Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999
Commission file number 0-10619
Hollywood Park, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
95-3667491
(I.R.S. Employer Identification No.)
330 North Brand Blvd., Suite 1100, Glendale California 91203
(Address of Principal Executive Offices) (Zip Code)
(818) 662-5900
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrants: (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) have been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of outstanding shares of the Hollywood Park, Inc.'s common stock, as
of the date of the close of business on November 5, 1999: 26,108,052
Hollywood Park, Inc.
Table of Contents
Part I
Item 1. Financial Information
Condensed Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998.................................................................... 1
Consolidated Statements of Operations for the three and nine months ended
September 30, 1999 and 1998.......................................................... 2
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 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...................................................... 23
Item 3. Quantitative and Qualitative Disclosure About Market Risk............................. 25
Part II
Item 4. Submission of Matters to a Vote of Security Holders................................... 26
Item 5. Other Information..................................................................... 26
Item 6. Exhibits and Reports on Form 8K....................................................... 26
Other Financial Information........................................................... 27
Signatures............................................................................ 28
Item 1. Financial Information
- -----------------------------
Hollywood Park, Inc.
Condensed Consolidated Balance Sheets
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
(in thousands)
Assets
Current Assets:
Cash and cash equivalents $ 148,992 $ 44,234
Short term investments 110,638 3,179
Other receivables, net 12,610 16,783
Prepaid expenses and other assets 23,860 15,207
Deferred income taxes 18,777 18,425
Current portion of notes receivable 5,872 2,320
------------- ------------
Total current assets 320,749 100,148
Notes receivable 9,289 17,852
Property, plant and equipment, net 556,537 602,912
Goodwill, net 75,946 97,098
Gaming license, Casino Magic Bossier City, net 35,244 36,446
Concession agreement, Casino Magic Argentina, net 6,879 7,591
Debt issuance costs, net 24,164 12,105
Other assets 15,575 17,187
------------- ------------
$ 1,044,383 $ 891,339
============= ============
- ---------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 11,416 $ 20,970
Accrued interest 10,772 16,741
Other accrued liabilities 88,455 48,936
Accrued compensation 19,502 17,819
Gaming liabilities 5,924 8,913
Current portion of notes payable 7,743 11,564
------------- ------------
Total current liabilities 143,812 124,943
Notes payable 617,979 527,619
Deferred tax liabilities 885 400
Other liabilities 3,649 3,649
------------- ------------
Total liabilities 766,325 656,611
Minority interests 4,176 3,752
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;
26,066,350 issued and outstanding in 1999, and
25,800,069 in 1998 2,607 2,580
Capital in excess of par value 221,647 218,375
Retained earnings and other comprehensive income (loss) 49,628 10,021
------------- ------------
Total stockholders' equity 273,882 230,976
------------- ------------
$ 1,044,383 $ 891,339
============= ============
See accompanying condensed notes to the consolidated financial statements.
1
Hollywood Park, Inc.
Consolidated Statements of Operations
For the three months For the nine months
ended September 30, ended September 30,
---------------------- -----------------------
1999 1998 1999 1998
--------- -------- --------- ---------
(in thousands, except per share data - unaudited)
Revenues:
Gaming $ 147,468 $ 58,846 $ 432,773 $ 173,552
Racing 11,218 11,371 49,959 48,085
Food and beverage 10,784 7,383 32,485 21,245
Hotel and recreational vehicle park 3,553 637 9,253 1,362
Truck stop and service station 5,717 4,525 13,251 11,071
Other income 5,915 4,705 18,461 13,434
--------- -------- --------- ---------
184,655 87,467 556,182 268,749
--------- -------- --------- ---------
Expenses:
Gaming 80,560 30,604 237,059 93,920
Racing 5,003 5,562 20,381 21,244
Food and beverage 12,472 10,065 38,235 27,601
Hotel and recreational vehicle park 1,629 212 4,495 499
Truck stop and service station 5,301 4,177 12,201 10,164
General and administrative 34,143 19,721 107,255 61,749
Depreciation and amortization 13,147 6,825 40,349 19,874
Pre-opening costs, Belterra Resort and Casino 684 367 2,193 460
(Gain) loss on disposition of assets, net (42,139) 1,586 (42,139) 1,586
Other 3,609 2,011 10,886 6,055
--------- -------- --------- ---------
114,409 81,130 430,915 243,152
--------- -------- --------- ---------
Operating income 70,246 6,337 125,267 25,597
Interest expense, net 14,759 4,112 44,812 11,827
--------- -------- --------- ---------
Income before minority interests and income taxes 55,487 2,225 80,455 13,770
Minority interests 550 0 1,687 0
Income tax expense 28,705 253 38,692 4,903
--------- -------- --------- ---------
Net income $ 26,232 $ 1,972 $ 40,076 $ 8,867
========= ======== ========= =========
Per common share:
Net income - basic $ 1.01 $ 0.08 $ 1.55 $ 0.34
Net income - diluted $ 0.98 $ 0.08 $ 1.54 $ 0.34
Number of shares - basic 26,045 26,101 25,906 26,115
Number of shares - diluted 26,860 26,101 26,092 26,277
See accompanying condensed notes to the consolidated financial statements.
2
Hollywood Park, Inc.
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30,
1999 1998
---------- ----------
(in thousands - unaudited)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash $ 40,076 $ 8,867
provided by operating activities:
Depreciation and amortization 40,349 19,874
Amortization of financing costs and bond premium 1,847 0
(Gain) loss on sale or disposal of assets (40,119) 985
Decrease in other receivables, net 4,173 2,356
Increase in prepaid expenses and other assets (7,969) (5,648)
Increase in deferred tax assets (352) (2,132)
Decrease in accounts payable (9,554) (2,429)
Decrease in accrued lawsuit settlement 0 (2,750)
Increase in accrued liabilities, net of effect of asset dispositions 30,706 2,287
Decrease in gaming liabilities (2,989) (155)
Decrease in accrued interest payable (5,969) (2,533)
All other, net 2,419 (3,932)
---------- ----------
Net cash provided by operating activities 52,618 14,790
---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (37,218) (34,981)
Receipts from sale of property, plant and equipment 139,720 650
Principal collected on notes receivable 4,890 2,071
Notes receivable, other 0 (11,244)
Purchase of short term investments, net (107,459) (3,690)
Payment to buy-out minority interest in Crystal Park LLC 0 (1,946)
---------- ----------
Net cash used in investing activities, net (67) (49,140)
---------- ----------
Cash flows from financing activities:
Proceeds from secured Bank Credit Facility 17,000 40,000
Payment of secured Bank Credit Facility (287,000) 0
Redemption of Boomtown 11.5% First Mortgage Notes 0 (1,253)
Proceeds from issuance of 9.25% Notes 350,000 0
Payment on notes payable (15,058) (3,654)
Common stock options exercised 2,574 1,174
Purchase and retirement of Hollywood Park common stock 0 (5,540)
Increase in debt issuance costs (15,309) 0
---------- ----------
Net cash provided by financing activities 52,207 30,727
---------- ----------
Increase (decrease) in cash and cash equivalents 104,758 (3,623)
Cash and cash equivalents at the beginning of the period 44,234 23,749
---------- ----------
Cash and cash equivalents at the end of the period $ 148,992 $ 20,126
========== ==========
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 operates eight casinos (four with
hotels); receives lease income from two card clubs; and owns and operates a
horse racing facility in Arizona.
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 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 receives lease
income from two card club casinos in the Los Angeles metropolitan area. The
Hollywood Park-Casino is leased from Churchill Downs California Company and is
sub-leased to an unaffiliated third party operator (see Note 2). The Crystal
Park Hotel and Casino ("Crystal Park") is owned by the Company and is leased to
the same card club operator that operates the Hollywood Park-Casino. The
Company owns Turf Paradise, Inc. ("Turf Paradise"), a horse racing facility in
Phoenix, Arizona. 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 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.
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.
4
Goodwill The majority of goodwill is being amortized over 40 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
through September 10, 1999, 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 September 30, 1999 and 1998, was $11,755,000 and $3,206,000,
respectively and for the nine months ended September 30, 1999 and 1998 was
$33,981,000 and $10,683,000, respectively. The amounts for the three and nine
months ended September 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. Other comprehensive income (loss) is immaterial for
all periods presented.
Capitalized Interest During the three and nine months ended September 30, 1999,
the Company capitalized interest related to construction projects of
approximately $123,000 and $968,000, respectively. During the three and nine
months ended September 30, 1998, the Company capitalized interest related to
construction projects of approximately $295,000 and $802,000, 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.
Cash Flows Cash and cash equivalents consisted of cash, certificates of deposit
and investment grade commercial paper issued by major corporations and financial
institutions that are highly liquid and have original maturities 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
financial statements to be consistent with the 1999 financial statement
presentation.
5
Note 2 - Sales of California Race Track and Casino
On September 10, 1999, the Company completed the dispositions of the Hollywood
Park Rack Track and Hollywood Park-Casino to Churchill Downs California Company
("Churchill Downs"), a wholly owned subsidiary of Churchill Downs Incorporated,
for pre-tax net cash proceeds of $115.8 million and $23 million, respectively.
Churchill Downs acquired the race track, 240 acres of related real estate and
the Hollywood Park-Casino. Under terms of the sales agreement, the Company
entered into a 10-year lease on the Hollywood Park-Casino at an annual lease
rate of $3 million per annum, with a 10 year renewal option. The Company sub-
leased the facility to a third party operator for a lease payment of $6 million
per year. The sub-lease is for a one-year period, at which time the Company and
sub-lessee will negotiate the terms of any sub-lease extension.
The disposition of the Hollywood Park Race Track and related real estate was
accounted for as a sale and resulted in a pre-tax gain of $61.5 million. The
disposition of the Hollywood Park-Casino was accounted for as a financing
transaction and therefore not recognized as a sale for accounting purposes as
the Company sub-leased the Hollywood Park-Casino to a third-party operator.
Pursuant to accounting guidelines, the Company recorded a long-term debt
obligation of $23 million for the Hollywood Park-Casino (see Note 8). The
Hollywood Park-Casino building will continue to be depreciated over its
estimated useful life. The Company estimates the net income tax liabilities for
these transactions is approximately $23 million.
Under the provisions of Statement of Financial Accounting Standards 121
"Impairment of Long-lived Assets", the sales price of the Hollywood Park-Casino
and related assets for $23 million resulted in an impairment of the carrying
value of the Hollywood Park-Casino. Accordingly, the Company recorded an
impairment write-down of the Hollywood Park-Casino of $20.4 million during the
quarter ended September 30, 1999. The pre-tax gain on the sale of the race
track and impairment write-down of the Hollywood Park-Casino are included in
"(Gain) loss on disposition of assets, net" in the accompanying Statements of
Operations.
The Company is currently considering a deferred like-kind Section 1031 exchange
(the "Exchange") for tax purposes with regard to the Hollywood Park Race Track
assets sold to Churchill Downs and therefore delivered $115.8 million of the net
cash proceeds from the race track sale to a third party intermediary. These net
cash proceeds, if an Exchange is successful, will be used to purchase and convey
to the Company like-kind replacement property selected by Hollywood Park.
Pursuant to Section 1031 of the Internal Revenue Code, the Company has
identified the replacement property required for an Exchange and must acquire
all like-kind property it will acquire as part of the Exchange by March 8, 2000.
If the Company is successful in acquiring a sufficient amount of like-kind
replacement property within the required time limits, the Company should not
recognize a current taxable gain, and, accordingly, will defer the tax liability
as a result of the transaction with Churchill Downs. If the Company does not
complete the transaction as a like-kind exchange, the tax liability incurred
will be a current tax liability. Hollywood Park recorded the estimated tax
liability on the sales transactions to Churchill Downs as a current deferred
liability (within other accrued liabilities on the Condensed Balance Sheet) as
of September 30, 1999.
Revenues for the nine months ended September 30, 1999, for Hollywood Park Race
Track and Hollywood Park-Casino were $45,624,000 and $40,611,000, respectively.
Operating income for the nine months ended September 30, 1999, for Hollywood
Park Race Track and Hollywood Park-Casino was $10,364,000 and $4,518,000,
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). Such revenues and operating income will not continue; however,
the Company will receive net rental income for the card club casino from the
third party 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.
In July 1999, the Company broke ground on the Belterra Resort and Casino and is
continuing on schedule for an opening in August 2000. The project is located in
the city of Vevay, in Switzerland County, Indiana, 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 1,500 seat
entertainment facility, structured parking and a complete spa facility, as well
as an 18-hole championship golf course.
In support of the opening of the Belterra Resort and Casino, in October 1999,
for $2.5 million, the Company acquired the Ogle Haus Inn, a 54-room hotel
operation in the city of Vevay. Hollywood Park anticipates utilizing the
facility for the Belterra pre-opening operations, including housing various key
management staff, converting rooms into offices and training hotel and food and
beverage employees. Operational costs of the Ogle Haus Inn, as well as all
other pre-opening costs of Belterra Resort and Casino, are being expensed as
incurred.
Note 4 - 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 is
expected to be submitted on November 15. Such application will seek approval to
operate a new cruising 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 up to 225-acres of unimproved land from the District upon which such
resort complex would be constructed. Under terms of the lease, the annual rental
payment would be $815,000, with a maximum annual increase of 5%. The term of the
lease is for a total of up to 70 years, an initial term of 10 years and 6
consecutive renewal options of 10 years each. The lease requires Hollywood Park
to develop certain on- and off-site improvements at the location. The Company's
application proposes a resort complex which will be similar in design and scope
to the Belterra Resort and Casino that is under construction in Indiana (see
Note 3). There are no assurances the Gaming Control Board will award the final
license to the Company.
Note 5 - Acquisition of Casino Magic Corp.
On October 15, 1998, Hollywood Park acquired Casino Magic Corp. (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.
7
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 the fourth
quarter of 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 6 - Short Term Investments
At September 30, 1999, short term available for sale investments consisted of
investments in commercial paper of $110,638,000. The commercial paper consisted
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. Interest income for the three and nine months
ended September 30, 1999 was $2,085,000 and $3,398,000, respectively, while
interest income for the 1998 periods was not material.
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 $470,000).
Note 7 - Property, Plant and Equipment
Property, plant and equipment held as of September 30, 1999, and December 31,
1998, consisted of the following:
September 30, December 31,
1999 1998
----------------- ----------------
(unaudited)
(in thousands)
Land and land improvements $132,660 $141,536
Buildings 334,379 393,200
Equipment 183,247 174,270
Vessels 76,705 76,605
Construction in progress 11,131 46,297
----------------- -----------------
738,122 831,908
Less accumulated depreciation 181,585 228,996
----------------- -----------------
$556,537 $602,912
================= =================
8
Note 8 - Long Term Debt
Notes payable as of September 30, 1999, and December 31, 1998, consisted of the
following:
September 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) 120,282 121,685
Secured notes payable, other 4,932 16,569
Unsecured notes payable 2,310 5,288
Hollywood Park-Casino debt obligation 23,000 0
Capital lease obligations 198 641
----------------- -----------------
625,722 539,183
Less current maturities 7,743 11,564
----------------- -----------------
$617,979 $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 $7,407,000 and
$8,810,000 as of September 30, 1999, and December
31, 1998, respectively, as required under the
purchase 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 and on September 24, 1999 executed Amendment No. 2 (the
"Amendments") to the Bank Credit Facility. The Amendments adjusted key
financial measurement ratios and clarified certain definitions in light of the
sales 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, Amendment
No. 1 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.
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
have
9
been 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 issued $125,000,000
aggregate principal amount of 9.5% Notes (the "9.5% Notes"). The 9.5% Notes are
redeemable, at the option of Hollywood Park, 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, guaranteed by all other material
restricted subsidiaries of Hollywood Park excluding certain Casino Magic
subsidiaries, principally Casino Magic of Louisiana, Corp. and the Casino Magic
Argentina subsidiaries.
In January 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 from $100,000,000 to $350,000,000.
The Company paid a consent fee of $50.00 per $1,000 principal amount of the 9.5%
Notes, 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 and its 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.
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). Included in the August 15, 1999 scheduled interest
payment was $1,298,000 of contingent interest. As of September 30, 1999 there
was approximately $1,881,000 of contingent interest.
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.
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.
10
Hollywood Park-Casino Debt Obligation In connection with the disposition of the
Hollywood Park-Casino to Churchill Downs (see Note 2), the Company recorded a
long-term lease finance obligation of $23,000,000. Lease payments to Churchill
Downs of $3,000,000 per annum will be applied as principal and interest on the
finance debt. The debt will be amortized over 10 years (the initial lease term
with Churchill Downs).
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-six (36) 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 Casino Magic of Louisiana, Corp.,
Casino Magic Argentina and certain 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 nine months ended September 30, 1999 and 1998
and balance sheets as of September 30, 1999
and December 31, 1998
(b) (c)
(a) Wholly Non Wholly
Wholly Owned Owned Consolidating
Owned Non- Non- And Hollywood
Hollywood Guarantor Guarantor Guarantor Eliminating Park, Inc.
Park, Inc. Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
---------- ------------ ------------ ------------ ------------- ------------
(in thousands)
Balance Sheet
- -------------
As of September 30, 1999
Current assets $221,100 $ 73,782 $ 18,735 $ 7,132 $ 0 $ 320,749
Property, plant and
equipment, net 42,469 422,970 89,594 1,504 0 556,537
Other non-current assets 29,686 35,117 38,578 6,881 56,835 167,097
Investment in subsidiaries 303,957 43,530 0 0 (347,487) 0
Inter-company 257,638 199,572 6,384 0 (463,594) 0
-------- -------- -------- ------- ---------- ----------
$854,850 $774,971 $153,291 $15,517 ($754,246) $1,044,383
======== ======== ======== ======= ========== ==========
Current liabilities $ 64,079 $ 62,403 $ 15,043 $ 2,757 ($470) $ 143,812
Notes payable, long term 502,818 2,274 112,887 0 0 617,979
Other non-current
liabilities 1,067 21,304 (9,454) 3,353 (11,736) 4,534
Inter-company 13,000 425,007 18,800 6,787 (463,594) 0
Minority interest 0 6,211 0 0 (2,035) 4,176
Equity (deficit) 273,886 257,772 16,015 2,620 (276,411) 273,882
-------- -------- -------- ------- ---------- ----------
$854,850 $774,971 $153,291 $15,517 ($754,246) $1,044,383
======== ======== ======== ======= ========== ==========
Statement of Operations
- -----------------------
For the three months
ended September 30, 1999
Revenues:
Gaming $ 9,384 $ 98,065 $ 34,484 $ 5,535 $ 0 $ 147,468
Racing 9,975 1,243 0 0 0 11,218
Food and beverage 2,288 7,408 703 385 0 10,784
Equity in subsidiaries 19,623 (8,030) 0 0 (11,593) 0
Other 1,361 12,904 877 43 0 15,185
-------- -------- -------- ------- ---------- ----------
42,631 111,590 36,064 5,963 (11,593) 184,655
-------- -------- -------- ------- ---------- ----------
Expenses:
Gaming 5,191 51,853 22,040 1,476 0 80,560
Racing 4,257 746 0 0 0 5,003
Food and beverage 3,128 8,195 810 339 0 12,472
Administrative and other 9,981 28,881 4,910 1,594 0 45,366
(Gain) loss on disposal of
assets (42,828) 689 0 0 0 (42,139)
Depreciation and
amortization 1,632 8,687 2,049 408 371 13,147
-------- -------- -------- ------- ---------- ----------
(18,639) 99,051 29,809 3,817 371 114,409
-------- -------- -------- ------- ---------- ----------
Operating income (loss) 61,270 12,539 6,255 2,146 (11,964) 70,246
Interest expense 10,434 (197) 4,572 (50) 0 14,759
-------- -------- -------- ------- ---------- ----------
Income (loss) before
minority interest and taxes 50,836 12,736 1,683 2,196 (11,964) 55,487
Minority interests 0 550 0 0 0 550
Income tax expense 28,100 0 0 605 0 28,705
-------- -------- -------- ------- ---------- ----------
Net income (loss) $ 22,736 $ 12,186 $ 1,683 $ 1,591 ($11,964) $ 26,232
======== ======== ======== ======= ========== ==========
12
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and nine months ended September 30, 1999 and 1998
and balance sheets as of September 30, 1999
and December 31, 1998
(b) (c)
(a) Wholly Non Wholly
Wholly Owned Owned Consolidating
Owned Non- Non- And Hollywood
Hollywood Guarantor Guarantor Guarantor Eliminating Park, Inc.
Park, Inc. Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
---------- ------------ ------------ ------------ ------------- ------------
(in thousands)
Statement of Operations
- -----------------------
For the nine months
ended September 30, 1999
Revenues:
Gaming $ 33,638 $282,780 $100,603 $15,752 $ 0 $432,773
Racing 39,714 10,245 0 0 0 49,959
Food and beverage 8,073 21,350 1,992 1,070 0 32,485
Equity in subsidiaries 61,682 36,245 0 0 (97,927) 0
Other 5,161 33,225 2,460 119 0 40,965
-------- -------- -------- ------- --------- --------
148,268 383,845 105,055 16,941 (97,927) 556,182
-------- -------- -------- ------- --------- --------
Expenses:
Gaming 18,241 151,550 62,997 4,271 0 237,059
Racing 15,843 4,538 0 0 0 20,381
Food and beverage 11,060 23,851 2,305 1,019 0 38,235
Administrative and other 31,248 86,630 14,544 4,608 0 137,030
(Gain) loss on disposition of
assets (42,828) 689 0 0 0 (42,139)
Depreciation and
amortization 6,060 25,997 6,003 1,175 1,114 40,349
-------- -------- -------- ------- --------- --------
39,624 293,255 85,849 11,073 1,114 430,915
-------- -------- -------- ------- --------- --------
Operating income (loss) 108,644 90,590 19,206 5,868 (99,041) 125,267
Interest expense 31,740 (512) 13,701 (117) 0 44,812
-------- -------- -------- ------- --------- --------
Income (loss) before
minority interest and taxes 76,904 91,102 5,505 5,985 (99,041) 80,455
Minority interests 0 1,687 0 0 0 1,687
Income tax expense 36,828 10 0 1,854 0 38,692
-------- -------- -------- ------- --------- --------
Net income (loss) $ 40,076 $ 89,405 $ 5,505 $ 4,131 ($99,041) $ 40,076
======== ======== ======== ======= ========= ========
Statement of Cash Flows:
- ------------------------
For the nine months
ended September 30, 1999
Net cash provided by
operating activities $ 4,001 $ 37,238 $ 9,051 $ 2,328 $ 0 $ 52,618
Net cash provided by (used in)
investing activities 18,767 (16,130) (2,256) (448) 0 (67)
Net cash provided by
(used in) financing
activities 66,538 (14,068) (263) 0 0 52,207
13
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and nine months ended September 30, 1999 and 1998
and balance sheets as of September 30, 1999
and December 31, 1998
Hollywood
Park
Operating (b) (c)
Co. (a) Wholly Non Wholly
Hollywood (Co-Obligor Wholly Owned Owned Consolidating
Park, Inc. 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 September 30, 1998
Revenues:
Gaming $11,542 $ 0 $ 33,977 $13,327 $ 0 $ 0 $ 58,846
Racing 0 10,112 1,259 0 0 0 11,371
Food and beverage 1,228 0 4,817 1,338 0 0 7,383
Equity in subsidiaries 6,408 4 8,370 0 0 (14,782) 0
Inter-company 0 0 1,352 0 0 (1,352) 0
Other 939 240 7,874 814 0 0 9,867
------- -------- -------- ------- ------ --------- --------
20,117 10,356 57,649 15,479 0 (16,134) 87,467
------- -------- -------- ------- ------ --------- --------
Expenses:
Gaming 6,617 0 16,934 7,053 0 0 30,604
Racing 0 4,807 755 0 0 0 5,562
Food and beverage 2,857 0 5,488 1,720 0 0 10,065
Administrative and other 3,985 4,420 13,155 4,561 367 0 26,488
Loss on disposal of assets 1,586 0 0 0 0 0 1,586
Depreciation and
amortization 1,041 993 3,710 945 0 136 6,825
------- -------- -------- ------- ------ --------- --------
16,086 10,220 40,042 14,279 367 136 81,130
------- -------- -------- ------- ------ --------- --------
Operating income (loss) 4,031 136 17,607 1,200 (367) (16,270) 6,337
Interest expense 1,050 3,194 (211) 79 0 0 4,112
Inter-company interest 0 0 0 1,352 0 (1,352) 0
------- -------- -------- ------- ------ --------- --------
Income (loss) before taxes 2,981 (3,058) 17,818 (231) (367) (14,918) 2,225
Income tax expense 973 0 (720) 0 0 0 253
------- -------- -------- ------- ------ --------- --------
Net income (loss) $ 2,008 ($ 3,058) $ 18,538 ($ 231) ($ 367) ($ 14,918) $ 1,972
======= ======== ======== ======= ====== ========= ========
Statement of Operations
- -----------------------
For the nine months
ended September 30, 1998
Revenues:
Gaming $34,659 $ 0 $ 97,296 $41,597 $ 0 $ 0 $173,552
Racing 0 37,984 10,101 0 0 0 48,085
Food and beverage 3,527 0 13,894 3,824 0 0 21,245
Equity in subsidiaries 22,688 240 7,031 0 0 (29,959) 0
Inter-company 0 0 4,053 0 0 (4,053) 0
Other 2,836 1,706 19,040 2,285 0 0 25,867
------- -------- -------- ------- ------ --------- --------
63,710 39,930 151,415 47,706 0 (34,012) 268,749
------- -------- -------- ------- ------ --------- --------
Expenses:
Gaming 20,078 0 51,906 21,936 0 0 93,920
Racing 0 16,588 4,656 0 0 0 21,244
Food and beverage 7,608 0 15,201 4,792 0 0 27,601
Administrative and other 13,974 13,179 38,154 13,160 460 0 78,927
Loss on disposal of assets 1,586 0 0 0 0 0 1,586
Depreciation and
amortization 3,248 2,981 10,709 2,727 0 209 19,874
------- -------- -------- ------- ------ --------- --------
46,494 32,748 120,626 42,615 460 209 243,152
------- -------- -------- ------- ------ --------- --------
Operating income (loss) 17,216 7,182 30,789 5,091 (460) (34,221) 25,597
Interest expense 2,598 9,377 (412) 264 0 0 11,827
Inter-company interest 0 0 0 4,053 0 (4,053) 0
------- -------- -------- ------- ------ --------- --------
Income (loss) before taxes 14,618 (2,195) 31,201 774 (460) (30,168) 13,770
Income tax expense 5,613 0 (710) 0 0 0 4,903
------- -------- -------- ------- ------ --------- --------
Net income (loss) $ 9,005 $ (2,195) $ 31,911 $ 774 ($ 460) ($ 30,168) $ 8,867
======= ======== ======== ======= ====== ========= ========
14
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and nine months ended September 30, 1999 and 1998
and balance sheets as of September 30, 1999
and December 31, 1998
Hollywood
Park
Operating (b) (c)
Co. (a) Wholly Non Wholly
Hollywood (Co-Obligor Wholly Owned Owned Consolidating
Park, Inc. 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 nine months
ended September 30, 1998
Net cash provided by
(used in) operating
activities ($2,921) $ 2,053 $ 35,132 $ 2,110 ($460) ($21,124) $ 14,790
Net cash used in
investing activities (9,020) (1,266) (37,139) (1,715) 0 0 (49,140)
Net cash provided by
(used in) financing
activities 34,909 0 (2,902) (745) 0 (535) 30,727
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 as indicated: Turf
Paradise, Inc., Hollywood Park Food Services, Inc. (through September 10,
1999), Hollywood Park Fall Operating Company (through September 10, 1999)
and with respect to the 9.25% Notes, Hollywood Park Operating Company
(through September 10, 1999) (it was a co-obligor on the 9.5% Notes), HP
Casino, Inc., HP/Compton, Inc., HP Yakama, Inc., 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 October 8, 1999, Hollywood Park purchased the remaining 49% minority equity
interest in Casino Magic Argentina for $16.5 million in cash. The Casino Magic
Argentina operations consist of two casinos in the Province of Neuquen,
Argentina. The Company operates the two casinos under an exclusive concession
contract with the Province that is currently scheduled to expire in December
2006. The Company is negotiating with the Argentina government to extend such
concession contract for an additional ten years. Additionally, the concession
contract may be extended for an additional five years if the Company makes $5
million of capital improvements (as defined in the concession agreement) at the
Argentina properties. The $12.3 million purchase price in excess of the
minority interest of approximately $4.2 million will be amortized over the
remaining life of the concession contract.
On November 4, 1999, the Company announced it entered into an agreement with
Hovnanian Companies of California for the sale of the remaining 97 acres of
vacant land at the Inglewood location for approximately $63 million in cash, or
approximately $650,000 per acre. The sale of the 97 acres is expected to close
in the third or fourth quarter of 2000 and will result in a gain of
approximately $30 million, after taxes.
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
Hovnanian and 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 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.
Sales of Hollywood Park Race Track and Hollywood Park-Casino On September 10,
1999, the Company completed the dispositions of the Hollywood Park Rack Track
and Hollywood Park-Casino to Churchill Downs California Company ("Churchill
Downs"), a wholly owned subsidiary of Churchill Downs Incorporated, for pre-tax
net cash proceeds of $115.8 million and $23 million, respectively. Churchill
Downs acquired the race track, 240 acres of related real estate and the
Hollywood Park-Casino. Under terms of the sales agreement, the Company entered
into a 10-year lease on the Hollywood Park-Casino at an annual lease rate of $3
million per annum, with a 10-year renewal option. The Company sub-leased the
facility to a third party operator for a lease payment of $6 million per year.
The sub-lease is for a one-year period, at which time the Company and sub-lessee
will negotiate the terms of any sub-lease extension.
The disposition of the Hollywood Park Race Track and related real estate was
accounted for as a sale and resulted in a pre-tax gain of $61.5 million. The
disposition of the Hollywood Park-Casino was accounted for as a financing
transaction and therefore not recognized as a sale for accounting purposes as
the Company sub-leased the Hollywood Park-Casino to a third-party operator.
Pursuant to accounting guidelines, the Company recorded a long-term debt
obligation of $23 million for the Hollywood Park-Casino (see Note 8 to the
Condensed Notes to the Consolidated Financial Statements). The Hollywood Park-
Casino building will continue to be depreciated over its estimated useful life.
The Company estimates the net income tax liabilities for these transactions is
approximately $23 million.
Under the provisions of Statement of Financial Accounting Standards 121
"Impairment of Long-lived Assets", the sales price of the Hollywood Park-Casino
and related assets for $23 million resulted in an impairment of the carrying
value of the Hollywood Park-Casino. Accordingly, the Company recorded an
impairment write-down of the Hollywood Park-Casino of $20.4 million during the
quarter ended September 30, 1999. The pre-tax gain on the sale of the race
track and impairment write-down of the Hollywood Park-Casino are included in
"(Gain) loss on disposition of assets, net" in the accompanying Statements of
Operations.
The Company is currently considering a deferred like-kind Section 1031 exchange
(the "Exchange") for tax purposes with regard to the Hollywood Park Race Track
assets sold to Churchill Downs and therefore delivered $115.8 million of the net
cash proceeds from the race track sale to a third party intermediary.
17
These net cash proceeds, if an Exchange is successful, will be used to purchase
and convey to the Company like-kind replacement property selected by Hollywood
Park. Pursuant to Section 1031 of the Internal Revenue Code, the Company has
identified the replacement property required for an Exchange and must acquire
all like-kind property it will acquire as part of the Exchange by March 8, 2000.
If the Company is successful in acquiring a sufficient amount of like-kind
replacement property within the required time limits, the Company should not
recognize a current taxable gain, and, accordingly, will defer the tax liability
as a result of the transaction with Churchill Downs. If the Company does not
complete the transaction as a like-kind exchange, the tax liability incurred
will be a current tax liability. Hollywood Park recorded the estimated tax
liability on the sales transactions to Churchill Downs as a current deferred
liability (within other accrued liabilities on the Condensed Balance Sheet) as
of September 30, 1999.
Revenues for the nine months ended September 30, 1999, for Hollywood Park Race
Track and Hollywood Park-Casino were $45,624,000 and $40,611,000, respectively.
Operating income for the nine months ended September 30, 1999, for Hollywood
Park Race Track and Hollywood Park-Casino was $10,364,000 and $4,518,000,
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.) Such revenues and operating income will not continue; however, the
Company will receive net rental income for the card club casino from the third
party operator.
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
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 is expected to be submitted on November 15. Such application will
seek approval to operate a new cruising 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 up to 225-acres of unimproved land from the District upon which such
resort complex would be constructed. Under terms of the lease, the annual rental
payment would be $815,000, with a maximum annual increase of 5%. The term of the
lease is for a total of up to 70 years, an initial term of 10 years and 6
consecutive renewal options of 10 years each. The lease requires Hollywood Park
to develop certain on- and off-site improvements at the location. The Company's
application proposes a resort complex which will be similar in design 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). There are
no assurances the Gaming Control Board will award the final license to the
Company.
Pending Land Sales 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 approximately $575,000 per acre in cash. The sale is expected to
close in the first quarter 2000. The Company anticipates a gain of
approximately $15 million, after taxes, will be recorded on this transaction
when it is completed.
On November 4, 1999, the Company announced it entered into an agreement with
Hovnanian Companies of California for the sale of the remaining 97 acres at the
Inglewood location for approximately $63 million in cash, or approximately
$650,000 per acre. The sale of the 97 acres of vacant land is expected to close
in the third or fourth quarter of 2000 and will result in a gain of
approximately $30 million, after taxes.
The cash proceeds, after taxes, for these two transactions are expected to
approximate $57 million.
Casino Magic Acquisition On October 15, 1998, Hollywood Park acquired Casino
Magic Corp. (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
18
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 the fourth quarter of 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.
In July 1999, the Company broke ground on the Belterra Resort and Casino and is
continuing on schedule for an opening in August 2000. The project is located in
the city of Vevay, in Switzerland County, Indiana, 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 1,500 seat
entertainment facility, structured parking and a complete spa facility, as well
as an 18-hole championship golf course.
In support of the opening of the Belterra Resort and Casino, in October 1999,
for $2.5 million, the Company acquired the Ogle Haus Inn, a 54-room hotel
operation in the city of Vevay. Hollywood Park anticipates utilizing the
facility for the Belterra pre-opening operations, including housing various key
management staff, converting rooms into offices and training hotel and food and
beverage employees. Operational costs of the Ogle Haus Inn, as well as all
other pre-opening costs of Belterra Resort and Casino, are being expensed as
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 Hollywood Park-Casino
after September 10, 1999 (see sales of California track and casino above) and
Crystal Park Hotel and Casino, are leased to, and operated by, an unrelated
third party.
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.
19
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 are in the process of being upgraded or replaced at a cumulative estimated
cost of $1,500,000 (of which, approximately $1,100,000 has been spent as of
September 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 The Turf Paradise Race Track in Phoenix, Arizona,
leases pari-mutuel wagering software and associated hardware which are essential
to operations. The Year 2000 project team met with the provider of the pari-
mutuel wagering systems during the nine months ended September 30, 1999 and was
assured the 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 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 facility in Arizona. In addition, the results of the operations of
the Hollywood Park Race Track and Casino, which were sold on September 10, 1999,
are included in the results of operations until that date. Accordingly, the
results of operations for the three and nine months ended September 30, 1999 and
1998 are not indicative of the results of operations for a full year or for
future periods.
Three months ended September 30, 1999 compared to the three months ended
- ------------------------------------------------------------------------
September 30, 1998
- ------------------
Total revenues for the three months ended September 30, 1999, increased by
$97,188,000, or 111%, as compared to the three months ended September 30, 1998.
Approximately $89,105,000 of the increase was due to the timing of the Casino
Magic acquisition. Gaming revenues increased by $88,622,000, or 151%, with
$82,679,000 of the increase due to the timing of the Casino Magic acquisition
and the balance due primarily to increases of $2,536,000 at Boomtown Reno and
$5,098,000 at Boomtown New Orleans, offset by a decrease of $2,158,000 at the
Hollywood Park-Casino. The completion of all remodeling, coupled with the more
effective marketing plans have caused the gaming revenue to increase at the
Boomtown Reno
20
location. At Boomtown New Orleans, improved marketing is also helping to
increase customer traffic (the property had a record weekend for amounts wagered
at slot machines over the September 1999 Labor Day Holiday, which was
subsequently exceeded in early October) and therefore increase gaming revenue.
Boomtown casinos in Biloxi and New Orleans and Casino Magic hotel casinos in
Biloxi and Bay St. Louis were adversely affected in September 1998 from
Hurricane Georges which hit the Gulf Coast. The decline in gaming revenue for
the Hollywood Park-Casino is attributed to its sale to Churchill Downs on
September 10, 1999, and therefore not a full three months of revenue. Although
racing revenue declined by only $153,000 during the three months ended September
30, 1999, compared to the same period during the prior year, the sale of the
Hollywood Park Race Track to Churchill Downs on September 10, 1999, limited the
revenues for the three months. Food and beverage revenue increased by
$3,401,000, or 46%, with $2,917,000 of the increase attributed to the Casino
Magic acquisition. The balance of the increase is due primarily to increases of
$385,000 and $332,000 at Boomtown Reno and Boomtown Biloxi, respectively, offset
by declines at both the Hollywood Park Race Track and the Hollywood Park-Casino.
As with the gaming revenue, the food and beverage operations at Boomtown Reno
are benefiting from the completion of remodeling at the property and the
marketing plans. The improvement at Boomtown Biloxi is attributed to the
successful buffet operations. Hotel and recreational vehicle revenue increased
by $2,916,000, from $637,000 to $3,553,000, with $2,195,000 of the increase
attributed to the Casino Magic acquisition and the remaining increase attributed
to the new hotel rooms at Boomtown Reno. Truck stop and service station revenues
relate to Boomtown Reno and increased by $1,192,000, or 26%, due to the
escalation of fuel prices and increased volume. Other income increased by
$1,210,000, or 26%, including $1,314,000 contributed from the timing of the
Casino Magic acquisition.
Total operating expenses for the three months ended September 30, 1999,
increased by $33,279,000, or 41%, as compared to the three months ended
September 30, 1998. Excluding any gain or loss on disposition of assets,
operating expenses for the three months increased by $77,004,000 of which
approximately $72,667,000 of the increase was due to the timing of the Casino
Magic acquisition. Gaming expenses increased by $49,956,000, or 163%, with
$48,714,000 of the increase attributed to the timing of the Casino Magic
acquisition. The remaining change is primarily due to a decline of $1,426,000 in
expenses at the Hollywood Park-Casino (less than three months expense due to
timing of sale), an increase of $420,000 in expenses at Boomtown Reno
(consistent with the increase in gaming revenue) and an increase of $2,082,000
at Boomtown New Orleans (primarily an increase in gaming taxes due to increased
gaming revenue). Racing expenses declined by $559,000, or 10%, almost entirely
due to the sale of the Hollywood Park Race Track to Churchill Downs on September
10, 1999. Food and beverage expenses increased $2,407,000, or 24%, including
$3,105,000 attributed to the timing of the Casino Magic acquisition. Increases
in food and beverage expenses at Boomtown Reno and Boomtown Biloxi were offset
by declines at Boomtown New Orleans, Hollywood Park Race Track and Hollywood
Park-Casino. The increases of $315,000 and $254,000 at Boomtown Reno and
Boomtown Biloxi, respectively, reflect the increased costs associated with
increased revenues. A decline of $272,000 at Boomtown New Orleans can be
attributed to reduced labor and improved cost of goods sold, while the $167,000
and $829,000 decreases at the Hollywood Park Race Track and Hollywood Park-
Casino, respectively, are primarily due to the timing of sales to Churchill
Downs. Hotel and recreational vehicle expenses increased by $1,417,000, from
$212,000 to $1,629,000, with $1,061,000 due to the timing of the Casino Magic
Acquisition. The remaining increase of $356,000 is attributed to the new hotel
rooms at Boomtown Reno. Truck stop and service station expenses relate to
Boomtown Reno, which increased $1,124,000 due to the escalation of fuel costs.
General and administrative expenses increased $14,422,000, or 73%, with
$11,706,000 of the increase due to the timing of the Casino Magic acquisition.
Other expenses increased by $1,598,000, including $1,740,000 attributed to the
timing of the Casino Magic acquisition. Depreciation and amortization increased
$6,322,000, or 93%, with $5,678,000 of the increase due to the timing of the
Casino Magic acquisition, and the remainder due to the new construction at
various properties. Pre-opening costs for the Belterra Resort and Casino
increased by $317,000 consistent with the development of the project. Net
interest expense increased by $10,647,000, with $4,667,000 of the increase
attributed to the timing of the Casino Magic acquisition and the remaining
increase primarily due to the 9.25% Notes issued in February 1999.
21
During the three months ended September 30, 1999, the Company recorded a net
gain of $42,139,000 from the disposition of assets, as compared to a loss in the
three months ended September 30, 1998, of $1,586,000. The majority of the gain
in 1999 is attributed to the sales transactions to Churchill Downs (see Note 2
to the Condensed Notes to Consolidated Financial Statements). The disposition of
the Hollywood Park Race Track was accounted for as a sale. However, the
disposition of the Hollywood Park-Casino was accounted for as a financing
transaction and therefore not recognized as a sale for accounting purposes as
the Company sub-leased the Hollywood Park-Casino to a third-party operator. The
pre-tax gain on the disposition of the race track and related real estate was
$61,522,000. The asset impairment write-down on the disposition of the Hollywood
Park-Casino and related assets was $20,446,000. Pursuant to accounting
guidelines, the Company recorded a long-term debt obligation of $23,000,000 for
the Hollywood Park-Casino (see Note 8 to the Condensed Notes to Consolidated
Financial Statements). The Company estimates the net income tax liability for
these transactions is approximately $23,000,000.
Nine months ended September 30, 1999 compared to the nine months ended September
- --------------------------------------------------------------------------------
30, 1998
- --------
Total revenues for the nine months ended September 30, 1999, increased by
$287,433,000 or 107%, as compared to the nine months ended September 30, 1998.
Approximately $262,652,000 of the increase was due to the timing of the Casino
Magic acquisition. Gaming revenues increased by $259,221,000, or 149%, with
$243,372,000 of the increase due to the timing of the Casino Magic acquisition
and the balance due primarily to increases of $4,507,000 at Boomtown Reno,
$10,725,000 at Boomtown New Orleans and $2,688,000 at Boomtown Biloxi, offset by
a decrease of $1,021,000 at the Hollywood Park-Casino. The completion of all
remodeling, coupled with the more effective marketing plans and the improved
winter months in 1999 compared to 1998 caused the gaming revenue to increase at
the Boomtown Reno location. At Boomtown New Orleans, improved marketing is
increasing customer traffic and therefore increasing gaming revenue. At Boomtown
Biloxi, the superior food and beverage product is attracting more customers and
therefore gaming revenue has increased. Boomtown casinos in Biloxi and New
Orleans and Casino Magic hotel casinos in Biloxi and Bay St. Louis were
adversely affected in September 1998 from Hurricane Georges which hit the Gulf
Coast. The decline in gaming revenue for the Hollywood Park-Casino is attributed
to its sale on September 10, 1999, and therefore not a full nine months of
revenue. Food and beverage revenue increased by $11,240,000, or 53%, with
$8,618,000 of the increase attributed to the Casino Magic acquisition. The
balance of the increase is due primarily to increases at each of the Boomtown
locations. At Boomtown Reno, food and beverage revenue grew by $1,250,000, which
is due to the remodeled operations and improved weather conditions in 1999
versus 1998. At Boomtown New Orleans, food and beverage revenue increased by
$516,000 from the increased customer traffic flow. At Boomtown Biloxi, food and
beverage revenue grew by $1,069,000, which is due to the superior food and
beverage products at the property. Hotel and recreational vehicle revenue
increased by $7,891,000, from $1,362,000 to $9,253,000, with $6,414,000 of the
increase attributed to the Casino Magic acquisition and the remaining increase
attributed to the new hotel rooms at Boomtown Reno. Truck stop and service
station revenues relate to Boomtown Reno and increased by $2,180,000, or 20%,
due to the escalation of fuel prices. Other income increased by $5,027,000, or
37%, including $4,248,000 contributed from the timing of the Casino Magic
acquisition.
Total operating expenses for the nine months ended September 30, 1999, increased
by $187,763,000, or 77%, as compared to the nine months ended September 30,
1998. Excluding any gain or loss on the disposition of assets, operating
expenses for the nine months increased by $231,488,000, of which approximately
$214,733,000 of the increase was due to the timing of the Casino Magic
acquisition. Gaming expenses increased by $143,139,000, or 152%, with
$142,038,000 of the increase attributed to the timing of the Casino Magic
acquisition. The remaining change is primarily due to a decline of $1,837,000 in
expenses at the Hollywood Park-Casino (less than nine months expense due to
timing of sale), a decrease of $2,087,000 in expenses at Boomtown Reno, which is
primarily due to the redesigned marketing plans and an increase of $4,864,000 at
Boomtown New Orleans, which is primarily due to the increase in gaming taxes
related to increased gaming revenue. Food and beverage expenses increased
$10,634,000, or 39%, including $9,102,000 attributed to the timing of the Casino
Magic acquisition. Increases in food and beverage expenses at Boomtown Reno and
Boomtown Biloxi were offset by declines at Hollywood Park
22
Race Track and Hollywood Park-Casino. The increases of $1,427,000 and $1,018,000
at Boomtown Reno and Boomtown Biloxi, respectively, reflect the increased costs
associated with increased revenues. The $532,000 and $562,000 decreases at the
Hollywood Park Race Track and Hollywood Park-Casino, respectively, are primarily
due to the timing of the sales to Churchill Downs. Hotel and recreational
vehicle expenses increased by $3,996,000, from $499,000 to $4,495,000, with
$3,060,000 due to the timing of the Casino Magic Acquisition. The remaining
increase of $936,000 is attributed to the new hotel rooms at Boomtown Reno.
Truck stop and service station expenses relate to Boomtown Reno, which expenses
increased $2,037,000 due to the escalation of fuel costs. General and
administrative expenses increased $45,506,000, or 74%, with $36,247,000 of the
increase due to the timing of the Casino Magic acquisition. Other expenses
increased by $4,831,000, including $5,365,000 attributed to the timing of the
Casino Magic acquisition. Depreciation and amortization increased $20,475,000,
with $18,921,000 of the increase due to the timing of the Casino Magic
acquisition, and the remainder due to the new construction at various
properties. Pre-opening costs for the Belterra Resort and Casino increased by
$1,733,000 consistent with the development of the project. The gain on
disposition of assets of $42,139,000 is primarily the net gain on sale of the
Hollywood Park Race Track, offset by the asset impairment write-down on the
Hollywood Park-Casino discussed above and in Note 2 to the Condensed Notes to
the Consolidated Financial Statements. Net interest expense increased by
$32,985,000, with $14,323,000 of the increase attributed to the timing of the
Casino Magic acquisition, and the remaining increase primarily due to the 9.25%
Notes issued in February 1999.
Liquidity and Capital Resources
Hollywood Park's principal source of liquidity as of September 30, 1999, was
cash and cash equivalents of $148,992,000 and short-term investments of
$110,638,000. Cash and cash equivalents increased by $104,758,000 during the
nine months ended September 30, 1999. Net cash of $52,618,000 was provided by
operating activities. Net cash of $67,000 was used in investing activities,
with cash of $37,218,000 used for capital improvements and $107,459,000 used to
purchase short term investments, with $139,720,000 provided from the sale of
property, plant and equipment. Net cash of $52,207,000 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 decreased by $3,623,000 during the nine months ended
September 30, 1998. Net cash of $14,790,000 was provided by operating
activities. Net cash of $49,140,000 was used in investing activities. Cash of
$34,981,000 was used to purchase capital assets, including amounts spent for the
Boomtown Reno and Boomtown New Orleans construction projects. Cash of
$8,012,000 was lent in connection with the HP Yakama project. Cash of
$3,232,000 was lent to an officer of the Company for which the Company held a
promissory note (repaid in 1999). Cash was used for short term investing (for
the purchase of Casino Magic common stock), and the Company, 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 $30,727,000, which included short term borrowings of $40,000,000
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") 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
and on September 24, 1999 executed Amendment No. 2 (the "Amendments") to the
Bank Credit Facility. The Amendments adjusted key financial measurement ratios
and clarified certain definitions in light of the sales of the Hollywood Park
Race Track and Hollywood Park-Casino to Churchill Downs (see Note 2 to the
Condensed Notes to the Consolidated Financial Statements) and the increased
construction activity at the Belterra Resort and Casino (see Note 3 to the
Condensed Notes to the Consolidated Financial Statements). In addition,
effective May 22, 1999, Amendment No. 1 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.
23
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.
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 September 30, 1999, the Company has invested
approximately $110,638,000 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 August 2000. At September 30, 1999, approximately $10,883,000 has
been spent for this project and approximately $50,334,000 was committed to
vendors working on the 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 evaluating of its portfolio of assets for
maximum return on investment. 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.
24
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
As of September 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.
25
Part II
Other Information
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None
Item 5. Other Information
- -------------------------
On October 29, 1999, Paul Alanis, President of the Company, was elected to the
Board of Directors of Hollywood Park, Inc.
Item 6. Exhibits and Reports on Form 8K
- ----------------------------------------
(a)
Exhibit
Number
- ------
10.43* Amendment No. 2 to Amended and Restated Reducing Revolving Loan
Agreement, dated September 24, 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 September 30, 1999:
A Current Report on Form 8-K was filed September 27, 1999, to report (i) the
disposition of certain assets, including the Hollywood Park Race Track and
Hollywood Park-Casino, to Churchill Downs, (ii) the lease of the Hollywood Park-
Casino building and related personal property to Century Gaming Management,
Inc., (iii) the September 10, 1999, press release announcing the completion of
the sales to Churchill Downs and (iv) the relocation of the Company's corporate
offices to Glendale, California. The Company's unaudited pro forma consolidated
balance sheet as of June 30, 1999, unaudited pro forma consolidated statement of
operations for the year ended December 31, 1998 and unaudited pro forma
consolidated statement of operations for the six months ended June 30, 1999 were
filed therewith.
26
HOLLYWOOD PARK, INC.
Selected Financial Data by Property
For the three months For the nine months
ended September 30, ended September 30,
---------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- -------- --------
(in thousands, except per share data - unaudited)
Revenues:
Boomtown Reno $ 25,558 $ 20,747 61,056 52,095
Boomtown New Orleans 28,548 23,532 81,436 69,986
Boomtown Biloxi 16,722 15,479 51,415 47,706
Casino Magic Bay St. Louis 22,798 0 68,480 0
Casino Magic Biloxi 24,280 0 71,978 0
Casino Magic Bossier City 36,064 0 105,055 0
Casino Magic Argentina 5,963 0 16,941 0
Hollywood Park Race Track 11,412 11,683 45,624 44,661
Turf Paradise, Inc. 1,414 1,427 11,699 11,338
Hollywood Park, Inc. - Casino Division 11,596 13,629 40,611 40,624
Other 300 682 1,189 1,308
Hollywood Park, Inc. - Corporate 0 288 698 1,031
--------- --------- -------- --------
184,655 87,467 556,182 268,749
--------- --------- -------- --------
Expenses:
Boomtown Reno 18,781 15,907 48,797 46,212
Boomtown New Orleans 19,301 16,786 55,041 48,359
Boomtown Biloxi 13,533 13,334 41,304 39,888
Casino Magic Bay St. Louis 17,120 0 50,827 0
Casino Magic Biloxi 17,894 0 53,501 0
Casino Magic Bossier City 27,760 0 79,846 0
Casino Magic Argentina 3,409 0 9,898 0
Hollywood Park Race Track 9,118 10,494 32,345 34,313
Turf Paradise, Inc. 1,812 1,871 8,635 8,829
Hollywood Park, Inc. - Casino Division 10,086 12,515 34,198 35,975
Other -87 35 608 199
Hollywood Park, Inc. - Corporate 3,990 1,410 15,512 6,988
--------- --------- -------- --------
142,717 72,352 430,512 220,763
--------- --------- -------- --------
Non-recuring income (expenses):
Gain (loss) on disposition of assets, net 42,139 -1,586 42,139 -2,055
Pre-opening costs, Belterra Resort and Casino -684 -367 -2,193 -460
Depreciation and amortization:
Boomtown Reno 1,840 1,457 5,357 4,387
Boomtown New Orleans 1,465 1,436 4,324 3,816
Boomtown Biloxi 973 945 2,986 2,727
Casino Magic Bay St. Louis 1,483 0 4,392 0
Casino Magic Biloxi 1,766 0 5,252 0
Casino Magic Bossier City 2,049 0 6,003 0
Casino Magic Argentina 408 0 1,175 0
Hollywood Park Race Track 739 1,053 2,915 3,166
Turf Paradise, Inc. 292 294 889 888
Hollywood Park, Inc. - Casino Division 559 650 1,895 1,996
Other 484 463 1,454 1,433
Hollywood Park, Inc. - Corporate 1,089 527 3,707 1,461
--------- --------- -------- --------
13,147 6,825 40,349 19,874
--------- --------- -------- --------
Operating income (loss):
Boomtown Reno 4,937 3,383 6,902 1,496
Boomtown New Orleans 7,782 5,310 22,071 17,811
Boomtown Biloxi 2,216 1,200 7,125 5,091
Casino Magic Bay St. Louis 4,195 0 13,261 0
Casino Magic Biloxi 4,620 0 13,225 0
Casino Magic Bossier City 6,255 0 19,206 0
Casino Magic Argentina 2,146 0 5,868 0
Hollywood Park Race Track 1,555 136 10,364 7,182
Turf Paradise, Inc. -690 -738 2,175 1,621
Hollywood Park, Inc. - Casino Division 951 464 4,518 2,653
Other -97 184 -873 -324
Hollywood Park, Inc. - Corporate -5,079 -1,649 -18,521 -7,418
Gain (loss) on disposition of assets, net 42,139 -1,586 42,139 -2,055
Pre-opening costs, Belterra Resort and Casino -684 -367 -2,193 -460
--------- --------- -------- --------
70,246 6,337 125,267 25,597
--------- --------- -------- --------
Interest expense, net 14,759 4,112 44,812 11,827
--------- --------- -------- --------
Income before minority interest and income taxes 55,487 2,225 80,455 13,770
--------- --------- -------- --------
Minority interests - Casino Magic Argentina 550 0 1,687 0
Income tax expense 28,705 253 38,692 4,903
--------- --------- -------- --------
Net income $ 26,232 $ 1,972 $ 40,076 $ 8,867
========= ========= ======== ========
Per common share:
Net income - basic $ 1.01 $ 0.08 $ 1.55 $ 0.34
Net income - diluted $ 0.98 $ 0.08 $ 1.54 $ 0.34
Number of shares:
Basic 26,045 26,101 25,906 26,115
Diluted 26,860 26,101 25,092 26,277
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Hollywood Park, Inc.
(Registrant)
By: /s/ R.D. Hubbard Dated: November 12, 1999
---------------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Bruce C. Hinckley Dated: November 12, 1999
---------------------------------------
Bruce C. Hinckley
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
28