SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1998
Commission file number 0-10619 Commission file number 333-34471-02
HOLLYWOOD PARK, INC. HOLLYWOOD PARK OPERATING COMPANY
(Exact Name of Registrant as Specified in Its Charter) (Exact Name of Registrant as Specified in Its Charter)
Delaware Delaware
(State or Other Jurisdiction of (State or Other Jurisdiction of
Incorporation or Organization) Incorporation or Organization)
95-3667491 95-3667220
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
1050 South Prairie Avenue Inglewood, California 90301
(Address of Principal Executive Offices) (Zip Code)
(310) 419 - 1500
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrants: (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) have been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
The number of outstanding shares of the Hollywood Park, Inc.'s common stock, as
of the date of the close of business on August 10, 1998: 26,255,941.
Hollywood Park, Inc.
Table of Contents
Part I
Item 1. Financial Information
Hollywood Park, Inc.
--------------------
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997...... 1
Consolidated Statements of Operations for the three and six months ended
June 30, 1998 and 1997................................................... 2
Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997................................................... 3
Notes to Consolidated Financial Statements................................. 4
Mississippi - I Gaming, L.P
----------------------------
Balance Sheets as of June 30, 1998 and December 31, 1997................... 13
Statements of Operations for the three and six months ended
June 30, 1998 and 1997................................................... 14
Statements of Cash Flows for the six months ended
June 30, 1998 and 1997................................................... 15
Notes to Financial Statements.............................................. 16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General.................................................................... 19
Results of Operations...................................................... 23
Liquidity and Capital Resources............................................ 25
Item 3. Quantitative and Qualitative Disclosure About Market Risk.................. 28
Part II
Item 4. Submission of Matters to a Vote of Security Holders....................... 28
Item 5. Other information......................................................... 29
Item 6.a Exhibits.................................................................. 29
Other Financial Information............................................... 31
Signatures................................................................ 33
ITEM 1. FINANCIAL INFORMATION
- -----------------------------
Hollywood Park, Inc.
Consolidated Balance Sheets
As of
-----------------------------
June 30, December 31,
1998 1997
----------- ------------
ASSETS (unaudited)
(in thousands)
Current Assets:
Cash and cash equivalents $ 40,079 $ 23,749
Restricted cash 6,178 407
Short term investments 3,514 0
Other receivables, net 11,621 9,417
Prepaid expenses and other assets 15,581 13,772
Deferred tax assets 12,202 8,118
Current portion of notes receivable 2,386 42
-------- --------
Total current assets 91,561 55,505
Notes receivable 15,640 9,548
Property, plant and equipment, net 299,452 300,666
Goodwill, net 50,777 33,017
Other assets 19,757 20,293
-------- --------
$477,187 $419,029
======== ========
- -----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 12,013 $ 11,277
Accrued lawsuit settlement 0 2,750
Accrued compensation 8,930 7,627
Accrued liabilities 31,660 19,105
Accrued interest 5,396 5,175
Gaming liabilities 3,497 3,853
Racing liabilities 15,640 4,093
Current portion of notes payable 2,085 3,437
-------- --------
Total current liabilities 79,221 57,317
Notes payable 159,819 132,102
Deferred tax liabilities 8,769 6,310
-------- --------
Total liabilities 247,809 195,729
Minority interests 0 1,946
Stockholders' Equity:
Capital stock --
Preferred - $1.00 par value, authorized 250,000 shares;
none issued and outstanding 0 0
Common - $.10 par value, authorized 40,000,000 shares;
26,287,569 issued and outstanding in 1998, and 2,629 2,622
26,220,528 in 1997
Capital in excess of par value 223,389 222,350
Retained earnings (accumulated deficit) 3,358 (3,532)
Accumulated other comprehensive loss 2 (86)
-------- --------
Total stockholders' equity 229,378 221,354
-------- --------
$477,187 $419,029
======== ========
- -----------
See accompanying notes to consolidated financial statements.
1
Hollywood Park, Inc.
Consolidated Statements of Operations
For the three months ended June 30, For the six months ended June 30,
----------------------------------- ---------------------------------
1998 1997 1998 1997
---------------- ---------------- ---------------- ---------------
(in thousands, except per share data - unaudited)
Revenues:
Gaming $ 59,357 $14,165 $114,706 $26,847
Racing 26,845 26,239 36,714 35,868
Food and beverage 8,293 4,292 13,862 6,860
Hotel and recreational vehicle park 449 0 725 0
Truck stop and service station 3,723 0 6,546 0
Other income 4,458 1,628 8,729 3,564
-------- ------- -------- -------
103,125 46,324 181,282 73,139
-------- ------- -------- -------
Expenses:
Gaming 31,349 8,112 63,316 15,161
Racing 10,213 10,241 15,682 15,409
Food and beverage 10,023 5,090 17,536 8,819
Hotel and recreational vehicle park 160 0 287 0
Truck stop and service station 3,421 0 5,987 0
Administration 22,024 9,785 42,121 18,531
Other 1,839 680 3,575 1,439
REIT restructuring 0 0 469 0
Depreciation and amortization 6,494 3,031 13,049 5,780
-------- ------- -------- -------
85,523 36,939 162,022 65,139
-------- ------- -------- -------
Operating income 17,602 9,385 19,260 8,000
Interest expense 4,054 64 7,715 129
-------- ------- -------- -------
Income before minority interests and income taxes 13,548 9,321 11,545 7,871
Minority interests 0 42 0 63
Income tax expense 5,419 3,676 4,650 3,100
-------- ------- -------- -------
Net income $ 8,129 $ 5,603 $ 6,895 $ 4,708
======== ======= ======== =======
========================================================================================================================
Dividend requirements on convertible preferred stock $ 0 $ 481 $ 0 $ 962
Net income available to common shareholders $ 8,129 $ 5,122 $ 6,895 $ 3,746
Per common share:
Net income - basic $ 0.31 $ 0.28 $ 0.26 $ 0.20
Net income - diluted $ 0.31 $ 0.27 $ 0.26 $ 0.20
Number of shares - basic 26,285 18,462 26,281 18,366
Number of shares - diluted 26,428 20,754 26,771 20,657
2
Hollywood Park, Inc.
Consolidated Statements of Cash Flows
For the six months ended June 30,
--------------------------------
1998 1997
---------- ----------
(in thousands - unaudited)
Cash flows from operating activities:
Net income $6,895 $4,708
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,049 5,780
Minority interests 0 15
(Gain) loss on sale or disposal of property,
plant and equipment 391 (24)
Increase in restricted cash (5,771) (6,610)
Increase in other receivables, net (2,204) (1,520)
Increase in prepaid expenses and other assets (1,681) (1,287)
Increase in deferred tax assets (4,084) (165)
Increase in accounts payable 736 387
Decrease in accrued lawsuit settlement (2,750) 0
Increase in accrued compensation 1,303 605
Increase in accrued liabilities 6,961 3,464
(Decrease) increase in gaming liabilities (356) 46
Increase in racing liabilities 11,547 9,566
Increase in accrued interest payable 221 0
Increase (decrease) in deferred tax liabilities 2,459 (16)
--------- ---------
Net cash provided by operating activities 26,716 14,949
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (26,407) (3,927)
Receipts from sale of property, plant and equipment 596 0
Principal collected on notes receivable 1,027 18
Note receivable, HP Yakama investment (7,636) 0
Purchase of short term investments (3,430) (1,937)
Proceeds from short term investments 0 5,428
Payment to buy-out minority interest in Crystal
Park LLC (1,946) 0
Cash acquired in the purchase of a business, net of
transaction and other costs 0 12,264
--------- ---------
Net cash used in (provided by) investing
activities (37,796) 11,846
--------- ---------
Cash flows from financing activities:
Proceeds from secured Bank Credit Facility 30,000 0
Redemption of Boomtown 11.5% First Mortgage Notes (1,253) 0
Payment of secured notes payable (2,382) 0
Common stock options exercised 1,045 654
Dividends paid to preferred stockholders 0 (962)
--------- ---------
Net cash provided by (used in) financing
activities 27,410 (308)
--------- ---------
Increase in cash and cash equivalents 16,330 26,487
Cash and cash equivalents at the beginning of
the period 23,749 11,922
--------- ---------
Cash and cash equivalents at the end of the period $40,079 $38,409
========= =========
- -----
See accompanying notes to consolidated financial statements.
3
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), 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, riverboat and dockside gaming operations in
Verdi, Nevada ("Boomtown Reno"), Harvey, Louisiana ("Boomtown New Orleans") and
Biloxi, Mississippi ("Boomtown Biloxi"), respectively. Hollywood Park also owns
two card club casinos, located in the Los Angeles metropolitan area. The
Hollywood Park-Casino is operated by the Company, and is located on the same
property as the Hollywood Park Race Track. The Company also owns the Crystal
Park Hotel and Casino (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
Nevada, Louisiana and Mississippi. The Company's premier thoroughbred racing
facilities include, the Hollywood Park Race Track, which the Company has owned
for 60 years, and Turf Paradise, Inc. ("Turf Paradise"), located in Phoenix,
Arizona.
On February 19, 1998, Hollywood Park and Casino Magic Corp. ("Casino Magic")
approved and signed an Agreement and Plan of Merger among Casino Magic,
Hollywood Park and HP Acquisition II, Inc. (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.
(See "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.")
The financial information included herein has been prepared in conformity with
generally accepted accounting principles as reflected in Hollywood Park's
consolidated Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1997. This Quarterly Report on Form
10-Q does not include certain footnotes and financial presentations normally
presented annually and should be read in conjunction with the Company's 1997
Annual Report on Form 10-K.
The information furnished herein is unaudited; however, in the opinion of
management it reflects all normal and recurring adjustments necessary to present
a fair statement of the financial results for the interim periods. It should be
understood that accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The interim racing results of
operations are not indicative of the results for the full year, due to the
seasonality of the Company's horse racing business.
CONSOLIDATION The consolidated financial statements presented herein, included
the accounts of Hollywood Park and its wholly owned subsidiaries: (a) Boomtown,
which was acquired by the Company on June 30, 1997, with the acquisition
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 Hoosier, 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.; and (e)
HP/Compton, Inc. and HP Casino, Inc., which own 89.8% and 10.2%, respectively,
of the Crystal Park Hotel and Casino Development Company LLC ("Crystal Park
LLC"). The Hollywood Park-Casino is a division of Hollywood Park, Inc.
RESTRICTED CASH Restricted cash as of June 30, 1998 and December 31, 1997, was
for amounts due to horsemen for purses, stakes and awards.
4
CAPITALIZED INTEREST During the three and six months ended June 30, 1998, the
Company capitalized interest related to construction projects of approximately
$281,000 and $507,000, respectively. The Company did not capitalize interest
during the three and six months ended June 30, 1997.
COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130,
("SFAS 130") Reporting Comprehensive Income, requires that the Company disclose
--------- --------------------
comprehensive income and its components. The objective of SFAS 130 is to report
a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners. Comprehensive income is the sum of the following; net income
(loss) and other comprehensive income (loss), which is defined as all other
nonowner changes in equity.
The Company has recorded unrealized gain (loss) on securities as other
comprehensive income (loss) in the accompanying financial statements.
Comprehensive income was computed as follows:
For the three months ended
June 30,
-----------------------------------------------
1998 1997
--------------------- ---------------------
(in thousands, unaudited)
Net income $8,129 $5,603
Other comprehensive income (loss):
Unrealized gain on securities 8 43
Less reclassification adjustment for
realized (gain) loss 0 0
--------------------- ---------------------
Comprehensive income $8,137 $5,646
===================== =====================
For the six months ended
June 30,
-----------------------------------------------
1998 1997
--------------------- ---------------------
(in thousands, unaudited)
Net income $6,895 $4,708
Other comprehensive income (loss):
Unrealized gain (loss) on securities 83 (7)
Less reclassification adjustment for
realized (gain) loss 0 1
--------------------- ----------------------
Comprehensive income $6,978 $4,702
===================== =====================
ESTIMATES Financial statements prepared according to generally accepted
accounting principles require the use of management estimates, including
estimates used to evaluate the recoverability of property, plant and equipment,
to determine the fair value of financial instruments, to account for the
valuation allowance for deferred tax assets and to determine litigation related
obligations. Actual results could differ from these estimates.
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 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
5
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.
EARNINGS PER SHARE Basic earnings per share were computed by dividing net
income available to common shareholders (net income less preferred 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
(which is applicable to the three and six months ended June 30, 1997, only), and
exercise of stock options.
REDEMPTION OF DEPOSITARY SHARES As of August 28, 1997, the Company's 2,749,900
outstanding depositary shares were converted into 2,291,492 shares of the
Company's common stock, thereby, eliminating the annual preferred stock cash
dividend payment of approximately $1,925,000 in future periods.
CASH FLOWS Cash and cash equivalents included certificates of deposit and short
term investments with maturities of 90 days or less.
RACING REVENUES AND EXPENSES The Company records pari-mutuel revenues,
admissions, food and beverage and other income associated with racing on a daily
basis, except for seasonal admissions, which are recorded ratably over the
racing season. Expenses associated with racing revenues were charged against
income in those periods in which racing revenues were recognized.
GAMING REVENUE AND PROMOTIONAL ALLOWANCES Gaming revenues at the 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 excluded the retail value of food and
beverage provided to players on a complimentary basis. The estimated cost of
providing these promotional allowances during the three months ended June 30,
1998 and 1997, was $3,571,000 and $339,000, respectively, and for the six months
ended June 30, 1998 and 1997, was $7,477,000 and $665,000, respectively. (The
amounts for the three and six months ended June 30, 1997, are exclusive of the
costs associated with Boomtown's operations.)
RECLASSIFICATIONS Certain reclassifications have been made to the 1997 balances
to be consistent with the 1998 financial statement presentation.
NOTE 2 -- ACQUISITION OF BOOMTOWN, INC.
On June 30, 1997, pursuant to the Agreement and Plan of Merger dated as of April
23, 1996, by and among Hollywood Park, HP Acquisition, Inc., a wholly owned
subsidiary of the Company, and Boomtown, HP Acquisition, Inc. was merged with
and into Boomtown (the " 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) 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, it was determined
that the estimated fair values approximated their carrying value. The Boomtown
Merger generated approximately $21,136,000 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. As of June 30, 1997, the
6
excess acquisition cost over the recorded value of the assets was estimated at
approximately $2,683,000. As of June 30, 1998, the Company revised its initial
estimates of the excess acquisition cost over the recorded value to $21,136,000,
due primarily to a reduction in the valuation of certain gaming fixed assets and
provisions for additional liabilities.
The Company acquired three of the four Boomtown properties; Boomtown Reno,
Boomtown New Orleans, and Boomtown Biloxi. In connection with the Boomtown
Merger, Boomtown's Las Vegas property was divested on July 1, 1997, due to this
property having generated significant operating losses.
NOTE 3 -- SHORT TERM INVESTMENTS
As of June 30, 1998, short term investments consisted of investments in equity
securities. These investments are recorded at fair value in the accompanying
financial statements, as determined by the quoted market price, and are
classified as available-for-sale. As of June 30, 1998, the Company recorded an
unrealized gain on these investments of approximately $83,000. Included in the
portfolio of equity securities were 653,900 shares of Casino Magic common stock,
for which the Company paid $2.00 per common share, or a total cost of $1,328,249
(inclusive of commissions). As of August 6, 1998, the Company purchased an
additional 139,000 shares of Casino Magic common stock, at a cost of $2.03125
per common share, or a total additional cost of $286,702 (inclusive of
commissions).
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held as of June 30, 1998, and December 31, 1997,
consisted of the following:
June 30, December 31,
1998 1997
--------------------- ---------------------
(unaudited)
(in thousands)
Land and land improvements $ 51,679 $ 50,945
Buildings and building improvements 273,752 270,271
Equipment 83,655 77,337
Vessels 16,690 18,925
Construction in progress 19,125 21,896
--------------------- ---------------------
444,901 439,374
Less accumulated depreciation 145,449 138,708
--------------------- ---------------------
$299,452 $300,666
===================== =====================
NOTE 5 -- SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of June 30, 1998, and December 31, 1997, consisted of the
following:
June 30, December 31,
1998 1997
--------------------- ---------------------
(unaudited)
(in thousands)
Secured notes payable, Bank Credit Facility $ 30,000 $ 0
Secured notes payable, other 3,750 3,750
Unsecured 9.5% Notes 125,000 125,000
Boomtown 11.5% First Mortgage Notes 0 1,253
Unsecured notes payable 3,027 4,009
Capital lease obligations 127 1,527
--------------------- ---------------------
161,904 135,539
Less current maturities 2,085 3,437
--------------------- ----------------------
$159,819 $132,102
===================== =====================
7
SECURED NOTES PAYABLE, BANK CREDIT FACILITY On June 30, 1997, the Company
entered into a five year Bank Credit Facility with a bank syndicate led by Bank
of America National Trust and Savings Association. As of June 30, 1998, due to
covenant limitations, approximately $87,280,000 of the total current
$100,000,000 Bank Credit Facility was available, of which $30,000,000 was
outstanding, at an interest rate of 7.88%. 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.
UNSECURED 9.5% NOTES On August 6, 1997, Hollywood Park, Inc. and Hollywood
Park Operating Company, co-issued $125,000,000 of Series A 9.5% Senior
Subordinated Notes due 2007 (the "Series A Notes"). 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 (the "Series B Notes") and, together with the Series A Notes, (the
"Notes") 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 Company
paid Liquidated Damages at an annual rate of 0.5% of the principal amount of the
Notes for the period January 27, 1998 to March 20,1998 (the date of consummation
of the exchange offer). The Notes are 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, as follows:
(a) August 1, 2002 at 104.75%; (b) August 1, 2003 at 102.375%; (c) August 1,
2004 at 101.188%; and (d) August 1, 2005 and thereafter at 100%. 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 (the "Indenture") 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. (See "Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.")
BOOMTOWN 11.5% FIRST MORTGAGE NOTES As permitted in the indenture (the
"Boomtown Indenture") governing the Boomtown 11.5% First Mortgage Notes (the
"Boomtown Notes") in June 1998, Boomtown elected to satisfy and discharge its
obligation regarding the $1,253,000 of Boomtown Notes. As of June 9, 1998,
Boomtown had satisfied all conditions required to discharge its obligations
under the Boomtown Indenture. The total cost to redeem the Boomtown Notes was
$1,378,000.
8
NOTE 6 -- CONSOLIDATING CONDENSED FINANCIAL INFORMATION
Hollywood Park's subsidiaries (excluding non-material subsidiaries) have fully
and unconditionally guaranteed the payment of all obligations under the Notes.
The following is the consolidating information for the co-obligors and their
respective subsidiaries:
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and six months ended June 30, 1998 and 1997 and balance sheet as
of June 30, 1998 and December 31, 1997
(a) (b)
Hollywood Hollywood Wholly Majority
Park, Inc. Park Owned Owned
(Parent Operating Co. Guarantor Guarantor
co-obligor) (co-obligor) Subsidiaries Subsidiaries
----------- -------------- ------------- -------------
(in thousands)
Balance Sheet
- -------------
As of June 30, 1998
Current assets $ 23,792 $ 28,561 $ 32,677 $ 6,531
Property, plant and
equipment, net 67,352 22,664 164,620 44,816
Other non-current assets 27,085 4,564 39,838 2,061
Investment in subsidiaries 185,395 15,369 87,799 0
Inter-company 135,008 144,006 133,868 9
-------- -------- -------- -------
$438,632 $215,164 $458,802 $53,417
======== ======== ======== =======
Current liabilities $ 18,015 $ 33,282 $ 21,135 $ 4,924
Notes payable, current 694 48 66 1,277
Notes payable, long term 32,079 125,206 34 2,500
Other non-current 13,313 0 3,853 0
liabilities
Inter-company 145,160 21,576 197,875 48,280
Equity (deficit) 229,371 35,052 235,839 (3,564)
-------- -------- -------- -------
$438,632 $215,164 $458,802 $53,417
======== ======== ======== =======
Statement of Operations
- -----------------------
For the three months end
June 30, 1998
Revenues:
Gaming $ 11,713 $ 0 $ 33,404 $14,240
Racing 0 24,084 2,761 0
Food and beverage 1,236 0 5,734 1,323
Equity in subsidiaries 17,545 292 (5,018) 0
Inter-company 0 0 1,345 0
Other 1,010 588 6,241 791
-------- -------- -------- -------
31,504 24,964 44,467 16,354
-------- -------- -------- -------
Expenses:
Gaming 6,719 0 17,393 7,237
Racing 0 8,890 1,323 0
Food and beverage 2,389 0 6,002 1,632
Administrative and other 4,953 5,211 12,822 4,365
REIT restructuring 0 0 0 0
Depreciation and
amortization 1,082 987 3,469 900
-------- -------- -------- -------
15,143 15,088 41,009 14,134
-------- -------- -------- -------
Operating income (loss) 16,361 9,876 3,458 2,220
Interest expense 957 3,125 (122) 94
Inter-company interest 0 0 0 1,345
-------- -------- -------- -------
Income (loss) before taxes 15,404 6,751 3,580 781
Income tax expense
(benefit) 7,217 0 (1,798) 0
-------- -------- -------- -------
Net income (loss) $ 8,187 $ 6,751 $ 5,378 $ 781
======== ======== ======== =======
(c)
Wholly
Owned Consolidating
Non- and Hollywood
Guarantor Eliminating Park, Inc.
Subsidiaries Entries Consolidated
----------- -------------- -------------
(in thousands)
Balance Sheet
- -------------
As of June 30, 1998
Current assets $ 220 ($220) $ 91,561
Property, plant and
equipment, net 0 0 299,452
Other non-current assets 0 12,626 86,174
Investment in subsidiaries 0 (288,563) 0
Inter-company 0 (412,891) 0
-------- ---------- --------
$ 220 ($689,048) $477,187
======== ========== ========
Current liabilities $ 0 ($220) $ 77,136
Notes payable, current 0 0 2,085
Notes payable, long term 0 0 159,819
Other non-current (8,397) 8,769
liabilities
Inter-company 0 (412,891) 0
Equity (deficit) 220 (267,540) 229,378
-------- ---------- --------
$ 220 ($689,048) $477,187
======== ========== ========
Statement of Operations
- -----------------------
For the three months end
June 30, 1998
Revenues:
Gaming $ 0 $ 0 $ 59,357
Racing 0 0 26,845
Food and beverage 0 0 8,293
Equity in subsidiaries 0 (12,819) 0
Inter-company 0 (1,345) 0
Other 0 0 8,630
-------- ---------- --------
0 (14,164) 103,125
-------- ---------- --------
Expenses:
Gaming 0 0 31,349
Racing 0 0 10,213
Food and beverage 0 0 10,023
Administrative and other 93 0 27,444
REIT restructuring 0 0 0
Depreciation and
amortization 0 56 6,494
-------- ---------- --------
93 56 85,523
-------- ---------- --------
Operating income (loss) (93) (14,220) 17,602
Interest expense 0 0 4,054
Inter-company interest 0 (1,345) 0
----- ---------- --------
Income (loss) before taxes (93) (12,875) 13,548
Income tax expense
(benefit) 0 0 5,419
----- ---------- --------
Net income (loss) ($93) ($12,875) $ 8,129
======== ========== ========
9
Hollywood Park, Inc.
Consolidating Condensed Financial Information (continued)
For the three and six months ended June 30, 1998 and 1997 and balance sheet as of June 30, 1998 and December 31, 1997
(a) (b)
Hollywood Hollywood Wholly Majority
Park, Inc. Park Owned Owned
(Parent Operating Co. Guarantor Guarantor
co-obligor) (co-obligor) Subsidiaries Subsidiaries
----------- -------------- ------------- -------------
(in thousands)
For the six months end
June 30, 1998
Revenues:
Gaming $ 23,117 $ 0 $ 63,319 $28,270
Racing 0 27,872 8,842 0
Food and beverage 2,299 0 9,077 2,486
Equity in subsidiaries 16,280 236 (1,339) 0
Inter-company 0 0 2,701 0
Other 1,897 1,466 11,166 1,471
-------- ------- -------- -------
43,593 29,574 93,766 32,227
-------- ------- -------- -------
Expenses:
Gaming 13,461 0 34,972 14,883
Racing 0 11,781 3,901 0
Food and beverage 4,751 0 9,713 3,072
Administrative and other 9,520 8,759 24,999 8,599
REIT restructuring 469 0 0 0
Depreciation and
amortization 2,207 1,988 6,999 1,782
-------- ------- -------- -------
30,408 22,528 80,584 28,336
-------- ------- -------- -------
Operating income (loss) 13,185 7,046 13,182 3,891
Interest expense 1,548 6,183 (201) 185
Inter-company interest 0 0 0 2,701
-------- ------- -------- -------
Income (loss) before
taxes 11,637 863 13,383 1,005
Income tax expense 4,640 0 10 0
-------- ------- -------- -------
Net income (loss) $ 6,997 $ 863 $ 13,373 $ 1,005
======== ======= ======== =======
Statement of Cash Flows:
- ----------------------------
For the six months ended
June 30, 1998
Net cash provided by
(used in) operating
activities ($197) $14,661 $ 26,884 $ 545
Net cash used in investing
activities (13,152) (938) (22,694) (1,012)
Net cash provided by
(used in) financing
activities 29,942 0 (2,886) 354
(c)
Wholly
Owned Consolidating
Non- and Hollywood
Guarantor Eliminating Park, Inc.
Subsidiaries Entries Consolidated
------------- -------------- -------------
(in thousands)
For the six months end
June 30, 1998
Revenues:
Gaming $ 0 $ 0 $114,706
Racing 0 0 36,714
Food and beverage 0 0 13,862
Equity in subsidiaries 0 (15,177) 0
Inter-company 0 (2,701) 0
Other 0 0 16,000
-------- --------- --------
0 (17,878) 181,282
-------- --------- --------
Expenses:
Gaming 0 0 63,316
Racing 0 0 15,682
Food and beverage 0 0 17,536
Administrative and other 93 0 51,970
REIT restructuring 0 0 469
Depreciation and
amortization 0 73 13,049
-------- --------- --------
93 73 162,022
-------- --------- --------
Operating income (loss) (93) (17,951) 19,260
Interest expense 0 0 7,715
Inter-company interest 0 (2,701) 0
-------- --------- --------
Income (loss) before 0
taxes (93) (15,250) 11,545
Income tax expense 0 0 4,650
-------- --------- --------
Net income (loss) ($93) ($15,250) $ 6,895
======== ========= ========
Statement of Cash Flows:
- ----------------------------
For the six months ended
June 30, 1998
Net cash provided by
(used in) operating
activities $ 0 ($15,177) $ 26,716
Net cash used in investing
activities 0 0 (37,796)
Net cash provided by
(used in) financing
activities 0 0 27,410
10
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and six months ended June 30, 1998 and 1997 and balance sheet as
of June 30, 1998 and December 31, 1997
(a) (b)
Hollywood Hollywood Wholly Majority
Park, Inc. Park Owned Owned
(Parent Operating Co. Guarantor Guarantor
co-obligor) (co-obligor) Subsidiaries Subsidiaries
----------- -------------- ------------- -------------
(in thousands)
Statement of Operations
- ----------------------------
For the three months
ended June 30, 1997
Revenues:
Gaming $ 13,265 $ 0 $ 0 $ 900
Racing 0 23,471 2,768 0
Food and beverage 1,198 0 3,094 0
Equity in subsidiaries 656 437 438 0
Other 1,070 456 102 0
-------- -------- -------- -------
16,189 24,364 6,402 900
-------- -------- -------- -------
Expenses:
Gaming 8,112 0 0 0
Racing 0 9,106 1,359 0
Food and beverage 2,464 0 2,627 0
Administrative and other 3,909 5,445 1,004 18
Depreciation and
amortization 1,330 803 361 402
-------- -------- -------- -------
15,815 15,354 5,351 420
-------- -------- -------- -------
Operating income (loss) 374 9,010 1,051 480
Interest expense 59 6 0 0
-------- -------- -------- -------
Income (loss) before taxes 315 9,004 1,051 480
Minority interests 0 0 0 0
Income tax expense 3,675 0 0 0
-------- -------- -------- -------
Net income (loss) ($3,360) $ 9,004 $ 1,051 $ 480
======== ======== ======== =======
For the six months
ended June 30, 1997
Revenues:
Gaming $ 25,347 $ 0 $ 0 $ 1,500
Racing 0 27,404 8,464 0
Food and beverage 2,247 0 4,613 0
Equity in subsidiaries 2,853 293 594 0
Other 2,146 1,182 236 0
-------- -------- -------- -------
32,593 28,879 13,907 1,500
-------- -------- -------- -------
Expenses:
Gaming 15,161 0 0 0
Racing 0 11,538 3,871 0
Food and beverage 4,753 0 4,066 0
Administrative and other 8,487 9,291 2,151 41
Depreciation and
amortization 2,394 1,865 719 802
-------- -------- -------- -------
30,795 22,694 10,807 843
-------- -------- -------- -------
Operating income (loss) 1,798 6,185 3,100 657
Interest expense 116 13 0 0
-------- -------- -------- -------
Income (loss) before taxes 1,682 6,172 3,100 657
Minority interests 0 0 0 0
Income tax expense
(benefit) 3,105 0 (5) 0
-------- -------- -------- -------
Net income (loss) ($1,423) $ 6,172 $ 3,105 $ 657
======== ======== ======== =======
Statement of Cash Flows:
- ----------------------------
For the six months
June 30, 1997
Net cash provided by
(used in) operating
activities $ 6,584 $ 11,593 ($1,055) $ 1,021
Net cash provided by
(used in) investing
activities 3,509 (1,288) (2,105) (534)
Net cash used in
financing activities (308) 0 0 0
(c)
Wholly
Owned Consolidating
Non- and Hollywood
Guarantor Eliminating Park, Inc.
Subsidiaries Entries Consolidated
------------- -------------- -------------
(in thousands)
Statement of Operations
- ----------------------------
For the three months
ended June 30, 1997
Revenues:
Gaming $0 $ 0 $ 14,165
Racing 0 0 26,239
Food and beverage 0 0 4,292
Equity in subsidiaries 0 (1,531) 0
Other 0 0 1,628
--------- ---------- --------
0 (1,531) 46,324
-------- ---------- --------
Expenses:
Gaming 0 0 8,112
Racing 0 0 10,465
Food and beverage 0 0 5,091
Administrative and other 0 0 10,376
Depreciation and
amortization 0 0 2,896
-------- ---------- --------
0 0 36,940
-------- ---------- --------
Operating income (loss) 0 (1,531) 9,384
Interest expense 0 0 65
-------- ---------- --------
Income (loss) before taxes 0 (1,531) 9,319
Minority interests 0 41 41
Income tax expense 0 0 3,675
-------- ---------- --------
Net income (loss) $0 ($1,572) $ 5,603
======== ========== ========
For the six months
ended June 30, 1997
Revenues:
Gaming $0 $ 0 $ 26,847
Racing 0 0 35,868
Food and beverage 0 0 6,860
Equity in subsidiaries 0 (3,740) 0
Other 0 0 3,564
-------- ---------- --------
0 (3,740) 73,139
--------- ---------- --------
Expenses:
Gaming 0 0 15,161
Racing 0 0 15,409
Food and beverage 0 0 8,819
Administrative and other 0 0 19,970
Depreciation and
amortization 0 0 5,780
--------- ---------- --------
0 0 65,139
-------- ---------- --------
Operating income (loss) 0 (3,740) 8,000
Interest expense 0 0 129
-------- ---------- --------
Income (loss) before taxes 0 (3,740) 7,871
Minority interests 0 63 63
Income tax expense
(benefit) 0 0 3,100
------- ---------- --------
Net income (loss) $0 ($3,803) $ 4,708
======= ========== ========
Statement of Cash Flows:
- ----------------------------
For the six months
June 30, 1997
Net cash provided by
(used in) operating
activities $0 ($3,194) $ 14,949
Net cash provided by
(used in) investing
activities 0 12,264 11,846
Net cash used in
financing activities 0 0 (308)
11
Hollywood Park, Inc.
Consolidating Condensed Financial Information (continued)
For the three and six months ended June 30, 1998 and 1997 and balance sheet as of June 30, 1998 and December 31, 1997
(a) (b)
Hollywood Hollywood Wholly Majority
Park, Inc. Park Owned Owned
(Parent Operating Co. Guarantor Guarantor
co-obligor) (co-obligor) Subsidiaries Subsidiaries
---------- ------------- ------------ ------------
(in thousands)
Balance Sheet
- -------------
As of December 31, 1997
Current assets $ 19,844 $ 3,867 $ 25,074 $ 6,720
Property, plant and
equipment, net 68,515 23,753 140,105 68,293
Other non-current assets 22,306 4,701 29,320 7,611
Investment in subsidiaries 126,121 15,132 116,020 0
Inter-company 125,210 148,380 122,035 0
-------- -------- -------- -------
$361,996 $195,833 $432,554 $82,624
======== ======== ======== =======
Current liabilities $ 16,890 $ 14,232 $ 19,583 $ 6,612
Notes payable, long term 2,406 125,256 1,936 2,504
Other non-current
liabilities 4,753 5,202 83 0
Inter-company 146,145 21,589 178,448 49,443
Minority interest 0 0 0 0
Equity 191,802 29,554 232,504 24,065
-------- -------- -------- -------
$361,996 $195,833 $432,554 $82,624
======== ======== ======== =======
(c)
Wholly
Owned Consolidating
Non- and Hollywood
Guarantor Eliminating Park, Inc.
Subsidiaries Entries Consolidated
------------ ------------- -------------
(in thousands)
Balance Sheet
- -------------
As of December 31, 1997
Current assets $0 $ 0 $ 55,505
Property, plant and
equipment, net 0 0 300,666
Other non-current assets 0 (1,080) 62,858
Investment in subsidiaries 0 (257,273) 0
Inter-company 0 (395,625) 0
-------- ---------- --------
$0 ($653,978) $419,029
======== ========== ========
Current liabilities $0 $ 0 $ 57,317
Notes payable, long term 0 0 132,102
Other non-current
liabilities 0 (3,728) 6,310
Inter-company 0 (395,625) 0
Minority interest 0 1,946 1,946
Equity 0 (256,571) 221,354
-------- ---------- --------
$0 ($653,978) $419,029
======== ========== ========
(a) The Company's wholly owned guarantor subsidiaries are: HP Casino, Inc.,
HP/Compton, Inc., Turf Paradise, Inc., Hollywood Park Food Services, Inc.,
Hollywood Park Fall Operating Company, Boomtown, Inc., Boomtown Hotel &
Casino, Inc., Louisiana I Gaming, Louisiana Enterprises, Inc., Bayview
Yacht Club, Inc., and for periods after December 31, 1997, Crystal Park
Hotel and Casino Development Company, LLC. Due to the June 30, 1997,
Boomtown Merger being accounted for under the purchase method of accounting
for a business combination, the financial results for the three and six
months ended June 30, 1997, do not include the results of Boomtown, Inc.,
Boomtown Hotel & Casino, Inc., Louisiana I Gaming, Louisiana Enterprises,
Inc., and Bayview Yacht Club, Inc.
(b) As of December 31, 1997, Mississippi I Gaming, L.P. which was added as of
the June 30, 1997, Boomtown Merger, was the Company's only majority owned
guarantor subsidiary. Due to the Boomtown Merger being accounted for under
the purchase method of accounting for a business combination, Mississippi
I Gaming, L.P.'s financial results were not included for the three and six
months ended June 30, 1997. Prior to December 31, 1997, Crystal Park Hotel
and Casino Development Company, LLC was also a majority owned guarantor
subsidiary.
(c) Boomtown Hoosier, Inc. is the Company's only wholly owned non-guarantor
subsidiary with financial activity as of second quarter 1998. Boomtown
Hoosier, Inc.'s prior financial activity was not material.
12
Mississippi - I Gaming, L.P.
Balance Sheets
As of
------------------------------
June 30, December 31,
1998 1997
------------ ------------
(unaudited)
ASSETS (in thousands)
Current Assets:
Cash and cash equivalents $4,029 $4,143
Other receivables, net 173 113
Prepaid expenses and other assets 2,338 1,614
------------ ------------
Total current assets 6,540 5,870
Property, plant and equipment, net 44,816 45,576
Other assets 2,061 2,068
------------ ------------
$53,417 $53,514
============ ============
- --------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' DEFICIT
Current Liabilities:
Accounts payable $555 $670
Accrued compensation 1,181 923
Accrued liabilities 3,201 3,250
Accrued interest payable, Boomtown, Inc. 3,440 4,989
Current portion of notes payable, Boomtown, Inc. 44,827 44,454
Current portion of notes payable, other 1,277 1,292
------------ ------------
Total current liabilities 54,481 55,578
Notes payable, other 2,500 2,504
Commitments and contingencies 0 0
Partners' deficit:
General partner 12 11
Limited partners (3,576) (4,579)
------------ ------------
Total partners' deficit (3,564) (4,568)
------------ ------------
$53,417 $53,514
============ ============
- -----
See accompanying notes to financial statements.
13
Mississippi - I Gaming, L.P.
Statements of Operations
For the three months ended
March 31,
--------------------------
1998 1997
---------- ---------
(in thousands - unaudited)
Revenues:
Gaming $14,030 $13,101
Food and beverage 1,163 737
Other 680 615
------- -------
15,873 14,453
------- -------
Expenses:
Gaming 7,646 7,388
Food and beverage 1,440 894
Administrative 3,857 3,594
Other 377 356
Depreciation and amortization 882 732
------- -------
14,202 12,964
------- -------
Operating income 1,671 1,489
Interest expense 1,448 1,314
------- -------
Net income $ 223 $ 175
======= =======
Net income allocated to partners:
General partner $ 11 $ 9
Limited parnters 212 166
------- -------
$ 223 $ 175
======= =======
- -----
See accompanying notes to financial statements.
14
Mississippi - I Gaming, L.P.
Statements of Cash Flows
For the six months ended June 30,
---------------------------------
1998 1997
---------- ----------
(in thousands, unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,004 $ (54)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,782 1,809
(Gain) loss on sale of property and equipment (10) 142
(Increase) decrease in other receivables, net (60) 13
Increase in prepaid expenses and other assets (724) (580)
Decrease in other assets 7 70
(Decrease) increase in accounts payable (115) 121
Increase in accrued compensation 258 13
(Decrease) increase in accrued liabilities (49) 377
Decrease in accrued interest payable, Boomtown, Inc. (1,549) (63)
------- -------
Net cash provided by operating activities 544 1,848
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,175) (1,396)
Proceeds from sale of property and equipment 163 17
------- -------
Net cash used in investing activities (1,012) (1,379)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable, Boomtown, Inc., net 373 743
Payment notes payable, other (19) (1,507)
------- -------
Net cash provided by (used for) financing activities 354 (764)
------- -------
Decrease in cash and cash equivalents (114) (295)
Cash and cash equivalents at the beginning of the period 4,143 3,337
------- -------
Cash and cash equivalents at the end of the period $ 4,029 $ 3,042
======= =======
- ---------
See accompanying notes to financial statements.
15
Mississippi - I Gaming, L.P.
Notes to Financial Statements
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
The financial information included in this Quarterly Report on Form 10-Q has
been prepared in conformity with generally accepted accounting principles. The
information furnished herein is unaudited; however, in the opinion of
management, it reflects all normal and recurring adjustments that are necessary
to present a fair presentation of the financial results for this interim period.
It should be understood that accounting measurements at interim dates inherently
involve greater reliance on estimates than at year end. This Quarterly Report
on Form 10-Q does not include certain footnotes and financial presentations
normally presented annually and should be read in conjunction with the
Mississippi Partnership's 1997 Annual Report on Form 10-K.
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 Mississippi Partnership reports 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.
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 excluded the
retail value of food, beverage and other promotional allowances which were
provided to patrons without
16
charge. The estimated cost of providing such promotional allowances which were
reported as gaming expenses, for the three and six months ended June 30, 1998,
was $1,097,000 and $2,428,000, respectively, and for the three and six months
ended June 30, 1997, was $944,000 and $2,027,000, respectively.
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 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.
RECLASSIFICATIONS Certain reclassifications have been made to the 1997 balances
to be consistent with the 1998 financial statement presentation.
NOTE 2 -- CURRENT PREPAID EXPENSES AND OTHER ASSETS AND LONG TERM OTHER ASSETS
Current prepaid expenses and other assets as of June 30, 1998 and December 31,
1997 consisted of the following:
June 30, December 31,
1998 1997
-------------------- --------------------
(in thousands)
Prepaid insurance $ 278 $ 405
Land lease, related party 500 0
Tidelands lease 425 213
Other prepaid leases 247 184
Inventories 393 382
Prepaid taxes and licenses 272 150
Other current assets 223 280
-------------------- --------------------
$2,338 $1,614
==================== ====================
Long term other assets as of June 30, 1998 and December 31, 1997 consisted of
the following:
June 30, December 31,
1998 1997
-------------------- --------------------
(in thousands)
Land lease, related party $2,000 $2,000
Other assets 61 68
-------------------- --------------------
$2,061 $2,068
==================== ====================
17
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held as of June 30, 1998 and December 31, 1997
consisted of the following:
June 30, December 31,
1998 1997
-------------------- --------------------
(in thousands)
Land and land improvements $ 1,236 $ 1,236
Buildings and building improvements 41,394 41,313
Equipment 10,748 9,998
Construction in progress 63 46
-------------------- --------------------
53,441 52,593
Less accumulated depreciation 8,625 7,017
-------------------- ---------------------
$44,816 $45,576
==================== ====================
NOTE 4 -- SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of June 30, 1998 and December 31, 1997 consisted of the
following:
June 30, December 31,
1998 1997
-------------------- --------------------
(in thousands)
Secured notes payable $3,750 $3,750
Capital lease obligations 27 46
-------------------- ---------------------
3,777 3,796
Less current maturities 1,277 1,292
-------------------- ---------------------
$2,500 $2,504
==================== ====================
As of June 30, 1998 and December 31, 1997, the Mississippi Partnership also had
an outstanding note payable to Boomtown in the amounts of $44,827,000 and
$44,454,000, 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 note payable to Boomtown was
11.0% and 11.5%, as of June 30, 1998 and December 31, 1997, respectively.
NOTE 5 -- 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, which on March
20, 1998, were exchanged for a like principal amount of 9.5% Series B Senior
Subordinated Notes (collectively 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 Quarterly 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.
In June 1997, Boomtown repurchased and retired an aggregate of approximately
$102,700,000 in principal amount of Boomtown's 11.5% First Mortgage Notes (the
"Boomtown Notes"). The remaining balance of $1,253,000 was fully and
unconditionally guaranteed by Mississippi - I Gaming, L.P. As permitted in the
Indenture (the "Boomtown Indenture") governing the Boomtown Notes, in June 1998,
Boomtown elected to satisfy and discharge its obligation regarding the Boomtown
Notes. As of June 9, 1998, Boomtown has satisfied all conditions required to
discharge its obligations under the Boomtown Indenture.
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
18
deposit by the Mississippi Partnership of $2,000,000, 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. For the three and six months ended June 30, 1998, the
Mississippi Partnership paid Skrmetta $811,000 and $1,609,000 of rent,
respectively, and for the three and six months ended June 30, 1997, paid
$751,000 and $1,508,000 of rent, 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 year.
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.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Except for the historical information contained herein, the matters addressed in
this Quarterly Report on Form 10-Q may constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements are subject to a variety of risks and uncertainties
that could cause actual results to differ materially from those anticipated by
the Company's management. Factors that may cause actual performance of
Hollywood Park to differ materially from that contemplated by such forward-
looking statements include, among others, the failure to finance or 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), the passage of adverse gaming-related legislation
in any of the Company's gaming jurisdictions (including, if passed the proposed
legislation in Mississippi described below) 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 Quarterly Report on
Form 10-Q are made pursuant to the Act. For more information on the potential
factors which could affect the Company's financial results, please review the
Company's filings with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K, for the year ended December 31, 1997.
PENDING MERGER WITH CASINO MAGIC CORP. On February 19, 1998, Hollywood Park and
Casino Magic Corp. 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) (the "Casino Magic Merger"), pursuant to
which HP Acquisition II, Inc., will merge into Casino Magic, with Casino Magic
surviving and becoming 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. During the
second quarter of 1998 Hollywood Park purchased 653,900 shares of Casino Magic
19
common stock, for which it paid $2.00 per common share, or a total cost of
$1,328,249 (inclusive of commissions). As of August 6, 1998, the Company
purchased an additional 139,000 shares of Casino Magic common stock, at a cost
of $2.03125 per common share, or a total additional cost of $286,702 (inclusive
of commissions).
The consummation of the Casino Magic Merger requires, among other things, the
approval of the Casino Magic shareholders, approval of the appropriate gaming
authorities in Mississippi and Louisiana, and an amendment to the Company's
present Bank Credit Facility to provide for the funds required to consummate the
Casino Magic Merger. Casino Magic's shareholder meeting to vote on the Casino
Magic Merger is scheduled for September 9, 1998. The Mississippi gaming
authorities have approved the Casino Magic Merger subject to approval by the
Casino Magic shareholders. The Company expects to present the Casino Magic
Merger to the Louisiana gaming authorities in August 1998. The Company has
executed commitment letters with Bank of America and members of the bank
syndicate for an Amended and Restated Reducing Revolving Loan Agreement (the
"Amended Bank Credit Facility") which would, among other things, increase the
amount available for the Company to borrow up to $300,000,000, reduce interest
and commitment fee rates, and amend certain covenants. Final execution of the
Amended Bank Credit Facility is contingent upon, among other items, completion
of the Casino Magic Merger and redemption of certain Casino Magic debt
obligations.
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, or
approximately 22%, 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, along with 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 began 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 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. (Whereas, 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. On May 1, 1998, Casino Magic Biloxi opened its
378 room luxury hotel, which includes 16 master suites, 70 junior suites, 6,600
square feet of convention and meeting space, a full service restaurant and
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.
20
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 a 188 room hotel with four master suites, 88 junior
suites and additional full service restaurants. The hotel addition is expected
to be completed in early 1999.
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 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.
LEGENDS CASINO -- YAKAMA EXPANSION Legends Casino opened on May 15, 1998,
featuring a 600 seat bingo hall, electronic pull tabs, and table games
including: Blackjack, Poker, Craps, Roulette, Mini-bac, Caribbean Stud. Games
are played in the traditional Las Vegas style, with players betting against the
house. (Legends Casino does not have slot machines.) Legends Casino is located
in Toppenish, Washington, in a valley at the foot of Mt. Adams, a major vacation
destination. Legends Casino is approximately 130 miles from both Seattle,
Washington and Portland, Oregon. The nearest gaming facility is 157 miles away
in Pendelton, Oregon.
Hollywood Park, through its wholly owned subsidiary HP Yamaka, Inc. ("HP
Yakama") loaned approximately $9,243,000 to the Yakama Tribal Gaming Corporation
(the "Tribal Corporation") to construct the Legends Casino. The Tribal
Corporation gave HP Yakama a promissory note for the $9,243,000, payable in 84
equal installments at a 10% rate of interest, with the first installment payable
on July 1, 1998. The Tribal Corporation is current on amounts due under the
promissory note.
Pursuant to a seven year Master Lease between HP Yakama and the Confederated
Tribes and Bands of the Yakama Indian Nation (the "Tribes"), HP Yakama must pay
the Tribes monthly rent of $1,000. HP Yakama and the Tribal Corporation
entered into a corresponding seven year Sublease, under which the Tribal
Corporation owes rent to HP Yakama. Rent under the Sublease is initially set at
28% of Net Revenues (as defined in the relevant agreement), and decreases to 22%
over the seven year Sublease term.
HP Yakama, under the terms of a Profit Participation Agreement with North
American Sports Management ("NORAM") (who entered into the initial agreements
with the Tribal Corporation and the Tribes) is required to pay NORAM 22% of the
actual rent received from the Tribal Corporation under the Sublease.
BOOMTOWN NEW ORLEANS EXPANSION On July 1, 1998, Boomtown New Orleans opened its
$10,000,000 land based expansion, The Great Escape. The Great Escape is a
premier, adult oriented, dining and entertainment complex. The 160 seat "Old
World" casual dining restaurant features an open display kitchen with a varied
and enticing menu. The Great Escape features a state-of-the-art arcade style
amusement center including, among numerous other games, a 3-D giant screen
thrill ride; virtual reality rides; the very popular golf simulators; and a
billiard center. There are also new banquet facilities for parties of up to 500
people. The Great Escape is located on the second floor of the land based
facility and provides a second story entrance to the gaming floors of Boomtown
New Orleans' new larger and resplendent riverboat.
21
BOOMTOWN BILOXI On June 18, 1998, the Mississippi Gaming Commission renewed
Boomtown Biloxi's gaming operator's license for another two years.
MISSISSIPPI ANTI-GAMING INITIATIVE In June 1998, a ballot measure to ban casino
gaming in Mississippi was filed with the state's attorney general. If the
ballot measure is approved, it could require Mississippi casinos to shut down
within two years, and remain closed for at least four years. The anti-gaming
coalition has until October 7, 1998, to collect the 98,000 signatures needed to
place the measure on the November 1999 ballot. The Mississippi Gaming
Association and other pro-gaming groups filed suit to revise the initiative or
have it completely voided. On July 24, 1998, a Judge ruled in favor of the
Mississippi Gaming Association's suit, which in effect declared the proposed
initiative null and void, due to the failure to disclose the economic impact of
closing down Mississippi gaming. It is likely that a revised initiative will be
filed which will address the economic impact, and the attempt to ban Mississippi
gaming will continue. It is too soon in the process to predict the outcome of
this situation.
PROPOSED INDIANA PROJECT The Company has an application pending for the
remaining riverboat gaming license to be awarded for operations on the Ohio
River in Indiana. The application was filed under a joint venture between the
Company and Hilton Gaming Corporation ("Hilton"). On May 6, 1998, Hollywood
Park and Hilton agreed that the Company would acquire Hilton's interest in the
joint venture, and Hilton withdrew as an applicant for the remaining Indiana
gaming license. If the Company is awarded the Indiana gaming license, then the
Company will pay Hilton approximately $750,000 in exchange for Hilton's
interest, and plans to own and operate the project on its own.
On May 6, 1998, the Indiana Gaming Commission (the "Commission") met and decided
that it would grant the remaining Indiana gaming license on September 14, 1998.
There can be no assurance that the Commission will grant the gaming license or
that it will be granted to Hollywood Park, or if granted the gaming license,
that the Company will receive all other required approvals and environmental
permits necessary to proceed with this project.
TURF PARADISE The Company has entered into an agreement to sell 12 acres of
land at its Phoenix, Arizona based Turf Paradise racing facility, for
approximately $4,574,000. The purchaser (a national retailer) intends to
construct a major retail outlet at the site. The sale is expected to be
completed no later than first quarter 1999.
HOLLYWOOD PARK GOLF CENTER Due to potential lawsuits from nearby home owners,
in July 1998 the Company closed the Hollywood Park Golf Center. The loss on the
write off of the Hollywood Park Golf Center assets, to be recorded in third
quarter 1998, will be approximately $1,126,000.
CRYSTAL PARK HOTEL AND CASINO As of July 1, 1998, rent was scheduled to
increase to $350,000 per month, but instead, the Company agreed to accept rent
of $150,000 per month through January 1999, at which time the rent is presently
scheduled to increase to $350,000.
YEAR 2000 ISSUE The Company has assessed 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 properly
recognize 2000. 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. The Company currently
estimates that the costs associated with the year 2000 issue, and the
consequences of incomplete or untimely resolution of the year 2000 issue, will
not have a material adverse effect on the results of operations or financial
position of the Company in any given year.
Even if the internal systems of the Company are not materially affected by the
year 2000 issue, the Company could be affected through disruption in the
operation of the outside entities with which the Company interacts. The Company
relies, directly and indirectly, on external systems of business enterprises
such as customers, suppliers and creditors, financial organizations and
governmental entities for accurate exchange of data. The Company is in the
process of determining whether those enterprises that have significant business
relationships with the Company are taking adequate measures to address the year
2000 issue.
22
SUNFLOWER RACING, INC. Sunflower Racing, Inc. ("Sunflower") owns the Woodlands
Race Track located in Kansas City, Kansas. On May 17, 1996, Sunflower filed for
reorganization under Chapter 11 of the Bankruptcy Code. On March 31, 1996,
Hollywood Park recorded a non-cash write off of its approximately $11,412,000
investment in Sunflower. In April 1998, the court rejected Sunflower's plan of
reorganization. On June 4, 1998, the bankruptcy judge in Sunflower's bankruptcy
case converted the case from Chapter 11 to Chapter 7 and appointed a trustee to
administer the assets of Sunflower. Sunflower is presently operating under the
supervision of the trustee. The trustee is moving ahead with plans to sell
Sunflower's assets later this year.
Sunflower has appealed the conversion orders as well as the order appointing a
trustee, and the earlier rejection. The appeals are still pending.
REAL ESTATE INVESTMENT TRUST/PAIRED-SHARE STRUCTURE The Company has no present
intentions to pursue a Real Estate Investment Trust Structure.
STOCK REPURCHASE On August 5, 1998, the Company announced its intention to
repurchase and retire up to 20%, or approximately 5,256,000, shares of its
currently issued and outstanding common stock on the open market or in
negotiated transactions. As of August 10, 1998, the Company had repurchased
44,128 shares at a total cost of approximately $486,000.
RESULTS OF OPERATIONS
Hollywood Park's June 30, 1997 acquisition of Boomtown was accounted for under
the purchase method of accounting for a business combination. As required under
the purchase method of accounting, Boomtown's historical financial results were
not consolidated with Hollywood Park's historical financial results, and
therefore, the revenues and expenses vary significantly when comparing the
results of operations for the three and six months ended June 30, 1998, to the
results of operations for the three and six months ended June 30, 1997.
Three months ended June 30, 1998 compared to the three months ended June 30,
----------------------------------------------------------------------------
1997
----
Total revenues for the three months ended June 30, 1998, increased by
$56,801,000, or 122.6%, as compared to the three months ended June 30, 1997,
primarily due to the inclusion of approximately $58,239,000 of Boomtown revenues
in 1998, with no corresponding revenues recorded in 1997. Gaming revenues
increased by $45,192,000, or 319.0%, due primarily to the inclusion of
$47,344,000 of Boomtown related revenues, netted against gaming revenue declines
at the Hollywood Park-Casino, due primarily to the implementation of a ban on
indoor smoking and recent economic problems in various Asian countries (a
significant portion of the Hollywood Park-Casino patrons are Asian). Racing
revenues increased by $606,000, or 2.3%, due primarily to increased simulcasting
of Hollywood Park Race Track's live races to other racing facilities. Food and
beverage revenues increased by $4,001,000, or 93.2%, due to the inclusion of
$3,969,000 of revenues generated at Boomtown properties, for which there were no
corresponding revenues in the 1997 results. Hotel and recreational vehicle park
and truck stop and service station revenues related to Boomtown Reno, with no
corresponding revenues in the 1997 results. Other income increased by
$2,830,000, or 173.8%, due primarily to the inclusion of $2,754,000 of other
income generated at the three Boomtown properties, for which there were no
corresponding revenues in 1997.
Total operating expenses increased by $48,584,000, or 131.5%, for the three
months ended June 30, 1998, as compared to the three months ended June 30, 1997,
primarily as a result of the inclusion of $49,281,000 of expenses related to
Boomtown for which there are no corresponding expenses in the 1997 results of
operations. Gaming expenses increased by $23,237,000, or 286.5%, due primarily
to the inclusion of $24,630,000 of expenses related to Boomtown in the 1998
results and expense reductions of $1,393,000 at the Hollywood Park-Casino, a
result of the gaming revenue declines as previously discussed. Food and
beverage expenses increased by $4,933,000, or 96.9%, due primarily to the
inclusion of $4,838,000 of expenses related to the three Boomtown properties,
with no corresponding expenses recorded in 1997. Hotel
23
and recreational vehicle park and truck stop and service station expenses
related to operations at Boomtown Reno with no similar costs in the 1997
results. Administrative expenses increased by $12,239,000, or 125.1%, of which
$11,411,000 was related to the three Boomtown properties, with the balance of
the increase primarily attributable to increased Hollywood Park corporate wages
due to additional staffing in 1998. Other expenses increased by $1,159,000, or
170.4%, due primarily to the inclusion of $1,215,000 of expenses related to the
three Boomtown properties. Depreciation and amortization increased by
$3,463,000, or 114.3%, due primarily to the inclusion of $3,606,000 of expenses
related to the three Boomtown properties. Interest expense increased by
$3,990,000, due to interest on the Notes, which were issued in August 1997, and
interest on borrowing from the Company's bank facilities (see "-Liquidity and
Capital Resources" below). Income tax expense increased by $1,743,000 or 47.4%,
due to the increase in pre-tax income in 1998 as compared to 1997.
Six months ended June 30, 1998 compared to the six months ended June 30, 1997
-----------------------------------------------------------------------------
The results of operations for the six months ended June 30, 1998, included the
results of operations of Boomtown, which was acquired by the Company on June 30,
1997, and accounted for under the purchase method of accounting for a business
combination. As required under the rules of purchase accounting, Boomtown's
results of operations, prior to the acquisition, were not combined with those of
Hollywood Park, and therefore, the results of operations for the six months
ended June 30, 1997, did not include Boomtown's results of operations,
generating significant differences when comparing the results of operations for
the six months ended June 30, 1998, to the six months ended June 30, 1997.
Total revenues increased by $108,143,000, or 147.9%, for the six months ended
June 30, 1998, as compared to the six months ended June 30, 1997, due primarily
to the inclusion of approximately $110,454,000 of revenues attributable to
Boomtown. Gaming revenues increased by $87,859,000, or 327.3%, due primarily to
the inclusion of $90,989,000 of gaming revenues attributable to Boomtown, netted
against gaming revenue declines of approximately $2,230,000 at the Hollywood
Park-Casino, primarily a result of a ban on indoor smoking and recent economic
problems in various Asian countries (a significant portion of the Hollywood
Park-Casino's patrons are Asian). Gaming revenues also declined by
approximately $900,000 at the Crystal Park Casino. In 1997, the Crystal Park
Casino was leased to an operator, who subsequently defaulted on the lease and
the Company then leased the property to a new operator, and lowered the rent
during the first year to allow the new operator time to grow the business.
Racing revenues increased by $846,000, or 2.4%, due primarily to increased
revenues generated by simulcasting Hollywood Park Race Track's live races to
other racing facilities. Food and beverage revenues increased by $7,002,000, or
102.1%, due primarily to the inclusion of Boomtown revenues of $7,031,000 in
1998, with no corresponding revenues in the 1997 results. Hotel recreational
vehicle park and truck stop and service station revenues related to Boomtown
Reno, with no corresponding revenues in the 1997 results. Other income
increased by $5,165,000, or 144.9%, due primarily to Boomtown revenues included
in the 1998 results and no corresponding revenues in the 1997 results.
Total operating expenses increased by $96,883,000, or 148.7%, during the six
months ended June 30, 1998, as compared to the six months ended June 30, 1997,
due primarily to the inclusion of approximately $96,996,000 of Boomtown
operating expenses, for which there are no corresponding amounts in the 1997
operating expenses. Gaming expenses increased by $48,155,000, or 317.6%, due
primarily to the inclusion of Boomtown expenses of $49,855,000, netted against
gaming expense declines at the Hollywood Park-Casino, a corresponding result of
the decline in Hollywood Park-Casino's gaming revenues. Food and beverage
expenses increased by $8,717,000, or 98.8%, due primarily to the inclusion of
$8,593,000 of Boomtown expenses in 1998 with no corresponding revenues in 1997.
Hotel and recreational vehicle park and truck stop and service station expenses
related to operations at Boomtown Reno with no corresponding costs in the 1997
results of operations. Administrative expenses increased by $23,590,000, or
127.2%, due primarily to the inclusion of $22,829,000 of Boomtown expenses in
the 1998 results, with the balance of the increase primarily due to increased
expansion expenses at Hollywood Park. Other expenses increased by $2,136,000,
or 148.4%, and included Boomtown costs of $2,280,000, for which there are no
corresponding costs in the
24
1997 results. Depreciation and amortization expense increased by $7,269,000, or
125.8%, of which $7,165,000 was attributable to the three Boomtown properties.
Interest expense increased by $7,586,000, due to interest on the Notes and
interest on bank borrowings (see "-Liquidity and Capital Resources" below).
Income tax expense increased by $1,550,000, or 50%, due to the increased pre-tax
income in 1998 as compared to 1997.
LIQUIDITY AND CAPITAL RESOURCES
Hollywood Park's principal source of liquidity as of June 30, 1998, was cash and
cash equivalents of $40,079,000. Cash and cash equivalents increased by
$16,330,000 during the six months ended June 30, 1998. Net cash of $26,716,000
was provided by operating activities. The Hollywood Park Race Track operates
its live race meet during the second quarter of each year, thus generating
additional operating cash. Net cash of $37,796,000 was used in investing
activities. Cash of $26,407,000 was used to purchase capital assets, including
amounts spent for the Boomtown Reno and Boomtown New Orleans construction
projects. Cash of $7,636,000 was lent in connection with the HP Yakama project.
Cash was used for short term investing (including the purchase of Casino Magic
common stock) and the Company also, through it's wholly owned subsidiary HP
Casino, Inc. used cash of $1,946,000 to acquire the remaining minority interest
in Crystal Park LLC. Net cash provided by financing activities was $27,410,000,
which included short term borrowings of $30,000,000 under the Company's Bank
Credit Facility.
Cash and cash equivalents increased by $26,487,000 during the six months ended
June 30, 1997. Net cash of $14,949,000 was provided by operating activities.
Net cash of $11,846,000 was provided by investing activities, which included
cash received in the Boomtown Merger and short term investment proceeds, netted
against disbursements for normal and necessary capital improvements. Net cash
used in financing activities was $308,000.
HOLLYWOOD PARK On June 30, 1997, the Company entered into a five year Bank
Credit Facility with a bank syndicate led by Bank of America National Trust and
Savings Association ("Bank of America"). As of June 30, 1998, due to covenant
limitations, approximately $87,280,000 of the total current $100,000,000 Bank
Credit Facility was available, of which $30,000,000 was outstanding, at an
interest rate of 7.88%. The Bank Credit Facility also provides for a letter of
credit sub-facility of $10,000,000, and a swing line sub-facility of up to
$10,000,000. On May 1, 1998, a $2,035,000 outstanding letter of credit expired
and was not renewed. 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 execution of an agreement to
consummate 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 executed commitment letters with Bank of America and members of
the bank syndicate for an Amended and Restated Reducing Revolving Loan Agreement
(the "Amended Bank Credit Facility") which would, among other things, increase
the amount available to borrow to $300,000,000, reduce the interest and
commitment fee rates, and amend certain covenants. Final execution of the
Amended Bank Credit Facility is contingent upon, among other items, completion
of the Casino Magic Merger and redemption of certain Casino Magic debt
obligations.
The Bank Credit Facility has been amended three times, most recently on June 12,
1998. 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. The third amendment,
among other things, modified certain covenants, allowing for increased capital
expenditures and other investments.
25
Debt service requirements on the Bank Credit Facility consist of current
interest payments on outstanding indebtedness through September 30, 1999.
Beginning 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. Beginning 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.
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 June 30,
1998, were 2.25% with respect to the Eurodollar Rate based interest rate and
1.25% 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
April 1, 1998, the commitment fee was 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 its 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 Notes due 2007. 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 Notes of the Company and Hollywood Park Operating
Company 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 Company
has paid Liquidated Damages at an annual rate of 0.5% of the principal amount of
the Notes for the period January 27, 1998 to March 20, 1998 (the date of
consummation of the exchange offer). The Notes are 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, as
follows: (a) August 1, 2002 at 104.75%; (b) August 1, 2003 at 102.375%; (c)
August 1, 2004 at 101.188%; and (d) August 1, 2005 and thereafter at 100%. 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.
26
The indenture governing the Notes contains certain covenants that, among other
things, limits 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 (the previously discussed stock repurchase falls within the parameters
of the indenture) 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, and the execution of the Amended Bank Credit Facility 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.
Effective August 28, 1997, the 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 in future periods.
As of June 30, 1998, the Company has invested approximately $3,514,000
(inclusive of an unrealized gain of approximately $83,000) in equity securities
(including Casino Magic common stock), which are presently being held as
available-for-sale.
BOOMTOWN In November 1993, Boomtown issued $103,500,000 of 11.5% First Mortgage
Notes (the "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
permitted in the indenture governing the Boomtown Notes (the "Boomtown
Indenture"), in June 1998, Boomtown elected to satisfy and discharge its
obligation regarding the remaining $1,253,000 of Boomtown Notes. As of June 9,
1998, Boomtown had satisfied all conditions required to discharge its
obligations under the Boomtown Indenture. Total cost to redeem the Boomtown
Notes was $1,378,000.
As consideration for the sale of its Las Vegas property, Boomtown received two
promissory notes receivable from Mr. Roski, the former lessor of Boomtown's Las
Vegas property, totaling approximately $8,465,000. The first note 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. (Mr.
Roski made the required July 1, 1998, principal and interest payment.)
CAPITAL COMMITMENTS The Company has a capital commitment of approximately
$81,000,000, with respect to the purchase of Casino Magic's common stock, in
conjunction with the Casino Magic Merger, and as previously mentioned in
connection with the Amended Bank Credit Facility, will require an additional
$143,000,000 to redeem the 11.5% Casino Magic First Mortgage Notes. The Casino
Magic Merger is expected to be completed in fourth quarter 1998, and the
redemption of the 11.5% Casino Magic First Mortgage Notes to be completed as
soon as practical thereafter.
Expansion Costs In addition to the capital commitments as discussed, Hollywood
- ---------------
Park has other capital needs with respect to Boomtown Reno. 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. As of June 30,
1998, the Company has disbursed approximately $9,400,000 related to the Boomtown
Reno expansion.
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
27
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
As of June 30, 1998, Hollywood Park did not hold any investments in market risk
sensitive instruments of the type described in Item 305 of Regulation S-K.
Part II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
At an Annual Meeting of Stockholders, held on April 13, 1998, the Company's
stockholders approved the following:
PROPOSAL ONE: Proposal to approve and adopt amendments to the Company's
Certificate of Incorporation, which are necessary to effect the reorganization
of the Company into a paired share real estate investment trust and operating
company structure.
For votes 16,434,221
Against votes 413,652
Abstain votes 112,885
Broker non-votes 7,809,023
PROPOSAL TWO: Proposal to approve and adopt the Hollywood Park Operating
Company 1998 Stock Option Plan.
For votes 13,575,789
Against votes 3,226,343
Abstain votes 158,626
Broker non-votes 7,809,023
PROPOSAL THREE: Proposal to approve and adopt the Hollywood Park Operating
Company 1998 Directors Deferred Compensation Plan.
For votes 16,177,218
Against votes 539,373
Abstain votes 249,279
Broker non-votes 7,803,911
PROPOSAL FOUR: Proposal to approve the Supermajority Elimination Amendment,
which would remove the requirement in the Company's Certificate of Incorporation
that certain transactions be approved by 70% of the Company's outstanding stock.
For votes 18,362,570
Against votes 658,527
Abstain votes 236,742
Broker non-votes 6,934,131
28
PROPOSAL FIVE: Proposal to approve and adopt the Gaming Amendment to the
Company's Certificate of Incorporation, intended to expand the protection of the
Company's gaming licenses.
For votes 16,762,258
Against votes 91,883
Abstain votes 106,617
Broker non-votes 7,809,023
PROPOSAL SIX: Proposal to elect eleven directors.
Nominee For Votes Against Votes
------- --------- -------------
R.D. Hubbard 24,474,576 295,205
Richard Goeglein 24,490,384 279,397
Peter L. Harris 24,491,701 278,080
J.R. Johnson 24,490,105 279,676
Robert T. Manfuso 24,491,332 278,449
Harry Ornest 24,492,884 276,897
Timothy J. Parrott 24,493,886 275,895
Lynn P. Reitnouer 24,489,639 280,142
Herman Sarkowsky 24,492,187 277,594
Warren B. Williamson 24,491,933 277,848
Delbert W. Yocam 24,487,617 282,164
ITEM 5. OTHER INFORMATION
- -------------------------
On July 21, 1998, Mr. Harry Ornest, Director and Vice Chairman of Hollywood
Park, Inc. passed away. The Company is seeking a suitable replacement.
The Company continues to support legislation in California which would
significantly reduce the license fees paid to the state on wagers on
thoroughbred races, and would significantly increase the number of out-of-state
thoroughbred races that Hollywood Park Race Track would be able to simulcast
from other race tracks. Senate Bill 27 ("SB-27") is currently pending before
the Assembly Appropriations Committee. While passage of this legislation is
speculative, the Company is cautiously optimistic that SB-27, or some variation
thereof, will be enacted in 1998. The precise benefits of this legislation are
subject to a number of factors and no assurance can be given of the magnitude of
such benefits in future years.
ITEM 6.A EXHIBITS
- -----------------
Exhibit
Number Description of Exhibit
- -------- ----------------------
10.46 Addendum to the Lease Agreement dated December 19, 1997, by and between Crystal Park Hotel and
Casino Development Company, LLC and California Casino Management, Inc., dated June 30, 1998.
10.47 Option Agreement, by and among The Webster Family Limited Partnership and The Diuguid Family Limited
Partnership, and Pinnacle Gaming Development Corp., dated June 2, 1998.
10.48 Memorandum of Option Agreement, by and between The Webster Family Limited Partnership and The
Diuguid Family Limited Partnership, and Pinnacle Gaming Development Corp., dated June 2, 1998.
10.49 Amended and Restated Options Agreement, by and among Daniel Webster, Marsha S. Webster, William G.
Diuguid, Sara T. Diuguid, J.R. Showers, III and Carol A. Showers, and Pinnacle Gaming Development
Corp., dated June 2, 1998.
29
10.50 Memorandum of Amended and Restated Option Agreement, by and between Daniel Webster, Marsha S.
Webster, William G. Diuduid, Sara T. Diuguid, J.R. Showers, III, and Carol A. Showers, and Pinnacle
Gaming Development Corp., dated June 4, 1998.
10.51 Assignment of Option Agreement, by Daniel Webster and Marsha S. Webster, and Pinnacle Gaming
Development Corp., dated June 2, 1998.
10.52 Amendment No. 3 to Reducing Revolving Loan Agreement, among Hollywood Park, Inc., and the Banks
party thereto, Bank of Scotland, Bankers Trust Company and Societe Generale, as Co-Agents, and Bank
of America National Trust and Savings Association as Managing Agent, dated March 27, 1998.
27.1 Financial Data Schedule
____
(b) Reports on Form 8-K
None
30
Hollywood Park, Inc.
Calculation of Earnings Per Share
For the three months ended June 30,
-------------------------------------------------
Basic Diluted (a)
--------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
(in thousands, except per share data)
Average number of common shares outstanding 26,285 18,462 26,285 18,463
Average common shares due to assumed conversion
of convertible preferred shares (b) 0 0 0 2,291
Average common shares due to assumed conversion of
stock options 0 0 143 0
-------- -------- -------- --------
Total shares 26,285 18,462 26,428 20,754
======== ======== ======== ========
Net income $8,124 $5,603 $8,124 $5,603
Less dividend requirements on convertible preferred shares 0 481 0 0
-------- -------- -------- --------
Net income available to common shareholders $8,124 $5,122 $8,124 $5,603
======== ======== ======== ========
Net income per share $0.31 $0.28 $0.31 $0.27
======== ======== ======== ========
For the six months ended June 30,
--------------------------------------------------
Basic Diluted (a)
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
(in thousands, except per share data)
Average number of common shares outstanding 26,281 18,336 26,281 18,366
Average common shares due to assumed conversion
of convertible preferred shares (b) 0 0 0 2,291
Average common shares due to assumed conversion of
stock options 0 0 490 0
-------- -------- -------- --------
Total shares 26,281 18,336 26,771 20,657
======== ======== ======== ========
Net income $6,890 $4,708 $6,890 $4,708
Less dividend requirements on convertible preferred shares 0 962 0 0
-------- -------- -------- --------
Net income available to common shareholders $6,890 $3,746 $6,890 $4,708
======== ======== ======== ========
Net income per share $0.26 $0.20 $0.26 $0.23
======== ======== ======== ========
- -------
(a) When the computed diluted values are anti-dilutive, the basic share values
are presented on the face of the consolidated statements of operations.
(b) As of August 28, 1997, the Company's 2,749,000 outstanding depositary
shares were converted into 2,291,492 shares of the Company's common stock.
31
Hollywood Park, Inc.
Selected Financial Data by Operational Location
For the three months ended June 30, For the six months ended June 30,
---------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- -------------- ------------ ---------------
(in thousands, except per share data - unaudited)
Revenues:
Hollywood Park, Inc. - Casino Division $13,784 $15,323 $26,995 $29,317
HP/Compton, Inc. - Crystal Park Hotel and Casino 300 900 600 1,500
Boomtown Reno 17,912 0 31,348 0
Boomtown New Orleans 23,759 0 46,454 0
Boomtown Biloxi 16,354 0 32,227 0
Boomtown Indiana 0 0 0 0
Hollywood Park Race Track 27,500 26,747 32,978 32,193
Turf Paradise, Inc. 3,101 3,143 9,911 9,705
HP Yakama, Inc. 26 0 26 0
Hollywood Park, Inc. - Corporate 175 211 318 424
Boomtown, Inc. - Corporate 214 0 425 0
-------- ------- -------- -------
103,125 46,324 181,282 73,139
-------- ------- -------- -------
Expenses:
Hollywood Park, Inc. - Casino Division 11,753 13,065 23,460 25,506
HP/Compton, Inc. - Crystal Park Hotel and Casino 83 19 129 41
Boomtown Reno 16,006 0 30,305 0
Boomtown New Orleans 15,777 0 31,573 0
Boomtown Biloxi 13,200 0 26,554 0
Boomtown Indiana 93 0 93 0
Hollywood Park Race Track 16,577 16,732 23,819 24,018
Turf Paradise, Inc. 2,584 2,670 6,958 6,900
HP Yakama, Inc. 35 0 35 0
Hollywood Park, Inc. - Corporate 2,306 1,558 4,272 2,894
Boomtown, Inc. - Corporate 615 0 1,306 0
-------- ------- -------- -------
79,029 34,044 148,504 59,359
-------- ------- -------- -------
Non-recurring expenses:
REIT restructuring 0 0 469 0
Depreciation and amortization:
Hollywood Park, Inc. - Casino Division 648 766 1,346 1,530
HP/Compton, Inc. - Crystal Park Hotel and Casino 460 402 970 802
Boomtown Reno 1,461 0 2,930 0
Boomtown New Orleans 1,189 0 2,380 0
Boomtown Biloxi 900 0 1,782 0
Hollywood Park Race Track 1,048 1,000 2,113 1,991
Turf Paradise, Inc. 298 297 594 592
Hollywood Park, Inc. - Corporate 434 431 861 865
Boomtown, Inc. - Corporate 56 0 73 0
-------- ------- -------- -------
6,494 2,896 13,049 5,780
-------- ------- -------- -------
Operating income (loss):
Hollywood Park, Inc. - Casino Division 1,383 1,492 2,189 2,281
HP/Compton, Inc. - Crystal Park Hotel and Casino (243) 479 (499) 657
Boomtown Reno 445 0 (1,887) 0
Boomtown New Orleans 6,793 0 12,501 0
Boomtown Biloxi 2,254 0 3,891 0
Boomtown Indiana (93) 0 (93) 0
Hollywood Park Race Track 9,875 9,015 7,046 6,184
Turf Paradise, Inc. 219 176 2,359 2,213
HP Yakama, Inc. (9) 0 (9) 0
Hollywood Park, Inc. - Corporate (2,565) (1,778) (4,815) (3,335)
Boomtown, Inc. - Corporate (457) 0 (954) 0
REIT restructuring 0 0 (469) 0
-------- ------- -------- -------
17,602 9,384 19,260 8,000
-------- ------- -------- -------
Interest expense 4,054 65 7,715 129
Minority interests:
HP/Compton, Inc. - Crystal Park Hotel and Casino 0 41 0 63
-------- ------- -------- -------
Income before income tax expense 13,548 9,278 11,545 7,808
Income tax expense 5,419 3,675 4,650 3,100
-------- ------- -------- -------
Net income $ 8,129 $ 5,603 $ 6,895 $ 4,708
======== ======= ======== =======
Dividend requirements on convertible preferred stock $ 0 $ 481 $ 0 $ 962
-------- ------- -------- -------
Net income available to common shareholders $ 8,129 $ 5,122 $ 6,895 $ 3,746
======== ======= ======== =======
Per common share:
Net income - basic $ 0.31 $ 0.28 $ 0.26 $ 0.20
Net income - diluted $ 0.31 $ 0.27 $ 0.26 $ 0.20
Number of shares - basic 26,285 18,462 26,281 18,366
Number of shares - diluted 26,428 20,754 26,771 20,657
32
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: August 12, 1998
-----------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan Dated: August 12, 1998
-----------------------------------
G. Michael Finnigan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
HOLLYWOOD PARK OPERATING COMPANY
(Registrant)
By: /s/ R.D. Hubbard Dated: August 12, 1998
-----------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan Dated: August 12, 1998
-----------------------------------
G. Michael Finnigan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
33
Hollywood Park, Inc.
Exhibit Index
Exhibit Description Page
- ------- ----------- ----
10.46 Addendum to the Lease Agreement dated December 19, 1997, by and between Crystal Park
Hotel and Casino Development Company, LLC and California Casino Management, Inc., dated
June 30, 1998.
10.47 Option Agreement, by and among The Webster Family Limited Partnership and The Diuguid
Family Limited Partnership, and Pinnacle Gaming Development Corp., dated June 2, 1998.
10.48 Memorandum of Option Agreement, by and between The Webster Family Limited Partnership and
The Diuguid Family Limited Partnership, and Pinnacle Gaming Development Corp., dated June
2, 1998.
10.49 Amended and Restated Options Agreement, by and among Daniel Webster, Marsha S. Webster,
William G. Diuguid, Sara T. Diuguid, J.R. Showers, III and Carol A. Showers, and Pinnacle
Gaming Development Corp., dated June 2, 1998.
10.50 Memorandum of Amended and Restated Option Agreement, by and between Daniel Webster,
Marsha S. Webster, William G. Diuduid, Sara T. Diuguid, J.R. Showers, III, and Carol A.
Showers, and Pinnacle Gaming Development Corp., dated June 4, 1998.
10.51 Assignment of Option Agreement, by Daniel Webster and Marsha S. Webster, and Pinnacle
Gaming Development Corp., dated June 2, 1998.
10.52 Amendment No. 3 to Reducing Revolving Loan Agreement, among Hollywood Park, Inc., and the
Banks party thereto, Bank of Scotland, Bankers Trust Company and Societe Generale, as
Co-Agents, and Bank of America National Trust and Savings Association as Managing Agent,
dated March 27, 1998.
1
27.1 Financial Data Schedule