization is consummated, the uncertain magnitude of
the tax liability of Hollywood Park and its shareholders if the Reorganization
is consummated, proposed legislation that could adversely impact REIT's in
general or paired-share REIT's in particular, the failure to finance complete or
successfully operate planned improvements and expansions, including the Casino
Magic Merger (and, if the Casino Magic Merger is consummated, the ability to
meet the combined company's debt service obligations or to improve Casino
Magic's financial condition), and a saturation of or other adverse changes in
gaming markets in which Hollywood Park operates (particularly in the
southeastern United States). 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 Annual Report on Form
10-K 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 Definitive Proxy Statement dated February 13, 1998, and the discussion
contained therein under the caption "Risk Factors".
GENERAL The Company has assessed and continues to assess the impact of the Year
2000 Issue on its reporting systems and operations. The Year 2000 Issue exists
because computer systems and applications were historically designed to use two
digit fields to designate a year, and date sensitive systems may not recognize
2000 at all, or if recognized, as 1900. Hollywood Park believes that its
financial accounting software will require limited changes to overcome the Year
2000 Issue, and any changes are not expected to require material expenditures.
Based on the nature of Hollywood Park's business, it is not expected that any
non-financial software applications that may be impacted by the Year 2000 Issue
would cause any interruption in operations. The Company expects to complete any
changes required to overcome the Year 2000 Issue during 1998.
RESULTS OF OPERATIONS
Year ended December 31, 1997 compared to the year ended December 31, 1996
-------------------------------------------------------------------------
On June 30, 1997, Hollywood Park acquired Boomtown, with the acquisition
accounted for under the purchase method of accounting for a business
combination, and therefore, Boomtown's results of operations are not
consolidated with those of Hollywood Park's prior to this date. As of April 1,
1996, Sunflower's results of operations were no longer consolidated with
Hollywood Park's results, thus the results of operations for the year ended
December 31, 1997, are exclusive of Sunflower's results of operations, but the
financial results for the year ended December 31, 1996, included Sunflower's
results of operations through March 31, 1996. Also included in the results of
operations for the year ended December 31, 1996, was the $11,412,000 one time,
non-cash write off of Hollywood Park's investment in Sunflower.
Total revenues for the year ended December 31, 1997, increased by $104,903,000
or 73.2%, as compared to the year ended December 31, 1996, primarily due to the
inclusion of $105,781,000 of Boomtown revenues in 1997, with no corresponding
revenues recorded in 1996. Gaming revenues increased by $86,942,000, or 171.4%,
due primarily to Boomtown gaming revenues of $84,620,000, and Crystal Park LLC
rent revenues of $2,222,000, in 1997, with no corresponding Boomtown or Crystal
Park LLC revenues in 1996. (The Crystal Park Casino opened in late October
1996.) As of December 19, 1997, the Company had leased the Crystal Park Casino
to CCM, an unaffiliated third party. Previously, the Crystal Park Casino was
under lease to CEI. On
30
November 4, 1997, the Company 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 October 1997, the
California Attorney General revoked CEI's conditional gaming registration, and
the City of Compton revoked CEI's city gaming license (See "Item 1. Description
of Business, Casino Operations, Crystal Park Hotel and Casino"). Racing revenues
decreased by $2,464,000, or 3.5%, due primarily to one fewer live race day at
the Hollywood Park Race Track, and the inclusion of $1,317,000 of racing
revenues attributable to Sunflower in 1996, with no corresponding Sunflower
revenues in 1997. Food and beverage revenues increased by $5,947,000, or 42.6%,
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 Reno, and there are
no corresponding revenues in 1996. Other income increased by $4,908,000, or
67.7%, due primarily to the inclusion of Boomtown revenues in 1997 with no
corresponding revenues in 1996.
Total operating expenses (inclusive of approximately $93,072,000 of Boomtown
expenses in 1997, with no corresponding expenses in 1996) increased by
$83,251,000, or 58.2%, during the year ended December 31, 1997, as compared to
the year ended December 31, 1996. Gaming expenses increased by $47,484,000, or
174.3%, primarily due to the inclusion of Boomtown expenses of $46,380,000, and
increased tournament costs at the Hollywood Park-Casino. Food and beverage
expenses increased by $6,172,000, or 31.5%, due primarily to Boomtown food and
beverage expenses of $7,510,000, netted against expense reductions at the
Hollywood Park-Casino, that included labor savings due to the closing of some
food service outlets. Hotel and recreational vehicle park expenses and truck
stop and service station expenses related to Boomtown Reno, and there are no
corresponding expenses in 1996. Administrative expenses increased by
$20,037,000, or 48.3%, which included $22,054,000 of Boomtown expenses, netted
against Sunflower related administrative costs included in the 1996 financial
results, for which there are no similar costs in the 1997 results. Other
expenses increased by $2,563,000, or 103.1%, due primarily to the inclusion of
Boomtown expenses in 1997 with no corresponding expenses in 1996. Depreciation
and amortization increased by $7,462,000, or 69.8%, primarily due to the
Boomtown and Crystal Park LLC depreciation expense in 1997, with no
corresponding expenses in 1996. REIT restructuring expenses consisted primarily
of legal and tax consulting expenses incurred by Hollywood Park with respect to
the reinstatement of the Company's paired share REIT status, as previously
discussed. Interest expense increased by $6,360,000, due to interest on the
Company's $125,000,000 Notes that were issued in August 1997, short term bank
borrowings (all of which had been repaid as of December 31, 1997), and bank
commitment fees (See "Liquidity and Capital Resources"). Income tax expense
increased by $2,391,000, or 69.1%, due to increased income before income taxes
in 1997 as compared to 1996.
Year ended December 31, 1996 compared to the year ended December 31, 1995
-------------------------------------------------------------------------
The results of operations for the year ended December 31, 1996, included the
results of Hollywood Park operating all aspects of the Hollywood Park-Casino,
including the casino gaming floors. Hollywood Park acquired the Hollywood Park-
Casino gaming floor business from Pacific Casino Management ("PCM") on November
17, 1995; therefore, the results of operations for the year ended December 31,
1995, do not include the operating results of the Hollywood Park-Casino gaming
floor business prior to November 17, 1995, but rather are reflective of the
lease arrangement then in place. The results of operations for the year ended
December 31, 1996, included Sunflower's results of operations for the three
months ended March 31, 1996, only. As of March 31, 1996, Sunflower's results of
operations were no longer consolidated with Hollywood Park's due to Sunflower's
May 17, 1996, filing for reorganization under Chapter 11 of the Bankruptcy Code.
Sunflower's results of operations are consolidated in the financial statements
for the year ended December 31, 1995.
Total revenues increased by $12,653,000, or 9.7%, for the year ended December
31, 1996, as compared to the year ended December 31, 1995, primarily due to
Hollywood Park-Casino gaming revenues. Gaming revenues of $50,717,000 were
generated from the Hollywood Park-Casino gaming activities, which Hollywood Park
acquired from PCM on November 17, 1995. During the year ended December 31,
1995, Hollywood Park recorded $20,624,000 of lease revenues, $6,032,000 of
gaming revenues (covering the period November 17,
31
1995, through December 31, 1995), and concession sales to PCM of approximately
$2,773,000, or total 1995 Hollywood Park-Casino gaming and lease related
revenues of $29,429,000. On October 25, 1996, the Crystal Park Casino opened
under a triple net lease between Hollywood Park and CEI (the operator of the
Crystal Park Casino). Monthly lease rent of $445,000 was recorded during 1996.
Racing revenues decreased by $5,728,000, or 7.4%, primarily due to the exclusion
of Sunflower's racing revenues for the nine months ended December 31, 1996. Food
and beverage sales decreased by $5,836,000, or 29.5%, due primarily to the
following: (a) $2,773,000 of sales to PCM in 1995, with no corresponding sales
in 1996; (b) a full year of Sunflower sales of $2,414,000 in 1995, and just
three months of sales in 1996; and (c) on-track attendance declines at Hollywood
Park.
Total operating expenses increased by $15,939,000, or 12.5%, for the year ended
December 31, 1996, compared to the year ended December 31, 1995, primarily due
to the inclusion of $27,249,000 of Hollywood Park-Casino gaming floor expenses
(with corresponding gaming floor expenses of $5,291,000 in 1995) which more than
offset a $7,476,000 reduction in expenses arising from the exclusion of
Sunflower's expenses in 1996. Food and beverage expenses decreased by
$5,176,000, or 20.9%, with $2,089,000 of the savings attributable to the
exclusion of Sunflower's expenses subsequent to the first quarter of 1996, with
the balance primarily due to labor and related cost savings due to closing some
of the Hollywood Park-Casino food outlets. Administrative expenses decreased by
$3,970,000, or 8.7%, due to the inclusion of a full year of Sunflower expenses
in 1995 and just three months of corresponding costs recorded in 1996.
Included in the 1996 results of operations was the $11,412,000 one time, non-
cash write off of Hollywood Park's investment in Sunflower. On May 2, 1996, the
Kansas Legislature adjourned without passing legislation that would have allowed
additional gaming at Sunflower, and thereby, allowing Sunflower to compete with
Missouri riverboat gaming. On May 17, 1996, Sunflower filed for reorganization
under Chapter 11 of the Bankruptcy Code. (See "Item 3 - Legal Proceedings.")
Included in the 1995 results of operations was $6,088,000 of expenses (with no
corresponding expenses in 1996) related to the settlement of certain claims in
connection with a shareholder class action and related shareholder derivative
suit.
Depreciation and amortization expenses decreased by $689,000, or 6.1%, primarily
due to the exclusion of Sunflower's expenses for the nine months ended December
31, 1996, netted against the amortization of the goodwill associated with the
November 17, 1995, acquisition of PCM. Interest expense decreased by
$2,980,000, or 76.0%, due to the exclusion of Sunflower's interest expense for
the nine months ended December 31, 1996.
Income tax expense increased by $2,776,000, due primarily to the establishment
of certain tax reserves.
LIQUIDITY AND CAPITAL RESOURCES
Hollywood Park's principal source of liquidity as of December 31, 1997, was cash
and cash equivalents of $23,749,000. Cash and cash equivalents increased by
$11,827,000 during the year ended December 31, 1997. Net cash provided by
operating activities was $18,454,000. Net cash used in investing activities was
$16,236,000. Cash of $32,505,000 was used to purchase capital assets, including
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 Boomtown 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
$9,609,000. Cash of $125,000,000 was raised with the August 6, 1997 issuance of
the Series A 9.5% Senior Subordinated Notes due 2007 (the "Notes") (as described
below), with associated offering costs of approximately $1,630,000. Cash of
approximately $110,924,000 was used to redeem a majority of Boomtown's 11.5%
First Mortgage Notes. Cash was used for the payment of the convertible
preferred stock dividend through the August 28, 1997 conversion (as described
below). Cash payments were also made on a variety of secured notes for gaming
and other operating assets held by Boomtown, including
32
the approximately $2,107,000 payment of a Boomtown New Orleans note payable on
the prior riverboat used by the property.
Cash and cash equivalents decreased by $10,484,000 during the year ended
December 31, 1996. Net cash provided by operating activities was $13,677,000.
Net cash used in investing activities was $19,893,000, 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
$4,268,000, which included the payment of a secured note, the payment of
dividends on the convertible preferred stock, and the repurchase and retirement
of the Company's common stock, netted against cash received from the then
minority members of Crystal Park LLC.
HOLLYWOOD PARK On June 30, 1997, Hollywood Park and a bank syndicate led by
Bank of America finalized the Bank Credit Facility, a reducing revolving credit
facility allowing for drawings up to $225,000,000. On August 7, 1997, the Bank
Credit Facility was reduced by $125,000,000 (the aggregate principal amount of
the Notes issued as described below) to $100,000,000. Of the $100,000,000, as a
result of covenant limitations, approximately $88,800,000 was available as of
December 31, 1997. As of December 31, 1997, the Company did not have
outstanding borrowings under the Bank Credit Facility, except for a $2,035,000
letter of credit. As March 23, 1998, the Company had borrowings under the Bank
Credit Facility of $20,000,000, primarily used for the Boomtown Reno expansion
project. 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.
On February 19, 1998, Hollywood Park announced the Casino Magic Merger, and
under the terms of the Agreement and Plan of Merger Hollywood Park will pay cash
of $2.27 for each issued and outstanding share of Casino Magic common stock, or
approximately $81,000,000. The Company has begun discussions to amend the Bank
Credit Facility to increase the borrowing capacity to provide the funds required
for the Casino Magic Merger. A formal amendment has not yet been signed, and
there is no assurance that such an amendment will be completed, although the
bank group has given verbal assurance of its intent to provide such an increased
facility.
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. Hollywood Park
received this approval on July 10, 1997. The second amendment, among other
things, allowed the co-issuance of the Notes by Hollywood Park 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 dates.
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 Hollywood Park, 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 a
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%
33
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 December 31, 1997, were 2.00% with respect to the Eurodollar Rate based
interest rate and 1.00% 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.
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 Hollywood Park'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
January 1, 1998, the commitment fee is 50 basis points.
On July 3, 1997, Hollywood Park borrowed $112,000,000 from the Bank Credit
Facility to fund Boomtown's offer to purchase the 11.5% Boomtown First Mortgage
Notes (the "Boomtown Notes"), and repaid this amount on August 7, 1997, with a
portion of the proceeds from the August 6, 1997, issuance of $125,000,000 of
Series A 9.5% Senior Subordinated Notes due 2007 (the "Series A Notes"). The
Series A Notes were co-issued by Hollywood Park and Hollywood Park Operating
Company, and were issued pursuant to a private offering under the Securities Act
of 1933, as amended (the "Securities Act"). The balance of the proceeds from
the issuance of the Series A Notes was used primarily for the purchase of a new
riverboat for Boomtown New Orleans, and other general corporate needs.
On March 20, 1998, the Company completed a registered exchange offer for the
Series A Notes, pursuant to which all $125,000,000 principal amount of the
Series A Notes were exchanged by the holders for $125,000,000 aggregate
principal amount of Series B 9.5% Senior Subordinated Notes due 2007 of the
Company and Hollywood Park Operating Company (together with the Series A Notes,
the "Notes") which were registered under the Securities Act on Form S-4.
Interest on the Notes is payable semi-annually, on February 1st and August 1st.
The Notes will be redeemable at the option of Hollywood Park and Hollywood Park
Operating 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 face amount
decreasing on each subsequent anniversary date. The Notes are unsecured
obligations of Hollywood Park and Hollywood Park Operating Company, guaranteed
by all other material restricted subsidiaries of either Hollywood Park or
Hollywood Park Operating Company.
The indenture governing the Notes contains certain covenants that, among other
things, limit the ability of Hollywood Park, Hollywood Park Operating Company
and their restricted subsidiaries to incur additional indebtedness and issue
preferred stock, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, 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.
The Company believes that the consummation of the Casino Magic Merger will be
permitted under the terms of the Indenture provided that, among other things,
Casino Magic redeems a portion of its long term indebtedness in a manner
currently contemplated by the parties.
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 to purchase the Hollywood Park common stock issued to Roski in the
Boomtown Merger. 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 year ended December 31, 1997, Hollywood Park 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
34
Company's 2,749,900 outstanding depositary shares were converted into
approximately 2,291,500 shares of its common stock, thereby eliminating the
annual preferred cash dividend payment of approximately $1,925,000 for future
periods.
As of December 31, 1997, Hollywood Park liquidated its investments in corporate
bonds. During the year ended December 31, 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.
Effective December 31, 1997, Crystal Park LLC was wholly owned by the Company.
The Company paid $1,000,000 in December 1997, and $2,000,000 in February 1998,
(or the original amount the minority members contributed to Crystal Park LLC) to
purchase the 10.2% of Crystal Park LLC which was held by minority members.
BOOMTOWN In November 1993, Boomtown issued $103,500,000 of 11.5% Boomtown
Notes. On July 3, 1997, pursuant to a tender offer, Boomtown repurchased and
retired approximately $102,142,000 in principal amount of the Boomtown Notes, at
a purchase price of $1,085 per $1,000, along with accrued interest thereon. An
additional $105,000 of the remaining Boomtown Notes were tendered in the post
Boomtown Merger change of control purchase offer, at a price of $1,010 for each
$1,000, completed August 12, 1997. As of December 31, 1997, there were
$1,253,000 of Boomtown Notes outstanding.
On August 4, 1997, Hollywood Park executed a promissory note for the purchase of
the barge and the building shell at Boomtown Biloxi for a 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 each year. The principal amount of the promissory note,
together with accrued interest, may be repaid, without penalty, in whole or in
part, at any time.
On August 7, 1997, Boomtown New Orleans prepaid a 13.0% note secured by the
former riverboat, then in use, for approximately $2,107,000 (inclusive of a 1.0%
prepayment penalty).
As of August 8, 1997, Boomtown New Orleans became wholly owned by Hollywood
Park. 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 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, Boomtown made a down payment of $500,000, and
Hollywood Park paid the remaining $5,170,000 on August 8, 1997.
On September 25, 1997, Hollywood Park acquired the Boomtown Belle II riverboat
from Casino Magic, at a cost of approximately $11,700,000. Hollywood Park
invested approximately $4,700,000 to renovate and equip the Boomtown Belle II,
which was placed in service February 13, 1998.
As of December 31, 1997, Boomtown had a note payable of approximately $252,000
along with various capital lease obligations for gaming and other operating
equipment, totaling approximately $1,527,000.
In connection with the sale of its Las Vegas property, Boomtown took back two
notes receivable from Roski, the former lessor of Boomtown's 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 payments 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 Hollywood Park's
35
acquisition of Sunflower. As of December 31, 1997, the outstanding balance of
the Sunflower Senior Credit was $28,667,000. The Sunflower Senior Credit is non-
recourse to Hollywood Park.
On May 17, 1996, Sunflower filed for reorganization under Chapter 11 of the
Bankruptcy Code. The Cash Collateral Agreement suspended any interest or
principal payments on the Sunflower Senior Credit until August 12, 1997. The
Bankruptcy Court has issued an order extending the Cash Collateral Agreement
until it issues its pending ruling regarding approval of Sunflower's proposed
plan of reorganization. The Cash Collateral Agreement requires Sunflower to
make certain cash payments to Wyandotte County, Kansas, the creditors under the
Sunflower Credit and TRAK East (the unaffiliated non-profit holder of the pari-
mutuel racing license in Kansas, and 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 Tribe of Oklahoma (the "Wyandotte Tribe"). The Plan was
amended on October 31, 1997. Under the Plan, some or all of the land would be
held by the United States Government in trust for the Wyandotte Tribe, and a
casino would be developed on the property. Upon completion of the casino, HP
Kansas, Inc. ("HP Kansas") (a wholly owned subsidiary of Hollywood Park) and a
partner (North American Sports Management or an affiliate) will provide
financing and consulting services for the development and operation of a casino.
Under this arrangement, HP Kansas would be entitled to receive a share of the
revenues of the casino. Under the plan, in order to allow the property to be
released as collateral and sold to the Wyandotte Tribe, Sunflower will be
required to have standby letters of credit issued to support certain payments to
be made to the lenders under the Sunflower Senior Credit and the Wyandotte
County Treasurer's office. The aggregate amount of such letters of credit is
anticipated to be in excess of $29,000,000. Hollywood Park will arrange for the
issuance of such letters of credit on behalf of Sunflower. It is anticipated
that the earliest the bankruptcy court will rule on the Plan is in the second
quarter of 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 the
Sunflower Senior Credit. Although Hollywood Park 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 this filing, the Company had a remaining capital
commitment of approximately $5,000,000 (total amount committed was $9,000,000)
with respect to construction of the casino for the Yakama expansion, as
previously described. The Company also has a commitment of approximately
$81,000,000, with respect to the Casino Magic Merger, which is expected to close
in the fourth quarter of 1998.
Expansion Costs In addition to the capital commitments as discussed, 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 is expected to be completed by
late summer 1998.
GENERAL Hollywood Park is continually evaluating future growth opportunities in
the gaming, sports and entertainment industries. Hollywood Park expects that
funding for the Casino Magic Merger, other expansion, payment of interest on the
Notes, payment of notes payable, and normal and necessary capital expenditure
needs will come from existing cash balances generated from operating activities
and borrowings from the Bank Credit Facility. In the opinion of management,
these resources will be sufficient to meet Hollywood Park's anticipated cash
requirements for the foreseeable future and in any event for at least the next
twelve months.
36
ITEM 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
As of December 31, 1997, Hollywood Park did not hold any investments in market
risk sensitive instruments of the type described in Item 305 of Regulation S-K.
ITEM 8. FINANCIAL STATEMENTS
- ----------------------------
Financial statements and accompanying footnotes are set forth starting on page
57 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The following table sets forth certain information with respect to the Directors
and Executive Officers of the Company:
Name Age Position
- ------------------------------------------ ------- ---------------------------------------------------------------------
R.D. Hubbard (a) 62 Chairman of the Board of Directors, Chief Executive Officer and
Member of the Office of the Chairman
Harry Ornest (a) 77 Vice Chairman of the Board of Directors
Richard Goeglein (a) (b) 63 Director
Peter L. Harris 54 Director
J.R. Johnson (b) 77 Director
Robert T. Manfuso 60 Director
Timothy J. Parrott (a) 50 Director and Member of the Office of the Chairman for Administration
of Boomtown
Lynn P. Reitnouer (a) (b) 65 Director
Herman Sarkowsky (c) 72 Director
Warren B. Williamson (c) 69 Director
Delbert W. Yocam (c) 53 Director
Donald M. Robbins 50 President of Hollywood Park, President of Racing and Secretary
G. Michael Finnigan 49 President, Sports and Entertainment, Executive Vice President,
Treasurer, Chief Financial Officer and Member of the Office of the
Chairman
____
(a) Member of Executive Committee
(b) Member of Compensation Committee
(c) Member of Audit Committee
Mr. Hubbard has been a Director of Hollywood Park since 1990; Chairman of the
Board and Chief Executive Officer of Hollywood Park since September 1991; Member
of the Hollywood Park Office of the Chairman since June 1997; Chairman of the
Board and Chief Executive Officer of Hollywood Park Operating Company since
February 1991; President of Hollywood Park Operating Company from February to
July 1991; Chairman, AFG Industries, Inc. and its parent company, Clarity
Holdings Corp. (glass manufacturing) and director of AFG Industries, Inc.'s
subsidiaries, from 1978 to July 1993; Chairman of the Board (and 60% stockholder
until March 1994) of Sunflower (the Woodlands Race Track greyhound and horse
racing) from 1988; President, Director, and owner of Ruidoso Downs Racing, Inc.
(horse racing) since 1988; Chairman of the Board, Chief Executive Officer and
sole stockholder, Multnomah Kennel Club, Inc. (greyhound racing) since December
1991; Owner and breeder of numerous thoroughbreds and quarter horses since 1962.
Sunflower, a wholly owned subsidiary of Hollywood Park, filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code on May 17, 1996.
37
Mr. Ornest has been a Director of Hollywood Park since 1991; Vice Chairman of
the Board of Hollywood Park since September 1991; Director, Hollywood Park
Operating Company since 1988; Vice Chairman of the Board, Hollywood Park
Operating Company since February 1991; Owner and Chairman, Toronto Argonauts
Football Club (Canadian Football League club) from 1988 to May 1991; Owner, St.
Louis Blues (National Hockey League club) 1983 to 1987; Owner, St. Louis Arena,
1983 to 1987; Owner and Founder, Vancouver Canadians (Pacific Coast Baseball
League Club), 1977 to 1981; Hollywood Park stockholder, 1962 to present.
Mr. Goeglein has been a Director of Hollywood Park since June 1997; President of
Aladdin Gaming LLC since January 1997; Director of Boomtown, Inc. from October
1992 to June 1997; Director of AST Research, Inc. since May 1987; Director of
Platinum Software Corp. since October 1994; President and principal shareholder
of Gaming Associates, Inc. since 1990; President and Chief Operating Officer of
Holiday Corporation (parent corporation of Holiday Inns and Harrah's Hotels and
Casinos) from 1984 to 1987; private investor since 1987.
Mr. Harris has been a Director of Hollywood Park since June 1997; Director of
Boomtown, Inc. from April 1994 to June 1997; Director of Onsale, Inc. since
1996; Director of Natural Wonders, Inc. since 1996; Director of Pacific Sunwear
of California, Inc. since 1994; President and Chief Executive Officer of
Expressly Portraits, Inc. (a retail chain of portrait photography studios) since
August 1995; Reorganization Administrator of American Fashion Jewels (a retail
company) and then as Chief Executive Officer of Accolade, Inc. (a video and
personal computer games company) from 1993 to 1995; President and Chief
Executive Officer of F.A.O. Schwarz from 1985 to 1992.
Mr. Johnson has been a Director of Hollywood Park since 1991; Director,
Hollywood Park Operating Company from February 1991 to January 1992; Chairman,
President and Chief Executive Officer, NEWMAR (marine electronics manufacturing)
since 1980; Trustee, Westminster College.
Mr. Manfuso has been a Director of Hollywood Park since 1991; Director,
Hollywood Park Operating Company from February 1991 to January 1992; Co-Chairman
of the Board, Laurel Racing Association (horse race track management) from 1984
to February 1994; Vice Chairman of the Board, The Maryland Jockey Club (horse
racing) from 1986 to February 1994; Executive Vice President, Laurel Racing
Association from 1984 to May 1990; Executive Vice President, The Maryland Jockey
Club from 1986 to June 1990; Director, Maryland Horse Breeders Association from
1984 to 1992 and since 1993; Member, Executive Committee, Maryland Million since
1991.
Mr. Parrott has been a Director and Member of the Office of the Chairman since
June 1997; Chairman of the Board and Chief Executive Officer of Boomtown, Inc.
since September 1992; President and Treasurer of Boomtown, Inc. from June 1987
to September 1992; Director of Boomtown, Inc. since 1987; Chairman of the Board
and Chief Executive Officer of Boomtown Hotel & Casino, Inc. since May 1988;
Chief Executive Officer of Parrott Investment Company (a family-held investment
company with agricultural interests in California) since April 1995; Director of
The Chronicle Publishing Company since April 1995.
Mr. Reitnouer has been a Director of Hollywood Park since 1991; Director,
Hollywood Park Operating Company from September 1991 to January 1992; Partner,
Crowell Weedon & Co. (stock brokerage) since 1969; Director of COHR, Inc., since
1986 and former Chairman of the Board of COHR, Inc.; Director, President and
Regent, Forest Lawn Memorial Parks Association since 1975; Trustee, University
of California Santa Barbara Foundation since 1992.
Mr. Sarkowsky has been a Director of Hollywood Park since 1991; Director,
Hollywood Park Operating Company from February 1991 to January 1992; Owner,
Sarkowsky Investment Corporation and SPF Holding, Inc. (real estate development
and investments) since 1980; Director, The Sarkowsky Foundation (charitable
foundation) since 1982; thoroughbred horse breeder and owner since 1959;
Director, Synetics, Inc. (porous plastic manufacturing); Director, Seafirst
Corporation (banking); Director, Eagle Hardware & Garden, since 1990.
38
Mr. Williamson has been a Director of Hollywood Park since 1991; Vice President
and Secretary of Hollywood Park from September 1991 to August 1996; Chairman of
the Board and Chief Executive Officer of Hollywood Park from 1989 to September
1991; Director, Hollywood Park Operating Company since 1985; Vice President and
Secretary, Hollywood Park Operating Company from February 1991 to August 1996;
Secretary and Treasurer, Hollywood Park Operating Company from 1985 to November
1990; Chairman and Chief Executive Officer, Chandis Securities Co. (holding
company) since 1985; Director, Times Mirror Company; Trustee, Hospital of the
Good Samaritan; Trustee, California Thoroughbred Breeders Foundation; Trustee,
Claremont McKenna College; Chairman Emeritus, Art Center College of Design;
Breeder and racer of thoroughbreds since 1970.
Mr. Yocam has been a Director of Hollywood Park since June 1997; Director of
Boomtown, Inc. from December 1995 to June 1997; Chairman and Chief Executive
Officer of Borland International since December 1996; Director of Adobe Systems,
Inc., since February 1991; Independent consultant from November 1994 to December
1996; Director of Oracle Corporation since March 1992; President, Chief
Operating Officer and a Director of Tektronix, Inc. from September 1992 to
November 1994; Independent consultant from November 1989 to September 1992.
Mr. Robbins has been Hollywood Park's President of Racing since February 1994;
President of Hollywood Park since September 1991; Secretary of Hollywood Park
since 1996 (formerly Assistant Secretary since September 1991); General Manager
of Hollywood Park Operating Company from 1986 to February 1994; Executive Vice
President of Hollywood Park Operating Company since 1988, and President and
Secretary of Hollywood Park Operating Company since July 1991.
Mr. Finnigan has been Hollywood Park's President, Sports and Entertainment,
since February 1994 and a member of the Office of the Chairman since June 1997;
Executive Vice President and Chief Financial Officer of Hollywood Park and of
Hollywood Park Operating Company since March 1989; and Treasurer of Hollywood
Park and of Hollywood Park Operating Company since March 1992; Chairman of the
Board of Southern California Special Olympics since 1996; Chairman of the Board
of Centinela Hospital since 1996; and Director of the Shoemaker Foundation since
1993. Mr. Finnigan also serves as Secretary and Treasurer of Sunflower Racing,
Inc., a wholly owned subsidiary of Hollywood Park, which filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code on May 17, 1996.
In addition, upon the consummation of the Boomtown Merger, the Company
established an Office of the Chairman comprised of Hollywood Park's Chief
Executive Officer, Hollywood Park's President of Sports and Entertainment and
the Chief Executive Officer of Boomtown. The Office of the Chairman provides
advice to the Chief Executive Officer of Hollywood Park on such matters as he
may request and undertakes such other responsibilities as he may delegate to the
Office of the Chairman from time to time.
During 1997, the Hollywood Park Board held three meetings and acted by unanimous
written consent on two occasions.
In accordance with the requirements of the Agreement and Plan of Merger dated as
of April 23, 1996 (the "Merger Agreement") governing the Boomtown Merger, the
Hollywood Park Board was expanded upon completion of the Boomtown Merger to
eleven directors, seven of whom (Messrs. Hubbard, Ornest, Johnson, Manfuso,
Reitnouer, Sarkowsky and Williamson) had been serving as members of the
Hollywood Park Board (the "Hollywood Park Directors") and four of whom (Messrs.
Parrott, Goeglein, Harris and Yocam) had been members of the Boomtown Board of
Directors (the "Boomtown Directors"). The Boomtown Merger Agreement provided
that, during the three year period ending June 30, 2000, any increase in the
size of the Hollywood Park Board must be approved by a majority of the Boomtown
Directors then on the Hollywood Park Board, except that the number of persons
serving on the Hollywood Park Board may be increased without such consent if the
increase is divisible by three and one Boomtown Director (to be selected by a
majority of the Boomtown Directors then on the Hollywood Park Board) is added
for every two Hollywood Park Directors added. Hollywood Park has agreed to cause
its Board of Directors and any nominating committee thereof to take the
necessary steps to nominate the initial Boomtown Directors or their
39
replacements (selected by a majority of the Boomtown Directors) for re-election
at the first three annual stockholders meetings following June 30, 1997.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The following tables summarize the annual and long-term compensation of, and
stock options held by, Hollywood Park's Chief Executive Officer and the two
additional most highly compensated executive officers whose annual salaries and
bonuses exceeded $100,000 in total during the fiscal year ended December 31,
1997 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Awards
----------------
Annual Compensation Securities
------------------------ Underlying
Name and Principal Salary Bonus Other Annual Options/ All Other
Position Year ($) ($) Compensation SARs (#) Compensation (a)
- --------------------------------------------------------------------------------------------------------------------------------
R. D. Hubbard 1997 $400,000 $40,235 $0 45,000 $4,740
Chairman of the Board 1996 400,000 0 0 85,000 0
and Chief Executive 1995 400,000 0 0 0 0
Officer
G. Michael Finnigan 1997 $307,608 $ 0 $0 25,000 $3,555
President, Sports and 1996 262,608 25,000 0 40,000 0
Entertainment, Executive 1995 262,608 0 0 0 0
Vice President, Treasurer,
Chief Financial Officer
Donald M. Robbins 1997 $295,008 $ 0 $0 25,000 $3,373
President of Hollywood 1996 250,008 25,000 0 40,000 0
Park, Inc., President of 1995 255,501 0 0 0 0
Racing and Secretary
_________
(a) Reflects matching contributions under the Hollywood Park 401(k) Plan.
STOCK OPTION PLAN In 1993, the stockholders of Hollywood Park adopted the
Hollywood Park 1993 Stock Option Plan (the "1993 Plan"), which provided for the
issuance of up to 625,000 shares of Hollywood Park common stock upon exercise of
options granted thereunder. In 1996, the stockholders of Hollywood Park adopted
the Hollywood Park 1996 Stock Option Plan (the "1996 Plan"), which provides for
the issuance of up to 900,000 shares of Hollywood Park common stock upon
exercise of options granted thereunder. Except for the provisions governing the
number of shares issuable thereunder, and except for certain provisions which
reflect changes in tax and securities laws, the provisions of the 1993 Plan and
the 1996 Plan (collectively, the "Hollywood Park Plans") are substantially
similar. The Hollywood Park Plans are administered and terms of option grants
are established by the Compensation Committee of the Board of Directors. Under
the Hollywood Park Plans, options alone or coupled with stock appreciation
rights may be granted to selected key employees, directors, consultants and
advisors of Hollywood Park. Options become exercisable according to a vesting
period as determined by the Compensation Committee at the date of grant, and
expire on the earlier of one month after termination of employment, six months
after the death or permanent disability of the optionee, or the expiration of
the fixed option term set by the Compensation Committee at the grant date (not
to exceed ten years from the grant date). The exercise prices of all options
granted under the Hollywood Park Plans are determined by the Compensation
Committee on the grant date, provided that the exercise price of an incentive
stock option may not be less than the fair market value of the common stock at
the date of grant.
40
As of March 13, 1998, all of the 625,000 shares eligible for issuance under the
1993 Plan had either been issued or were subject to outstanding options, and of
the 900,000 shares eligible for issuance under the 1996 Plan, 411,312 were
subject to outstanding options (net of cancellations). In addition, 973,273
shares of Hollywood Park common stock are issuable upon exercise of options
granted before the Boomtown Merger under Boomtown's 1990 Stock Option Plan and
1992 Director Option Plan (collectively, the "Boomtown Plans"), which options
were assumed by Hollywood Park in the Boomtown Merger. Hollywood Park has filed
registration statements with the Securities and Exchange Commission covering an
aggregate of 2,613,308 shares of Hollywood Park common stock issuable upon
exercise of options granted under the Hollywood Park Plans and the Boomtown
Plans.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR The following table summarizes the
option grants to Named Officers during 1997:
Individual Grants
- ----------------------------------------------------------------------------------------------
Percent of
Total Potential Realizable Value
Number of Options/ at Assumed Annual Rates
Securities SARs of Stock Price Appreciation
Underlying Granted to for Option Term
Options/SARs Employees Exercise of ------------------------------
Granted in Fiscal Base Price Expiration
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
- ------------------ ------------- ------------ ------------ --------------- ------------- ------------
R.D. Hubbard 45,000 17% $14.75 July 18, 2007 $417,429 $1,057,847
G. Michael Finnigan 25,000 9% 14.75 July 18, 2007 231,905 587,693
Donald M. Robbins 25,000 9% 14.75 July 18, 2007 231,905 587,693
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/SAR VALUES The following table sets forth information with respect to
the exercise of stock options during the year ended December 31, 1997, and the
final year end value of unexercised options. None of the Named Officers
exercised, nor held, stock appreciation rights during the year ended December
31, 1997.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired At Fiscal At Fiscal
On Value Year-End (#) Year-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable (a)
- ---------------------- --------------- -------------------- ---------------------- -------------------------
R.D. Hubbard 0 $ 0 28,334/101,666 $340,008/$1,219,992
G. Michael Finnigan 25,000 $204,063 38,334/51,666 $ 460,008/$619,992
Donald M. Robbins 25,000 $175,000 38,334/51,666 $ 460,008/$619,992
Mark A. Sterbens 40,000 $159,250 0/20,000 $ 0/$240,000
___
(a) Represents the difference between the market price of Hollywood Park Common
Stock on December 31, 1997, and the exercise price of the options.
41
PENSION PLAN
Years of Qualified Service
---------------------------------------------------------
Final Average Annual Salary 10 15 20 25 30
- -------------------------------- ------- ------- ------- ------- --------
$100,000 $24,745 $37,118 $49,490 $61,863 $ 66,863
$150,000 to $500,000 (a) 37,995 56,993 75,990 94,988 102,488
____
(a) Under current provisions of the Internal Revenue Code, the maximum average
salary that may be used in calculating retirement benefits in 1996 was $150,000.
Benefits accrued on April 1, 1994 (based on prior compensation limits) are
grandfathered. Pension benefits were frozen as of September 1, 1996, for all
plan participants, except retained participants, whose benefits were frozen as
of December 31, 1996.
Hollywood Park elected to terminate the Hollywood Park Pension Plan (the
"Pension Plan") as of January 31, 1997. Accrued Pension Plan benefits were
frozen as of September 1, 1996, for all Pension Plan participants, except
retained participants, (participants who, because of legal requirements,
including the provisions of the National Labor Relation Act, are represented by
a collective bargaining agent) whose benefits were frozen as of December 31,
1996.
The Pension Plan was a non-contributory, defined benefit plan covering employees
of Hollywood Park, Inc., and all employees of Hollywood Park Operating Company,
not eligible for participation in a multi-employer defined benefit plan, who met
the Pension Plan's service requirement. R.D. Hubbard, G. Michael Finnigan, and
Donald M. Robbins, are the only officers or directors of the Company who
participated in the Pension Plan, and their Pension Plan benefits were frozen as
of September 1, 1996, and as of that date, Messers. Hubbard, Finnigan and
Robbins had two, six and ten years, respectively, of qualified years of service.
Only amounts earned by Messers. Hubbard, Finnigan and Robbins listed under
"Annual Compensation Salary" as shown in the Summary Compensation Table, were
considered in determining their Pension Plan benefit levels.
The amounts listed in the above Pension Plan table are estimated annual
retirement benefits under the Pension Plan (assuming payments were made on the
normal life annuity basis, and not under the provisions on survivor benefits) at
a normal retirement age of 65 in 1996, after various years of qualified service,
at selected average annual compensation levels. However, due to the Pension
Plan benefits being frozen as of September 1, 1996, and based on their actual
years of qualified service, and annual compensation levels, Messers. Hubbard,
Finnigan and Robbins annual benefits, expressed as a joint and survivor annuity
payment, starting at age 65, are $7,521, $29,082 and $51,009, respectively.
The amounts required to fund the Pension Plan were determined actuarially, and
were paid by Hollywood Park to a life insurance company under an unallocated
annuity contract.
Effective January 31, 1997, in conjunction with the termination of the Pension
Plan, Hollywood Park elected to terminate its non-qualified Supplementary
Employment Retirement Plan (the "SERP"). The SERP was an unfunded plan,
established primarily for the purpose of restoring the retirement benefits for
highly compensated employees that were eliminated by the Internal Revenue
Service in 1994, when the maximum annual earnings allowed for qualified pension
plans was reduced to $150,000 from $235,850. Messers, Hubbard, Finnigan and
Robbins participated in the SERP, prior to its termination.
BOARD COMMITTEES AND DIRECTOR COMPENSATION Hollywood Park has a standing
Executive Committee which is chaired by Mr. Ornest and currently consists of
Messrs. Hubbard, Ornest, Reitnouer, Parrott and Goeglein. The Executive
Committee has and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of Hollywood Park to the
fullest extent authorized by Delaware law. The Executive Committee had four
formal meetings in 1997 and acted by unanimous written consent on five
occasions.
42
Hollywood Park has a standing Audit Committee which is chaired by Mr. Williamson
and currently consists of Messrs. Sarkowsky and Williamson and since the
Boomtown Merger, Mr. Yocam. The functions of the Audit Committee are to review
the audits of Hollywood Park's books performed by outside independent auditors,
to consider matters of accounting policy and to investigate and recommend to the
Board independent auditors for the following year. The Audit Committee met
twice in 1997.
Hollywood Park has a standing Compensation Committee, which currently consists
of Messrs. Johnson and Reitnouer and since the Boomtown Merger Mr. Goeglein.
Mr. Johnson chairs the Compensation Committee. The functions of the
Compensation Committee are to make recommendations to the Board of Directors
regarding the annual salaries and other compensation of the officers of
Hollywood Park, to provide assistance and recommendations with respect to the
compensation policies and practices of Hollywood Park and to assist with the
administration of Hollywood Park's compensation plans. The Compensation
Committee met once in 1997.
The Executive Committee acts as Hollywood Park's nominating committee. The
Executive Committee generally does not consider nominees recommended by
Hollywood Park's stockholders.
The Boomtown Merger Agreement provides that during the three year period ending
June 30, 2000, the Executive Committee will consist of five members. Three of
such members shall be Hollywood Park representatives (currently Messrs. Hubbard,
Ornest and Reitnouer) and two shall be Boomtown representatives (currently
Messrs. Parrott and Goeglein). The number of members of the Executive Committee
may not be increased beyond five members at any time during such three year
period without the consent of the majority of the Boomtown representatives on
the committee.
During 1997, each incumbent director of Hollywood Park attended at least 75% of
the aggregate of (i) the three meetings of the Board of Directors and (ii) the
total number of meetings of the committees on which he served (during the
periods that he served).
All directors hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualified. Directors are entitled
to receive, and in 1997 received, an annual retainer fee at the rate of $25,000
per year plus a $1,000 fee for each Board meeting attended, which they may take
in cash or in deferred compensation under Hollywood Park's Directors Deferred
Compensation Plan (the "Directors Plan") as outlined below. In addition,
members of the Executive Committee, Audit Committee and Compensation Committee
receive $1,000 for each committee meeting attended, and such amounts are also
eligible for the Directors Plan. Furthermore, directors and their guests are
entitled, without charge, to use the Directors' Room at the Hollywood Park Race
Track, which is open on weekends and holidays during the racing season.
On July 18, 1997, each of Messrs. Johnson, Manfuso, Ornest, Reitnouer, Sarkowsky
and Williamson (constituting all of the non-executive directors of Hollywood
Park, excluding the Boomtown Directors) was granted a non-qualified stock option
to purchase 2,000 shares of Hollywood Park common stock at an exercise price of
$14.75 per share. One-third of the shares purchasable upon exercise of these
options was vested on the grant date, with an additional one-third to vest on
each of the first and second anniversary of the grant date. All of these
options expire on the tenth anniversary of the grant date and (except for the
options granted to Messrs. Johnson and Reitnouer) were granted under the
Hollywood Park 1996 Stock Option Plan.
DIRECTORS DEFERRED COMPENSATION PLAN Participation in Hollywood Park's
Directors Deferred Compensation Plan is limited to directors of Hollywood Park.
Pursuant to the Directors Plan, each eligible director may elect to defer all or
a portion of his annual retainer and any fees for meetings attended. Any such
deferred compensation is credited to a deferred compensation account, either in
cash or in shares of Hollywood Park Common Stock, at each director's election.
As of the date the director's compensation would otherwise have been paid, and
depending on the director's election, the director's deferred compensation
account will be credited with either (i) cash, (ii) the number of full and/or
fractional shares of Hollywood Park common stock
43
obtained by dividing the amount of the director's compensation for the calendar
quarter or month which he elected to defer, by the average of the closing price
of Hollywood Park common stock on the principal stock exchange on which the
Company's common stock listed (or, if the common shares are not listed on a
stock exchange, the NASDAQ National Market System) on the last ten business days
of the calendar quarter or month for which such compensation is payable or (iii)
a combination of cash and shares of Hollywood Park common stock as described in
clause (i) and (ii). All cash amounts credited to the director's deferred
compensation account bear interest at an amount to be determined from time to
time by the Board of Directors.
If a director has elected to receive shares of Hollywood Park common stock in
lieu of his retainer, such director's deferred compensation account is credited
at the end of each calendar quarter with the number of full and/or fractional
shares of Hollywood Park common stock obtained by dividing the dividends which
would have been paid on the shares credited to the director's deferred
compensation account as of the dividend record date, if any, occurring during
such calendar quarter if such shares had been shares of issued and outstanding
Hollywood Park common stock on such date, by the closing price of the Hollywood
Park common stock on the New York Stock Exchange on the date such dividend(s)
was paid. In addition, if Hollywood Park declares a dividend payable in shares
of Hollywood Park common stock, the director's deferred compensation account is
credited at the end of each calendar quarter with the number of full and/or
fractional shares of Hollywood Park common stock which such shares would have
been entitled to if such shares had been shares of issued and outstanding
Hollywood Park common stock on the record date for such stock dividend(s).
Participating directors do not have any interest in the cash and/or Hollywood
Park common stock credited to their deferred compensation accounts until
distributed in accordance with the Directors Plan, nor do they have any voting
rights with respect to such shares until shares credited to their deferred
compensation accounts are distributed. The rights of a director to receive
payments under the Plan are no greater than the rights of an unsecured general
creditor of Hollywood Park. Each participating director may elect to have the
aggregate amount of cash and shares credited to his deferred compensation
account distributed to him in one lump sum payment or in a number of
approximately equal annual installments over a period of time not to exceed
fifteen years. The lump sum payment or the first installment will be paid as of
the first business day of the calendar quarter immediately following the
cessation of the director's service as a director of Hollywood Park. Prior to
the beginning of any calendar year, a director may elect to change the method of
distribution, but amounts credited to a director's account prior to the
effective date of such change may not be affected, but rather will be
distributed in accordance with the election at the time such amounts were
credited to the director's deferred compensation account.
The maximum number of shares of Hollywood Park common stock that can be issued
pursuant to the Directors Plan is 125,000 shares. Hollywood Park is not
required to reserve or set aside funds or shares of Hollywood Park common stock
for the payment of its obligations pursuant to the Directors Plan. Hollywood
Park is obligated to make available, as and when required, a sufficient number
of shares of common stock to meet the needs of the Directors Plan. The shares
of Hollywood Park Common Stock to be issued under the Directors Plan may be
either authorized and unissued shares or reacquired shares.
Amendment, modification or termination of the Directors Plan may not (i)
adversely affect any eligible director's rights with respect to amounts then
credited to his account or (ii) accelerate any payments or distributions under
the Directors Plan (except with regard to bona fide financial hardships).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the
Compensation Committee currently are Messrs. Johnson, Reitnouer and Goeglein.
None of the members of the Compensation Committee were officers or employees or
former officers or employees of the Company or its subsidiaries.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation
Committee of the Board of Directors (the "Compensation Committee"), which is
composed entirely of independent outside directors, is
44
responsible for making recommendations to the Board regarding the annual
salaries and other compensation of the officers of Hollywood Park, providing
assistance and recommendations with respect to the compensation policies and
practices of Hollywood Park and assisting with the administration of Hollywood
Park's compensation plans.
In order to attract and retain well-qualified executives, which the Compensation
Committee believes is crucial to Hollywood Park's success, the Compensation
Committee's general approach to compensating executives is to pay cash salaries
which are commensurate with the executives' experience and expertise and, where
relevant, are competitive with the salaries paid to executives in Hollywood
Park's main industries and primary geographic locations, which are currently
land-based, dockside and riverboat casinos in Nevada, Louisiana, Mississippi,
and other jurisdictions, thoroughbred horse racing tracks and card clubs in
Southern California, and horse and dog racing tracks in Kansas and Arizona. In
addition, to align its executives' compensation with Hollywood Park's business
strategies, values and management initiatives, both short and long term, the
Compensation Committee may, with the Board's approval, authorize the payment of
discretionary bonuses based upon an assessment of each executive's contributions
to Hollywood Park. In general, the Compensation Committee believes that these
discretionary bonuses should be related to Hollywood Park's and the executive's
performance, although specific performance criteria have not been established.
The Compensation Committee also believes that stock ownership by key executives
provides a valuable incentive for such executives and helps align executives'
and stockholders' interests. To facilitate these objectives, Hollywood Park
adopted the 1993 Plan and the 1996 Plan, pursuant to which Hollywood Park may
grant stock options to executives (as well as other employees and directors) to
purchase up to 625,000 shares and 900,000 shares, respectively, of Hollywood
Park Common Stock. The Compensation Committee believes that the key officers of
Hollywood Park have provided excellent services and been diligent in their
commitment to Hollywood Park. The Compensation Committee believes that stock
ownership by such officers provides an important incentive for their continued
efforts and diligence. In July 1997, options aggregating 45,000, 25,000 and
25,000 shares were granted to Messrs. Hubbard, Robbins and Finnigan,
respectively, at an exercise price of $14.75 per share.
From 1993 through the end of 1997, Mr. Hubbard was paid a base salary of
$400,000 per annum. This payment was fixed in 1992 based upon an analysis of
(i) the annual compensation received by the Chief Executive Officer of Santa
Anita Race Track, (ii) the annual base salaries currently being paid to Messrs.
Robbins and Finnigan, (iii) the prominence of Mr. Hubbard in the business
community in general and the horse racing community in particular, (iv) the
level and value of the contribution that the Compensation Committee believes Mr.
Hubbard has made, and can make in the future, to Hollywood Park and (v) the fact
that Mr. Hubbard was willing to accept this amount even though the Compensation
Committee believes that he could command a much higher compensation level based
upon his business experience and expertise. Commencing January 1, 1998, Mr.
Hubbard's base salary was increased to $500,000 per annum, based upon the above-
mentioned factors, and also Hollywood Park's expansion into the card club and
gaming business, where executive salaries tend to be substantially higher than
those in the thoroughbred horse racing business. While Mr. Hubbard's base
salary is not dependent upon Hollywood Park's performance, it is anticipated
that any bonuses he may receive, based upon the recommendation of the
Compensation Committee and the approval of the Board of Directors, would be, at
least in part, so dependent.
January 26, 1998
COMPENSATION COMMITTEE
J.R. Johnson (Chairman)
Lynn P. Reitnouer
Richard Goeglein
45
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The following table sets forth the name, address (address is provided for
persons listed as beneficial owners of 5% or more of the outstanding Hollywood
Park common stock) and number of shares and percent of the outstanding Hollywood
Park common stock beneficially owned as of March 15, 1998, by each person known
to the Board of Directors of Hollywood Park to be the beneficial owner of 5% or
more of the outstanding shares of Hollywood Park common stock, each Director,
each Named Officer and all current Directors and Executive Officers as a group.
Shares Percent of
Beneficially Shares
Name and Address of Beneficial Owner Owned (a) Outstanding (b)
- ---------------------------------------------------------------- ----------------------- ------------------------
R.D. Hubbard 2,676,509 (c) 10.2%
Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, California 90301
Legg Mason, Inc. 2,337,500 (d) 8.9%
111 South Calvert Street
Baltimore, Maryland 21202
State of Wisconsin Investment Board 1,780,000 (e) 6.8%
P.O. Box 7842
Madison, Wisconsin 53707
Timothy J. Parrott 443,049 (f) 1.7%
J.R. Johnson 376,094 (g) 1.4%
Harry Ornest 133,334 (h) *
Warren B. Williamson 155,251 (i) *
Lynn P. Reitnouer 57,334 (j) *
Herman Sarkowsky 53,272 (k) *
Robert T. Manfuso 35,667 (l) *
Richard J. Goeglein 6,125 (m) *
Peter L. Harris 3,250 (n) *
Delbert W. Yocam 1,896 (o) *
G. Michael Finnigan 67,081 (p) *
Donald M. Robbins 54,005 (q) *
Current Directors and Executive
Officers as a group (13 persons) 4,062,867 15.2%
____
* Less than one percent (1%) of the outstanding common shares.
(a) Reflects the conversion of each of Hollywood Park's outstanding Depositary
Shares into 0.8333 shares of Hollywood Park Common Stock effective August
28, 1997.
(b) Assumes exercise of stock options beneficially owned by the named
individual or entity into shares of Hollywood Park Common Stock. Based on
26,285,454 shares outstanding as of March 15, 1998.
(c) Includes 56,668 shares of Hollywood Park Common Stock which Mr. Hubbard
has the right to acquire upon the exercise of options which are
exercisable within 60 days of March 15, 1998.
(d) Based upon information provided by the stockholder in Schedule 13G filed
with the Commission on February 12, 1998.
(e) Based upon information provided by the stockholder in Schedule 13G filed
with the Commission on January 22, 1998.
(f) Includes 270,278 shares of Hollywood Park Common Stock which Mr. Parrott
has the right to acquire pursuant to options assumed by the Company in
connection with the Boomtown Merger which are exercisable within sixty
days of March 15, 1998
(g) Includes 7,334 shares of Hollywood Park Common Stock which Mr. Johnson has
the right to acquire upon the exercise of options which are exercisable
within 60 days of March
46
15, 1998.
(h) Includes 70,000 shares of Hollywood Park Common Stock held by The Ornest
Family Foundation, for which Mr. Ornest and his wife Ruth Ornest act as
trustees. (Mr. Ornest disclaims any pecuniary interest in these shares.)
In addition, as trustees of the Harry and Ruth Ornest Trust, Mr. Ornest
and his wife share the power to vote 60% of the interest in the Ornest
Family Partnership (the "Partnership"), which in turn has the power to
dispose of the 56,300 shares of Hollywood Park Common Stock held in the
name of the Partnership. Also includes 7,334 shares of Hollywood Park
Common Stock which Mr. Ornest has the right to acquire upon the exercise
of options which are exercisable within 60 days of March 15, 1998.
(i) Includes 7,334 shares of Hollywood Park Common Stock which Mr. Williamson
has the right to acquire upon the exercise of options which are
exercisable within 60 days of March 15, 1998.
(j) Includes 7,334 shares of Hollywood Park Common Stock which Mr. Reitnouer
has the right to acquire upon the exercise of options which are
exercisable within 60 days of March 15, 1998.
(k) Includes 7,334 shares of Hollywood Park Common Stock which Mr. Sarkowsky
has the right to acquire upon the exercise of options which are
exercisable within 60 days of March 15, 1998.
(l) Includes 7,334 shares of Hollywood Park Common Stock which Mr. Manfuso has
the right to acquire upon the exercise of options which are exercisable
within 60 days of March 15, 1998.
(m) Includes 4,875 shares of Hollywood Park Common Stock which Mr. Goeglein
has the right to acquire pursuant to options assumed by the Company in
connection with the Boomtown Merger which are exercisable within 60 days
of March 15, 1998.
(n) Includes 3,250 shares of Hollywood Park Common Stock which Mr. Harris has
the right to acquire pursuant to options assumed by the Company in
connection with the Boomtown Merger which are exercisable within 60 days
of March 15, 1998.
(o) Includes 1,896 shares of Hollywood Park Common Stock which Mr. Yocam has
the right to acquire pursuant to options assumed by the Company in
connection with the Boomtown Merger which are exercisable within 60 days
of March 15, 1998.
(p) Includes 51,667 shares of Hollywood Park Common Stock which Mr. Finnigan
has the right to acquire pursuant to options which are exercisable within
60 days of March 15, 1998.
(q) Includes 51,667 shares of Hollywood Park Common Stock which Mr. Robbins
has the right to acquire pursuant to options which are exercisable within
60 days of March 15, 1998.
(r) Includes 484,305 shares of Hollywood Park Common Stock of which the
Directors and Executive Officers may be deemed to have beneficial
ownership following the exercise of options to purchase Hollywood Park
Common Stock which are exercisable within 60 days of March 15, 1998.
Excluding such shares, the Directors and Executive Officers of Hollywood
Park have beneficial ownership of 3,578,562 shares of Hollywood Park
Common Stock, which represents 13.6% of the shares of Hollywood Park
Common Stock outstanding as of March 15, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Since November 1993, Hollywood Park has had an aircraft time sharing agreement
with R.D. Hubbard Enterprises, Inc. ("Hubbard Enterprises"), which is wholly
owned by Mr. Hubbard. The agreement automatically renews each month unless
written notice of termination is given by either party at least two weeks before
a renewal date. Hollywood Park reimburses Hubbard Enterprises for expenses
incurred as a result of Hollywood Park's use of the aircraft, which totaled
approximately $106,000 in 1997, $120,000 in 1996, and $126,000 in 1995.
In May 1988, Boomtown acquired all of the outstanding stock of Boomtown Hotel &
Casino, Inc. which owns and operates Boomtown Reno for $16,700,000 in cash (the
"1988 Acquisition"). In order to finance the 1988 Acquisition, including the
retirement of existing debt, Boomtown sold equity securities to Kenneth Rainin
and Timothy J. Parrott, and Boomtown Reno entered into various loan documents
with Merrill Lynch Interfunding,
47
Inc. Pursuant to a stock purchase agreement, Mr. Rainin purchased 2,000 shares
of Boomtown preferred stock and 3,042,000 shares of Boomtown common stock for an
aggregate purchase price of approximately $4,000,000 in cash, and Mr. Parrott
purchased 270,738 shares of Boomtown common stock for an aggregate purchase
price of $222,000, of which $1,000 was paid in cash and $221,000 by a promissory
note (the "Parrott Note") secured by a pledge to Boomtown of all of the shares
owned by Mr. Parrott. The Parrott Note, as amended in April 1997, provides that
(i) interest on the Parrott Note, which accrues at a rate of 6.0% per annum,
compounded annually, is payable in arrears on April 7th of each year, commencing
April 7, 1998, and (ii) principal is payable in four annual installments
beginning April 7, 1998. The Parrott Note was previously amended in November
1994 to provide that the shares owned by Mr. Parrott would be released from the
pledge and would no longer secure the amounts outstanding under the Parrott
Note. Hollywood Park notes that the interest rate of 6% under the amended
Parrott Note is less than Hollywood Park's current borrowing rate. However, this
interest rate was in effect under the original version of the Parrott Note
executed in 1988 prior to Boomtown's public offering and Hollywood Park's
subsequent acquisition of Boomtown.
On July 1, 1997, Hollywood Park completed a swap pursuant to the Blue Diamond
Swap Agreement entered into on August 12, 1996, by and between Boomtown, Blue
Diamond Hotel and Casino, Inc. ("Blue Diamond"), Hollywood Park, Edward P.
Roski, Jr., IVAC, a California general partnership ("IVAC"), and Majestic Realty
Co., as amended (the "Swap Agreement"). Under the Swap Agreement, immediately
following the consummation on June 30, 1997 of the Boomtown Merger, Boomtown and
its subsidiaries transferred their interests in the Blue Diamond hotel/casino
facilities in Las Vegas (including Boomtown's leasehold interest in the land and
certain IVAC Loans (as defined below) which were transferred to IVAC)
(collectively, the "Las Vegas Resort") to Majestic Resorts, LLC, an affiliate of
Mr. Roski ("Majestic"), in exchange for cash, two unsecured promissory notes
aggregating $8,500,000 in principal amount by IVAC and assumption by Mr. Roski
and Majestic of certain liabilities (the "Blue Diamond Swap"). In accordance
with the terms of the Swap Agreement, Mr. Roski resigned from Boomtown's Board
of Directors, effective as of the effective date of the Boomtown Merger.
On July 1, 1997, concurrently with the Blue Diamond Swap, Hollywood Park and Mr.
Roski consummated a Stock Purchase Agreement dated August 12, 1996 (the "Stock
Purchase Agreement") pursuant to which Hollywood Park repurchased from Mr. Roski
446,491 shares of Hollywood Park Common Stock receivable by him in the Boomtown
Merger. The purchase price of approximately $3,500,000 was paid for by an
unsecured promissory note having an interest rate equal to the prime rate plus
one percent (1%) per annum and providing for four equal annual principal
payments plus accrued interest and maturing on the date that is four years after
the closing.
Prior to the opening of the Las Vegas Resort, Boomtown owned a 50% interest in
Blue Diamond, the operating company leasing the hotel/casino facility and the
land in Las Vegas, and was primarily responsible for the development and
management of the Las Vegas Resort. In June 1994, Boomtown exercised its right
to acquire the remaining 50% of Blue Diamond from Mr. Roski in exchange for
714,286 shares of Boomtown Common Stock. Mr. Roski was a member of the Board of
Directors of Boomtown and an affiliate of IVAC, which owns the land and building
leased by Boomtown for the Las Vegas Resort. Boomtown loaned IVAC $27.3 million
(the "IVAC Loans") which was used to help construct the Las Vegas Resort. The
IVAC Loans were secured by separate deeds of trust on the Las Vegas Resort,
which deeds of trusts are subordinate to separate deeds of trust securing Blue
Diamond's and Boomtown's obligations in connection with an indenture relating to
a debt offering. Boomtown received interest income of $2,700,000 annually from
IVAC as a result of these loans. In turn, Blue Diamond paid rent to IVAC in the
amount of $5,400,000 million annually to lease the facility.
Blue Diamond further had the right to purchase the Las Vegas Resort from IVAC in
accordance with terms of an option which expired in November 1996. As discussed
above, on July 1, 1997, Hollywood Park divested all interests in the Las Vegas
Resort by completing a swap pursuant to the Swap Agreement.
Mr. Parrott is employed as Chairman of the Board and Chief Executive Officer of
Boomtown pursuant to an Employment Agreement entered into as of October 8, 1995
and amended as of April 7, 1997 (the
48
"Employment Agreement"). The Employment Agreement provides for a term expiring
on May 30, 2000 and a base salary of at least $375,000 per annum, and entitles
Mr. Parrott to participate in Boomtown's cash bonus plan. During 1997, Mr.
Parrott's base salary and cash bonus totaled $375,000 and $102,442,
respectively. In addition, the Employment Agreement provides that in the event
of a change of control of Boomtown, all options granted to Mr. Parrott prior to
such change of control shall become fully vested and exercisable. The Boomtown
Merger constituted such a change of control. The Employment Agreement also
provides that in the event of termination of employment without cause, Mr.
Parrott shall receive severance payments consisting of, among other things, base
salary for three years after termination, subject to mitigation in the event Mr.
Parrott obtains alternative employment during the applicable severance payment
period, as well as accelerated vesting of Mr. Parrott's stock options. Under the
Employment Agreement, Mr. Parrott is also entitled to receive such fringe
benefits and perquisites as may be granted or established by Boomtown from time
to time, including an automobile allowance.
Effective May 7, 1997, Mark A. Sterbens resigned as Hollywood Park's President
and Chief Operating Officer of Gaming. During 1997, Hollywood Park paid Mr.
Sterbens approximately $88,000 in base salary prior to his termination, and
approximately $162,000 in severance after his termination.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) Documents filed as a part of this report.
1. The consolidated financial statements are set forth in the index to
Consolidated Financial Statements beginning on page 57.
2. 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, and to the Company's Current Report
on Form 8-K/A, filed January 25, 1996.
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 Exhibit 2.1 to the Company's
Current Report on Form 8-K, filed May 3, 1996.
2.3 Agreement and Plan of Merger, dated as of February 19, 1998, among Casino Magic Corp., Hollywood
Park, Inc. and HP Acquisition II, Inc., is hereby incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K, filed February 26, 1998.
3.1 Certificate of Incorporation of Hollywood Park, Inc., is hereby incorporated by reference to Exhibit
3.1 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 Amendment No. 4 to Form S-4 Registration Statement dated
February 6, 1998.
3.4 Amended By-laws of Hollywood Park Operating Company, are hereby incorporated by reference to Exhibit
3.4 to the Company's Amendment No. 4 to Form S-4 Registration Statement dated February 6, 1998.
3.5 Certificate of Incorporation of Hollywood Park Fall Operating Company, is hereby incorporated by
reference to Exhibit 3.5 to the Company's Amendment No. 4 to Form S-4 Registration Statement dated
February 6, 1998.
49
3.6 By-laws of Hollywood Park Fall Operating Company are hereby incorporated by reference to Exhibit 3.6
to the Company's Amendment No. 4 to Form S-4 Registration Statement dated February 6, 1998.
3.7 Articles of Incorporation of Hollywood Park Food Services, Inc., are hereby incorporated by
reference to Exhibit 3.7 to the Company's Amendment No. 4 to Form S-4 Registration Statement dated
February 6, 1998.
3.8 By-laws of Hollywood Park Food Services, Inc., are hereby incorporated by reference to Exhibit 3.8
to the Company's Amendment No. 4 to Form S-4 Registration Statement dated February 6, 1998.
3.9 Articles of Incorporation of HP/Compton, Inc., are hereby incorporated by reference to Exhibit 3.9
to the Company's Amendment No. 4 to Form S-4 Registration dated February 6, 1998.
3.10 By-laws of HP/Compton, Inc., are hereby incorporated by reference to Exhibit 3.10 to the Company's
Amendment No. 4 to Form S-4 Registration Statement dated February 6, 1998.
3.11 Articles of Organization of Crystal Park Hotel and Casino Development Company, LLC, are hereby
incorporated by reference to Exhibit 3.11 to the Company's Amendment No. 4 to Form S-4 Registration
Statement dated February 6, 1998.
3.12 Operating Agreement of Crystal Park Hotel and Casino Development Company, LLC, are hereby
incorporated by reference to Exhibit 3.12 to the Company's Amendment No. 4 to Form S-4 Registration
Statement dated February 6, 1998.
3.13 Restated Articles of Incorporation of Turf Paradise, Inc., are hereby incorporated by reference to
Exhibit 3.13 to the Company's Amendment No. 4 to Form S-4 Registration Statement dated February 6,
1998.
3.14 By-laws of Turf Paradise, are hereby incorporated by reference to Exhibit 3.14 to the Company's
Amendment No. 4 to Form S-4 Registration Statement dated February 6, 1998.
3.15 Certificate of Incorporation of HP Yakama, Inc., is hereby incorporated by reference to Exhibit 3.15
to the Company's Amendment No. 4 to Form S-4 Registration Statement dated February 6, 1998.
3.16 By-laws of HP Yakama, Inc., are hereby incorporated by reference to Exhibit 3.16 to the Company's
Amendment No. 4 to Form S-4 Registration Statement dated February 6, 1998.
3.17 Amended and Restated Certificate of Incorporation of Boomtown, Inc., is hereby incorporated by
reference to Exhibit 3.17 to the Company's Amendment No. 4 to Form S-4 Registration Statement dated
February 6, 1998.
3.18 By-laws of Boomtown, Inc., are hereby incorporated by reference to Exhibit 3.18 to the Company's
Amendment No. 4 to Form S-4 Registration Statement dated February 6, 1998.
3.19 Certificate of Amended and Restated Articles of Incorporation of Boomtown Hotel & Casino, Inc., are
hereby incorporated by reference to Exhibit 3.19 to the Company's Amendment No. 4 to Form S-4
Registration Statement dated February 6, 1998.
3.20 Revised and Restated By-laws of Boomtown Hotel & Casino, Inc., are hereby incorporated by reference
to Exhibit 3.20 to the Company's Amendment No. 4 to Form S-4 Registration Statement dated February
6, 1998.
3.21 Articles of Incorporation of Bayview Yacht Club, Inc., are hereby incorporated by reference to
Exhibit 3.21 to the Company's Amendment No. 4 to Form S-4 Registration Statement dated February 6,
1998.
3.22 By-laws of Bayview Yacht Club, Inc., are hereby incorporated by reference to Exhibit 3.22 to the
Company's Amendment No. 4 to Form S-4 Registration Statement dated February 6, 1998.
3.23 Certificate of Mississippi Limited Partnership of Mississippi - I Gaming, L.P., are hereby
incorporated by reference to Exhibit 3.23 to the Company's Amendment No. 4 to Form S-4 Registration
Statement dated February 6, 1998.
3.24 Amended and Restated Agreement of Limited Partnership of Mississippi - I Gaming, L.P., is hereby
incorporated by reference to Exhibit 10.31 to the Company's Quarterly Report on Form 10-Q for
quarter ended June 30, 1997.
3.25 Articles of Incorporation of Louisiana Gaming Enterprises, Inc., are hereby incorporated by
reference to Exhibit 3.25 to the Company's Amendment No. 4 to Form S-4 Registration Statement dated
February 6, 1998.
50
3.26 Amended and Restated Partnership Agreement of Louisiana - I Gaming, a Louisiana Partnership in
Commendam, is hereby incorporated by reference to Exhibit 3.26 to the Company's Amendment No. 4 to
Form S-4 Registration Statement dated February 6, 1998.
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 the Company, Hollywood Park Operating Company,
Hollywood Park Food Services, Inc., Hollywood Park Fall Operating Company, 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.
10.1 Directors Deferred Compensation Plan for Hollywood Park, Inc. is hereby incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.
10.2 Lease Agreement dated as of January 1, 1989, by and between Hollywood Park Realty Enterprises, Inc.
and Hollywood Park Operating Company, as amended, is hereby incorporated by reference to Exhibit 2
to the Joint Annual Report on Form 10-K for the fiscal year ended December 31, 1989, of Hollywood
Park Operating Company and Hollywood Park Realty Enterprises, Inc.
10.3 Aircraft rental agreement dated November 1, 1993, by and between Hollywood Park, Inc. and R.D.
Hubbard Enterprises, Inc. is hereby incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
10.4 Amended and Restated Credit Agreement dated March 23, 1994, by and between Sunflower Racing, Inc.
and First Union National Bank of North Carolina, Bank One Lexington, Texas Commerce Bank, Home State
Bank of Kansas City and Intrust Bank, N.A. is hereby incorporated by reference to Exhibit 10.9 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
10.5 Pledge Agreement dated March 23, 1994, by and between Hollywood Park, Inc., First Union National
Bank of North Carolina, (as agent for the ratable benefit of itself and the Banks named in the
Amended and Restated Credit Agreement included as Exhibit 10.4) is hereby incorporated by reference
to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
10.6 Amendment of Oil and Gas Lease dated January 10, 1995, by and between Hollywood Park, Inc. and Casex
Co., Nunn Ltd., and Vortex Energy & Minerals is hereby incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
10.7 Agreement Respecting Pyramid Casino dated December 3, 1994, by and between Hollywood Park, Inc. and
Compton Entertainment, Inc., is hereby incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
10.8 Amendment to Agreement Respecting Pyramid Casino dated April 14, 1995, by and between Hollywood
Park, Inc., and Compton Entertainment, Inc., is hereby incorporated by reference to Exhibit 10.14 to
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
51
10.9 Amended and Restated Agreement Respecting Pyramid Casino dated July 14, 1995, by and between
Hollywood Park, Inc., and Compton Entertainment, Inc., is hereby incorporated by reference to
Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1995.
10.10 Amended and Restated Disposition and Development Agreement of Purchase and Sale, and Lease with
Option to Purchase, dated August 2, 1995, by and between The Community Redevelopment Agency of the
City of Compton and Compton Entertainment, Inc., is hereby incorporated by reference to Exhibit
10.16 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.
10.11 Guaranty, dated July 31, 1995, by Hollywood Park, Inc., in favor of the Community Redevelopment
Agency of the City of Compton, is hereby incorporated by reference to Exhibit 10.17 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.
10.12 Lease by and between HP/Compton, Inc. and Compton Entertainment, Inc., dated August 3, 1995, is
hereby incorporated by reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995.
10.13 First Amendment to Lease by and between HP/Compton, Inc., and Compton Entertainment, Inc., dated
March 12, 1996, is here by incorporated by reference to Exhibit 10.18 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.
10.14 Second Amendment to Lease by and between Crystal Park Hotel and Casino Development Company LLC, and
Compton Entertainment, Inc., dated September 13, 1996, is hereby incorporated by reference to
Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
10.15 Assignment, Assumption and Consent Agreement, by and among HP/Compton, Inc., and Crystal Park Hotel
and Casino Development Company LLC, Hollywood Park, Inc. and The Community Redevelopment Agency of
the City of Compton, dated July 18, 1996, is hereby incorporated by reference to Exhibit 10.20 to
the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
10.16 Consent of Compton Entertainment, Inc., and Rouben Kandilian, by and between Hollywood Park, Inc.,
and Compton Entertainment, Inc., dated August 29, 1996, is hereby incorporated by reference to
Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
10.17 License Agreement, dated June 27, 1996, by and between HP/Compton, Inc., and Radisson Hotels
International, Inc. is hereby incorporated by reference to Exhibit 10.17 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996.
10.18 Operating Agreement for Crystal Park Hotel and Casino Development Company, LLC, a California Limited
Liability Company, dated July 18, 1996, effective August 28, 1996, is hereby incorporated by
reference to Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
10.19 Blue Diamond Swap Agreement by and among Boomtown, Inc., Blue Diamond Hotel & Casino, Inc.,
Hollywood Park, Inc., Edward P. Roski, Jr., IVAC and Majestic Realty Co., dated August 12, 1996, is
hereby incorporated by reference to Exhibit 10.22 to the Company's Registration Statement on Form
S-4 filed September 18, 1996.
10.20 Stock Purchase Agreement, by and between Hollywood Park, Inc. and Edward P. Roski, Jr., dated August
12, 1996, is hereby incorporated by reference to Exhibit 10.23 to the Company's Registration
Statement on Form S-4 filed September 18, 1996.
10.21 Reducing Revolving Loan Agreement dated March 27, 1997, among Hollywood Park, Inc., and Bank of
Scotland, Bankers Trust Company, Societe Generale, Bank of America National Trust and Savings
Association, is here by incorporated by reference to Exhibit 10.27 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997.
10.22 Amendment No. 1 to Reducing Revolving Loan Agreement, dated June 30, 1997, is hereby incorporated by
reference to Exhibit 10.29 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997.
52
10.23 Amendment No. 2 to Reducing Revolving Loan Agreement, dated July 30, 1997, is hereby incorporated by
reference to Exhibit 10.30 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997.
10.24 Agreement of Limited Partnership for Huron Gaming, L.P., a Delaware Limited Partnership, Kansas
Project, dated July 14, 1997, is hereby incorporated by reference to Exhibit 10.28 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
10.25 Amended and Restated Agreement of Limited Partnership of Mississippi - I Gaming, L.P., is hereby
incorporated by reference to Exhibit 10.31 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
10.26 Amended Equity Conversion Agreement, dated July 18, 1994, by and between Boomtown, Inc., and Eric
Skrmetta, is hereby incorporated by reference to Exhibit 10.32 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997.
10.27 Ground Lease, dated October 19, 1993, between Raphael Skrmetta as Landlord and Mississippi - I
Gaming, L.P. as Tenant, is hereby incorporated by reference to Exhibit 10.33 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
10.28 First Amendment to Ground Lease dated October 19, 1993, between Raphael Skrmetta and Mississippi - I
Gaming, L.P., is hereby incorporated by reference to Exhibit 10.34 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997.
10.29 Second Amendment to Ground Lease dated October 19, 1993, between Raphael Skrmetta and Mississippi -
I Gaming, L.P., is hereby incorporated by reference to Exhibit 10.35 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
10.30 Purchase Agreement, dated August 1, 1997, by and among the Company, Hollywood Park Operating
Company, Hollywood Park Food Services, Inc., HP/Compton, Inc., Crystal Park Hotel and Casino
Development Company, LLC, Hollywood Park Fall Operating Company, HP Yakama, Inc., Turf Paradise,
Inc., Boomtown, Inc., Boomtown Hotel & Casino, Inc., Louisiana Gaming - I Gaming, Louisiana Gaming
Enterprises, Inc., Mississippi - I Gaming, L.P., Bayview Yacht Club, Inc., and the Initial
Purchasers named therein, is hereby by incorporated by reference to Exhibit 10.36 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
10.31 Registration Rights Agreement, dated August 1, 1997, by and among the Company, Hollywood Park
Operating Company, Hollywood Park Food Services, Inc., HP/Compton, Inc., Crystal Park Hotel and
Casino Development Company, LLC, Hollywood Park Fall Operating Company, 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 Initial
Purchasers named therein is hereby incorporated by reference to Exhibit 10.38 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
10.32 Agreement, by and between Crystal Park Hotel and Casino Development Company, LLC and Compton
Entertainment, Inc., dated September 12, 1997, is hereby incorporated by reference to Exhibit 10.39
to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
10.33 Profit Participation Agreement, by and between Hollywood Park, Inc., and North American Sports
Management, Inc., dated July 14, 1997, is hereby incorporated by reference to Exhibit 10.40 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
10.34 Loan Agreement, by and between Yakama Tribal Gaming Corporation and HP Yakama, Inc., dated September
11, 1997, is hereby incorporated by reference Exhibit 10.41 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997.
10.35 Security Agreement, by and between Yakama Tribal Gaming Corporation and HP Yakama, Inc., dated
September 11, 1997, is hereby incorporated by reference to Exhibit 10.42 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
10.36 Master Lease, by and between The Confederated Tribes and Bands of the Yakama Indian Nation and HP
Yakama, Inc., dated September 11, 1997, is hereby incorporated by reference to Exhibit 10.43 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
10.37 Sublease, by and between HP Yakama, Inc. and Yakama Tribal Gaming Corporation, dated September 11,
1997, is hereby incorporated by reference to Exhibit 10.44 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
53
10.38 Construction and Development Agreement, by and between Yakama Tribal Gaming Corporation and HP
Yakama Consulting, Inc., dated September 11, 1997, is hereby incorporated by reference to Exhibit
10.45 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
10.39 Consulting Agreement, by and between Yakama Tribal Gaming Corporation and HP Yakama Consulting,
Inc., dated September 11, 1997, is hereby incorporated by reference to Exhibit 10.46 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
10.40 Voting Agreement, dated as of February 25, 1998, by and between Hollywood Park, Inc., and Marlin F.
Torguson, is hereby incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K, filed February 26, 1998.
10.41 * Lease, by and between Crystal Park Hotel and Casino Development Company, LLC and California Casino
Management, Inc., dated December 19, 1997.
10.42 * Termination of Consulting Agreement, among Yakama Tribal Gaming Corporation, HP Yakama, Inc., and
the Confederated Tribes and Bands of the Yakama Indians, dated January 1, 1998.
10.43 * Public Trust Tidelands Lease, dated August 15, 1994, by and between the Secretary of State on behalf
of the State of Mississippi and Mississippi - I Gaming, L.P.
10.44 * Public Trust Tidelands Lease Amendment, dated March 31, 1997, by and between the Secretary of State
on behalf of the State of Mississippi and Mississippi - I Gaming, L.P.
21.1 Subsidiaries of Hollywood Park, Inc.: (a) Hollywood Park Operating Company a Delaware corporation,
and its subsidiaries: Hollywood Park Fall Operating Company a Delaware corporation and Hollywood
Park Food Services, Inc., a Delaware corporation; (b) Sunflower Racing, Inc., a Kansas Corporation,
and its subsidiary SR Food and Beverage, Inc., a Kansas corporation; (c) Turf Paradise, Inc. an
Arizona corporation; (d) HP/Compton, Inc., a California corporation, which owns 89.8% of Crystal
Park Hotel and Casino Development Company, LLC, a California Limited Liability Company; (e) HP
Casino, Inc., a California corporation, which owns 10.2% of Crystal Park Hotel and Casino
Development Company, LLC; (f) Boomtown, Inc. a Delaware corporation and its subsidiaries: Boomtown
Hotel & Casino, Inc. a Nevada corporation, Bayview Yacht Club, Inc., a Mississippi corporation,
Mississippi - I Gaming, L.P., a Mississippi corporation, Louisiana Gaming Enterprises, Inc., a
Louisiana corporation, and Louisiana - I Gaming, a Louisiana Partnership in Commendam.
23.1 * Consent of Arthur Andersen LLP
23.2 * Consent of Arthur Andersen LLP
23.3 * Consent of Arthur Andersen LLP
23.4 * Consent of Ernst & Young LLP
23.5 * Consent of Ernst & Young LLP
27.1 * Financial Data Schedule
27.2 * Financial Data Schedule
27.3 * Financial Data Schedule
27.4 * Financial Data Schedule
27.5 * Financial Data Schedule
27.6 * Financial Data Schedule
27.7 * Financial Data Schedule
27.8 * Financial Data Schedule
27.9 * Financial Data Schedule
99.1 * Hollywood Park, Inc., Proxy Statement, dated February 13, 1998.
----------
* Filed herewith
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed February 26, 1998, to report
the February 19, 1998, execution of the Agreement and Plan of
Merger, among Hollywood Park, Inc., HP Acquisition II, Inc. and
Casino Magic Corp.
54
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: March 27, 1998
----------------
R.D. Hubbard
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan Dated: March 27, 1998
-----------------------
G. Michael Finnigan
Executive Vice President
and Chief Financial Officer
(Principle Financial and
Accounting Officer)
HOLLYWOOD PARK OPERATING COMPANY
(Registrant)
By: /s/ G. Michael Finnigan Dated: March 27, 1998
-----------------------
G. Michael Finnigan
Executive Vice President, Treasurer
and Chief Financial Officer
(Principle Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
it the capacities and on the dates indicated:
55
HOLLYWOOD PARK, INC.
\s\ R.D. Hubbard Dated: March 27, 1998
- ----------------------------------
R.D. Hubbard - Director
\s\ Harry Ornest Dated: March 27, 1998
- ----------------------------------
Harry Ornest - Director
\s\ Richard Goeglein Dated: March 27, 1998
- ----------------------------------
Richard Goeglein - Director
\s\ Peter L. Harris Dated: March 27, 1998
- ----------------------------------
Peter L. Harris - Director
\s\ J.R. Johnson Dated: March 27, 1998
- ----------------------------------
J.R. Johnson - Director
\s\ Robert T. Manfuso Dated: March 27, 1998
- ----------------------------------
Robert T. Manfuso - Director
\s\ Timothy J. Parrott Dated: March 27, 1998
- ----------------------------------
Timothy J. Parrott - Director
\s\ Lynn P. Reitnouer Dated: March 27, 1998
- ----------------------------------
Lynn P. Reitnouer - Director
\s\ Warren B. Williamson Dated: March 27, 1998
- ----------------------------------
Warren B. Williamson - Director
\s\ Herman Sarkowsky Dated: March 27, 1998
- ----------------------------------
Herman Sarkowsky - Director
\s\ Delbert W. Yocam Dated: March 27, 1998
- ----------------------------------
Delbert W. Yocam - Director
HOLLYWOOD PARK OPERATING COMPANY
\s\ R.D. Hubbard Dated: March 27, 1998
- ----------------------------------
R.D. Hubbard - Director
\s\ Harry Ornest Dated: March 27, 1998
- ----------------------------------
Harry Ornest - Director
\s\ Warren B. Williamson Dated: March 27, 1998
- ----------------------------------
Warren B. Williamson - Director
56
Hollywood Park, Inc.
Index to Consolidated Financial Statements
Hollywood Park, Inc.
--------------------
Report of Independent Public Accountants
Report of Arthur Andersen LLP................................... 59
Consolidated Balance Sheets as of December 31, 1997 and 1996...... 60
Consolidated Statements of Operations for the years
ended December 31, 1997, 1996 and 1995....................... 61
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995......... 62
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995....................... 63
Notes to Financial Statements...................................... 64
Schedule II........................................................ 87
Other Financial Data............................................... 88
Crystal Park Hotel and Casino Development Company, LLC
------------------------------------------------------
Report of Independent Public Accountant
Report of Arthur Andersen LLP................................... 90
Balance Sheets as of December 31, 1997, and December 31, 1996..... 91
Statements of Operations for the year ended December 31, 1997,
and Inception through December 31, 1996...................... 92
Statements of Changes in Members' Equity for the year ended
December 31, 1997, and Inception through December 31, 1996... 93
Statements of Cash Flows for the year ended December 31, 1997,
and Inception through December 31, 1996...................... 94
Notes to Financial Statements..................................... 95
Mississippi - I Gaming, L.P.
----------------------------
Reports of Independent Public Accountants
Report of Ernst & Young LLP.................................... 98
Report of Arthur Andersen LLP.................................. 99
Balance Sheets as of December 31, 1997, June 30, 1997
and September 30, 1996...................................... 100
Statements of Operations for the six months ended
December 31, 1997, for the nine months ended
June 30, 1997 and 1996, and the years ended
September 30, 1996 and 1995................................. 101
Statements of Partners' Deficit for the years ended
September 30, 1995 and 1996, the nine months ended
June 30, 1997, and the six months ended December 31, 1997... 102
Statements of Cash Flows for the six months ended
December 31, 1997, for the nine months ended
June 30, 1997 and 1996, and the years ended
September 30, 1996 and 1995................................. 103
Notes to Financial Statements.................................... 104
Schedule II...................................................... 111
Schedules not included herewith have been omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
57
Documents Incorporated by Reference
The following documents, as filed in the Company's Registration Statement on
Form S-4 (Reg. No. 333-34471), are incorporated herein by reference: Boomtown,
Inc.'s audited consolidated balance sheets as of September 30, 1995 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 30, 1996;
and Boomtown, Inc.'s unaudited consolidated statements of operations and cash
flows for the nine months ended June 30, 1996 and June 30, 1997.
58
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Hollywood Park, Inc.:
We have audited the accompanying consolidated balance sheets of Hollywood Park,
Inc. (a Delaware corporation) and subsidiaries (the "Company") as of December
31, 1997, and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hollywood Park, Inc. and
subsidiaries as of December 31, 1997, and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
February 27, 1998
59
Hollywood Park, Inc.
Consolidated Balance Sheets
As of December 31,
---------------------------
1997 1996
-------- --------
ASSETS (in thousands)
Current Assets:
Cash and cash equivalents $ 23,749 $ 11,922
Restricted cash 407 4,486
Short term investments 0 4,766
Other receivables, net 9,417 7,110
Prepaid expenses and other assets 18,473 6,215
Deferred tax assets 8,118 6,422
Current portion of notes receivable 42 38
-------- --------
Total current assets 60,206 40,959
Notes receivable 9,428 819
Property, plant and equipment, net 300,666 130,835
Goodwill, net 33,017 20,370
Other assets 15,712 12,903
-------- --------
$419,029 $205,886
======== ========
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 11,277 $ 10,043
Accrued lawsuit settlement 2,750 2,750
Accrued compensation 7,627 4,198
Accrued liabilities 19,105 9,733
Accrued interest 5,175 0
Gaming liabilities 3,853 2,499
Racing liabilities 4,093 6,106
Current portion of notes payable 3,437 35
-------- --------
Total current liabilities 57,317 35,364
Notes payable 132,102 282
Deferred tax liabilities 6,310 9,065
-------- --------
Total liabilities 195,729 44,711
Minority interests 1,946 3,015
Stockholders' Equity:
Capital stock --
Preferred - $1.00 par value, authorized 250,000 shares;
none issued and outstanding as of year end 1997,
27,499 issued and outstanding during 1996 0 28
Common - $.10 par value, authorized 40,000,000 shares;
26,220,528 issued and outstanding in 1997, and 18,332,016
in 1996 2,622 1,833
Capital in excess of par value 222,350 167,074
Accumulated deficit (3,618) (10,775)
-------- --------
Total stockholders' equity 221,354 158,160
-------- --------
$419,029 $205,886
======== ========
- ----------
See accompanying notes to consolidated financial statements.
60
Hollywood Park, Inc.
Consolidated Statements of Operations
1997 1996 1995
------- ------- -------
(in thousands, except per share data)
Revenues:
Gaming $137,659 $50,717 $26,656
Racing 68,844 71,308 77,036
Food and beverage 19,894 13,947 19,783
Hotel and recreational vehicle park 937 0 0
Truck stop and service station 8,633 0 0
Other income 12,161 7,253 7,097
------- ------- -------
248,128 143,225 130,572
------- ------- -------
Expenses:
Gaming 74,733 27,249 5,291
Racing 30,304 30,167 30,960
Food and beverage 25,745 19,573 24,749
Hotel and recreational vehicle park 356 0 0
Truck stop and service station 7,969 0 0
Administration 61,514 41,477 45,447
Other 5,048 2,485 3,200
Depreciation and amortization 18,157 10,695 11,384
REIT restructuring 2,483 0 0
Write off of investment in Sunflower 0 11,412 0
Lawsuit settlement 0 0 6,088
------- ------- -------
226,309 143,058 127,119
------- ------- -------
Operating income 21,819 167 3,453
Interest expense 7,302 942 3,922
------- ------- -------
Income (loss) before minority interests and income taxes 14,517 (775) (469)
Minority interests (3) 15 0
Income tax expense 5,850 3,459 693
------- ------- -------
Net income (loss) $8,670 ($4,249) ($1,162)
======= ======= =======
==============================================================================================
Dividend requirements on convertible preferred stock $1,520 $1,925 $1,925
Net income (loss) attributable to (allocated to) common
shareholders $7,150 ($6,174) ($3,087)
Per common share:
Net income (loss) - basic $0.33 ($0.33) ($0.17)
Net income (loss) - diluted $0.32 ($0.33) ($0.17)
Number of shares - basic 22,010 18,505 18,399
Number of shares - diluted 22,340 20,797 20,691
61
Hollywood Park, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 1997, 1996 and 1995
Capital in Total
Preferred Common Excess of Accumulated Stockholders'
Stock Stock Par Value Deficit Equity
--------- ------ ---------- ----------- -------------
(in thousands)
BALANCE YEAR END 1994 $ 28 $1,837 $166,892 ($1,502) $167,255
Net loss 0 0 0 (1,162) (1,162)
Issuance of common stock to acquire - 0
Pacific Casino Management, Inc. 0 13 1,587 0 1,600
Investment in bonds - unrealized holding loss 0 0 0 (22) (22)
Preferred stock dividends - $70.00 per share 0 0 0 (1,925) (1,925)
---- ------ -------- -------- --------
BALANCE AT YEAR END 1995 28 1,850 168,479 (4,611) 165,746
Net loss 0 0 0 (4,249) (4,249)
Issuance of common stock to acquire -
Pacific Casino Management, Inc. 0 5 535 0 540
Repurchase and retirement of common stock 0 (22) (1,940) 0 (1,962)
Investment in bonds - unrealized holding gain 0 0 0 10 10
Preferred stock dividends - $70.00 per share 0 0 0 (1,925) (1,925)
---- ------ -------- -------- --------
BALANCE AT YEAR END 1996 28 1,833 167,074 (10,775) 158,160
Net income 0 0 0 8,670 8,670
Issuance of common stock to acquire -
Pacific Casino Management, Inc. 0 3 497 0 500
Issuance of common stock to acquire -
Boomtown, Inc. 0 582 56,425 0 57,007
Repurchase and retirement of common stock 0 (45) (3,420) 0 (3,465)
Common stock options exercised 0 20 1,975 0 1,995
Conversion of convertible preferred stock (28) 229 (201) 0 0
Investment in bonds - unrealized holding gain 0 0 0 7 7
Preferred stock dividends - $55.27 per share 0 0 0 (1,520) (1,520)
---- ------ -------- -------- --------
BALANCE AT YEAR END 1997 $ 0 $2,622 $222,350 ($3,618) $221,354
==== ====== ======== ======== ========
- --------
See accompanying notes to consolidated financial statements.
62
Hollywood Park, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31,
--------------------------------
1997 1996 1995
------ ------- -------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,670 $ (4,249) $ (1,162)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 18,157 10,027 10,857
Minority interests (3) 15 0
Changes in accounts due to deconsolidation of subsidiary
in bankruptcy:
Property, plant and equipment 0 58,380 0
Secured notes payable 0 (28,918) 0
Unsecured notes payable 0 (15,323) 0
Goodwill and lease with TRAK East 0 6,908 0
Unrealized (gain) loss on short term bond investing 10 (2) 64
Loss on sale or disposal of property, plant and equipment 632 10 0
Changes in assets and liabilities, net of the effects of the
purchase of a business:
Decrease (increase) in restricted cash 4,079 (1,360) (2,427)
Increase in casino lease and related interest receivable, net 0 0 (9,204)
Decrease (increase) in other receivables, net (312) 1,037 77
Increase in prepaid expenses and other assets (452) (3,524) (304)
Increase in deferred tax assets (1,696) (1,534) (349)
(Decrease) increase in accounts payable (2,468) (2,475) 5,685
(Decrease) increase in accrued lawsuit settlement 0 (2,482) 5,232
(Decrease) increase in accrued compensation (1,004) 903 (761)
(Decrease) increase in accrued liabilities (8,460) (3,489) 6,437
Increase (decrease) in gaming liabilities 1,354 (1,499) 3,998
Increase (decrease) in racing liabilities (2,013) 2,270 1,404
Increase in accrued interest payable 5,175 0 0
Payments to minority members (89) 0 0
Increase (decrease) in deferred tax liabilities (3,126) (1,018) 744
--------- -------- --------
Net cash provided by operating activities 18,454 13,677 20,291
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (32,505) (23,786) (25,150)
Receipts from sale of property, plant and equipment 187 9 98
Principal collected on notes receivable 52 34 31
Purchase of short term investments (1,946) (16,888) (35,875)
Proceeds from short term investments 6,712 18,569 29,428
Payment to buy-out minority interest in Crystal Park LLC (1,000) 0 0
Long term gaming assets 0 2,169 (2,169)
Cash acquired in the purchase of a business, net of
transaction and other costs 12,264 0 715
--------- -------- --------
Net cash used in investing activities (16,236) (19,893) (32,922)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from secured Bank Credit Facility 112,000 0 0
Proceeds from secured notes payable 0 0 3,358
Proceeds from unsecured notes payable 0 0 1,681
Payment of secured Bank Credit Facility (112,000) (3,358) (1,386)
Payment of secured notes payable (4,917) 0 0
Payment of unsecured notes payable (25) (23) (3,813)
Proceeds from issuance of 9.5% Notes 125,000 0 0
Payment of 11.5% Boomtown First Mortgage Notes (110,924) 0 0
Payments from minority interest partners 0 3,000 0
Common stock options exercised 1,995 0 0
Common stock repurchase and retirement 0 (1,962) 0
Dividends paid to preferred stockholders (1,520) (1,925) (1,925)
--------- -------- --------
Net cash provided by (used in) financing activities 9,609 (4,268) (2,085)
--------- -------- --------
Increase (decrease) in cash and cash equivalents 11,827 (10,484) (14,716)
Cash and cash equivalents at the beginning of the period 11,922 22,406 37,122
--------- -------- --------
Cash and cash equivalents at the end of the period $ 23,749 $ 11,922 $ 22,406
========= ======== ========
- -------
See accompanying notes to consolidated financial statements.
63
Hollywood Park, Inc.
Notes to Consolidated Financial Statements
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL Hollywood Park, Inc. (the "Company" or "Hollywood Park") is a
diversified gaming, sports and entertainment company engaged in the ownership
and operation of casinos (including card club casinos) and pari-mutuel racing
facilities, and the development of other gaming and sports related
opportunities. The Company owns and operates through its Boomtown, Inc.
("Boomtown") subsidiary land-based, dockside and riverboat gaming operations in
Verdi, Nevada ("Boomtown Reno"), Biloxi, Mississippi ("Boomtown Biloxi"), and
Harvey, Louisiana ("Boomtown New Orleans"), respectively. Hollywood Park owns
two card club casinos in the Los Angeles metropolitan area. The Hollywood Park-
Casino is operated by the Company and the Crystal Park Hotel and Casino (the
"Crystal Park Casino"), which as of December 31, 1997, was 100% owned by the
Company (previously it was 93% owned by the Company) is leased to an
unaffiliated third party operator. The Company owns two premier thoroughbred
racing facilities, the Hollywood Park Race Track (the Hollywood Park-Casino is
located adjacent to the Hollywood Park Race Track), and Turf Paradise, Inc.
("Turf Paradise") which is located in Phoenix, Arizona. The Company also owns
Sunflower Racing, Inc. ("Sunflower") a greyhound and thoroughbred racing
facility in Kansas City, Kansas, though due to intense competition from nearby
Missouri riverboat gaming, on May 17, 1996, Sunflower filed for reorganization
under Chapter 11 of the Bankruptcy Code. Sunflower is operating as a debtor in
possession during the bankruptcy.
CONSOLIDATION The consolidated financial statements for the year ended December
31, 1997, included the accounts of Hollywood Park and its wholly owned
subsidiaries: (a) Boomtown, which was acquired by the Company on June 30, 1997,
and was accounted for under the purchase method of accounting for a business
combination, and Boomtown's six active subsidiaries (1) Boomtown Hotel & Casino,
Inc., (2) Bayview Yacht Club, Inc., (3) Mississippi - I Gaming, L.P., (4)
Louisiana Gaming Enterprises, Inc., (5) Louisiana - I Gaming and (6) Boomtown
Hoosiers, Inc.; (b) Hollywood Park Operating Company, and its two wholly owned
subsidiaries, Hollywood Park Food Services, Inc. and Hollywood Park Fall
Operating Company; (c) Turf Paradise, Inc.; (d) HP Yakama, Inc.; (e) HP Kansas,
Inc.; (f) HP/Compton, Inc. and HP Casino, Inc., which as of December 31, 1997,
own 89.8% and 10.2%, respectively, of the Crystal Park Hotel and Casino
Development Company LLC, ("Crystal Park LLC"), which built and presently leases
the Crystal Park Casino, to an unaffiliated third party. As of March 31, 1996,
the Company wrote off its investment in Sunflower and its wholly owned
subsidiary SR Food and Beverage, Inc., due to Sunflower's inability to compete
with nearby Missouri riverboat gaming, and as of April 1, 1996, no longer
consolidated Sunflower's operating results with the Company's. The Hollywood
Park-Casino is a division of Hollywood Park, Inc.
RESTRICTED CASH Restricted cash as of December 31, 1997 and 1996, was for
amounts due to horsemen for purses, stakes and awards.
RACING REVENUES AND EXPENSES The Company records pari-mutuel revenues,
admissions, food and beverage and other racing income associated with racing on
a daily basis, except for seasonal admissions, which were recorded ratably over
the racing season. Expenses associated with racing revenues were charged
against income in those periods in which racing revenues were recognized. Other
expenses were recognized as they occurred throughout the year.
GAMING REVENUE AND PROMOTIONAL ALLOWANCES Gaming revenues at the three 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 or per hand basis. Revenues in the
accompanying statements of operations exclude the retail value of food and
beverage, hotel rooms and other items provided to patrons on a complimentary
basis. The estimated cost of providing these promotional allowances during the
years ended December 31, 1997, and 1996, was $8,285,000 (which includes
Boomtown's promotional allowances as of June 30, 1997), and $1,316,000,
respectively. There were no comparable costs for the year ended December 31,
1995.
64
CAPITALIZED INTEREST Interest of $425,000 was capitalized during the year ended
December 31, 1997. No capitalized interest was recorded during the years ended
December 31, 1996, and 1995, because the Company had no outstanding debt, other
than Sunflower's debt, which was non-recourse to the Company, and Sunflower did
not make any capital improvements during the periods covered.
ESTIMATES Financial statements prepared in accordance with 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.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are depreciated on
the straight line method over their estimated useful lives as follows:
Years
-------
Land improvements 3 to 25
Buildings 5 to 40
Equipment 3 to 10
Maintenance and repairs were charged to expense, and betterments were
capitalized. The cost of property sold or otherwise disposed of and its
associated accumulated depreciation were eliminated from both the property and
accumulated depreciation accounts with any gain or loss recorded in the expense
accounts.
Property, plant and equipment is carried on the Company's balance sheets at
depreciated cost. Whenever there are recognized events or changes in
circumstances that affect the carrying amount of the property, plant and
equipment, management reviews the assets for possible impairment. In accordance
with current accounting standards, management uses estimated expected future net
cash flows to measure the recoverability of property, plant and equipment. The
estimation of expected future net cash flows is inherently uncertain and relies
to a considerable extent on assumptions regarding current and future economic
and market conditions, and the availability of capital. In future periods, if
there are changes in the estimates or assumptions incorporated into the
impairment review analysis, the changes could result in an adjustment to the
carrying amount of the property, plant and equipment.
INCOME TAXES The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") 109, Accounting for Income Taxes,
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that included the enactment date.
EARNINGS PER SHARE Basic earnings per share were computed by dividing income
(loss) attributable to (allocated to) common shareholders (net income (loss)
less preferred stock dividend requirements) by the weighted average number of
common shares outstanding during the period. Diluted per share amounts were
similarly computed, but include the effect, when dilutive, of the conversion of
the convertible preferred shares and the exercise of stock options.
CASH FLOWS Cash and cash equivalents consisted of certificates of deposit and
short term investments with original maturities of 90 days or less.
STOCK REPURCHASE On July 22, 1996, the Company announced its intention to
repurchase, and to retire up to 2,000,000 shares of its common stock on the open
market or in negotiated transactions. As of December 31, 1996, the Company had
repurchased and retired (with the last purchase being made on November 13, 1996)
222,300 common shares, at a cost of approximately $1,962,000.
65
RECLASSIFICATIONS Certain reclassifications have been made to the 1996 and 1995
balances to be consistent with the 1997 financial statement presentation.
NOTE 2 -- ACQUISITIONS
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 "Boomtown Merger"). As
a result of the Boomtown 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 Boomtown Merger.
The Boomtown Merger was accounted for under the purchase method of accounting
for a business combination. The purchase price of the Boomtown 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 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 Boomtown 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 acquired three of the four Boomtown properties; Boomtown Reno,
Boomtown New Orleans, and Boomtown Biloxi. Boomtown's Las Vegas property was
divested on July 1, 1997 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 Boomtown 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.
ACQUISITION OF PACIFIC CASINO MANAGEMENT, INC. The Hollywood Park-Casino was
opened in July 1994 under a third party leasing arrangement with Pacific Casino
Management, Inc. ("PCM"); whereby PCM leased and operated the gaming floors of
the Hollywood Park-Casino, and the Company operated all other aspects of the
business. In 1994, under the California Gaming Registration Act, it was then
the position of the California Attorney General that as a publicly traded
company, Hollywood Park was not eligible to register as an operator of a card
club, but could lease the site to a registered operator unaffiliated with the
Company. On August 3, 1995, Senate Bill ("SB") 100 was enacted into law and
among other things allowed a publicly traded racing association, such as
Hollywood Park, to operate a card club casino on the same premises as a race
track. On November 17, 1995, Hollywood Park purchased the gaming floor business
from PCM for $2,640,000, which was paid for with 218,099 shares of the Company's
common stock. The approximately $21,658,000 of excess acquisition cost over the
recorded value of net assets acquired from PCM was
66
allocated to goodwill, and is being amortized over 40 years. The amortization of
the goodwill is not deductible for income tax purposes.
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 Boomtown 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 11.5% 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 "Notes") (see Note
6. Secured and Unsecured Notes Payable); amortization of the excess purchase
price over net assets acquired in the Boomtown Merger; elimination of the
amortization of the discount associated with the Boomtown 11.5 % First Mortgage
Notes; interest expense associated with the promissory notes from Hollywood Park
to Roski; elimination of the interest expense associated with the Boomtown 11.5%
First Mortgage Notes; amortization of the up-front loan fees associated with the
Company's Bank Credit Facility; interest expense associated with the 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
1997 1996
-------- ---------
(in thousands, except per share data)
Revenues:
Gaming $221,008 $ 208,699
Racing 68,844 71,308
Other 59,232 56,576
-------- ---------
349,084 336,583
-------- ---------
Operating income (loss) (a) 30,889 (18,083)
Net income (loss) $ 9,264 $ (37,523)
======== =========
Dividend requirements on preferred stock $ 1,520 $ 1,925
Net income (loss) to common shareholders $ 7,744 ($39,448)
======== =========
Per common share:
Net income (loss) - basic $ 0.31 $ (1.65)
Net income (loss) - diluted $ 0.31 $ (1.65)
____
(a) 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.
PENDING MERGER WITH CASINO MAGIC CORP. On February 19, 1998, the respective
Boards of Directors of Hollywood Park and Casino Magic Corp. ("Casino Magic")
approved and signed an Agreement and Plan of Merger among Casino Magic Corp.,
Hollywood Park, Inc., and HP Acquisition II, Inc. (a wholly owned subsidiary of
Hollywood Park), pursuant to which HP Acquisition II, Inc., will merge into
Casino Magic, and Casino Magic will survive and become a wholly owned subsidiary
of Hollywood Park. Hollywood Park will pay cash of $2.27 for each issued and
outstanding share of Casino Magic common stock, or approximately $81,000,000.
On February 23, 1998, Hollywood Park entered into a voting agreement (the
"Voting Agreement") with Marlin F. Torguson ("Mr. Torguson") pursuant to which,
among other things, Mr. Torguson has agreed to vote the 7,954,500 shares of
Casino Magic common stock he beneficially owns in favor of approval and adoption
of the Agreement and Plan of Merger and the Casino Magic Merger and any matter
that could reasonably be expected to facilitate the Casino Magic Merger. Mr.
Torguson also agreed to continue to serve as an
67
employee of Casino Magic for three years following the Casino Magic Merger, and
not to compete with Hollywood Park or Casino Magic in any jurisdictions in which
either presently operates.
Casino Magic owns and operates dockside and riverboat gaming properties in Bay
St. Louis, Mississippi ("Casino Magic Bay St. Louis"), Biloxi, Mississippi
("Casino Magic Biloxi") and Bossier City, Louisiana, ("Casino Magic Bossier")
respectively, and is a 51% partner in two land-based casinos in Argentina.
Casino Magic Bay St. Louis, started operations in September 1992, on a
permanently moored barge in a 17 acre marina with the adjoining land based
facilities situated on 591 acres. Bay St. Louis is approximately 46 miles east
of New Orleans and 40 miles west of Biloxi. Casino Magic Bay St. Louis offers
approximately 39,500 square feet of gaming space, with 1,132 slot machines and
42 table games. The land based building is three stories with a restaurant,
buffet, snack bar, gift shop, and a live entertainment lounge. In December
1994, Casino Bay St. Louis also opened the Casino Magic Inn; a 201 room hotel,
including four deluxe and 20 junior suites. The property also contains the
Magic Dome, an 1,800 seat arena, which hosts approximately 50 events annually,
including nationally televised boxing matches, concerts and other special
events. With the late 1997 addition of the 18 hole Bridges Golf Resort, Casino
Magic Bay St. Louis is positioned as a full service vacation destination.
Casino Magic Biloxi began casino operations in June 1993 and is located on the
Gulf of Mexico in the Mississippi Gulf Coast Region. The property is situated
on the Front Bay on the beach of the Gulf of Mexico in a strip with four other
casinos, and is located on the major highway running through the Mississippi
Gulf Coast. (Boomtown Biloxi is located on the Back Bay of Biloxi.) Casino
Magic Biloxi conducts gaming from a permanently moored barge with approximately
47,700 square feet of gaming space with 1,174 slot machines and 41 gaming
tables. The land based facility is located adjacent to the barge on the
approximately 11.5 acre site. In late spring 1998, Casino Magic Biloxi expects
to open its 378 room luxury hotel (Casino Magic is anticipating a four-star
rating for this hotel), to include 16 master suites, 70 junior suites, 6,600
square feet of convention and meeting space, a full service restaurant and
numerous themed retail shops. The casino's land based facility is approximately
21,600 square feet. Casino Magic Biloxi offers buffets, full service
restaurants and nationally franchised fast food services.
Casino Magic Bossier opened in October 1996, with casino operations conducted
from a dockside riverboat. The property is highly visible with convenient
access from Interstate Highway 20, a major thoroughfare between Bossier
City/Shreveport and the Dallas-Fort Worth area approximately 180 miles to the
west. The Casino Magic Bossier riverboat measures 254 feet long and 78 feet
wide with approximately 30,000 square feet of gaming space, and offers 980 slot
machines and 44 table games. The Casino Magic Bossier facility includes a
55,000 square foot entertainment pavilion connected to a garage providing
parking for approximately 1,400 vehicles. The entertainment pavilion includes
the 350 seat Abracadabra buffet restaurant, a gift shop, a bar and lounge area,
and a 300 seat live entertainment theater. The entertainment pavilion also
includes two smaller full service restaurants. Casino Magic Bossier is just
beginning construction on an 188 room hotel with four master suites, 88 junior
suites and additional full service restaurants.
In December 1994, Casino Magic, through its wholly owned subsidiary, Casino
Magic Neuquen SA, ("Casino Magic Argentina") entered into a twelve year
concession agreement with the Province of Neuquen, Argentina. Casino Magic
Argentina operates two casinos in the Province of Neuquen in the cities of
Neuquen and San Martin de los Andes in west-central Argentina. Neuquen Province
is the gateway to the well established resort, tour destinations and ski resorts
of the Andes Mountains. There are approximately 900,000 residents within a 50
mile radius of the two cities. Casino Magic Argentina, which began operations
in January 1995, includes approximately 29,000 square feet of gaming space and
contains approximately 64 table games, 400 slot machines and a 384 seat bingo
facility.
68
NOTE 3 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the years ended December 31,
--------------------------------
1997 1996 1995
------ ------ ------
(in thousands)
Cash paid during the year for:
Interest $1,321 $ 299 $2,098
Income taxes 827 40 143
------ ------ ------
$2,148 $ 339 $2,241
====== ====== ======
NOTE 4 -- SHORT TERM INVESTMENTS
As of December 31, 1997, Hollywood Park had liquidated its investments in
corporate bonds. During the year ended December 31, 1997, net proceeds from the
sale or redemption of corporate bond investments was approximately $4,766,000,
with gross realized gains and losses of approximately $9,000, and $88,000,
respectively.
As of December 31, 1996, short term investments consisted of corporate bonds
valued at $4,766,000, with Moody's ratings of Ba2 to B3, and Standard and Poors
ratings of BB+ to B-, though some of the bonds were not rated by either agency.
Investments in corporate bonds carry a greater amount of principal risk than
other investments made by the Company, and yield a corresponding higher return.
The corporate bond investment as of December 31, 1996, had a weighted average
maturity of 1.5 years, and because the Company reasonably expected to liquidate
these investments in its normal operating cycle the investments were classified
as short term, were held as available for sale, and recorded in the accompanying
financial statements at their fair value, as determined by the quoted market
price.
For the year ended December 31, 1996, proceeds from the sale or redemption of
corporate bond investments were approximately $8,429,000, all of which was
reinvested, and gross realized gains and gross realized losses were $28,000 and
$39,000, respectively.
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held at December 31, 1997, and 1996 consisted of
the following:
December 31,
----------------------
1997 (a) 1996
-------- --------
(in thousands)
Land and land improvements $ 50,945 $ 32,215
Buildings 270,271 150,935
Equipment 77,337 31,531
Vessel 18,925 0
Construction in progress 21,896 128
-------- --------
439,374 214,809
Less accumulated depreciation 138,708 83,974
-------- --------
$300,666 $130,835
======== ========
___
(a) Includes Boomtown's assets.
69
NOTE 6 -- SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of December 31, 1997, and 1996 consisted of the following:
December 31,
----------------------
1997 (a) 1996
-------- --------
(in thousands)
Secured notes payable $ 3,750 $ 0
9.5% Series A Notes 125,000 0
11.5% Boomtown First Mortgage Notes 1,253 0
Capital lease obligations 1,527 0
Unsecured note payable 4,009 317
-------- --------
135,539 317
Less current maturities 3,437 35
-------- --------
$132,102 $ 282
======== ========
_____
(a) Includes notes payable related to Boomtown.
HOLLYWOOD PARK On June 30, 1997, Hollywood Park and a bank syndicate led by
Bank of America finalized the Bank Credit Facility, a reducing revolving credit
facility allowing for drawings up to $225,000,000. On August 7, 1997, the Bank
Credit Facility was reduced by $125,000,000 (the aggregate principal amount of
the Series A 9.5% Senior Subordinated Notes due 2007 (the "Notes") issued as
described below) to $100,000,000. Of the $100,000,000, as a result of covenant
limitations, approximately $88,800,000 was available as of December 31, 1997.
As of December 31, 1997, the Company did not have outstanding borrowings under
the Bank Credit Facility, except for a $2,035,000 letter of credit. 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.
On February 19, 1998, Hollywood Park announced the Casino Magic Merger, and
under the terms of the Agreement and Plan of Merger, Hollywood Park will pay
cash of $2.27 for each issued and outstanding share of Casino Magic common
stock, or approximately $81,000,000. The Company has begun discussions to amend
the Bank Credit Facility to increase the borrowing capacity to provide the funds
required for the Casino Magic Merger. A formal amendment has not yet been
signed, and there is no assurance that such an amendment will be completed,
although the bank group has given verbal assurance of its intent to provide such
an increased facility.
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. Hollywood Park
received this approval on July 10, 1997. The second amendment, among other
things, allowed the co-issuance of the Notes by Hollywood Park 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 dates.
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.
70
Borrowings under the Bank Credit Facility bear interest at an annual rate
determined, at the election of Hollywood Park, 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 a
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 December 31,
1997, were 2.00% with respect to the Eurodollar Rate based interest rate and
1.00% 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.
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 Hollywood Park'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
January 1, 1998, the commitment fee is 50 basis points.
On July 3, 1997, Hollywood Park borrowed $112,000,000 from the Bank Credit
Facility to fund Boomtown's offer to purchase the 11.5% Boomtown First Mortgage
Notes (the "Boomtown Notes"), and repaid this amount on August 7, 1997, with a
portion of the proceeds from the August 6, 1997, issuance of $125,000,000 of
Series A 9.5% Senior Subordinated Notes due 2007 (the "Series A Notes"). The
Series A Notes were co-issued by Hollywood Park and Hollywood Park Operating
Company, and were issued pursuant to a private offering under the Securities Act
of 1933, as amended (the "Securities Act"). The balance of the proceeds from
the issuance of the Series A Notes was used primarily for the purchase of a new
riverboat for Boomtown New Orleans, and other general corporate needs.
On March 20, 1998, the Company completed a registered exchange offer for the
Series A Notes, pursuant to which all $125,000,000 principal amount of the
Series A Notes were exchanged by the holders for $125,000,000 aggregate
principal amount of Series B 9.5% Senior Subordinated Notes due 2007 of the
Company and Hollywood Park Operating Company (together with the Series A Notes,
the "Notes") which were registered under the Securities Act on Form S-4.
Interest on the Notes is payable semi-annually, on February 1st and August 1st.
The Notes will be redeemable at the option of Hollywood Park and Hollywood Park
Operating 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 face amount
decreasing on each subsequent anniversary date. The Notes are unsecured
obligations of Hollywood Park and Hollywood Park Operating Company, guaranteed
by all other material restricted subsidiaries of either Hollywood Park or
Hollywood Park Operating Company.
The indenture governing the Notes contains certain covenants that, among other
things, limit the ability of Hollywood Park, Hollywood Park Operating Company
and their restricted subsidiaries to incur additional indebtedness and issue
preferred stock, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, 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.
There are no provisions in the indenture governing the Notes which will prevent
the previously mentioned Casino Magic Merger.
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 to purchase the Hollywood Park common stock
71
issued to Roski in the Boomtown Merger. 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.
BOOMTOWN In November 1993, Boomtown issued $103,500,000 of 11.5% Boomtown
Notes. On July 3, 1997, pursuant to a tender offer, Boomtown repurchased and
retired approximately $102,142,000 in principal amount of the Boomtown Notes, at
a purchase price of $1,085 per $1,000, along with accrued interest thereon. An
additional $105,000 of the remaining Boomtown Notes were tendered in the post
Boomtown Merger change of control purchase offer, at a price of $1,010 for each
$1,000, completed August 12, 1997. As of December 31, 1997, there were
$1,253,000 of 11.5% Boomtown Notes outstanding.
On August 4, 1997, Hollywood Park executed a promissory note for the purchase of
the barge and the building shell at Boomtown Biloxi for a 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 each year. The principal amount of the promissory
note, together with accrued interest, may be repaid, without penalty, in whole
or in part, at any time.
On August 7, 1997, Boomtown New Orleans prepaid a 13.0% note secured by the
former riverboat, then in use, for approximately $2,107,000 (inclusive of a 1.0%
prepayment penalty).
As of December 31, 1997, Boomtown had a note payable of approximately $252,000
along with various capital lease obligations for gaming and other operating
equipment, totaling approximately $1,527,000.
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 Hollywood Park's acquisition of Sunflower. As of
December 31, 1997, the outstanding balance of the Sunflower Senior Credit was
$28,667,000. The Sunflower Senior Credit is non-recourse to Hollywood Park.
On May 17, 1996, Sunflower filed for reorganization under Chapter 11 of the
Bankruptcy Code. The Cash Collateral Agreement suspended any interest or
principal payments on the Sunflower Senior Credit until August 12, 1997. The
Bankruptcy Court has issued an order extending the Cash Collateral Agreement
until it issues its pending ruling regarding approval of Sunflower's proposed
plan of reorganization. The Cash Collateral Agreement requires Sunflower to
make certain cash payments to Wyandotte County, Kansas, the creditors under the
Sunflower Credit and TRAK East (the unaffiliated non-profit holder of the pari-
mutuel racing license in Kansas, and 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 Tribe of Oklahoma (the "Wyandotte Tribe"). The Plan was
amended on October 31, 1997. Under the Plan, some or all of the land would be
held by the United States Government in trust for the Wyandotte Tribe, and a
casino would be developed on the property. Upon completion of the casino, HP
Kansas, Inc. ("HP Kansas") (a wholly-owned subsidiary of Hollywood Park) and a
partner (North American Sports Management or an affiliate) will provide
financing and consulting services for the development and operation of a casino.
Under this arrangement, HP Kansas would be entitled to receive a share of the
revenues of the casino. Under the plan, in order to allow the property to be
released as collateral and sold to the Wyandotte Tribe, Sunflower will be
required to have standby letters of credit issued to support certain payments to
be made to the lenders under the Sunflower Senior Credit and the Wyandotte
County Treasurer's office. The aggregate amount of such letters of credit is
anticipated to be in excess of $29,000,000. Hollywood Park will arrange for the
issuance of such letters of credit on behalf of Sunflower. It is anticipated
that the earliest that the bankruptcy court will rule on the Plan is in the
second quarter of 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
72
the Sunflower Senior Credit. Although Hollywood Park 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.
ANNUAL MATURITIES As of December 31, 1997, annual maturities of total notes and
loans payable are as follows:
Year ending: (in thousands)
------------
December 31, 1998 $ 3,437
December 31, 1999 2,162
December 31, 2000 2,050
December 31, 2001 805
December 31, 2002 776
Thereafter 126,309
The fair values of the Company's various debt instruments discussed above
approximate their carrying amounts based on the fact that borrowings bear
interest at variable market based rates.
NOTE 7 -- ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED
ASSETS TO BE DISPOSED OF
In 1995, Statement of Financial Accounting Standards No. 121 ("SFAS") 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, was issued which established accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets. SFAS 121, which became effective for Hollywood Park in
the quarter ended March 31, 1996, addresses when impairment losses should be
recognized and how impairment losses should be measured. Whenever there are
recognized events or changes in circumstances that indicate the carrying amount
of an asset may not be recoverable, management reviews the asset for possible
impairment. In accordance with current accounting standards, management uses
estimated expected future net cash flows (undiscounted and excluding interest
costs, and grouped at the lowest level for which there are identifiable cash
flows that are as independent as possible of other asset groups) to measure the
recoverability of the asset. If the expected future net cash flows are less
than the carrying amount of the asset an impairment loss would be recognized.
An impairment loss would be measured as the amount by which the carrying amount
of the asset exceeded the fair value of the asset, with fair value measured as
the amount at which the asset could be bought or sold in a current transaction
between willing parties, other than in a forced liquidation sale. The
estimation of expected future net cash flows is inherently uncertain and relies
to a considerable extent on assumptions regarding current and future net cash
flows, market conditions, and the availability of capital. If, in future
periods, there are changes in the estimates or assumptions incorporated into the
impairment review analysis the changes could result in an adjustment to the
carrying amount of the asset, but at no time would previously recognized
impairment losses be restored.
NOTE 8 -- ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 ("SFAS") 123 Accounting for
Stock-Based Compensation, requires that the Company disclose additional
information about employee stock-based compensation plans. The objective of
SFAS 123 is to estimate the fair value, based on the stock price at the grant
date, of the Company's stock options to which employees become entitled when
they have rendered the requisite service and satisfied any other conditions
necessary to earn the right to benefit from the stock options. The fair market
value of a stock option is to be estimated using an option-pricing model that
takes into account, as of the grant date, the exercise price and expected life
of the option, the current price of the underlying stock and its expected
volatility, expected dividends on the stock, and the risk-free interest rate for
the expected term of the options.
73
In computing the stock-based compensation, the following assumptions were made:
Risk-Free
Interest Expected Expected Expected
Rate Life Volatility Dividends
------------ --------- ---------- ----------
Options granted in the following periods:
Second quarter 1995 5.0% 3 years 36.1% None
First quarter 1996 5.0% 3 years 36.1% None
Second quarter 1996 5.1% 3 years 46.4% None
Fourth quarter 1996 (a) 5.0% 10 years 47.4% None
_____
(a) The options granted during the fourth quarter of 1996 were to the
Company's directors, and it is expected that the directors will hold
options for a longer period of time than the Company's employees.
The following sets forth the pro forma financial results under the
implementation of SFAS 123:
For the years ended December 31,
----------------------------------
1997 1996 1995
------- -------- --------
(in thousands, except per share data)
Net income (loss) before stock-based compensation expense $ 8,670 $ (4,249) $ (1,162)
Stock-based compensation expense 543 81 4
------- -------- --------
Pro forma net income (loss) $ 8,127 $ (4,330) $ (1,166)
======= ======== ========
Dividend requirements on convertible preferred stock $ 1,520 $ 1,925 $ 1,925
Pro forma net income (loss) to common shareholders $ 6,607 $ (6,255) $ (3,091)
======= ======== ========
Per common share:
Pro forma net income (loss) - basic $ 0.30 $ (0.34) $ (0.17)
Pro forma net income (loss) - diluted $ 0.30 $ (0.34) $ (0.17)
Number of shares - basic 22,010 18,505 18,399
Number of shares - diluted 22,340 20,797 20,691
NOTE 9 -- RACING OPERATIONS
The Company conducts thoroughbred racing at its Hollywood Park and Turf Paradise
race tracks, located in California and Arizona, respectively. Sunflower race
track, in Kansas, is primarily a greyhound racing facility with a limited number
of days of thoroughbred racing each summer. On May 17, 1996, due to competition
from Missouri riverboat gaming, Sunflower filed for reorganization under Chapter
11 of the Bankruptcy Code, and as of April 1, 1996, Sunflower's operating
results were no longer consolidated with Hollywood Park's; therefore,
Sunflower's racing results and statistics are included in this note for 1995
only. Sunflower is operating as a debtor in possession during the bankruptcy.
Under Kansas racing law, Sunflower is not granted any race days and does not
generate any pari-mutuel commissions. The Kansas Racing Commission granted
Sunflower the facility ownership and management licenses; with all race days
until the year 2014 granted to TRAK East, a Kansas not-for-profit corporation.
Sunflower has an agreement, which was entered into in September 1989, with TRAK
East to provide the physical race tracks along with management and consulting
services for twenty-five years with options to renew for one or more successive
terms.
LIVE ON-TRACK RACE DAYS 1997 1996 1995
---- ---- ----
Hollywood Park race track 102 103 97
Turf Paradise race track 159 166 171
Sunflower - Horses -- -- 49
Sunflower - Greyhounds -- -- 294
74
A summary of the pari-mutuel handle and deductions, by racing facility for the
year ended December 31, are as follows:
HOLLYWOOD PARK - LIVE HORSE RACING (IN THOUSANDS) 1997 1996 1995
-------- -------- --------
Total pari-mutuel handle $663,175 $677,827 $643,246
Less patrons' winning tickets 535,816 547,775 520,291
-------- -------- --------
127,359 130,052 122,955
Less:
State pari-mutuel tax 15,923 19,263 20,691
City of Inglewood pari-mutuel tax 1,176 1,287 1,384
Racing purses and awards 25,881 26,300 26,888
Satellite wagering fees 11,738 12,784 13,545
Interstate location fees 47,524 44,815 34,170
Other fees 356 390 419
-------- -------- --------
Pari-mutuel commissions 24,761 25,213 25,858
Add off-track independent handle commissions 2,195 2,280 2,251
-------- -------- --------
Total pari-mutuel commissions $ 26,956 $ 27,493 $ 28,109
======== ======== ========
TURF PARADISE - LIVE HORSE RACING (IN THOUSANDS) 1997 1996 1995
-------- -------- --------
Total pari-mutuel handle $166,976 $147,748 $111,509
Less patrons' winning tickets 129,212 114,585 86,460
-------- -------- --------
37,764 33,163 25,049
Less:
State pari-mutuel tax 0 18 345
Racing purses and awards 4,339 4,501 4,757
State sales tax 183 302 415
Off-track commissions 316 115 117
Interstate location fees 24,790 20,034 10,943
-------- -------- --------
Pari-mutuel commissions 8,136 8,193 8,472
Add off-track independent handle commissions 193 166 699
-------- -------- --------
Total pari-mutuel commissions including charity days 8,329 8,359 9,171
Less charity day pari-mutuel commissions 18 17 0
-------- -------- --------
Total pari-mutuel commissions net of charity days $ 8,311 $ 8,342 $ 9,171
======== ======== ========
TRAK EAST AT SUNFLOWER - LIVE RACING (IN THOUSANDS) Greyhounds Horses
1995 1995
-------- --------
Total pari-mutuel handle $47,406 $ 2,844
Less patrons' winning tickets 37,379 2,273
-------- --------
10,027 571
Less: State pari-mutuel tax 1,721 104
Racing purses and awards 2,230 190
-------- --------
Total pari-mutuel commissions $ 6,076 $ 277
======= =======
As a stipulation to the granting of race dates, the California Horse Racing
Board ("CHRB") requires that Hollywood Park designate three days from both the
live Spring/Summer Meet and the Autumn Meeting as charity days. The charity day
payments are not to exceed 2/10 of 1.0% of the total live on-track pari-mutuel
handle for the respective race meet. Charity day payments must be made to a
distributing agent approved by the CHRB. The Company made charity day payments
of $310,000, $338,000 and $370,000 for the years ended December 31, 1997, 1996
and 1995, respectively.
Arizona racing law requires that 1.0% of the total in-state pari-mutuel handle
(on-track live pari-mutuel handle and off-track within the state pari-mutuel
handle) of three charity days be paid to a distributing agent approved by the
Arizona Racing Commission. The Arizona Department of Racing did not assign any
charity days in 1995, therefore no payments were required. Turf Paradise paid
$18,000 to the distributing agent in 1997, and paid $17,000 in 1996.
75
Hollywood Park Race Track conducts simulcast meets of live races held at local
southern California race tracks and simulcasts races from northern California
tracks concurrent with the Company's live race meets.
HOLLYWOOD PARK - SIMULCAST RACING 1997 1996 1995
-------- -------- --------
(in thousands)
Pari-mutuel handle:
Thoroughbred meets $371,716 $375,910 $379,263
Quarter Horse meets 22,821 23,067 22,793
Harness meets 7,402 6,165 4,391
-------- -------- --------
$401,939 $405,142 $406,447
======== ======== ========
Pari-mutuel commissions:
Thoroughbred meets $ 12,863 $ 12,669 $ 11,527
Quarter Horse meets 449 454 457
Harness meets 144 120 86
-------- -------- --------
$ 13,456 $ 13,243 $ 12,070
======== ======== ========
TRAK East at Sunflower operates year round simulcasting of both greyhounds and
horses. Pari-mutuel handle and commissions earned by TRAK East for the year
ended December 31, 1995 are as follows:
TRAK EAST AT SUNFLOWER - SIMULCAST RACING 1995
--------------
(in thousands)
Pari-mutuel handle:
Greyhounds $10,871
Horses 29,600
-------
$40,471
=======
Pari-mutuel commission:
Greyhounds $ 2,342
Horses 5,742
-------
$ 8,084
=======
Turf Paradise accepts simulcasts of live races from other tracks concurrently
with live on-track racing as well as operating as a simulcast site for Prescott
Downs between live meets. Turf Paradise also accepts simulcast signals on the
two dark days (days without live racing) a week during the live on-track meet.
TURF PARADISE - SIMULCAST RACING 1997 1996 1995
------- ------- -------
(in thousands)
Pari-mutuel handle all meets $60,493 $55,814 $55,093
Pari-mutuel commissions all meets 5,020 4,768 3,909
NOTE 10 -- INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 Accounting for Income Taxes, whereby deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.
76
The composition of the Company's income tax expense for the years ended December
31, 1997, 1996 and 1995 was as follows:
Current Deferred Total
-------- -------- ------
(in thousands)
YEAR ENDED DECEMBER 31, 1997:
U.S. Federal $ (1,616) $ 6,972 $5,356
State (698) 1,192 494
-------- -------- ------
$ (2,314) $ 8,164 $5,850
======== ======== ======
YEAR ENDED DECEMBER 31, 1996:
U.S. Federal $ 4,341 $ (1,681) $2,660
State (3,293) 4,092 799
-------- -------- ------
$ 1,048 $ 2,411 $3,459
======== ======== ======
YEAR ENDED DECEMBER 31, 1995:
U.S. Federal $ 0 $ 473 $ 473
State 42 178 220
-------- -------- ------
$ 42 $ 651 $ 693
======== ======== ======
The following table reconciles the Company's income tax expense (based on its
effective tax rate) to the federal statutory tax rate of 34%:
1997 1996 1995
------ ------ ------
(in thousands)
Income (loss) before income tax expense, at the
statutory rate $4,935 $ (269) $ (159)
Employee meals 192 0 0
Goodwill amortization 317 195 72
Political and lobbying costs 246 291 353
State income taxes, net of federal tax benefits 494 800 145
Other non-deductible expenses (334) 105 260
Additional provisions 0 2,337 22
------ ------ ------
Income tax expense $5,850 $3,459 $ 693
====== ====== ======
For the years ended December 31, 1997, and 1996, the tax effects of temporary
differences that gave rise to significant portions of the deferred tax assets
and deferred tax liabilities are presented below, along with a summary of
activity in the valuation allowance.
77
1997 1996
-------- --------
(in thousands)
CURRENT DEFERRED TAX ASSETS:
Workers' compensation insurance reserve $ 790 $ 790
General liability insurance reserve 1,012 690
Legal accrual 58 58
Write off of investment in Sunflower 3,111 3,111
Development costs 0 0
Lawsuit settlement 1,104 1,104
Vacation and sick pay accrual 872 270
Bad debt allowance 528 437
Other 1,999 435
-------- --------
Current deferred tax assets 9,474 6,895
Less valuation allowance (306) (120)
-------- --------
Current deferred tax assets 9,168 6,775
CURRENT DEFERRED TAX LIABILITIES:
Business insurance and other (1,050) (353)
-------- --------
Net current deferred tax assets $ 8,118 $ 6,422
======== ========
NON-CURRENT DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 5,489 $ 0
General business investment tax credits 828 36
Alternative minimum tax credits 3,946 1,244
Los Angeles revitalization zone tax credits 11,798 9,299
Boomtown Merger costs 2,406 0
Capital loss divestiture of Boomtown Las Vegas 3,147 0
Other 2,717 42
-------- --------
Non-current deferred tax assets 30,331 10,621
Less valuation allowance (13,524) (5,511)
-------- --------
Non-current deferred tax assets 16,807 5,110
-------- --------
NON-CURRENT DEFERRED TAX LIABILITIES:
Expansion plans (400) (400)
Los Angeles revitalization zone accelerated write-off (461) (461)
Excess book value over tax basis of acquired assets (4,048) 0
Depreciation and amortization (17,382) (10,580)
Other (826) (2,734)
-------- --------
Non-current deferred tax liabilities (23,117) (14,175)
-------- --------
Net non-current deferred tax liabilities $ (6,310) $ (9,065)
======== ========
The Company is located in the Los Angeles revitalization tax zone and is
entitled to special state of California income tax credits related to sales tax
paid on operating materials and supplies, on construction assets and wages paid
to staff who reside within the zone. With the construction of the Hollywood
Park-Casino and Crystal Park, the Company earned substantial tax credits related
to sales tax paid on the assets acquired and on wages paid to construction
employees.
December 31,
------------------
1997 1996
------- ------
(in thousands)
Valuation allowance at beginning of period $ 5,632 $5,330
Valuation allowance for Boomtown NOL carryforwards
and tax credits 5,699 0
Los Angeles revitalization zone tax credit 2,499 302
------- ------
Valuation allowance at end of period $13,830 $5,632
======= ======
As of December 31, 1997, the Company had federal net operating loss ("NOL") and
capital loss ("CL") carryforwards of approximately $17,800,000, and $8,600,000,
respectively, comprised principally of NOL carryforwards acquired in the
Boomtown Merger, and CL carryforwards resulting from the disposition of
Boomtown's Las Vegas property. The NOL carryforwards expire on various dates
through 2012, and the CL carryforwards expire on various dates through 2002. In
addition, the Company has approximately $400,000
78
of general business tax credits, comprised principally of FICA credits, and
approximately $3,800,000 of alternative minimum tax credits available to reduce
future federal income taxes. These tax credits generally cannot reduce federal
taxes paid below the amount of alternative minimum tax. The general business tax
credits expire in 2000. The alternative minimum tax credits do not expire.
Under several provisions of the Internal Revenue Code (the "Code") and the
regulations promulgated thereunder, the utilization of NOL, CL and tax credit
carryforwards to reduce tax liability is restricted under certain circumstances.
Events which cause such a limitation include, but are not limited to, certain
changes in the ownership of a corporation. The Boomtown Merger caused such a
change in ownership with respect to Boomtown. As a result, the Company's use of
approximately $14,800,000 of Boomtown's NOL carryforwards, $1,400,000 of
Boomtown's CL carryforwards, and $3,400,000 of Boomtown's tax credit
carryforwards is subject to certain limitations imposed by Sections 382 and 383
of the Code and by the separate return limitation year rules of the consolidated
return regulations. These limitations restrict the amount of such carryforwards
that may be used by the Company in any taxable year and, consequently, are
expected to defer the Company's use of a substantial portion of such
carryforwards and may ultimately prevent the Company's use of a portion thereof.
Therefore, a valuation allowance has been recorded related to the Boomtown
carryforwards.
For California tax purposes, as of December 31, 1997, the Company also had
approximately $11,700,000 of Los Angeles Revitalization Zone ("LARZ") tax
credits. The LARZ tax credits can only be used to reduce certain California tax
liability and cannot be used to reduce federal tax liability. A valuation
allowance has been recorded with respect to the LARZ tax credits because the
Company may not generate enough income subject to California tax to utilize the
LARZ tax credits before they expire.
NOTE 11 -- STOCKHOLDERS' EQUITY
On June 30, 1997, the Company acquired Boomtown 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 net shares of Hollywood
Park common stock were issued. In connection with the Boomtown Merger, the
Company purchased and retired 446,491 shares of Hollywood Park common stock
received by a former Boomtown shareholder.
During 1996 the Company announced its intention to repurchase and retire up to
2,000,000 shares of its common stock on the open market or in negotiated
transactions. As of December 31, 1996, the Company had repurchased and retired
(with the last purchase in 1996 made on November 13, 1996) 222,300 common shares
at a cost of approximately $1,962,000.
NOTE 12 -- LEASE OBLIGATIONS
The Company leases certain equipment for use in gaming and racing operations and
general office equipment. Minimum lease payments required under operating
leases that have initial terms in excess of one year as of December 31, 1997 are
as follows:
(in thousands)
1998 $1,870
1999 1,104
2000 422
2001 380
2002 366
Thereafter 529
Total rent expense for these long term lease obligations for the years ended
December 31, 1997, 1996 and 1995 was $2,453,000, $1,378,000, and $1,318,000,
respectively.
79
NOTE 13 -- RETIREMENT PLANS
As of January 31, 1997, Hollywood Park terminated its Pension Plan, which was a
non-contributory defined benefit Pension Plan covering certain employees of
Hollywood Park, Inc. and Hollywood Park Operating Company. Pension Plan
participants' accrued Pension Plan benefits were frozen as of September 1, 1996,
except for certain retained participants (participants who, because of legal
requirements, including the provisions of the National Labor Relations Act, were
represented by a collective bargaining agent), whose accrued Pension Plan
benefits were frozen as of December 31, 1996. The funds accumulated under the
Pension Plan were distributed to the Pension Plan participants, and no Pension
Plan assets were paid to the Company. During 1996, the Pension Plan was subject
to the full funding limitation and thus no contributions were made.
RETIREMENT PLANS FUNDED STATUS
December 31,
------------------
1997 1996
----- -------
(in thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$2,627,000 at December 31, 1996 $ 0 $ 2,627
===== =======
Projected benefit obligation for service rendered to date $ 0 $ 2,627
Less Pension Plan assets at fair value 0 4,436
Less Pension Plan contribution 0 0
----- -------
Pension Plan assets in excess of projected benefit obligation 0 1,809
Unrecognized net gain from past experience different from that
assumed and effects of changes in assumptions 0 (1,052)
Unrecognized net asset being recognized over 15 years 0 (452)
----- -------
Pension Plan asset $ 0 $ 305
===== =======
Net pension expense - Service cost $ 0 $ 698
Net pension expense - Interest cost 0 325
Actual return on assets 0 (784)
Net amortization and deferral 0 255
----- -------
Net periodic pension cost $ 0 $ 494
===== =======
The December 31, 1996, reserve liabilities and related asset values for the
annuity contract were not included in the table above, because the Company
executed an agreement with the insurance company holding the annuity contracts
to no longer participate in the annual adjustments to the contract values.
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligations was 8.0% at December 31, 1996. The
expected long term rate of return on assets was 8.0% at December 31, 1996.
The Company also contributed to several collectively-bargained multi-employer
pension and retirement plans (covering full and part-time employees) which are
administered by unions, and to a pension plan covering non-union employees which
is administered by an association of race track owners. Amounts charged to
pension cost and contributed to these plans for the years ended December 31,
1997, 1996 and 1995 totaled $1,842,000, $1,872,000, and $1,781,000,
respectively. Contributions to the collectively-bargained plans were determined
in accordance with the provisions of negotiated labor contracts and generally
are based on the number of employee hours or days worked. Contributions to the
non-union plans are based on the covered employees' compensation.
Information from the plans administrators was not available to permit the
Company to determine its share of unfunded vested benefits or prior service
liability. It is the opinion of management that no material liability exists.
80
Effective January 31, 1997, in conjunction with the termination of the Pension
Plan, Hollywood Park elected to terminate its non-qualified Supplementary
Employment Retirement Plan ("SERP"). The SERP was an unfunded plan, established
primarily for the purpose of restoring the retirement benefits for highly
compensated employees that were eliminated by the Internal Revenue Service in
1994, when the maximum annual earnings allowed for qualified pension plans was
reduced to $150,000 from $235,850. Messers, Hubbard, Finnigan and Robbins
participated in the SERP prior to its termination.
NOTE 14 RELATED PARTY TRANSACTIONS
In November 1993, Hollywood Park entered into an aircraft time sharing agreement
with R.D. Hubbard Enterprises, Inc. ("Hubbard Enterprises"), which is wholly
owned by Mr. Hubbard. The agreement automatically renews each month unless
written notice of termination is given by either party at least two weeks before
a renewal date. Hollywood Park reimburses Hubbard Enterprises for expenses
incurred as a result of Hollywood Park's use of the aircraft, which totaled
approximately $106,000 in 1997, $120,000 in 1996, and $126,000 in 1995.
In May 1988, Boomtown acquired all of the outstanding stock of Boomtown Hotel &
Casino, Inc. which owns and operates Boomtown Reno for $16,700,000 in cash (the
"1988 Acquisition"). In order to finance the 1988 Acquisition, including the
retirement of existing debt, Boomtown sold equity securities to Kenneth Rainin
and Timothy J. Parrott, and Boomtown Reno entered into various loan documents
with Merrill Lynch Interfunding, Inc. Pursuant to a stock purchase agreement,
Mr. Rainin purchased 2,000 shares of Boomtown preferred stock and 3,042,000
shares of Boomtown common stock for an aggregate purchase price of approximately
$4,000,000 in cash, and Mr. Parrott purchased 270,738 shares of Boomtown common
stock for an aggregate purchase price of $222,000, of which $1,000 was paid in
cash and $221,000 by a promissory note (the "Parrott Note") secured by a pledge
to Boomtown of all of the shares owned by Mr. Parrott. The Parrott Note, as
amended in April 1997, provides that (I) interest on the Parrott Note, which
accrues at a rate of 6.0% per annum, compounded annually, is payable in arrears
on April 7th of each year, commencing April 7, 1998, and (ii) principal is
payable in four annual installments beginning April 7, 1998. The Parrott Note
was previously amended in November 1994 to provide that the shares owned by Mr.
Parrott would be released from the pledge and would no longer secure the amounts
outstanding under the Parrott Note. Hollywood Park notes that the interest rate
of 6% under the amended Parrott Note is less than Hollywood Park's current
borrowing rate. However, this interest rate was in effect under the original
version of the Parrott Note executed in 1988 prior to Boomtown's public offering
and Hollywood Park's subsequent acquisition of Boomtown.
With the exception of the interest rate on the Parrott Note, Hollywood Park
believes that the terms of the following transactions were at least as favorable
as could have been obtained by Hollywood Park from third parties in arms length
transactions.
NOTE 15 - STOCK OPTION PLAN
In 1996, the shareholders of the Company adopted the 1996 Stock Option Plan (the
"1996 Plan"), which provides for the issuance of up to 900,000 shares. Except
for the provisions governing the number of shares issuable under the 1996 Plan
and except for provisions which reflect changes in tax and securities laws, the
provisions of the 1996 Plan are substantially similar to the provision of the
prior plan adopted in 1993. The 1996 Plan is administered and terms of option
grants are established by the Board of Directors' Compensation Committee. Under
the terms of the 1996 Plan, options alone or coupled with stock appreciation
rights may be granted to selected key employees, directors, consultants and
advisors of the Company. Options become exercisable ratably over a vesting
period as determined by the Compensation Committee and expire over terms not
exceeding ten years from the date of grant, one month after termination of
employment, or six months after the death or permanent disability of the
optionee. The purchase price for all shares granted under the 1996 Plan shall
be determined by the Compensation Committee, but in the case of incentive stock
options, the price will not be less than the fair market value of the common
stock at the date of grant. On April 26, 1996, the Company amended the non-
qualified stock
81
option agreements issued through this date, to lower the per share price of the
outstanding options to $10.00. On May 19, 1995, the Company amended the non-
qualified stock option agreements issued through this date, to reflect the
substantial decline in the fair market value of the common stock, lowering the
per share price of the outstanding options to $13.00.
As of December 31, 1997, all of the 625,000 shares eligible for issuance under
the 1993 Plan had either been issued or were subject to outstanding options, and
of the 900,000 shares eligible for issuance under the 1996 Plan, 40,000 were
subject to outstanding options. In addition, 1,008,454 shares of Hollywood Park
common stock were issuable upon exercise of options granted before the Boomtown
Merger under Boomtown's 1990 Stock Option Plan and the 1992 Director Option
Plan, these options were assumed by Hollywood Park in the Boomtown Merger.
The following table summarizes information related to shares under option and
shares available for grant under the Plan.
1997 1996 1995
----------- ---------- --------
Options outstanding at beginning of year 622,500 249,000 235,000
Options granted during the year 261,000 413,500 15,000
Options expired or forfeited during the year (26,001) (40,000) (1,000)
----------- ---------- --------
Options outstanding at end of year 857,499 622,500 249,000
=========== ========== ========
Shares available for issuance under the 1993 Plan 625,000 625,000 625,000
Shares available for issuance under the 1996 Plan 900,000 900,000 0
----------- ---------- --------
Total shares available for issuance 1,525,000 1,525,000 625,000
=========== ========== ========
Per share price of outstanding options issued in prior year $ 10.00 $ 10.00 $ 13.00
Per share price of outstanding options issued in prior year $ 11.50 $ 10.00 $ 13.25
Per share price of outstanding options issued in current year $ 14.75 $ 11.50 --
Number of shares subject to exercisable options at end of year 696,813 188,332 128,000
NOTE 16 - COMMITMENTS AND CONTINGENCIES
On August 6, 1997, Hollywood Park and Hollywood Park Operating Company, as co-
obligors, issued $125,000,000 of Notes (as previously discussed). The Notes are
fully and unconditionally, jointly and severally, guaranteed on a senior
subordinated basis by all of Hollywood Park's material subsidiaries.
82
NOTE 17 - UNAUDITED QUARTERLY INFORMATION
The following is a summary of unaudited quarterly financial data for the years
ended December 31, 1997 and 1996:
1997
---------------------------------------------------
Dec. 31, Sept. 30, June 30, Mar. 31,
-------- --------- -------- --------
(in thousands, except per share data)
Revenues $89,779 $85,210 $46,324 $ 26,815
======== ========= ======== ========
Net income (loss) $ 1,551 $ 2,411 $ 5,603 ($895)
======== ========= ======== ========
Net income (loss) available to
(allocated to) common shareholders $ 1,551 $ 1,853 $ 5,122 $ (1,376)
======== ========= ======== ========
Per common share:
Net income (loss) - basic $ 0.06 $ 0.08 $ 0.28 $ (0.07)
======== ========= ======== ========
Net income (loss) - diluted $ 0.06 $ 0.08 $ 0.27 $ (0.07)
======== ========= ======== ========
Cash dividends $ 0.00 $ 0.00 $ 0.00 $ 0.00
======== ========= ======== ========
1996
---------------------------------------------------
Dec. 31, Sept. 30, June 30, Mar. 31,
-------- --------- -------- --------
(in thousands, except per share data)
Revenues $ 38,698 $ 30,247 $ 46,427 $ 27,853
======== ========= ======== ========
Net income (loss) $ 3,277 $ 603 $ 5,249 $(13,378)
======== ========= ======== ========
Net income (loss) available to
(allocated to) common shareholders $ 2,795 $ 122 $ 4,768 $(13,859)
======== ========= ======== ========
Per common share:
Net income (loss) - basic $ 0.15 $ 0.01 $ 0.26 $ (0.74)
======== ========= ======== ========
Net income (loss) - diluted $ 0.15 $ 0.01 $ 0.25 $ (0.74)
======== ========= ======== ========
Cash dividends $ 0.00 $ 0.00 $ 0.00 $ 0.00
======== ========= ======== ========
The primary reason for the loss for the quarter ended March 31, 1996, was the
$11,346,000 write off of the Company's investment in Sunflower. Historically,
the three months ended March 31, produce a loss, because the Company does not
operate live on-track racing at Hollywood Park Race Track.
NOTE 18 - CONSOLIDATING CONDENSED FINANCIAL INFORMATION
Hollywood Park's subsidiaries (excluding Sunflower and other inconsequential
subsidiaries) have fully and unconditionally guaranteed the payment of all
obligations under the Hollywood Park 9.5% Senior Subordinated Notes due 2007.
The following is the consolidating financial information for the co-obligors and
their respective subsidiaries:
83
Hollywood Park, Inc.
Consolidating Condensed Financial Information
As of and for the years ended December 31, 1997, 1996 and 1995
(c)
(a) (b) Wholly
Hollywood Hollywood Wholly Majority Owned Consolidating
Park, Inc. Park Owned Owned Non- and Hollywood
(Parent Operating Co. Guarantor Guarantor Guarantor Eliminating Park, Inc.
co-obligor) (co-obligor) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
---------- ------------- ------------ ------------ ------------ ------------- ------------
(in thousands)
AS OF AND FOR THE YEAR
ENDED DEC. 31, 1997
Balance Sheet
- -------------
Current assets $ 19,844 $ 8,568 $ 25,074 $ 6,720 $0 $ 0 $ 60,206
Property, plant and
equipment, net 68,515 23,753 140,105 68,293 0 0 300,666
Other non-current assets 22,306 0 29,320 7,611 0 (1,080) 58,157
Investment in subsidiaries 126,121 15,132 116,020 0 0 (257,273) 0
Inter-company 125,210 148,380 122,035 0 0 (395,625) 0
-------- ---------- --------- ------- -- ---------- --------
$361,996 $ 195,833 $ 432,554 $82,624 $0 ($653,978) $419,029
======== ========== ========= ======= == ========== ========
Current liabilities $ 16,890 $ 14,232 $ 19,583 $ 6,612 $0 $ 0 $ 57,317
Notes payable, long term 2,406 125,256 1,936 2,504 0 0 132,102
Other non-current 4,753 5,202 83 0 0 (3,728) 6,310
liabilities
Inter-company 146,145 21,589 178,448 49,443 0 (395,625) 0
Minority interest 0 0 0 0 0 1,946 1,946
Equity 191,802 29,554 232,504 24,065 0 (256,571) 221,354
-------- ---------- --------- ------- -- ---------- --------
$361,996 $ 195,833 $ 432,554 $82,624 $0 ($653,978) $419,029
======== ========== ========= ======= == ========== ========
Statement of Operations
- -----------------------
Revenues:
Gaming $ 50,820 $ 0 $ 58,622 $28,217 $0 $ 0 $137,659
Racing 0 39,930 28,914 0 0 0 68,844
Food and beverage 4,659 0 13,483 1,752 0 0 19,894
Equity in subsidiaries 13,963 3,735 (43) 0 0 (17,655) 0
Inter-company 0 0 4,823 0 0 (4,823) 0
Other 4,601 1,808 13,789 1,533 0 0 21,731
-------- ---------- --------- ------- -- ---------- --------
74,043 45,473 119,588 31,502 0 (22,478) 248,128
-------- ---------- --------- ------- -- ---------- --------
Expenses:
Gaming 28,353 0 32,370 14,010 0 0 74,733
Racing 0 17,822 12,482 0 0 0 30,304
Food and beverage 9,658 0 13,784 2,303 0 0 25,745
Administrative and other 18,282 14,536 33,277 8,792 0 0 74,887
REIT restructuring 2,483 0 0 0 0 0 2,483
Depreciation and
amortization 4,632 3,804 6,229 3,459 0 33 18,157
-------- ---------- --------- ------- -- ---------- --------
63,408 36,162 98,142 28,564 0 33 226,309
-------- ---------- --------- ------- -- ---------- --------
Operating income (loss) 10,635 9,311 21,446 2,938 0 (22,511) 21,819
Interest expense 1,789 5,368 (37) 182 0 0 7,302
Inter-company interest 0 0 2,244 2,579 0 (4,823) 0
-------- ---------- --------- ------- -- ---------- --------
Income (loss) before
minority interests and
taxes 8,846 3,943 19,239 177 0 (17,688) 14,517
Minority interests 0 0 0 0 0 (3) (3)
Income tax expense 4,124 0 1,726 0 0 0 5,850
-------- ---------- --------- ------- -- ---------- --------
Net income (loss) $ 4,722 $ 3,943 $ 17,513 $ 177 $0 ($17,685) $ 8,670
======== ========== ========= ======= == ========== ========
Statement of Cash Flows:
- ------------------------
Net cash provided by
(used in) operating
activities $ 19,559 ($117,960) $ 129,260 $ 5,250 $0 ($17,655) $ 18,454
Net cash provided by
(used in) investing
activities 14,747 (3,139) (23,516) (4,328) 0 0 (16,236)
Net cash provided by
(used in) financing
activities 475 124,975 (114,345) (2,373) 0 877 9,609
84
Hollywood Park, Inc.
Consolidating Condensed Financial Information
As of and for the years ended December 31, 1997, 1996 and 1995
(c)
(a) (b) Wholly
Hollywood Hollywood Wholly Majority Owned Consolidating
Park, Inc. Park Owned Owned Non- and Hollywood
(Parent Operating Co. Guarantor Guarantor Guarantor Eliminating Park, Inc.
co-obligor) (co-obligor) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
----------- -------------- ------------- ------------- ------------- -------------- -------------
(in thousands)
AS OF AND FOR THE YEAR
ENDED DEC. 31, 1996
Balance Sheet
- -------------
Current assets $ 23,522 $ 7,362 $ 9,646 $ 429 $ 0 $ 0 $ 40,959
Property, plant and
equipment, net 70,443 24,353 12,786 23,253 0 0 130,835
Other non-current assets 23,322 0 5,108 5,662 0 0 34,092
Investment in subsidiaries 28,723 45,432 23,852 0 0 (98,007) 0
Inter-company 72,099 11,386 0 0 0 (83,485) 0
--------- ------- ------- ------- -------- ---------- --------
$ 218,109 $88,533 $51,392 $29,344 $ 0 ($181,492) $205,886
========= ======= ======= ======= ======== ========== ========
Current liabilities $ 16,324 $ 7,032 $11,807 $ 201 $ 0 $ 0 $ 35,364
Notes payable, long term 0 282 0 0 0 0 282
Other non-current 3,859 5,206 0 0 0 0 9,065
liabilities
Inter-company 39,851 50,479 7,677 0 0 (98,007) 0
Minority interest 0 0 0 0 0 3,015 3,015
Equity 158,075 25,534 31,908 29,143 0 (86,500) 158,160
--------- ------- ------- ------- -------- ---------- --------
$ 218,109 $88,533 $51,392 $29,344 $ 0 ($181,492) $205,886
========= ======= ======= ======= ======== ========== ========
Statement of Operations
- -----------------------
Revenues:
Gaming $ 50,272 $ 0 $ 0 $ 445 $ 0 $ 0 $ 50,717
Racing 0 41,423 28,568 0 1,317 0 71,308
Food and beverage 4,956 0 8,533 0 458 0 13,947
Equity in subsidiaries 1,751 3,408 0 0 0 (5,159) 0
Other 4,993 1,915 338 0 7 0 7,253
--------- ------- ------- ------- -------- ---------- --------
61,972 46,746 37,439 445 1,782 (5,159) 143,225
--------- ------- ------- ------- -------- ---------- --------
Expenses:
Gaming 27,249 0 0 0 0 0 27,249
Racing 0 17,999 11,903 0 265 0 30,167
Food and beverage 10,930 0 8,235 0 408 0 19,573
Administrative and other 18,316 15,059 9,556 1 1,030 0 43,962
Write off of investment in
Sunflower 11,412 0 0 0 0 0 11,412
Depreciation and
amortization 4,665 3,645 1,479 319 536 51 10,695
--------- ------- ------- ------- -------- ---------- --------
72,572 36,703 31,173 320 2,239 51 143,058
--------- ------- ------- ------- -------- ---------- --------
Operating income (loss) (10,600) 10,043 6,266 125 (457) (5,210) 167
Interest expense 134 27 0 0 781 0 942
--------- ------- ------- ------- -------- ---------- --------
Income (loss) before
minority interests and
taxes (10,734) 10,016 6,266 125 (1,238) (5,210) (775)
Minority interests 0 0 0 0 0 15 15
Income tax expense 3,421 0 38 0 0 0 3,459
--------- ------- ------- ------- -------- ---------- --------
Net income (loss) ($14,155) $10,016 $ 6,228 $ 125 ($1,238) ($5,225) ($4,249)
========= ======= ======= ======= ======== ========== ========
Statement of Cash Flows:
- ------------------------
Net cash provided by
(used in) operating
activities ($6,205) $ 4,956 $ 2,426 $ 200 ($3,588) $ 15,888 $ 13,677
Net cash used in investing
activities (963) (5,992) (354) 0 0 (12,584) (19,893)
Net cash used in financing
activities (4,245) (23) 0 0 0 0 (4,268)
85
Hollywood Park, Inc.
Consolidating Condensed Financial Information
As of and for the years ended December 31, 1997, 1996 and 1995
(a) (b) Wholly
Hollywood Hollywood Wholly Majority Owned Consolidating
Park, Inc. Park Owned Owned Non- and Hollywood
(Parent Operating Co. Guarantor Guarantor Guarantor Eliminating Park, Inc.
co-obligor) (co-obligor) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
----------- -------------- ------------- ------------- ------------- ------------- -------------
(in thousands)
AS OF AND FOR THE YEAR
ENDED DEC. 31, 1995
Statement of Operations
- -----------------------
Revenues:
Gaming $ 26,656 $ 0 $ 0 $0 $ 0 $ 0 $ 26,656
Racing 0 42,648 27,542 0 6,846 0 77,036
Food and beverage 7,422 0 9,489 0 2,872 0 19,783
Equity in subsidiaries (3,610) 1,983 0 0 0 1,627 0
Other 2,420 4,176 444 0 57 0 7,097
--------- ------- ------- -- -------- ------- --------
32,888 48,807 37,475 0 9,775 1,627 130,572
--------- ------- ------- -- -------- ------- --------
Expenses:
Gaming 5,291 0 0 0 0 0 5,291
Racing 0 16,745 12,830 0 1,385 0 30,960
Food and beverage 12,964 0 9,288 0 2,497 0 24,749
Administrative and other 16,411 17,746 9,184 0 5,306 0 48,647
Lawsuit settlement 6,088 0 0 0 0 0 6,088
Depreciation and
amortization 3,887 3,236 1,586 0 2,468 207 11,384
--------- ------- ------- -- -------- ------- --------
44,641 37,727 32,888 0 11,656 207 127,119
--------- ------- ------- -- -------- ------- --------
Operating income (loss) (11,753) 11,080 4,587 0 (1,881) 1,420 3,453
Interest expense 172 29 30 0 3,691 0 3,922
--------- ------- ------- -- -------- ------- --------
Income (loss) before taxes (11,925) 11,051 4,557 0 (5,572) 1,420 (469)
Income tax expense 510 0 182 0 1 0 693
--------- ------- ------- -- -------- ------- --------
Net income (loss) ($12,435) $11,051 $ 4,375 $0 ($5,573) $ 1,420 ($1,162)
========= ======= ======= == ======== ======= ========
Statement of Cash Flows:
- ------------------------
Net cash provided by
(used in) operating
activities $ 2,575 $11,864 $ 2,794 $0 $ 1,431 $ 1,627 $ 20,291
Net cash provided by
(used in) investing
activities (40,218) (5,371) (1,831) 0 0 14,498 (32,922)
Net cash provided by
(used in) financing
activities 1,433 21 (1,913) 0 (1,626) 0 (2,085)
_____
(a) The following wholly owned guarantor subsidiaries were included in each
period presented: Turf Paradise, Inc., Hollywood Park Food Services, Inc.,
and Hollywood Park Fall Operating Company. As of and for the year ended
December 31, 1997, the following wholly owned guarantor subsidiaries were
also included: HP Yakama, Inc., Boomtown, Inc., Boomtown Hotel & Casino,
Inc., Louisiana - I Gaming, HP/Compton, Inc. (included as of October 1996)
and Louisiana Gaming Enterprises, Inc. Due to the June 30, 1997, Boomtown
Merger being accounted for under the purchase method of accounting for a
business combination, the financial results as of and for the year ended
December 31, 1997, included Boomtown, Inc.'s, Boomtown Hotel & Casino,
Inc.'s, Louisiana - I Gaming's, and Louisiana Gaming Enterprises, Inc.'s
financial results for the six months ended December 31, 1997, only.
(b) The Company's majority owned guarantor subsidiaries are Crystal Park Hotel
and Casino Development Company, LLC (which as of December 31, 1997, became
a wholly owned subsidiary) and Mississippi - I Gaming, L.P., (which was
added as of the June 30, 1997, Boomtown Merger). As a result of the
Boomtown Merger, Mississippi - I Gaming, L.P.'s financial results are
included for the six months ended December 31, 1997, only.
(c) Sunflower Racing, Inc. and its wholly owned subsidiary, SR Food and
Beverage, Inc., were the Company's only wholly owned non-guarantor
subsidiaries with material financial activity during the periods presented.
As of March 31, 1996, the financial results of these two wholly owned non-
guarantor subsidiaries were no longer consolidated with the Company's
financial results, due to the write off of Hollywood Park's investment in
these subsidiaries. All other wholly owned non-guarantor subsidiaries are
either empty companies established for potential development projects that
were subsequently abandoned, or the subsidiary's financial activity was
immaterial.
86
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
ALLOWANCE FOR BAD DEBTS:
Balance as of December 31, 1994 ($159)
Charges to expense (2,294)
Write offs 612
-------------
Balance as of December 31, 1995 (1,841)
Charges to expense (a) (783)
Write offs 1,535
-------------
Balance as of December 31, 1996 (1,089)
Add Boomtown balance as of June 30, 1997 (b) (225)
Charges to expense (189)
Write offs 754
-------------
Balance as of December 31, 1997 ($749)
=============
_____
(a) Hollywood Park assumed the bad debt allowance related to the Hollywood
Park-Casino gaming business in the November 17, 1995, acquisition of PCM.
(b) Hollywood Park acquired Boomtown as of June 30, 1997.
87
Hollywood Park, Inc.
Selected Financial Data by Operational Location
Three months ended (unauditied)
------------------------------------------------ Year ended
December 31, September 30, June 30, March 31, December 31,
1997 1997 1997 1997 1997
----------- ------------ -------- --------- ------------
(in thousands, except per share data)
REVENUES:
Hollywood Park, Inc. - Casino Division $ 15,053 $ 14,759 $ 15,323 $ 13,994 $ 59,129
HP/Compton, Inc. - Crystal Park Hotel and Casino 20 702 900 600 2,222
Boomtown Reno 15,837 20,978 0 0 36,815
Boomtown New Orleans 19,736 19,380 0 0 39,116
Boomtown Biloxi 14,253 15,028 0 0 29,281
Hollywood Park Race Track 18,143 12,334 26,747 5,446 62,670
Turf Paradise, Inc. 6,022 1,647 3,143 6,562 17,374
Hollywood Park, Inc. - Corporate 201 327 211 213 952
Boomtown, Inc. - Corporate 514 55 0 0 569
------- ------- ------- ------- --------
89,779 85,210 46,324 26,815 248,128
------- ------- ------- ------- --------
EXPENSES:
Hollywood Park, Inc. - Casino Division 12,564 12,071 12,927 12,441 50,003
HP/Compton, Inc. - Crystal Park Hotel and Casino 425 25 18 22 490
Boomtown Reno 15,531 16,665 0 0 32,196
Boomtown New Orleans 14,266 13,860 0 0 28,126
Boomtown Biloxi 11,973 12,642 0 0 24,615
Hollywood Park Race Track 14,100 11,183 16,735 7,286 49,304
Turf Paradise, Inc. 4,087 2,023 2,670 4,230 13,010
Hollywood Park, Inc. - Corporate 1,861 1,744 1,346 1,336 6,287
Boomtown, Inc. - Corporate 802 836 0 0 1,638
------- ------- ------- ------- --------
75,609 71,049 33,696 25,315 205,669
------- ------- ------- ------- --------
NON-RECURRING EXPENSES:
REIT restructuring 1,874 397 212 0 2,483
DEPRECIATION AND AMORTIZATION:
Hollywood Park, Inc. - Casino Division 557 685 900 764 2,906
HP/Compton, Inc. - Crystal Park Hotel and Casino 477 521 402 400 1,800
Boomtown Reno 1,379 1,353 0 0 2,732
Boomtown New Orleans 1,019 1,031 0 0 2,050
Boomtown Biloxi 862 820 0 0 1,682
Hollywood Park Race Track 1,051 1,013 1,001 991 4,056
Turf Paradise, Inc. 292 288 297 295 1,172
Hollywood Park, Inc. - Corporate 430 431 431 434 1,726
Boomtown, Inc. - Corporate 16 17 0 0 33
------- ------- ------- ------- --------
6,083 6,159 3,031 2,884 18,157
------- ------- ------- ------- --------
OPERATING INCOME (LOSS):
Hollywood Park, Inc. - Casino Division 1,932 2,003 1,496 789 6,220
HP/Compton, Inc. - Crystal Park Hotel and Casino (882) 156 480 178 (68)
Boomtown Reno (1,073) 2,960 0 0 1,887
Boomtown New Orleans 4,451 4,489 0 0 8,940
Boomtown Biloxi 1,418 1,566 0 0 2,984
Hollywood Park Race Track 2,992 138 9,011 (2,831) 9,310
Turf Paradise, Inc. 1,643 (664) 176 2,037 3,192
Hollywood Park, Inc. - Corporate (2,090) (1,848) (1,566) (1,557) (7,061)
Boomtown, Inc. - Corporate (304) (798) 0 0 (1,102)
REIT restructuring (1,874) (397) (212) 0 (2,483)
------- ------- ------- ------- --------
6,213 7,605 9,385 (1,384) 21,819
------- ------- ------- ------- --------
INTEREST EXPENSE 3,520 3,653 65 64 7,302
MINORITY INTERESTS:
HP/Compton, Inc. - Crystal Park Hotel and Casino (84) 17 42 22 (3)
------- ------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE 2,777 3,935 9,278 (1,470) 14,520
Income tax expense 1,226 1,524 3,675 (575) 5,850
------- ------- ------- ------- --------
Net income (loss) $ 1,551 $ 2,411 $ 5,603 $ (895) $ 8,670
======= ======= ======= ======= ========
Dividend requirements on convertible preferred stock $ 0 $ 558 $ 481 $ 481 $ 1,520
------- ------- ------- ------- --------
Net income (loss) available to (allocated to) common shareholders $ 1,551 $ 1,853 $ 5,122 $(1,376) $ 7,150
======= ======= ======= ======= ========
Per common share:
Net income (loss) - basic $0.06 $0.08 $0.28 ($0.07) $0.33
Net income (loss) - diluted $0.06 $0.08 $0.27 ($0.07) $0.32
Number of shares - basic 26,209 24,706 18,462 18,372 22,010
Number of shares - diluted 26,705 24,706 20,754 20,664 22,340
88
Hollywood Park, Inc.
Calculation of Earnings Per Share
For the three months ended December 31,
-----------------------------------------------------------------------------------
Basic Diluted
---------------------------------------- --------------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
Average number of common shares outstanding 26,209 18,365 18,486 26,705 18,365 18,486
Average common shares due to assumed
conversion of convertible preferred shares 0 0 0 0 2,291 2,291
------- ------- ------- ------- ------- -------
Total shares 26,209 18,365 18,486 26,705 20,656 20,777
======= ======= ======= ======= ======= =======
Net income $ 1,551 $ 3,277 $ 212 $ 1,551 $ 3,277 $ 212
Less dividend requirements on convertible
preferred shares 0 482 482 0 0 0
------- ------- ------- ------- ------- -------
Net income (loss) available to (allocated to)
common shareholders $ 1,551 $ 2,795 $ (270) $ 1,551 $ 3,277 $ 212
======= ======= ======= ======= ======= =======
Net income (loss) per share $ 0.06 $ 0.15 $ (0.01) $ 0.06 $ 0.16 $ 0.01
======= ======= ======= ======= ======= =======
For the years ended December 31,
-----------------------------------------------------------------------------------
Basic Diluted
---------------------------------------- --------------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
Average number of common shares outstanding 22,010 18,505 18,399 22,340 18,505 18,399
Average common shares due to assumed
conversion of convertible preferred shares 0 0 0 0 2,291 2,291
------- ------- ------- ------- ------- -------
Total shares 22,010 18,505 18,399 22,340 20,796 20,690
======= ======= ======= ======= ======= =======
Net income (loss) $ 8,670 $(4,249) $(1,162) $ 8,670 $(4,249) $(1,162)
Less dividend requirements on convertible
preferred shares 1,520 1,925 1,925 1,520 0 0
------- ------- ------- ------- ------- -------
Net income (loss) attributable to (allocated
to) common shareholders $ 7,150 $(6,174) $(3,087) $ 7,150 $(4,249) $(1,162)
======= ======= ======= ======= ======= =======
Net income (loss) per share $ 0.33 $ (0.33) $ (0.17) $ 0.32 $ (0.20) $ (0.06)
======= ======= ======= ======= ======= =======
- --------
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.
89
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Crystal Park Hotel and Casino Development Company, LLC:
We have audited the accompanying balance sheets of Crystal Park Hotel and Casino
Development Company, LLC (a California limited liability company) ("Crystal Park
LLC") as of December 31, 1997 and 1996, and the related statements of
operations, members' equity and cash flows for the year ended December 31, 1997
and for the period from July 18, 1996 (date of inception) to December 31, 1996.
These financial statements are the responsibility of Crystal Park LLC's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Crystal Park Hotel and Casino
Development Company, LLC as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the year ended December 31, 1997 and for
the period from July 18, 1996 to December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 18, 1998, except for
the last sentence in the second
paragraph of Note 1 as to which
the date is February 27, 1998
90
Crystal Park Hotel and Casino Development Company, LLC
Balance Sheets
As of December 31,
----------------------
1997 1996
------- -------
Assets (in thousands)
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 20,403 19,457
Less accumulated depreciation and amortization (1,764) (271)
------- -------
22,706 23,253
------- -------
Cash and cash equivalents 683 200
Rent and other receivables 167 229
Organization costs, net 498 452
Other assets, net 5,057 5,210
------- -------
$29,111 $29,344
======= =======
Liabilities and Members' Equity
Accounts payable $477 $1
Security deposit 0 200
------- -------
Total liabilities 477 201
Members' equity:
HP/Compton, Inc. 25,715 26,128
Redwood Gaming, LLC 1,946 2,010
HP Casino, Inc. 973 0
First Park Investments, LLC 0 1,005
------- -------
Total members' equity 28,634 29,143
------- -------
$29,111 $29,344
======= =======
- ------------------------
See accompanying notes to financial statements.
91
Crystal Park Hotel and Casino Development Company, LLC
Statements of Operations
For the year
ended Inception to
December 31, December 31,
1997 1996
------------ ------------
(in thousands)
Revenues:
Lease rent $2,221 $445
Expenses:
Administrative 491 1
Amortization of organization costs and other assets 284 48
Depreciation and amortization of real estate and leasehold interests 1,493 271
------ ----
2,268 320
------ ----
Net income (loss) $ (47) $125
====== ====
- ------
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.
92
Crystal Park Hotel and Casino Development Company, LLC
Statements of Members' Equity
Redwood First Park
HP/Compton, Inc. HP Casino, Inc. Gaming, LLC Investments, LLC Total
---------------- --------------- ----------- ---------------- -----
(in thousands)
Capital contributions $26,018 $ 0 $2,000 $1,000 $29,018
Net income 110 0 10 5 125
------- ---- ------ ------ -------
Balance at year end 1996 26,128 0 2,010 1,005 29,143
Capital contributions 415 0 0 0 415
Transfer of member interest 0 977 0 (977) 0
Net income (loss) (40) (4) (5) 2 (47)
Capital distributions (788) 0 (59) (30) (877)
------- ---- ------ ------ -------
Balance at year end 1997 $25,715 $973 $1,946 $ 0 $28,634
======= ==== ====== ====== =======
- ------
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.
93
Crystal Park Hotel and Casino Development Company, LLC
Statements of Cash Flows
For the year
ended Inception to
December 31, December 31,
1997 1996
------------ ------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($47) $125
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 1,777 319
Decrease (increase) in rent and other receivables 62 (229)
Decrease in organization costs and other assets (177) (216)
Increase in accounts payable 476 1
(Decrease) increase in security deposit (200) 200
------ -------
Net cash provided by operating activities 1,891 200
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to leasehold interests and improvements (531) 0
------ -------
Net cash used in investing activities (531) 0
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to majority member (788) 0
Payments to minority members (89) 0
------ -------
Net cash used for financing activities (877) 0
------ -------
Increase in cash and cash equivalents 483 200
Cash and cash equivalents at the beginning of the period 200 0
------ -------
Cash and cash equivalents at the end of the period $683 $200
====== =======
Supplemental disclosure of non-cash transactions:
Contribution of real estate and improvements by majority member $415 $20,776
====== =======
Contribution of other assets by majority member -- $5,242
====== =======
Contribution by minority members -- $3,000
====== =======
- ------
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 was formed on July 18, 1996.
94
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
Annual Report on Form 10-K, in the opinion of management, reflects all normal
and recurring adjustments that are necessary to present a fair statement of the
financial results.
GENERAL Crystal Park Hotel and Casino Development Company, LLC ("Crystal Park
LLC") was formed in July 1996, to renovate and lease (to an unaffiliated third
party) a California card club casino and hotel (the "Crystal Park Casino"). The
Crystal Park Casino initially opened under a lease to an unaffiliated third
party on October 25, 1996. As of December 31, 1997, Crystal Park LLC was 89.8%
owned by HP/Compton, Inc. ("HP/Compton"), and 10.2% owned by HP Casino, Inc.
("HP Casino") (both wholly owned subsidiaries of Hollywood Park, Inc.). On
December 4, 1997, HP Casino purchased 3.4% of Crystal Park LLC from First Park
Investments, LLC ("First Park") for $1,000,000 (the amount initially invested by
First Park), and as of December 31, 1997, HP Casino purchased Redwood Gaming,
LLC's ("Redwood") 6.8% membership in Crystal Park LLC for $2,000,000 (the amount
initially invested by Redwood), paid on February 27, 1998.
Current California law does not allow publicly traded companies, such as
Hollywood Park, Inc., to operate a card club, other than on the same premises as
a race track. Therefore, Crystal Park LLC leases the facility to CCM under a 48
month, triple net lease executed on December 19, 1997. Rent under the lease is
fixed at $100,000 for the first six months, $350,000 for months 7 though 18, and
$550,000 for months 19 through 48. Crystal Park LLC does not participate in any
gaming or hotel revenues from the Crystal Park Casino. As of this filing CCM
was current on rent payments. Under the new lease with CCM, if California law
is changed to allow Hollywood Park, Inc. to operate the Crystal Park Casino,
Crystal Park LLC will operate the property in a partnership with CCM, with
Crystal Park LLC owning 90% of the business.
Previously, the Crystal Park Casino was under lease to Compton Entertainment,
Inc. ("CEI"). 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 October
1997, the California Attorney General revoked CEI's conditional gaming
registration, and the City of Compton revoked CEI's city gaming license. CEI
closed the Crystal Park Casino on October 11, 1997.
CCM reopened the Crystal Park Casino on December 26, 1997. The Crystal Park
Casino is located in the Los Angeles metropolitan area and within ten miles of
Orange County. The Crystal Park Casino reopened with approximately 60 gaming
tables, and focused primarily on the Asian gaming market by offering primarily
the California games as opposed to poker. Collection rates for California games
are significantly higher than for traditional poker games. The Crystal Park
Casino operates a 280 room hotel, including 40 VIP suites, a restaurant and
buffet, gift shop, and a lobby sports bar and lounge. The hotel operates under
a Radisson Hotels International, Inc. ("Radisson") flag. The hotel operates
under a 20 year License Agreement between HP/Compton and Radisson, (which was
signed in 1996). CCM is responsible for payments required under the License
Agreement. HP/Compton can terminate the License Agreement, at no cost to
HP/Compton, at the end of the third, fifth or tenth year.
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.
95
REAL ESTATE AND LEASEHOLD INTERESTS HELD FOR INVESTMENT Depreciation and
amortization of buildings and building improvements, and leasehold interests are
calculated using the straight line method over a 40 year estimated useful life.
Furniture and equipment is being depreciated on a straight line basis over a
three to ten year life.
ORGANIZATION COSTS Organization costs were capitalized and are being amortized
on a straight-line basis over five years.
INCOME TAXES Crystal Park LLC is not subject to state or federal income taxes.
Crystal Park LLC's income or loss is allocated to its members and included in
their respective income tax returns.
RECLASSIFICATIONS Certain reclassifications have been made to prior periods to
be consistent with the 1997 financial statement presentation.
NOTE 2 -- REAL ESTATE AND LEASEHOLD INTERESTS HELD FOR INVESTMENT
Leasehold interests relate to a capital lease between HP/Compton and the City of
Compton covering the hotel, surrounding parking and expansion parcels at the
Crystal Park Casino site. The lease transfers substantially all benefits and
risks incidental to the ownership of the property to Crystal Park LLC.
The lease was executed on August 3, 1995, and has a term of up to 50 years. 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 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. Crystal Park LLC's
management expects that in the normal course of business, and after the rent
credits are fully utilized, it is probable that they 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
rent 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, is approximately $650,000.
Crystal Park LLC incurred costs of approximately $23,000,000 to renovate and
equip the Crystal Park Casino, and as previously mentioned, Crystal Park LLC
receives a credit against rent due to the City of Compton. The $23,000,000 is
applied against the lease rent on a dollar for dollar basis until the
$23,000,000 is fully utilized. Essentially, Crystal Park LLC has prepaid the
rent for the first eighteen years of the lease. This prepayment was considered
in determining the present value of the future minimum lease payments.
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.
96
NOTE 4 -- ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED
ASSETS TO BE DISPOSED OF
Whenever there are recognized events or changes in circumstances that indicate
the carrying amount of an asset may not be recoverable, management reviews the
asset for possible impairment. In accordance with current accounting standards,
management uses estimated expected future cash flows (undiscounted and excluding
interest costs, and grouped at the lowest level for which there are identifiable
cash flows that are as independent as possible of other asset groups) to measure
the recoverability of the asset. If the expected future net cash flows are less
than the carrying amount of the asset an impairment loss would be recognized.
An impairment loss would be measured as the amount by which the carrying amount
of the asset exceeded the fair value of the asset, with the fair value measured
as the amount at which the asset could be bought or sold in a current
transaction between willing parties, other than in a forced liquidation sale.
The estimation of expected future cash flows is inherently uncertain and relies
to a considerable extent on assumptions regarding current and future net cash
flows, market conditions, and the availability of capital. If, in future
periods, there are changes in the estimates or assumptions used in the
impairment review analysis the changes could result in an adjustment to the
carrying amount of the assets, but at no time would previously recognized
impairment losses be restored.
NOTE 5 -- FUTURE LEASE RENT REVENUE
On December 19, 1997, Crystal Park LLC and CCM entered into a 48 month lease for
the Crystal Park Casino. Lease rent is fixed at $100,000 for the first six
months, $350,000 for months 7 through 18, and $550,000 for months 19 through 48.
As of this filing CCM was current on rent payments.
As of December 31, 1997, the future cash rent receivable from CCM for the
balance of the lease is as follows:
YEAR ENDED: (in
thousands)
December 31, 1998 $ 2,700
December 31, 1999 5,400
December 31, 2000 6,600
December 31, 2001 6,600
-------
Total $21,300
=======
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
On August 6, 1997, Hollywood Park, Inc. and Hollywood Park Operating Company (a
wholly owned subsidiary of Hollywood Park, Inc.), as co-obligors, issued
$125,000,000 of Series A 9.5% Senior Subordinated Notes due 2007 (the "Notes").
The 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, LLC. This Annual Report is being filed pursuant to the
Indenture governing the Notes as a guarantor which is not wholly owned (prior to
December 31, 1997) by the issuers of the Notes.
97
Report of Ernst & Young LLP, Independent Auditors
The Executive Committee
Mississippi - I Gaming, L.P.,
a Mississippi Limited Partnership
We have audited the accompanying balance sheet of Mississippi - I Gaming, L.P.
(the "Mississippi Partnership"), a Mississippi limited partnership, as of
September 30, 1996, and the related statements of operations, partners' capital
(deficit) and cash flows for the years ended September 30, 1996 and 1995. These
financial statements are the responsibility of the Mississippi Partnership's
management. Our responsibility is to express an opinion of these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Mississippi Partnership at
September 30, 1996, and the results of its operations and its cash flows for the
years ended September 30, 1996 and 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New Orleans, Louisiana
October 31, 1996
98
Report of Arthur Andersen LLP, Independent Auditors
The Executive Committee
Mississippi - I Gaming, L.P.
a Mississippi Limited Partnership:
We have audited the accompany balance sheets of Mississippi - I Gaming, L.P.
(the "Mississippi Partnership"), a Mississippi limited partnership, as of
December 31, 1997 and June 30, 1997, and the related statements of operations,
partners' capital (deficit) and cash flows for the six months ended December 31,
1997, and for the nine months ended June 30, 1997. These financial statements
are the responsibility of the Mississippi Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Mississippi Partnership as
of December 31, 1997 and June 30, 1997, and the results of its operations and
its cash flows for the six months ended December 31, 1997, and for the nine
months ended June 30, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 18, 1998
99
Mississippi - I Gaming, L.P.
Balance Sheets
As of
-------------------------------------------
December 31, June 30, September 30,
1997 1997 1996
-------------------------------------------
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $4,143 $3,043 $2,907
Other receivables, net 113 61 148
Prepaid expenses and other assets 1,614 2,431 2,947
------- ------- -------
Total current assets 5,870 5,535 6,002
Property, plant and equipment, net 45,576 37,490 35,671
Other assets 2,068 4,319 4,479
------- ------- -------
$53,514 $47,344 $46,152
======= ======= =======
================================================================================================
LIABILITIES AND PARTNERS' DEFICIT
Current Liabilities:
Accounts payable $670 $732 $481
Accrued compensation 923 1,049 765
Accrued liabilities 3,250 3,437 2,918
Accrued interest payable, Boomtown, Inc. 4,989 2,910 2,651
Current portion of notes payable, Boomtown, Inc. 44,454 42,465 41,432
Current portion of notes payable, other 1,292 1,519 1,570
------- ------- -------
Total current liabilities 55,578 52,112 49,817
Notes payable, other 2,504 23 60
Commitments and contingencies
Partners' deficit:
General partner 11 0 0
Limited partners (4,579) (4,791) (3,725)
------- ------- -------
Total partners' deficit (4,568) (4,791) (3,725)
------- ------- -------
$53,514 $47,344 $46,152
======= ======= =======
- -------
See accompanying notes to financial statements
100
Mississippi - I Gaming, L.P.
Statements of Operations
Six months
ended Nine months ended June 30, Years ended September 30,
December 31, ---------------------------- --------------------------
1997 1997 1996 1996 1995
----------- --------- --------- -------- ---------
(unaudited)
(in thousands)
Revenues:
Gaming $25,998 $37,541 $32,959 $45,471 $41,675
Food and beverage 1,752 2,231 2,092 2,953 2,396
Other 1,531 1,910 1,894 2,796 2,499
------- ------- ------- ------- -------
29,281 41,682 36,945 51,220 46,570
------- ------- ------- ------- -------
Expenses:
Gaming 14,010 19,819 18,025 24,712 24,953
Food and beverage 2,303 2,921 2,224 3,032 2,438
Administrative 7,551 12,650 13,615 18,228 17,802
Other 751 1,084 861 1,239 1,046
Depreciation and amortization 1,682 2,390 1,191 1,683 1,338
------- ------- ------- ------- -------
26,297 38,864 35,916 48,894 47,577
------- ------- ------- ------- -------
Operating income (loss) 2,984 2,818 1,029 2,326 (1,007)
Interest expense 2,761 3,940 3,518 4,904 4,365
------- ------- ------- ------- -------
Net income (loss) $ 223 ($1,122) ($2,489) ($2,578) ($5,372)
======= ======= ======= ======= =======
Net income (loss) allocated to partners:
General partner $ 11 ($56) ($49) ($54) ($166)
Limited partners 212 (1,066) (2,440) (2,524) (5,206)
------- ------- ------- ------- -------
$ 223 ($1,122) ($2,489) ($2,578) ($5,372)
======= ======= ======= ======= =======
See accompanying notes to financial statements.
101
Mississippi - I Gaming, L.P.
Statements of Parnters' Capital (Deficit)
Years ended September 30, 1995 and 1996
the nine months ended June 30, 1997
and the six months ended December 31, 1997
Limited Partners Total
------------------------ Partners'
General Boomtown, Capital
Partner Inc. Other (Deficit)
--------- ---------- -------- ----------
(in thousands)
Balances at September 30, 1994 $ 24 $ 467 $ 38 $ 529
Capital contributions 142 0 2,000 2,142
Net loss (166) (2,741) (2,465) (5,372)
----- ------- ------- -------
Balances at September 30, 1995 0 (2,274) (427) (2,701)
Capital contributions 54 0 1,500 1,554
Net loss (54) (863) (1,661) (2,578)
----- ------- ------- -------
Balances at September 30, 1996 0 (3,137) (588) (3,725)
Capital contributions 56 0 0 56
Net loss (56) (898) (168) (1,122)
----- ------- ------- -------
Balances at June 30, 1997 0 (4,035) (756) (4,791)
Net income 11 179 33 223
----- ------- ------- -------
Balances at December 31, 1997 $ 11 ($3,856) ($723) ($4,568)
===== ======= ======= =======
See accompanying notes to financial statements
102
Mississippi - I Gaming, L.P.
Statements of Cash Flows
For the six For the nine months ended For the years ended
months ended June 30, September 30,
December 31, ---------------------- -------------------
1997 1997 1996 1996 1995
--------- ---------- --------- --------- ---------
(unaudited)
(in thousands)
Cash flows from operating activities:
Net income (loss) $223 ($1,122) ($2,489) ($2,578) ($5,372)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Lease expense recorded in exchange for
limited partner interest 0 0 1,500 1,500 2,000
Depreciation and amortization 1,682 2,390 1,191 1,683 1,338
Loss on sale of property and equipment 27 142 0 35 146
(Increase) decrease in other receivables, net (52) 87 0 (93) 212
Decrease (increase) in prepaid expenses and other assets 817 510 (331) (551) 373
Decrease (increase) in other assets 3 143 329 (2,295) (1)
(Decrease) increase in accounts payable (62) 250 18 15 (211)
(Decrease) increase in accrued compensation (126) 284 341 266 214
(Decrease) increase in accrued liabilities (187) 345 283 129 1,599
Increase (decrease) in accrued interest payable, Boomtown, Inc. 2,079 259 (665) 252 1,639
------- ------- ------- ------- -------
Net cash provided by (used in) operating activities 4,404 3,288 177 (1,637) 1,937
------- ------- ------- ------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (3,814) (1,813) (2,890) (1,359) (2,049)
Proceeds from sale of property and equipment 17 17 212 0 34
------- ------- ------- ------- -------
Net cash used in investing activities (3,797) (1,796) (2,678) (1,359) (2,015)
------- ------- ------- ------- -------
Cash flows from financing activities:
Note payable, Boomtown, Inc., net 1,989 1,089 3,365 3,814 1,033
Payment notes payable, other (1,496) (2,445) (2,762) (839) (253)
Proceeds notes payable, other 0 0 1,538 0 857
------- ------- ------- ------- -------
Net cash (used for) provided by financing activities 493 (1,356) 2,141 2,975 1,637
------- ------- ------- ------- -------
Increase (decrease) in cash and cash equivalents 1,100 136 (360) (21) 1,559
Cash and cash equivalents at the beginning of the period 3,043 2,907 2,928 2,928 1,369
------- ------- ------- ------- -------
Cash and cash equivalents at the end of the period $ 4,143 $ 3,043 $ 2,568 $ 2,907 $ 2,928
======= ======= ======= ======= =======
See accompanying notes to financial statements.
103
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
Annual Report on Form 10-K in the opinion of management reflects all normal and
recurring adjustments that are necessary to present a fair statement of the
financial results.
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% owned by
Eric Skrmetta ("Skrmetta").
The Mississippi Partnership owns and operates a casino ("Boomtown Biloxi"),
which opened in July 1994. Boomtown Biloxi occupies nineteen acres on Biloxi
Mississippi's historic Back Bay. The Mississippi Gulf Coast is marketed as the
"Playground of the South" and has been a major tourist destination, even prior
to the advent of full casino gaming in 1992. The Mississippi Gulf Coast
comprises a land area of nearly 1,800 square miles, with more than 30 miles of
white sand beaches fronting the Gulf of Mexico. Recent statistics indicated
that on an annual basis approximately 22 million patrons visited the Gulf Coast
casinos, of which 64% were drawn to the Mississippi Gulf Coast from outside the
state. Boomtown Biloxi operates an "old west" themed 33,632 square foot casino,
which sits on a permanently moored 400 x 110 foot barge. Boomtown Biloxi offers
1,038 slot machines and 35 table games. The land-based facility houses all non-
gaming activities, including restaurants, buffets, a family video fun center and
gift shops.
On August 13, 1997, Hollywood Park exercised its option under the Mississippi
Partnership Agreement 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 Mississippi Partnership Agreement. Hollywood Park
supplied Skrmetta with its calculation of the value of his 15% Mississippi
Partnership interest, and Skrmetta did not agree with the valuation. Hollywood
Park has initiated arbitration proceedings to settle the valuation issue.
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.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is being
depreciated using the straight line method over estimated useful lives, ranging
from three to thirty-five years. Effective July 1, 1997, the Mississippi
Partnership revised the estimated useful lives of building improvements from
thirty-five years to twenty years. For the six months ended December 31, 1997,
the effect of this change caused a decrease in net income of approximately
$60,000.
CASH FLOWS Cash and cash equivalents consisted of cash in the bank,
certificates of deposit and short term investments with original maturities of
90 days or less.
104
INCOME TAXES The Mississippi Partnership is not subject to state or federal
income taxes. The Mississippi Partnership's income or loss is allocated to the
partners and included in their respective income tax returns.
GAMING REVENUES AND PROMOTIONAL ALLOWANCES In accordance with industry
practices, the Mississippi Partnership recognized gaming revenues, as the net
win from gaming activities, which is the difference between gaming wins and
losses. Revenues in the accompanying statements of operations exclude the
retail value of food, beverage and other promotional allowances which are
provided to patrons without charge. The estimated cost of providing such
promotional allowances which are reported as gaming expenses, for the six months
ended December 31, 1997, the nine months ended June 30, 1997 and 1996, and the
years ended September 30, 1996, and 1995, were $2,067,000, $2,905,000,
$2,824,000, $3,832,000 and $3,116,000, respectively.
RECLASSIFICATIONS Certain reclassifications have been made to prior periods to
be consistent with the 1997 financial statement presentation.
NOTE 2 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest during the six months ended December 31, 1997, the nine
months ended June 30, 1997 and 1996, and the years ended September 30, 1996 and
1995 was $173,000, $248,000, $44,000, $116,000 and $85,000, respectively.
NOTE 3 -- CURRENT PREPAID EXPENSES AND OTHER ASSETS AND LONG TERM OTHER ASSETS
Current prepaid expenses and other assets as of December 31, 1997, June 30, 1997
and September 30, 1996, consisted of the following:
December 31, June 30, September 30,
1997 1997 1996
------------ -------- -------------
(in thousands)
Prepaid insurance $ 405 $ 194 $ 789
Land lease, related party 0 500 500
Tidelands lease 213 425 394
Other prepaid leases 184 286 339
Inventories 382 358 363
Prepaid taxes and licenses 150 258 184
Other current assets 280 410 378
------------ -------- -------------
$1,614 $2,431 $2,947
============ ======== =============
Long term other assets as of December 31, 1997, June 30, 1997 and September 30,
1996, consisted of the following:
December 31, June 30, September 30,
1997 1997 1996
------------ -------- -------------
(in thousands)
Prepayment of property lease $ 0 $2,113 $2,188
Land lease, related party 2,000 2,000 2,000
Other assets 68 206 291
------------ -------- -------------
$2,068 $4,319 $4,479
============ ======== =============
105
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held as of December 31, 1997, June 30, 1997, and
September 30, 1996 consisted of the following:
December 31, June 30, September 30,
1997 1997 1996
------------ -------- -------------
(in thousands)
Land and land improvements $ 1,236 $ 226 $ 226
Buildings and building 41,313 33,436 32,864
improvements
Equipment 9,998 8,994 5,671
Construction in progress 46 267 16
------------ -------- -------------
52,593 42,923 38,777
Less accumulated depreciation 7,017 5,433 3,106
------------ -------- -------------
$45,576 $37,490 $35,671
============ ======== =============
NOTE 5 -- SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of December 31, 1997, June 30, 1997, and September 30, 1996,
consisted of the following:
December 31, June 30, September 30,
1997 1997 1996
------------ -------- -------------
(in thousands)
Secured notes payable $3,750 $ 83 $ 320
Capital lease obligations 46 1,459 1,310
------------ -------- -------------
3,796 1,542 1,630
Less current maturities 1,292 1,519 1,570
------------ -------- -------------
$2,504 $ 23 $ 60
============ ======== =============
As of December 31, 1997, June 30, 1997, and September 30, 1996, the Mississippi
Partnership also had an outstanding note payable to Boomtown in the amounts of
$44,454,000, $42,465,000 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%.
On August 4, 1997, Hollywood Park executed an agreement pursuant to which a
Hollywood Park entity purchased the barge that the Boomtown Biloxi casino sits
upon and the building shell for $5,250,000, payable by a down payment of
approximately $1,500,000, with the balance of $3,750,000 to be paid in three
equal annual installments of $1,250,000. Interest is payable quarterly and is
set at the prime interest rate as of the first day each year.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
DEBT GUARANTEES 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 Series A 9.5% Senior Subordinated Notes due 2007 (the "Notes").
The 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. This Annual Report is being filed
pursuant to the Indenture governing the Notes as a guarantor which is not wholly
owned by the issuers of the Notes.
Boomtown repurchased and retired 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.
106
LEASES WITH RELATED PARTIES The Mississippi Partnership leases land from
Skrmetta for use by Boomtown Biloxi. The lease term is 99 years and is
cancelable upon one year's notice. The lease called for an initial deposit by
the Mississippi Partnership of $2,000,000 and for annual base lease rent
payments of $2,000,000 and percentage rent equal to 5.0% of adjusted gaming win
(as defined in the lease) over $25,000,000. Skrmetta agreed to provide the
land, free of annual base rent, for two years in exchange for a 15% interest in
the Mississippi Partnership. During the six months ended December 31, 1997, the
nine months ended June 30, 1997 and 1996, and the years ended September 30, 1996
and 1995, the Mississippi Partnership paid lease rent to Skrmetta of $1,505,000,
$2,198,000, $1,997,000, $2,934,000 and $2,711,000, respectively.
BARGE LEASE On August 4, 1997, Hollywood Park executed an agreement to purchase
the barge that Boomtown Biloxi sits upon and the associated building shell for
$5,250,000. The Mississippi Partnership had been leasing these assets. The
Mississippi Partnership made a down payment of $1,500,000 upon signing the
agreement, with the balance payable in three equal annual installments of
$1,250,000 with interest set at the prime rate as of the first day of each
quarter.
TIDELANDS LEASE The Mississippi Partnership leases 5.1 acres of submerged
tidelands at the Boomtown Biloxi site from the State of Mississippi. The lease
has a ten year term, (entered into in 1994) with a five year option to renew.
Lease rent for each of the first three years of the lease was $525,000, and will
be $425,000 for the next two years. Rent for the balance of the lease term will
be determined in accordance with Mississippi law, based on an appraisal the
State of Mississippi will obtain.
The aggregate future minimum annual lease commitments as of December 31, 1997,
under operating leases having non-cancelable terms in excess of one year are as
follows:
(in thousands)
1998 $1,214
1999 666
2000 378
2001 340
2002 342
Thereafter 529
OTHER 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. On October 26, 1997, the Mississippi Partnership received verbal
notification that its current land-based facility satisfies the Mississippi
Commission's requirement. However, the Mississippi Partnership's gaming license
must be renewed in June 1998, and it is possible that the Mississippi Gaming
Commission could require further development at Boomtown Biloxi in connection
with the renewal.
NOTE 7 -- ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED
ASSETS TO BE DISPOSED OF
Whenever there are recognized events or changes in circumstances that indicate
the carrying amount of an asset may not be recoverable, management reviews the
asset for possible impairment. In accordance with current accounting standards,
management uses estimated expected future cash flows (undiscounted and excluding
interest costs, and grouped at the lowest level for which there are identifiable
cash flows that are as dependent as possible of other asset groups) to measure
the recoverability of the asset. If the expected future net cash flows are less
than the carrying amount of the asset, an impairment loss would be recognized.
An impairment loss would be measured as the amount by which the carrying amount
of the asset exceeded the fair value of the asset, with the fair value measured
as the amount at which the asset could be bought or sold in a current
transaction between willing parties, other than in a forced liquidation sale.
The estimation of expected future cash flows is inherently uncertain and relies
to a considerable extent on assumptions regarding current and future net cash
flows, market conditions, and the availability of capital. If, in future
periods, there are changes in the estimates or assumptions used in the
impairment
107
review analysis the changes could result in an adjustment to the carrying amount
of the assets, but at no time would previously recognized impairment losses be
restored.
108
Report of Ernst & Young LLP, Independent Auditors
The Executive Committee
Mississippi - I Gaming, L.P.
a Mississippi Limited Partnership
We have audited the financial statements of Mississippi - I Gaming, L.P. (the
"Missippi Partnership"), a Mississippi limited partnership, as of September 30,
1996, and for the years ended September 30, 1996 and 1995, and have issued our
report thereon dated October 31, 1996 (included elsewhere in this Annual Report
on Form 10-K). Our audits also included the information included in Schedule
II-Valuation and Qualifying Accounts for the year ended September 30, 1996
included in this Annual Report on Form 10-K. This schedule is the responsibility
of the Mississippi Partnership's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the information for the year ended September 30, 1996 included
in the financial statement schedule referred to above, when considered in
relation to the basic financial statements, referred to above, taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New Orleans, Louisiana
October 31, 1996
109
Report of Independent Public Accountants
on Financial Statement Schedule
To: Mississippi - I Gaming, L.P.
We have audited, in accordance with generally accepted auditing standards, the
financial statements of Mississippi - I Gaming, L.P. and have issued our report
thereon dated February 18, 1998. Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. Schedule II is
the responsibility of the Mississippi - I Gaming, L.P.'s management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. With
respect to the periods ended June 30, and December 31, 1997 this schedule had
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 18, 1998
110
Mississippi - I Gaming, L.P.
Schedule II - Valuation and Qualifying Accounts
(in thousands)
ALLOWANCE FOR BAD DEBTS:
Balance as of September 30, 1995 $(16)
Charges to expense (92)
Write offs 74
----
Balance as of September 30, 1996 (34)
Charges to expense (82)
Write offs 83
----
Balance as of June 30, 1997 (33)
Charges to expense (58)
Write offs 67
----
Balance as of December 31, 1997 $(24)
====
111
Hollywood Park, Inc.
Exhibit Index
Exhibit
No. Description Page
- -------- ----------- ----
10.41 Lease, by and between Crystal Park Hotel and Casino
Development Company, LLC and California Casino
Management, Inc., dated December 19, 1997.
10.42 Termination of Consulting Agreement,
among Yakama Tribal Gaming Corporation, HP Yakama,
Inc., and the Confederated Tribes and Bands of the
Yakama Indians, dated January 1, 1998.
10.43 Public Trust Tidelands Lease, dated August 15, 1994,
by and between the Secretary of State on behalf of the
State of Mississippi and Mississippi - I Gaming, L.P.
10.44 Public Trust Tidelands Lease Amendment, dated March 31,
1997, by and between the Secretary of State on behalf of
the State of Mississippi and Mississippi - I Gaming, L.P.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
27.6 Financial Data Schedule
27.7 Financial Data Schedule
27.8 Financial Data Schedule
27.9 Financial Data Schedule
99.1 Hollywood Park, Inc., Proxy Statement, dated
February 13, 1998.