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, 1999
Commission file number 0-10619 Commission file number 333-34471-02
Hollywood Park, Inc. Hollywood Park Operating Company
(Exact Name of Registrant (Exact Name of Registrant as
as Specified in Its Charter) Specified in Its Charter)
Delaware Delaware
(State or Other Jurisdiction of (State or Other Jurisdiction of
Incorporation or Organization) Incorporation or Organization)
95-3667491 95-3667220
(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 6, 1999: 26,053,289
Hollywood Park, Inc.
Table of Contents
Part I
Item 1. Financial Information
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998.......................... 1
Consolidated Statements of Operations for the three and six months ended
June 30, 1999 and 1998........................................................................ 2
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 1998........................................................................ 3
Condensed Notes to Consolidated Financial Statements........................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General........................................................................................ 17
Results of Operations.......................................................................... 20
Liquidity and Capital Resources................................................................ 22
Item 3. Quantitative and Qualitative Disclosure About Market Risk....................................... 23
Part II
Item 4. Submission of Matters to a Vote of Security Holders............................................. 24
Item 5. Other Information............................................................................... 24
Item 6. Exhibits and Reports on Form 8K................................................................. 25
Other Financial Information..................................................................... 26
Signatures...................................................................................... 27
Item 1. Financial Information
- -----------------------------
Hollywood Park, Inc.
Consolidated Balance Sheets
June 30, December 31,
1999 1998
------------ --------------
(unaudited)
Assets (in thousands)
Current Assets:
Cash and cash equivalents $ 127,530 $ 43,934
Restricted cash 17,964 300
Short term investments 16,143 3,179
Other receivables, net 15,805 16,783
Prepaid expenses and other assets 20,979 15,207
Deferred tax assets 18,266 18,425
Current portion of notes receivable 2,320 2,320
---------- ----------
Total current assets 219,007 100,148
Notes receivable 12,987 17,852
Property, plant and equipment, net 597,553 602,912
Goodwill, net 95,585 97,098
Gaming license, Casino Magic Bossier City, net 35,645 36,446
Concession agreement, Casino Magic Argentina, net 7,117 7,591
Debt issuance costs, net 25,300 12,105
Other assets 15,682 17,187
---------- ----------
$1,008,876 $ 891,339
========== ==========
_______________________________________________________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 15,466 $ 20,970
Accrued interest 25,755 16,741
Other accrued liabilities 52,853 46,541
Accrued compensation 20,194 17,819
Gaming liabilities 8,998 8,913
Racing liabilities 17,045 2,395
Current portion of notes payable 8,312 11,564
---------- ----------
Total current liabilities 148,623 124,943
Notes payable, less current maturities 603,702 527,619
Deferred tax liabilities 1,565 400
Other liabilities 3,649 3,649
---------- ----------
Total liabilities 757,539 656,611
Minority interests 3,933 3,752
Stockholders' Equity:
Capital stock --
Preferred - $1.00 par value, authorized 250,000 shares;
none issued and outstanding in 1999 and 1998 0 0
Common - $0.10 par value, authorized 40,000,000 shares;
25,970,358 and 25,800,069 shares issued and outstanding in 1999 and 1998 2,597 2,580
Capital in excess of par value 220,651 218,375
Retained earnings 24,182 10,338
Accumulated other comprehensive loss (26) (317)
---------- ----------
Total stockholders' equity 247,404 230,976
---------- ----------
$1,008,876 $ 891,339
========== ==========
- --------------------
See accompanying condensed notes to the 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,
----------------------------------- ---------------------------------
1999 1998 1999 1998
------------- ----------------- ------------ --------------
(in thousands, except per share data - unaudited)
Revenues:
Gaming $144,914 $ 59,357 $285,305 $114,706
Racing 28,962 26,845 38,741 36,714
Food and beverage 12,030 8,293 21,701 13,862
Hotel and recreational vehicle park 3,032 449 5,700 725
Truck stop and service station 4,546 3,723 7,534 6,546
Other income 6,045 4,458 12,546 8,729
-------- -------- -------- --------
199,529 103,125 371,527 181,282
-------- -------- -------- --------
Expenses:
Gaming 79,121 31,349 156,499 63,316
Racing 10,023 10,213 15,378 15,682
Food and beverage 14,108 10,023 25,763 17,536
Hotel and recreational vehicle park 1,526 160 2,866 287
Truck stop and service station 4,142 3,421 6,900 5,987
General and administrative 37,966 21,931 73,112 42,028
Other 4,823 1,839 7,277 3,575
Depreciation and amortization 13,835 6,494 27,202 13,049
Indiana pre-opening 802 93 1,509 93
REIT restructuring 0 0 0 469
-------- -------- -------- --------
166,346 85,523 316,506 162,022
-------- -------- -------- --------
Operating income 33,183 17,602 55,021 19,260
Interest expense, net 15,562 4,054 30,053 7,715
-------- -------- -------- --------
Income before minority interests and income taxes 17,621 13,548 24,968 11,545
Minority interests 679 0 1,137 0
Income tax expense 7,231 5,419 9,987 4,650
-------- -------- -------- --------
Net income $ 9,711 $ 8,129 $ 13,844 $ 6,895
======== ======== ======== ========
================================================================================ ==========================
Per common share:
Net income - basic $ 0.38 $ 0.31 $ 0.54 $ 0.26
Net income - diluted $ 0.37 $ 0.31 $ 0.54 $ 0.26
Number of shares - basic 25,871 26,285 25,836 26,281
Number of shares - diluted 26,129 26,428 25,836 26,771
___________
See accompanying condensed notes to the consolidated financial statements.
2
Hollywood Park, Inc.
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30,
---------------------------------------
1999 1998
---- ----
(in thousands - unaudited)
Cash flows from operating activities:
Net income $ 13,844 $ 6,895
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization 27,202 13,049
Amortization of financing costs and bond premium 1,354 0
Increase in restricted cash (17,664) (5,771)
Increase in prepaid expenses and other assets (4,527) (1,681)
(Decrease) increase in accounts payable (5,504) 736
Increase in accrued interest 9,014 221
Increase in accrued liabilities 6,312 6,961
Increase in accrued compensation 2,375 1,303
Increase in racing liabilities 14,650 11,547
All other, net 3,657 (6,544)
-------- --------
Net cash provided by operating activities 50,713 26,716
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net (19,705) (26,407)
Receipts from sale of property, plant and equipment 679 596
Principal collected on notes receivable 4,744 1,027
Note receivable, HP Yakama investment 0 (7,636)
Purchase of short term investments (12,964) (3,430)
Payment to buy-out minority interest in Crystal Park LLC 0 (1,946)
--------- --------
Net cash used in investing activities (27,246) (37,796)
--------- --------
Cash flows from financing activities:
Proceeds from secured Bank Credit Facility 17,000 30,000
Payment of secured Bank Credit Facility (287,000) 0
Payment on notes payable (6,234) (2,382)
Redemption of Boomtown 11.5% First Mortgage Notes 0 (1,253)
Proceeds from issuance of 9.25% Notes 350,000 0
Common stock options exercised 1,672 1,045
Increase in debt issuance costs (15,309) 0
--------- --------
Net cash provided by financing activities 60,129 27,410
--------- --------
Increase in cash and cash equivalents 83,596 16,330
Cash and cash equivalents at beginning of the period 43,934 23,749
--------- --------
Cash and cash equivalents at the end of the period $ 127,530 $ 40,079
========= ========
________
See accompanying condensed notes to the consolidated financial statements.
3
Hollywood Park, Inc.
Condensed 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 company that owns and/or operates eight casinos, two pari-
mutuel horse racing facilities (one of which is the subject of a pending sale
transaction more fully described below), and two card club casinos at locations
in Nevada, Mississippi, Louisiana, California, Arizona and Argentina. Hollywood
Park owns and operates, through its Boomtown, Inc. ("Boomtown") subsidiary,
land-based, dockside and riverboat gaming operations in Verdi, Nevada ("Boomtown
Reno"), Biloxi, Mississippi ("Boomtown Biloxi") and Harvey, Louisiana ("Boomtown
New Orleans"), respectively. As of the Company's October 15, 1998 acquisition of
Casino Magic Corp. ("Casino Magic"), Hollywood Park owns and operates dockside
gaming casinos in the cities of Bay St. Louis and Biloxi, Mississippi ("Casino
Magic Bay St. Louis" and "Casino Magic Biloxi"); a dockside riverboat gaming
casino in Bossier City, Louisiana ("Casino Magic Bossier City"); and is a 51%
partner in two land-based casinos in Argentina ("Casino Magic Argentina").
Casino Magic's results of operations were not consolidated with the Company
prior to October 15, 1998, thus generating significant variances when comparing
the 1999 financial results with those of 1998. Hollywood Park also owns two card
club casinos in California, both located in the Los Angeles metropolitan area.
The Hollywood Park-Casino is operated by the Company, and located on the same
property as the Hollywood Park Race Track. The Crystal Park Hotel and Casino
(the "Crystal Park Casino") is owned by the Company and is leased to an
unaffiliated operator. The Company's premier thoroughbred racing facilities
include the Hollywood Park Race Track, which the Company has owned for over 60
years, and Turf Paradise, Inc. ("Turf Paradise"), located in Phoenix, Arizona.
The Hollywood Park Race Track and Hollywood Park-Casino are subject to pending
sales to Churchill Downs, Inc. (see Note 2). The Company is in the initial
construction stages of a hotel and casino resort in Indiana (the "Belterra
Resort and Casino"-see Note 3).
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, as filed with the Securities and
Exchange Commission, for the year ended December 31, 1998. 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
1998 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 include
the accounts of Hollywood Park, Inc. and its subsidiaries. All inter-company
transactions have been eliminated.
Gaming License In May 1996, Casino Magic acquired Crescent City Capital
Development Corp., which included the Louisiana state gaming license to conduct
the gaming operations of Casino Magic Bossier City. Casino Magic allocated a
portion of the purchase price to the Louisiana state gaming license, which is
being amortized on a straight line basis, over twenty-five years.
4
Concession Agreement In December 1994, Casino Magic acquired a twelve-year
concession agreement to operate the two Casino Magic Argentina casinos, and
capitalized the costs related to obtaining the concession agreement. The costs
are being amortized on a straight line basis, over the twelve-year life of the
concession agreement.
Goodwill The majority of goodwill is being amortized over 40 years, with the
balance being amortized over fifteen to twenty years.
Racing Revenues and Expenses The Company recorded pari-mutuel revenues,
admissions, food and beverage and other racing income associated with racing on
a daily basis, except for prepaid admissions, which were recorded ratably over
the racing season. Expenses associated with racing revenues were charged against
income in those periods in which racing revenues were recognized. Other expenses
were recognized as they occurred throughout the year.
Gaming Revenue and Promotional Allowances Gaming revenues at the Boomtown and
Casino Magic properties consisted of the difference between gaming wins and
losses, or net win from gaming activity, and at the Hollywood Park-Casino
consisted of fees collected from patrons on a per seat or per hand basis.
Revenues in the accompanying statements of operations exclude the retail value
of food and beverage, hotel rooms and other items provided to patrons on a
complimentary basis. The estimated cost of providing these promotional
allowances (which is included in gaming expenses) during the three months ended
June 30, 1999 and 1998, was $10,790,000 and $3,571,000, respectively and for the
six months ended June 30, 1999 and 1998 was $22,226,000 and $7,477,000,
respectively. The amounts for the three and six months ended June 30, 1998 are
exclusive of the promotional allowances for Casino Magic.
Comprehensive Income Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130") 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 gains as other comprehensive income in the
accompanying financial statements. Comprehensive income was computed as follows:
For the three months ended
June 30,
-----------------------------------------
1999 1998
-------------- -----------------
(in thousands, unaudited)
Net income $9,711 $8,129
Other comprehensive income:
Unrealized gain on securities 273 8
-------------- --------------
Comprehensive income $9,984 $8,137
============== ==============
For the six months ended
June 30,
------------------------------------------
1999 1998
------------------- ------------------
(in thousands, unaudited)
Net income $13,844 $6,895
Other comprehensive income:
Unrealized gain on securities 291 83
--------------- --------------
Comprehensive income $14,135 $6,978
=============== ==============
5
Capitalized Interest During the three and six months ended June 30, 1999, the
Company capitalized interest related to construction projects of approximately
$135,000 and $846,000, respectively. 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.
Earnings Per Share Basic earnings per share were computed by dividing net
income attributable to common shareholders 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 exercise of
stock options.
Restricted Cash Restricted cash as of June 30, 1999 and December 31, 1998, was
for amounts due to horsemen for purses, stakes and awards.
Cash Flows Cash and cash equivalents consist of certificates of deposit and
investment grade commercial paper issued by major corporations and financial
institutions that are highly liquid and have original maturities of up to one
year, and maturities, from the balance sheet date, of three months or less. Cash
equivalents are carried at cost, which approximates market value.
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.
Reclassifications Certain reclassifications have been made to the 1998
balances to be consistent with the 1999 financial statement presentation.
Note 2 - Sale of California Race Track and Casino
On May 6, 1999, the Company announced that it had entered into a definitive
agreement with Churchill Downs, Inc. ("Churchill Downs") to sell for cash both
the Hollywood Park Race Track and Hollywood Park-Casino. Churchill Downs will
acquire 240 acres of the Company's 378 acres of real estate related to the
Hollywood Park racing operations. Churchill Downs will lease the Hollywood Park-
Casino to the Company for an annual lease payment of $3,000,000 and the Company
expects to sub-lease the card club casino to an unaffiliated third party
operator.
The sales prices of the Hollywood Park Race Track and Hollywood Park-Casino,
totaling $140,000,000, are to be agreed upon prior to the closing of the
transaction. Based upon preliminary estimates, the Company believes the pre-tax
net gain (after selling expenses, write-off of related goodwill and certain
sale-leaseback accounting adjustments) will be between $42,000,000 and
$46,000,000. Federal and state income taxes related to these transactions are
expected to approximate $25,000,000.
The sales are expected to close on August 31, 1999, however, there are no
assurances that the sales transactions will be completed.
Revenues for the six months ended June 30, 1999, for Hollywood Park Race Track
and Hollywood Park-Casino were $34,212,000 and $29,015,000, respectively.
Operating income for the six months ended June 30, 1999, for Hollywood Park Race
Track and Hollywood Park-Casino was $8,809,000 and $3,567,000, respectively.
(See the Company's Annual Report on Form 10K for the years ended 1998, 1997 and
1996 for additional financial results and a description of these businesses.) In
the event the proposed sales transactions to Churchill Downs are completed, such
revenues and operating income will not continue. The Company expects to receive
net rental income (in excess of the lease payment to Churchill Downs) for the
card club casino from the operator.
6
Note 3 - Belterra Resort and Casino
In September 1998, the Indiana Gaming Commission approved the Company to receive
the last available license to conduct riverboat gaming operations on the Ohio
River in Indiana for the Belterra Resort and Casino. Hollywood Park owns 97% of
the Belterra Resort and Casino, with the remaining 3% held by a non-voting local
partner.
On July 14, 1999, the Company broke ground on the Belterra Resort and Casino,
which will be located in the city of Vevay, in Switzerland County, which is
approximately 35 miles southwest of Cincinnati, Ohio and will be the gaming site
most readily accessible to major portions of northern and central Kentucky,
including the city of Lexington.
The Company plans to spend approximately $165,000,000 in construction costs
(including land but excluding capitalized interest, pre-opening expenses,
organizational expenses and community grants) on the Belterra Resort and Casino,
which will feature a cruising riverboat containing over 1,800 gaming positions,
a 300 plus room hotel, several restaurants, retail areas, a 1,000 seat
entertainment facility, structured parking and a complete spa facility, as well
as an 18-hole championship golf course. The project is scheduled to open in late
summer 2000. All pre-opening costs for the Belterra Resort and Casino are being
expensed as they are incurred.
Note 4 - Acquisition of Casino Magic Corp.
On October 15, 1998, Hollywood Park acquired Casino Magic, Inc. (the "Casino
Magic Merger"). Hollywood Park paid cash of approximately $80,904,000 for Casino
Magic's common stock. At the date of the acquisition, Hollywood Park had
purchased 792,900 common shares of Casino Magic on the open market, at a total
cost of approximately $1,615,000. Hollywood Park paid $2.27 per share for the
remaining 34,929,224 shares of Casino Magic common stock outstanding.
The Casino Magic Merger was accounted for under the purchase method of
accounting for a business combination. The Company has performed a preliminary
purchase price allocation and will finalize this allocation in 1999. The
purchase price of the Casino Magic Merger was allocated to identifiable assets
acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. Assets acquired and liabilities assumed were, when
necessary, written up or down to their fair market values based on financial
analyses, which considered the impact of general economic, financial and market
conditions. The Casino Magic Merger generated approximately $43,284,000 of
excess acquisition cost over the recorded value of the net assets acquired, all
of which was allocated to goodwill, and is being amortized over 40 years. The
amortization of this goodwill is not deductible for income tax purposes.
Note 5 - Short Term Investments
At June 30, 1999, short term available for sale investments consisted of
investments in equity securities of approximately $3,666,000 (inclusive of an
unrealized gain of approximately $1,270,000) and commercial paper of
$12,477,000. The commercial paper consists of investment grade instruments
issued by major corporations and financial institutions that are highly liquid
and have original maturities of up to one year, and maturities, from the balance
sheet date, of between three months and one year. Commercial paper held as short
term investments are carried at cost, which approximates market value.
At December 31, 1998, short term available for sale investments consisted of
investments in equity securities of approximately $3,179,000 (inclusive of an
unrealized gain of approximately $407,000).
7
Note 6 - Property, Plant and Equipment
Property, plant and equipment held as of June 30, 1999, (including those held
pending a sale to Churchill Downs, see Note 2) and December 31, 1998, consisted
of the following:
June 30, December 31,
1999 1998
--------------------- ---------------------
(unaudited)
(in thousands)
Land and land improvements $141,412 $141,536
Buildings 433,101 393,200
Equipment 191,240 174,270
Vessels 76,614 76,605
Construction in progress 5,273 46,297
--------------------- ---------------------
847,640 831,908
Less accumulated depreciation 250,087 228,996
--------------------- ---------------------
$597,553 $602,912
===================== =====================
Note 7 - Long Term Debt
Notes payable as of June 30, 1999, and December 31, 1998, consisted of the
following:
June 30, December 31,
1999 1998
--------------------- ---------------------
(unaudited)
(in thousands)
Secured notes payable, Bank Credit Facility $ 0 $270,000
Hollywood Park Unsecured 9.25% Notes 350,000 0
Hollywood Park Unsecured 9.5% Notes 125,000 125,000
Casino Magic 13% Notes (a) 120,750 121,685
Secured notes payable, other 13,564 16,569
Unsecured notes payable 2,435 5,288
Capital lease obligations 265 641
----------------------- ---------------------
612,014 539,183
Less current maturities 8,312 11,564
----------------------- ---------------------
$603,702 $527,619
======================= =====================
(a) Includes a write up to fair market value (net of amortization),
as of the October 15, 1998, acquisition of Casino Magic, of
$7,875,000 and $8,810,000 as of June 30, 1999, and December 31,
1998, respectively, as required under the purchase accounting
method of accounting for a business combination.
Secured Notes Payable, Bank Credit Facility On October 14, 1998, the Company
executed the Amended and Restated Reducing Revolving Loan Agreement with a bank
syndicate led by Bank of America National Trust and Savings Association NT&SA
("Bank of America") (the "Bank Credit Facility") for up to $300,000,000, with an
option to increase this amount to $375,000,000. On June 8, 1999 the Company
executed Amendment No. 1 (the "Amendment") to the Bank Credit Facility. The
Amendment adjusted key financial measurement ratios and clarified certain
definitions in light of the pending sale of the Hollywood Park Race Track and
Hollywood Park-Casino to Churchill Downs (see Note 2) and the increased
construction activity at the Belterra Resort and Casino (see Note 3). In
addition, effective May 22, 1999, the Amendment reduced the commitment to
$200,000,000 with an option to increase this amount to $300,000,000. The Bank
Credit Facility also provides for sub-facilities for letters of credit up to
$30,000,000, and swing line loans of up to $10,000,000.
8
Unsecured 9.25% Notes In February 1999, Hollywood Park issued $350,000,000
aggregate principal amount of Series A 9.25% Senior Subordinated Notes due 2007
(the "Series A Notes"). On May 6, 1999, the Company completed a registered
exchange offer for the Series A Notes, pursuant to which all $350,000,000
principal amount of the Series A Notes were exchanged by the holders for
$350,000,000 aggregate principal amount of Series B 9.25% Senior Subordinated
Notes due 2007, of the Company (the "Series B Notes"), which were registered
under the Securities Act on Form S-4. The Series A Notes and the Series B Notes
are collectively referred to as the "9.25% Notes".
The 9.25% Notes are redeemable, at the option of the Company, in whole or in
part, on or after February 15, 2003, at a premium to face amount, plus accrued
interest, as follows: (a) February 15, 2003 at 104.625%; (b) February 15, 2004
at 103.083%; (c) February 15, 2005 at 101.542%; and (d) February 15, 2006 and
thereafter at 100%. The 9.25% Notes are unsecured obligations of Hollywood Park,
guaranteed by all other material restricted subsidiaries of Hollywood Park
excluding certain Casino Magic subsidiaries, principally Casino Magic of
Louisiana, Corp. (Casino Magic Bossier City) and the Casino Magic Argentina
subsidiaries.
In February 1999, Hollywood Park received net proceeds of approximately
$339,900,000 from the 9.25% Note offering. Of these proceeds, Hollywood Park
used $287,000,000 to repay all outstanding borrowings under the Bank Credit
Facility. The remaining proceeds were invested in short-term investments and are
expected to be used to fund Hollywood Park's capital expenditures, retire other
debt and for other corporate purposes.
The indenture governing the 9.25% Notes contains certain covenants limiting the
ability of the Company and its restricted subsidiaries to incur additional
indebtedness, issue preferred stock, pay dividends or make certain
distributions, repurchase equity interests or subordinated indebtedness, create
certain liens, enter into certain transactions with affiliates, sell assets,
issue or sell equity interests in its subsidiaries, or enter into certain
mergers and consolidations.
Unsecured 9.5% Notes In August 1997, Hollywood Park and Hollywood Park
Operating Company (a wholly owned subsidiary of Hollywood Park) co-issued
$125,000,000 aggregate principal amount of 9.5% Notes. The 9.5% 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 9.5% 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 excluding certain Casino Magic subsidiaries, principally
Casino Magic of Louisiana, Corp. (Casino Magic Bossier City) and the Casino
Magic Argentina subsidiaries.
On January 29, 1999, Hollywood Park received the required number of consents to
modify selected covenants associated with the 9.5% Notes. Among other things,
the modifications lowered the required minimum consolidated coverage ratio for
debt assumption to 2.00:1.00 and increased the size of Hollywood Park's allowed
borrowings under the Bank Credit Facility. The Company paid a consent fee of
$50.00 per $1,000 principal amount of the 9.5% Notes, as well as other costs, or
a total cost of approximately $6,781,000, inclusive of transaction related
expenses.
The indenture governing the 9.5% Notes contains certain covenants that, among
other things, limit the ability of Hollywood Park, Hollywood Park Operating
Company and their restricted subsidiaries to incur additional indebtedness and
issue preferred stock, pay dividends or make other distributions, repurchase
equity interests or subordinated indebtedness, create certain liens, enter into
certain transactions with affiliates, sell assets, issue or sell equity
interests in their respective subsidiaries or enter into certain mergers and
consolidations.
9
Casino Magic 13% Notes In August 1996, Casino Magic of Louisiana, Corp. (owner
of Casino Magic Bossier City), a wholly owned subsidiary of Jefferson Casino
Corporation, which is a wholly owned subsidiary of Casino Magic, issued
$115,000,000 in aggregate principal amount of 13% First Mortgage Notes (the
"Casino Magic 13% Notes"), with contingent interest at 5% of Casino Magic
Bossier City's adjusted consolidated cash flow (as defined under the indenture
governing these notes). Although no contingent interest has previously been paid
to note holders (as the adjusted fixed charge coverage ratio as defined had not
previously been met), contingent interest of $1,298,000 (as calculated for the
twelve month period ended June 30, 1999) is expected to be paid in connection
with the scheduled interest payment due on August 15, 1999. As of June 30, 1999
contingent interest of $2,760,000 has been accrued, which amount represents the
accrued contingent interest since the notes were issued in 1996.
The Casino Magic 13% Notes are secured by a first priority lien and security
interest in substantially all of the assets of Casino Magic Bossier City, and
Jefferson Casino Corporation guarantees the Casino Magic 13% Notes, and the
guarantee is secured by all of the assets of Jefferson Casino Corporation
including all of the capital stock of Casino Magic of Louisiana, Corp. The
Casino Magic 13% Notes are redeemable, in whole or in part, on or after August
15, 2000, at a premium to face amount, plus accrued interest, as follows: (a)
August 15, 2000, at 106.5%; (b) August 15, 2001, at 104.332%; and (c) August 15,
2002, and thereafter at 102.166%.
The indenture governing the Casino Magic 13% Notes contains certain covenants
limiting the ability of Casino Magic of Louisiana, Corp. and its subsidiaries to
engage in any line of business other than the current gaming operations of
Casino Magic Bossier City and incidental related activities, to borrow funds or
otherwise become liable for additional debt, to pay dividends, issue preferred
stock, make investments and certain types of payments, to grant liens on its
property, enter into mergers or consolidations, or to enter into certain
specified transactions with affiliates.
Note 8 - Stock Option Compensation
Gaming Executive Options As discussed in the Annual Report on Form 10K, on
September 10, 1998, the Company granted 817,500 stock options (625,000 at an
exercise price of $10.1875 and 192,500 at an exercise price of $18.00) outside
of the Company's 1993 and 1996 Stock Option Plans to four gaming executives that
were hired on January 1, 1999. Of these grants, 613,125 (420,625 at an exercise
price of $10.1875 and 192,500 at an exercise price of $18.00) were made subject
to shareholder approval, which approval was granted at the shareholder meeting
held May 25, 1999 (the "Measurement Date"). Accounting Principles Board Opinion
No. 25 requires that compensation be determined as of the Measurement Date based
on the excess of the quoted market price over the exercise price of the stock
and charged over the service period of the executives in their employment
agreements or option vesting period, whichever is shorter. Compensation related
to these options for the six months ended June 30, 1999 was $621,000. There will
be an additional monthly charge of approximately $35,000 until the shorter of,
when the options are fully vested, or the executives are no longer employees.
Director Options and Proposed New Interpretation of APB Opinion No. 25 The
Financial Accounting Standards Board ("FASB") issued an Exposure Draft on March
31, 1999 in connection with a proposed new interpretation of APB Opinion No. 25.
The FASB Exposure Draft proposes that independent members of an entity's board
of directors are not employees and therefore stock compensation granted to
independent directors is excluded from the scope of APB Opinion No. 25. The FASB
has proposed that the effective date would be the issuance date of the new
interpretation (expected to be in September 1999) and that the interpretation
would cover events occurring after December 15, 1998.
10
On December 16, 1998, the Company granted 16,000 stock options to independent
members of its board of directors at $8.75 per share. If the Exposure Draft is
adopted in its present form, the Company will charge to expense the value of the
16,000 options granted to the independent members of its board of directors in
the quarter of adoption of the Exposure Draft.
Note 9 - Litigation
On May 9, 1999, a bus owned and operated by Custom Bus Charters, Inc. was
involved in an accident in New Orleans, Louisiana while en route to Casino Magic
in Bay St. Louis, Mississippi. To date, multiple deaths and numerous injuries
are attributed to this accident and the Company's subsidiaries, Casino Magic
Corp. and/ or Mardi Gras Casino Corp., together with several other defendants,
have been named in thirty (30) lawsuits, each seeking unspecified damages due to
the deaths and injuries sustained in this accident. While the Company cannot
predict the outcome of the litigation, the Company believes Casino Magic is not
liable for any damages arising from this accident and the Company and its
insurers intend to vigorously defend these actions.
The Company is party to a number of other pending legal proceedings, though
management does not expect the outcome of such proceedings, either individually
or in the aggregate, will have a material effect on Hollywood Park's financial
position or results of operations.
11
Note 10 - Consolidating Condensed Financial Information
Hollywood Park's subsidiaries (excluding non-material subsidiaries) have fully
and unconditionally guaranteed the payment of all obligations under the 9.25%
Notes and the 9.5% Notes. Separate financial statements and other disclosures
regarding the subsidiary guarantors are not included herein because management
has determined that such information is not material to investors. In lieu
thereof, the Company includes the following:
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and six months ended June 30, 1999 and 1998 and balance sheets as
of June 30, 1999 and December 31, 1998
Hollywood
Park
Operating (b) (c)
Hollywood Co. (a) Wholly Non Wholly
Park, Inc. (Co-Obligor Wholly Owned Owned Consolidating
Guarantor 9.5% Notes/ Owned Non- Non- And Hollywood
(Parent Guarantor Guarantor Guarantor Guarantor Eliminating Park, Inc.
Obligor) 9.25% Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------- ------------- ------------- -------------- ------------
(in thousands)
Balance Sheet
- --------------
As of June 30, 1999
Current assets $ 95,324 $25,481 $ 72,924 $ 19,488 $ 5,790 $ 0 $ 219,007
Property, plant and
Equipment, net 64,243 20,611 421,101 90,144 1,454 0 597,553
Other non-current assets 50,560 0 38,238 39,189 7,123 57,206 192,316
Investment in subsidiaries 314,039 17,895 171,157 0 0 (503,091) 0
Inter-company 267,053 25,997 324,369 6,384 0 (623,803) 0
-------- ------- ---------- -------- ------- ----------- ----------
$791,219 $89,984 $1,027,789 $155,205 $14,367 ($1,069,688) $1,008,876
======== ======= ========== ======== ======= =========== ==========
Current liabilities $ 32,871 $27,880 $ 67,169 $ 19,013 $ 2,162 ($472) $ 148,623
Notes payable, long term 482,389 178 8,243 112,892 0 0 603,702
Other non-current
liabilities 1,068 0 21,984 (9,454) 3,353 (11,737) 5,214
Inter-company 27,487 27,919 543,323 17,582 7,492 (623,803) 0
Minority interest 0 0 5,967 0 0 (2,034) 3,933
Equity (deficit) 247,404 34,007 381,103 15,172 1,360 (431,642) 247,404
-------- ------- ---------- -------- ------- ----------- ----------
$791,219 $89,984 $1,027,789 $155,205 $14,367 ($1,069,688) $1,008,876
======== ======= ========== ======== ======= =========== ==========
Statement of Operations
- -----------------------
For the three months
ended June 30, 1999
Revenues:
Gaming $ 12,398 $ 0 $ 93,496 $ 33,721 $ 5,299 $ 0 $144,914
Racing 0 25,831 3,131 0 0 0 28,962
Food and beverage 1,537 0 9,507 641 345 0 12,030
Equity in subsidiaries 27,138 194 22,163 0 0 (49,495) 0
Other 1,055 536 11,248 777 7 0 13,623
-------- ------- -------- -------- ------- -------- --------
42,128 26,561 139,545 35,139 5,651 (49,495) 199,529
-------- ------- -------- -------- ------- -------- --------
Expenses:
Gaming 6,550 0 50,278 20,898 1,395 0 79,121
Racing 0 8,694 1,329 0 0 0 10,023
Food and beverage 2,589 0 10,382 759 378 0 14,108
Administrative and other 6,636 5,222 30,888 4,952 1,561 0 49,259
Depreciation and
amortization 1,130 1,029 8,844 2,065 395 372 13,835
-------- ------- -------- -------- ------- -------- --------
16,905 14,945 101,721 28,674 3,729 372 166,346
-------- ------- -------- -------- ------- -------- --------
Operating income (loss) 25,223 11,616 37,824 6,465 1,922 (49,867) 33,183
Interest expense 8,992 2,180 (84) 4,541 (67) 0 15,562
-------- ------- -------- -------- ------- -------- --------
Income (loss) before
minority interest and taxes 16,231 9,436 37,908 1,924 1,989 (49,867) 17,621
Minority interests 0 0 0 0 0 679 679
Income tax expense 6,485 0 0 0 746 0 7,231
-------- ------- -------- -------- ------- -------- --------
Net income (loss) $ 9,746 $ 9,436 $ 37,908 $ 1,924 $ 1,243 ($50,546) $ 9,711
======== ======= ======== ======== ======= ========= ========
12
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and six months ended June 30, 1999 and 1998 and balance sheets
as of June 30, 1999 and December 31, 1998
Hollywood
Park
Operating (b) (c)
Hollywood Co. (a) Wholly Non Wholly
Park, Inc. (Co-Obligor Wholly Owned Owned Consolidating
Guarantor 9.5% Notes/ Owned Non- Non- And Hollywood
(Parent Guarantor Guarantor Guarantor Guarantor Eliminating Park, Inc.
Obligor) 9.25% Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
---------- ------------ ------------ ------------ ------------ ------------- ------------
(in thousands)
Statement of Operations
- -----------------------
For the six months
ended June 30, 1999
Revenues:
Gaming $ 24,254 $ 0 $184,715 $66,119 $10,217 $ 0 $285,305
Racing 0 29,673 9,068 0 0 0 38,741
Food and beverage 2,763 0 16,964 1,289 685 0 21,701
Equity in subsidiaries 42,003 56 44,275 0 0 (86,334) 0
Other 2,349 1,451 20,321 1,583 76 0 25,780
-------- ------- -------- ------- ------- --------- --------
71,369 31,180 275,343 68,991 10,978 (86,334) 371,527
-------- ------- -------- ------- ------- --------- --------
Expenses:
Gaming 13,050 0 99,697 40,957 2,795 0 156,499
Racing 0 11,586 3,792 0 0 0 15,378
Food and beverage 5,018 0 18,570 1,495 680 0 25,763
Administrative and other 12,540 8,727 57,749 9,634 3,014 0 91,664
Depreciation and
amortization 2,251 2,059 17,428 3,954 767 743 27,202
-------- ------- -------- ------- ------- --------- --------
32,859 22,372 197,236 56,040 7,256 743 316,506
-------- ------- -------- ------- ------- --------- --------
Operating income (loss) 38,510 8,808 78,107 12,951 3,722 (87,077) 55,021
Interest expense 15,874 5,432 (315) 9,129 (67) 0 30,053
-------- ------- -------- ------- ------- --------- --------
Income (loss) before
minority interest and taxes 22,636 3,376 78,422 3,822 3,789 (87,077) 24,968
Minority interests 0 0 0 0 0 1,137 1,137
Income tax expense 8,728 0 10 0 1,249 0 9,987
-------- ------- -------- ------- ------- --------- --------
Net income (loss) $ 13,908 $ 3,376 $ 78,412 $ 3,822 $ 2,540 ($88,214) $ 13,844
======== ======= ======== ======= ======= ========= ========
Statement of Cash Flows:
- -----------------------
For the six months
ended June 30, 1999
Net cash provided by
operating activities $ 4,895 $ 7,553 $ 21,069 $ 15,798 $ 1,398 $ 0 $ 50,713
Net cash used in investing
activities (10,429) (770) (14,739) (1,079) (229) 0 (27,246)
Net cash provided by
(used in) financing
activities 70,009 (5,770) 3,545 (7,655) 0 0 60,129
13
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and six months ended June 30, 1999 and 1998 and balance sheets
as of June 30, 1999 and December 31, 1998
Hollywood
Park
Operating (b) (c)
Hollywood Co. (a) Wholly Non Wholly
Park, Inc. (Co-Obligor Wholly Owned Owned Consolidating
Guarantor 9.5% Notes/ Owned Non- Non- And Hollywood
(Parent Guarantor Guarantor Guarantor Guarantor Eliminating Park, Inc.
Obligor) 9.25% Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------- ------------- ------------- -------------- ------------
(in thousands)
Statement of Operations
- ------------------------
For the three months
ended June 30, 1998
Revenues:
Gaming $11,713 $ 0 $33,404 $14,240 $ 0 $ 0 $ 59,357
Racing 0 24,084 2,761 0 0 0 26,845
Food and beverage 1,236 0 5,734 1,323 0 0 8,293
Equity in subsidiaries 17,545 292 (5,018) 0 0 (12,819) 0
Inter-company 0 0 1,345 0 0 (1,345) 0
Other 1,010 588 6,241 791 0 0 8,630
------- ------- ------- ------- ----- --------- --------
31,504 24,964 44,467 16,354 0 (14,164) 103,125
------- ------- ------- ------- ----- --------- --------
Expenses:
Gaming 6,719 0 17,393 7,237 0 0 31,349
Racing 0 8,890 1,323 0 0 0 10,213
Food and beverage 2,389 0 6,002 1,632 0 0 10,023
Administrative and other 4,953 5,211 12,822 4,365 93 0 27,444
Depreciation and
amortization 1,082 987 3,469 900 0 56 6,494
------- ------- ------- ------- ----- --------- --------
15,143 15,088 41,009 14,134 93 56 85,523
------- ------- ------- ------- ----- --------- --------
Operating income (loss) 16,361 9,876 3,458 2,220 (93) (14,220) 17,602
Interest expense 957 3,125 (122) 94 0 0 4,054
Inter-company interest 0 0 0 1,345 0 (1,345) 0
------- ------- ------- ------- ----- --------- --------
Income (loss) before taxes 15,404 6,751 3,580 781 (93) (12,875) 13,548
Income tax expense 7,217 0 (1,798) 0 0 0 5,419
------- ------- ------- ------- ----- --------- --------
Net income (loss) $ 8,187 $ 6,751 $ 5,378 $ 781 $ (93) ($12,875) $ 8,129
======= ======= ======= ======= ===== ========= ========
Statement of Operations
- -----------------------
For the six months
ended June 30, 1998
Revenues:
Gaming $23,117 $ 0 $63,319 $28,270 $ 0 $ 0 $114,706
Racing 0 27,872 8,842 0 0 0 36,714
Food and beverage 2,299 0 9,077 2,486 0 0 13,862
Equity in subsidiaries 16,280 236 (1,339) 0 0 (15,177) 0
Inter-company 0 0 2,701 0 0 (2,701) 0
Other 1,897 1,466 11,166 1,471 0 0 16,000
------- ------- ------- ------- ----- --------- --------
43,593 29,574 93,766 32,227 0 (17,878) 181,282
------- ------- ------- ------- ----- --------- --------
Expenses:
Gaming 13,461 0 34,972 14,883 0 0 63,316
Racing 0 11,781 3,901 0 0 0 15,682
Food and beverage 4,751 0 9,713 3,072 0 0 17,536
Administrative and other 9,520 8,759 24,999 8,599 93 0 51,970
REIT restructuring 469 0 0 0 0 0 469
Depreciation and
amortization 2,207 1,988 6,999 1,782 0 73 13,049
------- ------- ------- ------- ----- --------- --------
30,408 22,528 80,584 28,336 93 73 162,022
------- ------- ------- ------- ----- --------- --------
Operating income (loss) 13,185 7,046 13,182 3,891 (93) (17,951) 19,260
Interest expense 1,548 6,183 (201) 185 0 0 7,715
Inter-company interest 0 0 0 2,701 0 (2,701) 0
------- ------- ------- ------- ----- --------- --------
Income (loss) before taxes 11,637 863 13,383 1,005 (93) (15,250) 11,545
Income tax expense 4,640 0 10 0 0 0 4,650
------- ------- ------- ------- ----- --------- --------
Net income (loss) $ 6,997 $ 863 $13,373 $ 1,005 ($93) ($15,250) $ 6,895
======= ======= ======= ======= ===== ========= ========
14
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and six months ended June 30, 1999 and 1998 and balance sheets
as of June 30, 1999 and December 31, 1998
Hollywood
Park
Operating (b) (c)
Hollywood Co. (a) Wholly Non Wholly
Park, Inc. (Co-Obligor Wholly Owned Owned Consolidating
Guarantor 9.5% Notes/ Owned Non- Non- And Hollywood
(Parent Guarantor Guarantor Guarantor Guarantor Eliminating Park, Inc.
Obligor) 9.25% Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------- ------------- ------------- -------------- -------------
(in thousands)
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 $ 0 ($15,177) $ 26,716
Net cash used in
investing activities (13,152) (938) (22,694) (1,012) 0 0 (37,796)
Net cash provided by
(used in) financing
activities 29,942 0 (2,886) 354 0 0 27,410
Balance Sheet
- -------------
As of December 31, 1998
Current assets $ 14,820 $ 2,574 $ 69,790 $ 17,726 $15,046 ($19,808) $100,148
Property, plant and
equipment, net 85,870 1,953 421,380 92,218 1,491 0 602,912
Other non-current assets 41,365 4,196 31,275 53,452 7,591 50,400 188,279
Investment in subsidiaries 279,442 17,839 174,141 0 0 (471,422) 0
Inter-company 252,556 144,569 303,855 0 5,012 (705,992) 0
-------- -------- ---------- -------- ------- ----------- --------
$674,053 $171,131 $1,000,441 $163,396 $29,140 ($1,146,822) $891,339
======== ======== ========== ======== ======= =========== ========
Current liabilities $ 11,048 $ 12,547 $ 75,529 $ 29,266 $ 5,604 ($9,051) $124,943
Notes payable, long term 279,018 125,228 10,042 118,349 0 (5,018) 527,619
Other non-current
liabilities 5,889 0 13,396 2,727 7,532 (25,495) 4,049
Inter-company 147,122 23,323 564,207 0 21,549 (756,201) 0
Minority interest 0 0 4,366 0 0 (614) 3,752
Equity 230,976 10,033 332,901 13,054 (5,545) (350,443) 230,976
-------- -------- ---------- -------- ------- ----------- --------
$674,053 $171,131 $1,000,441 $163,396 $29,140 ($1,146,822) $891,339
======== ======== ========== ======== ======= =========== ========
(a) All of the subsidiaries mentioned in this footnote (a) became wholly owned
subsidiaries of the Company at different points in time, in some cases,
during the periods presented. All of such subsidiaries were guarantors on
both the 9.5% Notes and the 9.25% Notes. The following subsidiaries were
treated as guarantors for all periods presented: Turf Paradise, Inc.,
Hollywood Park Food Services, Inc., Hollywood Park Fall Operating Company,
and with respect to the 9.25% Notes, Hollywood Park Operating Company (it
is a co-obligor on the 9.5% Notes), HP Casino, Inc., HP/Compton, Inc., HP
Yakama, Inc., and HP Consulting, Inc., Boomtown, Inc., Boomtown Hotel &
Casino, Inc., Bay View Yacht Club, Inc., Louisiana I Gaming, Louisiana
Gaming Enterprises, Inc., and Boomtown Hoosier, Inc. The following
subsidiaries were treated as guarantors for periods beginning on October
15, 1998, when the Casino Magic Merger was consummated: Casino Magic Corp.,
Mardi Gras Casino Corp., Biloxi Casino Corp., Bay St. Louis Casino Corp.,
Casino Magic Finance Corp., Casino Magic American Corp., and Casino One
Corporation. Crystal Park Hotel and Casino Development Company, LLC and
Mississippi I Gaming L.P. were treated as wholly owned guarantors for
periods beginning in January 1998 and October 1998, respectively, when the
Company acquired the outstanding minority interests therein and they became
wholly owned subsidiaries.
(b) The following wholly owned subsidiaries were not guarantors on either the
9.5% Notes or the 9.25% Notes and became subsidiaries of the Company on
October 15, 1998, when the Casino Magic Merger was consummated: Jefferson
Casino Corporation, Casino Magic of Louisiana, Corp., and Casino Magic
Management Services, Corp.
(c) The following non-wholly owned subsidiaries were not guarantors on either
the 9.5% notes or the 9.25% Notes and became subsidiaries of the Company on
October 15, 1998, when the Casino Magic Merger was consummated: Casino
Magic Neuquen S.A. and its subsidiary, Casino Magic Support Services S.A.
(d) The following majority owned subsidiaries of the Company were guarantors on
both the 9.5% Notes and the 9.25% Notes and became subsidiaries on June 30,
1997, when the Boomtown Merger was consummated: Mississippi I Gaming, L.P.
and Indiana Ventures LLC and its wholly owned subsidiaries, Switzerland
County Development Corp. and Pinnacle Gaming Development Corp. Mississippi
I Gaming, L.P., a guarantor subsidiary, became a wholly owned subsidiary in
October 1998. In addition, Crystal Park Hotel and Casino Development
Company, LLC, a guarantor subsidiary, was a majority owned subsidiary until
January 1998, when it became a wholly owned subsidiary.
15
Note 11- Subsequent Events
On July 22, 1999, the Company announced its intention to submit an application
for the fifteenth and final gaming license to be issued by the Louisiana State
Gaming Board (the "Gaming Control Board"). The Gaming Control Board has
indicated it will accept applications for such license from August 15 through
November 15, 1999, and thereafter select the applicant to whom the license is to
be issued, if an acceptable proposal is submitted. The Company's application
will be submitted during such time frame. Such application will seek approval to
operate a new riverboat casino, hotel and golf course resort complex in Lake
Charles, Louisiana.
In connection with such submittal, Hollywood Park has entered into an option
agreement with the Lake Charles Harbor and Terminal District (the "District") to
lease a 225-acre parcel from the District upon which such resort complex would
be constructed. The resort complex is anticipated to be similar in size and
scope to the Belterra Resort and Casino that is under construction in Indiana
(see Note 3). The Company estimates the cost of such project to be approximately
$150,000,000.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Forward Looking Statements and Risk Factors 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 complete the sale transactions with Churchill Downs Incorporated;
the failure to complete the sale transaction with Home Depot (discussed below);
the failure to complete or successfully operate planned expansion projects
(including the Belterra Resort and Casino); the failure to obtain adequate
financing to meet strategic goals; possible Year 2000 issues (discussed below);
the failure to adequately integrate Casino Magic into Hollywood Park's
operations; the failure to obtain or retain gaming licenses or regulatory
approvals; increased competition (particularly in Mississippi and Louisiana) by
casino operators who have more resources and have built or are building newer
and larger hotel casino resorts; severe weather conditions; the failure to meet
Hollywood Park's debt service obligations; and the saturation of, or other
adverse changes in, the gaming markets in which the Company 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, 1998, and the Company's Form S-4 Registration Statement dated
March 26, 1999.
Pending Sale of Hollywood Park Race Track and Hollywood Park-Casino On May 6,
1999, the Company announced that it had entered into a definitive agreement with
Churchill Downs, Inc. ("Churchill Downs") to sell for cash both the Hollywood
Park Race Track and Hollywood Park-Casino. Churchill Downs will acquire 240
acres of the Company's 378 acres of real estate related to the Hollywood Park
racing operations. Churchill Downs will lease the Hollywood Park-Casino to the
Company for an annual lease payment of $3,000,000 and the Company expects to
sub-lease the card club casino to an unaffiliated third party operator.
The sales prices of the Hollywood Park Race Track and Hollywood Park-Casino,
totaling $140,000,000, are to be agreed upon prior to the closing of the
transaction. Based upon preliminary estimates, the Company believes the pre-tax
net gain (after selling expenses, write-off of related goodwill and certain
sale-leaseback accounting adjustments) will be between $42,000,000 and
$46,000,000. Federal and state income taxes related to these transactions are
expected to approximate $25,000,000.
The sales are expected to close on August 31, 1999, however, there are no
assurances that the sales transactions will be completed.
Revenues for the six months ended June 30, 1999, for Hollywood Park Race Track
and Hollywood Park-Casino were $34,212,000 and $29,015,000, respectively.
Operating income for the six months ended June 30, 1999, for Hollywood Park Race
Track and Hollywood Park-Casino was $8,809,000 and $3,567,000, respectively.
(See the Company's Annual Report on Form 10K for the years ended 1998, 1997 and
1996 for additional financial results and a description of these businesses.)
In the event the proposed sales transactions to Churchill Downs are completed,
such revenues and operating income will not continue. The Company expects to
receive net rental income (in excess of the lease payment to Churchill Downs)
for the card club casino from the operator.
17
Proposed Expansion in Louisiana On July 22, 1999, the Company announced its
intention to submit an application for the fifteenth and final gaming license to
be issued by the Louisiana State Gaming Board (the "Gaming Control Board"). The
Gaming Control Board has indicated it will accept applications for such license
from August 15 through November 15, 1999, and thereafter select the applicant to
whom the license is to be issued, if an acceptable proposal is submitted. The
Company's application will be submitted during such time frame. Such application
will seek approval to operate a new riverboat casino, hotel and golf course
resort complex in Lake Charles, Louisiana.
In connection with such submittal, Hollywood Park has entered into an option
agreement with the Lake Charles Harbor and Terminal District (the "District") to
lease a 225-acre parcel from the District upon which such resort complex would
be constructed. The resort complex is anticipated to be similar in size and
scope to the Belterra Resort and Casino that is under construction in Indiana
(see Note 3 of the Condensed Notes to Consolidated Financial Statements). The
Company estimates the cost of such project to be approximately $150,000,000.
Pending Land Sale On July 15, 1999, the Company announced it had entered into
an agreement with Home Depot, Inc. to sell 42 acres at the Inglewood, California
location for $13 per square foot in cash. The sale is expected to close within
six months. The Company anticipates a gain, after taxes, will be recorded on
this transaction when it is completed.
Casino Magic Acquisition On October 15, 1998, Hollywood Park acquired Casino
Magic, Inc. (the "Casino Magic Merger"). Hollywood Park paid cash of
approximately $80,904,000 for Casino Magic's common stock. At the date of the
acquisition, Hollywood Park had purchased 792,900 common shares of Casino Magic
on the open market, at a total cost of approximately $1,615,000. Hollywood Park
paid $2.27 per share for the remaining 34,929,224 shares of Casino Magic common
stock outstanding.
The Casino Magic Merger was accounted for under the purchase method of
accounting for a business combination. The Company has performed a preliminary
purchase price allocation and will finalize this allocation in 1999. The
purchase price of the Casino Magic Merger was allocated to identifiable assets
acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. Assets acquired and liabilities assumed were, when
necessary, written up or down to their fair market values based on financial
analyses, which considered the impact of general economic, financial and market
conditions. The Casino Magic Merger generated approximately $43,284,000 of
excess acquisition cost over the recorded value of the net assets acquired, all
of which was allocated to goodwill, and is being amortized over 40 years. The
amortization of this goodwill is not deductible for income tax purposes.
Belterra Resort and Casino In September 1998, the Indiana Gaming Commission
approved the Company to receive the last available license to conduct riverboat
gaming operations on the Ohio River in Indiana for the Belterra Resort and
Casino. Hollywood Park owns 97% of the Belterra Resort and Casino, with the
remaining 3% held by a non-voting local partner.
On July 14, 1999, the Company broke ground on the Belterra Resort and Casino,
which will be located in the city of Vevay, in Switzerland County, which is
approximately 35 miles southwest of Cincinnati, Ohio and will be the gaming site
most readily accessible to major portions of northern and central Kentucky,
including the city of Lexington.
The Company plans to spend approximately $165,000,000 (of which at June 30,
1999, $2,000,000 had been spent) in construction costs (including land but
excluding capitalized interest, pre-opening expenses, organizational expenses
and community grants) on the Belterra Resort and Casino, which will feature a
cruising riverboat containing over 1,800 gaming positions, a 300 plus room
hotel, several restaurants, retail areas, a 1,000 seat entertainment facility,
structured parking and a complete spa facility, as well as an 18-
18
hole championship golf course. The project is scheduled to open in late summer
2000. All pre-opening costs for the Belterra Resort and Casino are being
expensed as they are incurred.
California Card Clubs By law, a corporation may operate a gambling enterprise
only if every officer, director and shareholder holds a state gambling license.
Only 5% or greater shareholders of a publicly traded racing association,
however, must hold a state gambling license. As a practical matter, therefore,
public corporations that are not qualified racing associations may not operate
gambling enterprises in California. As a result, the Crystal Park Hotel and
Casino, located on and within property owned by a subsidiary of the Company, is
leased to, and operated by, an unrelated third party. Since the Company is a
publicly trading racing association, by law it may operate the Hollywood Park-
Casino located in Inglewood, California adjacent to the Hollywood Park Race
Track. Should the Company consummate the transaction with Churchill Downs, it
will no longer be a publicly traded racing association and will no longer be
permitted under current law to operate Hollywood Park-Casino; it is anticipated
that the Company will leaseback the Hollywood Park-Casino from Churchill Downs
and then sublease it to an unaffiliated third party (see Note 2 of the Condensed
Notes to Consolidated Financial Statements).
By law, a California card club may neither bank card games nor offer certain of
the familiar games permitted in Nevada and other traditional gambling
jurisdictions, and thus does not participate in the wagers made or in the
outcome of any of the games played.
Year 2000 The Company is continuing to evaluate and resolve any potential
impact of the Year 2000 problem on the processing of date-sensitive information
by its information systems, and the information systems of vendors upon whom the
Company is dependent. The Year 2000 problem exists because computer systems and
applications were historically designed to use two digit fields (rather than
four) to designate a year, and date sensitive systems may not properly recognize
2000, which could result in miscalculations or system failures.
Hollywood Park has established a Year 2000 project team composed of individuals
from each business unit and each corporate function to identify and mitigate
Year 2000 issues, with respect to the Company's information systems, products,
facilities, suppliers and customers.
Internal Computer Systems The Company believes that its various financial
reporting software and associated hardware are Year 2000 compatible. The
Company has identified the following software and hardware applications that
have been or will need to be upgraded or replaced at a cumulative estimated cost
of $1,500,000 (of which, approximately $800,000 has been spent as of June 30,
1999): (a) point of sale cash register systems; (b) personal computer networks;
and (c) gaming patron player tracking systems. This cost estimate is based on
numerous assumptions, including the assumption that the Company has already
identified the most significant Year 2000 issues. There can be no guarantee
that these assumptions are accurate, and actual results could differ materially
from those anticipated.
External Computer Systems Both the Hollywood Park and the Turf Paradise Race
Tracks lease pari-mutuel wagering software and associated hardware, though from
different providers, which are essential to operations. The Year 2000 project
team met with each provider of the pari-mutuel wagering systems during the six
months ended June 30, 1999 and each provider assured the Company their systems
were Year 2000 compatible at such time. The Company does not have an alternative
software system to handle pari-mutuel wagering, and if the pari-mutuel wagering
service providers have mis-led the Company regarding their Year 2000 readiness,
or discover unanticipated Year 2000 issues, this would have a materially adverse
effect on the Company's operations.
The Company cannot be assured that its Year 2000 program will be effective, or
that estimates about timing and costs of completing the Year 2000 program will
be accurate, or that third party suppliers will timely resolve any or all Year
2000 problems with their systems. Any failure of a third party supplier to
timely resolve their Year 2000 issues could result in material disruption of the
Company's business. Such disruption
19
could have a materially adverse effect on Hollywood Park's business, financial
condition and results of operations.
Results of Operations
On October 15, 1998, Hollywood Park acquired Casino Magic, and accounted for the
acquisition under the purchase method of accounting for a business combination.
As required under the rules of the purchase method of accounting for a business
combination, Casino Magic's results of operations were not consolidated with
those of Hollywood Park, prior to the acquisition date, thus generating
significant variances when comparing 1999's financial results with those of
1998.
The Company's results of operations are impacted by the overall cyclical nature
of its business, including the effects of fewer gaming patrons during the winter
months at its hotel and casino operations and the live racing operations at its
race track facilities in California and Arizona. Accordingly, the results of
operations for the three and six months ended June 30, 1999 and 1998 are not
indicative of the results of operations for a full year.
Three months ended June 30, 1999 compared to the three months ended June 30,1998
- --------------------------------------------------------------------------------
Total revenues for the three months ended June 30, 1999, increased by
$96,404,000, or 93.5%, as compared to the three months ended June 30, 1998.
Approximately $86,594,000 of the increase was due to the timing of the Casino
Magic acquisition. Gaming revenues increased by $85,557,000, or 144.1%, with
$80,381,000 of the increase due to the timing of the Casino Magic acquisition
and the balance primarily due to increases at Boomtown Reno and Boomtown New
Orleans. Gaming revenues at Boomtown Reno increased by $1,921,000, primarily
due to the new marketing programs supporting the expanded hotel and casino
operations (the new hotel opened in December 1998). Gaming revenues at Boomtown
New Orleans increased by $2,948,000, primarily due to the continued growth from
the new larger riverboat placed in service in February 1998. Racing revenues
increased by $2,117,000, or 7.9%, primarily due to increased revenues at the
Hollywood Park Race Track (which is subject to a pending sale) generated from
legislation, which became effective January 1, 1999, increasing simulcasting
revenues and reducing state license fees. Food and beverage sales increased by
$3,737,000, or 45.1%, with $2,829,000 of the increase due to the timing of the
Casino Magic acquisition and the balance of the increase attributed primarily to
increases at Boomtown Reno and Boomtown Biloxi. At Boomtown Reno, food and
beverage revenues increased by $401,000, consistent with the overall growth from
the marketing programs for the hotel and casino operations. At Boomtown Biloxi,
food and beverage revenues increased by $375,000, primarily due to the increase
in the number of patrons visiting the property. Hotel and recreational vehicle
park revenues increased by $2,583,000, with $2,090,000 of the increase due to
the timing of the Casino Magic acquisition and the balance due to the hotel
expansion at Boomtown Reno. Truck stop and service station revenue increased by
$823,000, or 22.1%, primarily due to increased fuel prices at Boomtown Reno.
Other income increased by $1,587,000, or 35.6%, with $1,294,000 due to the
timing of the Casino Magic acquisition and the balance primarily due to the
Great Escape arcade which opened in July 1998 at Boomtown New Orleans.
Total operating expenses for the three months ended June 30, 1999, increased by
$80,823,000, or 94.5%, as compared to the three months ended June 30, 1998.
Approximately $71,463,000 of the increase was due to the timing of the Casino
Magic acquisition. Gaming expenses increased $47,772,000, or 152.4%, with
$47,037,000 of the increase due to the timing of the Casino Magic acquisition,
and the balance primarily due to a decrease at Boomtown Reno and an increase at
Boomtown New Orleans. Boomtown Reno gaming expenses declined by $504,000,
primarily due to a reduction in customer bus and airline junket programs and
revised marketing programs for the casino operations. Gaming expenses at
Boomtown New Orleans increased by $1,635,000, consistent with the increase in
gaming revenues. Food and beverage expenses increased by $4,085,000, or 40.8%,
with $3,082,000 of the increase due to the timing of the Casino Magic
acquisition, and the balance a result of the corresponding increases in food and
beverage sales at each of the Boomtown properties. Hotel and recreational
vehicle park increased $1,366,000, with $1,026,000 of the
20
increase due to the timing of the Casino Magic acquisition, and the balance due
to the hotel expansion at Boomtown Reno. Truck stop and service station expenses
increased by $721,000, or 21.1%, primarily due to increases in fuel costs at
Boomtown Reno. General and administrative expenses increased by $16,035,000, or
73.1%, with $11,696,000 of the increase due to the timing of the Casino Magic
acquisition. The balance of the increase in general and administrative expenses
is primarily due to certain non-recurring compensation costs, including the
stock options granted to four member of the gaming management team and severance
costs. Other expenses increased by $2,984,000, or 162.3%, including an increase
of $2,944,000 due to the timing of the Casino Magic acquisition. Depreciation
and amortization expenses increased by $7,341,000, or 113.0%, with $5,678,000 of
the increase due to the timing of the Casino Magic acquisition and the balance
due to the depreciation on the expansion projects at Boomtown Reno and Boomtown
New Orleans. Pre-opening costs for the Belterra Resort and Casino increased by
$709,000 consistent with the increasing development of the project. REIT
restructuring costs decreased by $469,000 as the Company abandoned its pursuit
of the restructuring. Net interest expense increased by $11,508,000, or 283.9%,
with $4,774,000 of the increase primarily due to the timing of the Casino Magic
acquisition and the balance due primarily to the 9.25% Notes issued in February
1999. Interest income was approximately $1,313,000 for the three months ended
June 30, 1999.
Six months ended June 30, 1999 compared to the six months ended June 30, 1998
- -----------------------------------------------------------------------------
Total revenues for the six months ended June 30, 1999, increased by
$190,245,000, or 104.9%, as compared to the six months ended June 30, 1998.
Approximately $173,547,000 of the increase was due to the timing of the Casino
Magic acquisition. Gaming revenues increased by $170,599,000, or 148.7% with
$160,693,000 of the increase due to the timing of the Casino Magic acquisition
and the balance primarily due to increases at Boomtown Reno and Boomtown New
Orleans. Gaming revenues at Boomtown Reno increased by $1,971,000, primarily
due to the new marketing programs related to hotel and casino expansion project,
while gaming revenues at Boomtown New Orleans increased by $5,627,000, primarily
due to the continued growth from the new larger riverboat placed in service in
February 1998. Racing revenues increased by $2,027,000, or 5.5%, primarily due
to increased revenues during the quarter ended June 30, 1999 at the Hollywood
Park Race Track (which is subject to a pending sale) generated from legislation
passed in September 1998, effective January 1, 1999. Food and beverage sales
increased by $7,839,000, or 56.6%, with $5,701,000 of the increase due to the
timing of the Casino Magic acquisition and the balance of the increase
attributed primarily to increases at Boomtown Reno and Boomtown Biloxi. At
Boomtown Reno, food and beverage revenues increased by $865,000, primarily due
to the hotel and casino expansion project, which opened in December 1998. At
Boomtown Biloxi, food and beverage revenues increased by $737,000, primarily due
to the increase in the number of patrons visiting the property. Hotel and
recreational vehicle park revenues increased by $4,975,000, with $4,219,000 of
the increase due to the timing of the Casino Magic acquisition and the balance
due primarily to the hotel expansion at Boomtown Reno. Truck stop and service
station revenue increased by $988,000, or 15.1%, primarily due to increased fuel
prices at Boomtown Reno. Other income increased by $3,817,000, or 43.7%, with
$2,934,000 due to the timing of the Casino Magic acquisition and the balance
primarily due to the Great Escape arcade which opened in July 1998 at Boomtown
New Orleans.
Total operating expenses for the six months ended June 30, 1999, increased by
$154,484,000, or 95.3%, as compared to the six months ended June 30, 1998.
Approximately $151,722,000 of the increase was due to the timing of the Casino
Magic acquisition. Gaming expenses increased $93,183,000, or 147.2%, including
an increase of $93,324,000 due to the timing of the Casino Magic acquisition,
and an increase of $2,782,000 at Boomtown New Orleans offset by a decrease at
Boomtown Reno. The increase in gaming expenses at Boomtown New Orleans is
consistent with the increase in gaming revenues. Boomtown Reno gaming expenses
declined by $2,507,000, due to a reduction in customer junket programs and
revised marketing programs for the casino operations. Food and beverage
expenses increased by $8,227,000, or 46.9%, with $5,997,000 of the increase due
to the timing of the Casino Magic acquisition, and the balance primarily a
result of the corresponding increases in food and beverage sales at each of the
Boomtown properties. Hotel and recreational vehicle park increased $2,579,000,
with $1,999,000 of the increase due to the timing of the
21
Casino Magic acquisition, and the balance due to the hotel expansion at Boomtown
Reno. Truck stop and service station expenses increased by $913,000, or 15.2%,
primarily due to increases in fuel costs at Boomtown Reno. General and
administrative expenses increased by $31,084,000, or 74.0%, with $24,541,000 of
the increase due to the timing of the Casino Magic acquisition. The balance of
the increase in general and administrative expenses is due to costs associated
with various expansion costs and certain non-recurring compensation costs,
including the stock options granted the gaming management team and severance
costs related to the Casino Magic Merger. Other expenses increased by
$3,702,000, or 103.6%, with $3,625,000 of the increase due to the timing of the
Casino Magic acquisition. Depreciation and amortization expenses increased by
$14,153,000, or 108.5%, with $12,580,000 of the increase due to the timing of
the Casino Magic acquisition and the balance primarily due to the depreciation
on the expansion projects at Boomtown Reno and Boomtown New Orleans. Pre-opening
costs for the Belterra Resort and Casino increased by $1,416,000 consistent with
the increasing development of the project. REIT restructuring costs decreased by
$469,000 as the Company abandoned its pursuit of the restructuring. Net interest
expense increased by $22,338,000, or 289.5%, with $9,656,000 of the increase due
to the timing of the Casino Magic acquisition and the balance primarily due to
borrowings on the Bank Credit Facility and the 9.25% Notes issued in February
1999.
Liquidity and Capital Resources
Hollywood Park's principal source of liquidity as of June 30, 1999, was cash and
cash equivalents of $127,530,000. Cash and cash equivalents increased by
$83,596,000 during the six months ended June 30, 1999. Net cash of $50,713,000
was provided by operating activities. Net cash of $27,246,000 was used in
investing activities, with cash of $19,705,000 used for capital improvements and
$12,964,000 used to purchase short term investments. Net cash of $60,129,000
was provided by financing activities. In February 1999, the Company issued the
9.25% Notes, for net proceeds of approximately $339,900,000, of which
$287,000,000 was used to repay the Bank Credit Facility.
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.
Net cash of $37,796,000 was used in investing activities, of which $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.
Bank Credit Facility On October 14, 1998, the Company executed the Amended and
Restated Reducing Revolving Loan Agreement with a bank syndicate led by Bank of
America National Trust and Savings Association NT&SA ("Bank of America") (the
"Bank Credit Facility"). On June 8, 1999, the Company executed Amendment No. 1
(the "Amendment") to the Bank Credit Facility. The Amendment adjusted key
financial measurement ratios and clarified certain definitions in light of the
pending sale of the Inglewood facilities to Churchill Downs and the anticipated
completion of the Belterra Resort and Casino. In addition, effective May 22,
1999, the Amendment changed the Bank Credit Facility to $200,000,000 with an
option to increase this to $300,000,000. The Bank Credit Facility also provides
for sub-facilities for letters of credit up to $30,000,000, and swing line loans
of up to $10,000,000.
9.25% Notes In February 1999, Hollywood Park issued $350,000,000 aggregate
principal amount of Series A 9.25% Senior Subordinated Notes due 2007 (the
"Series A Notes"). On May 6, 1999, the Company completed a registered exchange
offer for the Series A Notes, pursuant to which all $350,000,000 principal
amount of the Series A Notes were exchanged by the holders for $350,000,000
aggregate principal amount of Series B 9.25% Senior Subordinated Notes due 2007,
of the Company (the "Series B Notes"), which were registered under the
Securities Act on Form S-4. The Series A Notes and the Series B Notes are
collectively referred to as the "9.25% Notes".
22
The 9.25% Notes are redeemable, at the option of the Company, in whole or in
part, on or after February 15, 2003, at a premium to face amount, plus accrued
interest, as follows: (a) February 15, 2003 at 104.625%; (b) February 15, 2004
at 103.083%; (c) February 15, 2005 at 101.542%; and (d) February 15, 2006 and
thereafter at 100%. The 9.25% Notes are unsecured obligations of Hollywood
Park, guaranteed by all other material restricted subsidiaries of Hollywood Park
excluding certain Casino Magic subsidiaries, principally Casino Magic of
Louisiana, Corp. (Casino Magic Bossier City) and the Casino Magic Argentina
subsidiaries.
In February 1999, Hollywood Park received net proceeds of approximately
$339,900,000 from the 9.25% Note offering. Of these proceeds, Hollywood Park
used $287,000,000 to repay all outstanding borrowings under the Bank Credit
Facility. The remaining proceeds were invested in short-term investments and
are expected to be used to fund Hollywood Park's capital expenditures.
The indenture governing the 9.25% Notes contains certain covenants limiting the
ability of the Company and its restricted subsidiaries to incur additional
indebtedness, issue preferred stock, pay dividends or make certain
distributions, repurchase equity interests or subordinated indebtedness, create
certain liens, enter into certain transactions with affiliates, sell assets,
issue or sell equity interest in its subsidiaries, or enter into certain mergers
and consolidations.
Other Information As of June 30, 1999, the Company has invested approximately
$3,666,000 (inclusive of an unrealized gain of approximately $1,270,000) in
equity securities, which are presently being held as available-for-sale, as well
as $12,477,000 in investment grade commercial paper with maturities between
three months and one year from the balance sheet date.
Capital Commitments The Company was approved to receive the last available
gaming license to own and operate a riverboat casino on the Ohio River in
Indiana. The Belterra Resort and Casino is expected to cost approximately
$165,000,000 (including land but excluding capitalized interest, pre-opening
expenses, organizational expenses and community grants) and is expected to be
completed in the third quarter of 2000. At June 30, 1999, approximately
$2,000,000 has been spent for this project. The Company believes that proceeds
from the sales transactions with Churchill Downs, the unused Bank Credit
Facility, the available cash and short term investments, and available future
cash flow will be sufficient to fund the construction of the Belterra Resort and
Casino; however, there can be no assurance that additional funds will not be
required to complete anticipated projects.
General Hollywood Park is continually evaluating future growth opportunities
in the gaming industry, as well as the sale of other assets not employed in the
gaming industry. Hollywood Park expects that funding for the Belterra Resort and
Casino, payment of interest on the 9.5% Notes, 9.25% Notes and the Casino Magic
13% Notes, payment of notes payable, and normal and necessary capital
expenditure needs will come from existing cash and cash equivalent balances
generated from operating activities, proceeds from the sales transactions with
Churchill Downs and borrowings from the unused 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, 1999, Hollywood Park did not hold any investments in market risk
sensitive instruments of the type described in Item 305 of Regulation S-K.
23
Part II
Other Information
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
At an Annual Meeting of Stockholders, held May 25, 1999, the Company's
stockholders approved the following:
Proposal One: Proposal to elect nine (9) directors.
Nominee For votes Against votes
------- ---------- -------------
R.D. Hubbard 24,065,628 246,444
Robert T. Manfuso 24,075,791 236,281
James L. Martineau 24,075,831 236,241
Gary G. Miller 24,075,340 236,732
Michael Ornest 24,076,262 235,810
Timothy J. Parrott 24,078,559 233,513
Lynn P. Reitnouer 24,079,566 232,506
Herman Sarkowsky 24,079,518 232,554
Marlin Torguson 24,078,459 233,613
Proposal Two: Proposal to approve stock options granted to Paul R. Alanis, J.
Michael Allen, Loren S. Ostrow and Cliff Kortman.
For votes 21,543,893
Against votes 2,630,590
Abstain votes 137,589
Broker non-votes 0
Proposal Three: Proposal to approve and adopt the amendment and restatement of
Hollywood Park's Directors Deferred Compensation Plan.
For votes 23,484,487
Against votes 663,835
Abstain votes 163,750
Broker non-votes 0
Item 5. Other Information
- -------------------------
On April 1, 1999, Bruce C. Hinckley was appointed Senior Vice President, Chief
Financial Officer and Treasurer.
24
Item 6.a Exhibits
- -----------------
Exhibit
Number
- ------
10.41* Asset Purchase Agreement, dated May 5, 1999, among Hollywood Park, Inc.
and Churchill Downs Incorporated.
10.42* Amendment No. 1 to Amended and Restated Reducing Revolving Loan
Agreement, dated June 8, 1999.
11* Statement re Computation of Per Share Earnings
27* Financial Data Schedule
--------
* Filed herewith
(b) Reports on Form 8-K filed during the three months ended June 30, 1999:
None
25
HOLLYWOOD PARK, INC.
Selected Financial Data by Property
For the three months ended June 30, For the six months ended June 30,
----------------------------------- ---------------------------------
1999 1998 1999 1998
--------- -------- -------- -------
(in thousands, except per share data - unaudited)
Revenues:
Boomtown Reno $21,356 $17,912 $35,498 $31,348
Boomtown New Orleans 27,167 23,759 52,888 46,454
Boomtown Biloxi 16,894 16,354 34,693 32,227
Casino Magic Bay St. Louis 22,719 0 45,682 0
Casino Magic Biloxi 23,067 0 47,698 0
Casino Magic Bossier City 35,139 0 68,991 0
Casino Magic Argentina 5,651 0 10,978 0
Hollywood Park Race Track 28,747 27,500 34,212 32,978
Turf Paradise, Inc. 3,499 3,101 10,285 9,911
Hollywood Park, Inc. - Casino Division 14,990 13,784 29,015 26,995
Crystal Park and HP Yakama, Inc. 300 326 889 626
Hollywood Park, Inc. - Corporate 0 389 698 743
-------- -------- -------- --------
199,529 103,125 371,527 181,282
-------- -------- -------- --------
Expenses:
Boomtown Reno 16,818 16,006 30,016 30,305
Boomtown New Orleans 18,471 15,777 35,740 31,573
Boomtown Biloxi 13,685 13,200 27,771 26,554
Casino Magic Bay St. Louis 16,954 0 33,707 0
Casino Magic Biloxi 18,020 0 35,607 0
Casino Magic Bossier City 26,609 0 52,086 0
Casino Magic Argentina 3,334 0 6,489 0
Hollywood Park Race Track 16,043 16,577 23,227 23,819
Turf Paradise, Inc. 2,618 2,584 6,823 6,958
Hollywood Park, Inc. - Casino Division 12,273 11,753 24,112 23,460
Crystal Park and HP Yakama, Inc. 669 118 695 164
Hollywood Park, Inc. - Corporate 6,215 2,921 11,522 5,578
-------- -------- -------- --------
151,709 78,936 287,795 148,411
-------- -------- -------- --------
Non-recuring expenses:
Indiana pre-opening costs 802 93 1,509 93
Real Estate Investment Trust restructurin 0 0 0 469
Depreciation and amortization:
Boomtown Reno 1,858 1,461 3,517 2,930
Boomtown New Orleans 1,434 1,189 2,859 2,380
Boomtown Biloxi 1,020 900 2,013 1,782
Casino Magic Bay St. Louis 1,471 0 2,909 0
Casino Magic Biloxi 1,747 0 3,486 0
Casino Magic Bossier City 2,065 0 3,954 0
Casino Magic Argentina 395 0 767 0
Hollywood Park Race Track 1,086 1,048 2,176 2,113
Turf Paradise, Inc. 302 298 597 594
Hollywood Park, Inc. - Casino Division 671 648 1,336 1,346
Crystal Park and HP Yakama, Inc. 485 460 970 970
Hollywood Park, Inc. - Corporate 1,301 490 2,618 934
-------- -------- -------- --------
13,835 6,494 27,202 13,049
-------- -------- -------- --------
Operating income (loss):
Boomtown Reno 2,680 445 1,965 (1,887)
Boomtown New Orleans 7,262 6,793 14,289 12,501
Boomtown Biloxi 2,189 2,254 4,909 3,891
Casino Magic Bay St. Louis 4,294 0 9,066 0
Casino Magic Biloxi 3,300 0 8,605 0
Casino Magic Bossier City 6,465 0 12,951 0
Casino Magic Argentina 1,922 0 3,722 0
Hollywood Park Race Track 11,618 9,875 8,809 7,046
Turf Paradise, Inc. 579 219 2,865 2,359
Hollywood Park, Inc. - Casino Division 2,046 1,383 3,567 2,189
Crystal Park and HP Yakama, Inc. (854) (252) (776) (508)
Hollywood Park, Inc. - Corporate (7,516) (3,022) (13,442) (5,769)
Indiana pre-opening costs (802) (93) (1,509) (93)
Real Estate Investment Trust restructurin 0 0 0 (469)
-------- -------- -------- --------
33,183 17,602 55,021 19,260
-------- -------- -------- --------
Interest expense, net 15,562 4,054 30,053 7,715
-------- -------- -------- --------
Income before minority interest and income 17,621 13,548 24,968 11,545
-------- -------- -------- --------
Minority interests - Casino Magic Argentina 679 0 1,137 0
Income tax expense 7,231 5,419 9,987 4,650
-------- -------- -------- --------
Net income $9,711 $8,129 $13,844 $6,895
======== ======== ======== ========
Per common share:
Net income - basic $0.38 $0.31 $0.54 $0.26
Net income - diluted $0.37 $0.31 $0.54 $0.26
Number of shares:
Basic 25,871 26,285 25,836 26,281
Diluted 26,129 26,428 25,836 26,771
26
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, 1999
--------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Bruce C. Hinckley Dated: August 12, 1999
--------------------------------
Bruce C. Hinckley
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Hollywood Park Operating Company
(Registrant)
By: /s/ R.D. Hubbard Dated: August 12, 1999
--------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Bruce C. Hinckley Dated: August 12, 1999
--------------------------------
Bruce C. Hinckley
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
27