SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996 Commission File Number 0-20648
BLUE DIAMOND HOTEL & CASINO, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 88-0253124
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Boomtown, Inc.
P.O. Box 399, Verdi, Nevada 89439-0399
(Addressed of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 345-8643
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(A)
AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (of for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes __X__ No ____
On December 27, 1996 the registrant had outstanding 100 shares of its Common
Stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the part
of this Form 10-K as indicated: None.
PART I
ITEM 1. BUSINESS
Blue Diamond Hotel and Casino, Inc. ("Boomtown Las Vegas" or "Blue
Diamond" or the "Company"), is a restricted subsidiary of Boomtown, Inc.
("Boomtown") and commenced operations in May 1994 on a 56-acre site at the
interchange of Blue Diamond Road and Interstate 15, the principal
thoroughfare connecting Southern California to Las Vegas. The property is
heavily themed on an old mining town, as reflected on the outside facade and
the interior decor. Boomtown Las Vegas includes a 30,000-square foot casino
with 1,100 slot machines and 25 gaming tables, 300 hotel rooms, a 460-space
full service recreational vehicle park, two restaurants, an entertainment
lounge and a replica of an old mine where customers can pan for real gold.
Boomtown Las Vegas currently employs approximately 900 employees.
BOOMTOWN'S PROPOSED MERGER WITH HOLLYWOOD PARK, INC. ("HOLLYWOOD PARK")
On April 23, 1996, Boomtown entered into an Agreement and Plan of Merger with
Hollywood Park relating to the strategic combination of Hollywood Park and
Boomtown. Pursuant to the Merger Agreement and subject to the terms and
conditions set forth therein, Boomtown would become a wholly-owned subsidiary
of Hollywood Park (the "Merger"). Pursuant to the Merger Agreement, at the
effective date of the Merger each issued and outstanding share of Boomtown
Common Stock will be converted into the right to receive 0.625 (the "Exchange
Ratio"), of a share of Hollywood Park Common Stock. The Merger is intended
to be structured as a tax-free reorganization. The shareholders of Boomtown
and Hollywood Park have approved the Merger. To date, the Merger has only
been approved by Mississippi gaming authorities. The Merger is subject to
the approval of other relevant gaming jurisdictions including Louisiana.
Certain additional matters relating to the signing of the Merger
Agreement and a complete description of the Merger Agreement are more fully
described in Boomtown's Form 8-K dated April 23, 1996, including the
Agreement and Plan of Merger file as exhibit 2.1 thereto, and filed with the
Securities and Exchange Commission on May 3, 1996. The shareholders of
Boomtown and Hollywood Park have approved the Merger. To date, the Merger
has only been approved by the Mississippi gaming authorities. The Merger is
still subject to approval by the Nevada and Louisiana gaming authorities.
OPERATING STRUCTURE Prior to opening, Boomtown owned a 50% interest in
Blue Diamond Hotel and Casino, Inc. ("Blue Diamond"), the operating company
leasing the hotel/casino facility and the land (the "Resort"), and was
primarily responsible for the development and management of the Resort. In
June 1994, Boomtown exercised its right to acquire the remaining 50% of Blue
Diamond from Edward P. Roski, Jr. ("Roski") in exchange for 714,286 shares of
Boomtown's Common Stock. Roski is a member of the Board of Directors of
Boomtown and an affiliate of IVAC, a California general partnership ("IVAC"),
which owns the land and building leased by Boomtown Las Vegas for the Resort.
Boomtown has loaned IVAC $27.3 million (the "IVAC Loans") which was used to
help construct the Resort. The IVAC Loans are secured by separate deeds of
trust on the Resort, which deeds of trusts are subordinate to separate deeds
of trust securing Blue Diamond and Boomtown's obligations in connection with
the Indenture (as defined under "Management's Discussion and Analysis of
Financial Condition and Results of Operations. Boomtown receives interest
income of $2.7 million annually from IVAC as a result of these loans.
2
In turn, Blue Diamond pays rent to IVAC in the amount of $5.4 million
annually to lease the facility ("Property Lease").
Blue Diamond further has the right to purchase the Resort from IVAC in
accordance with the terms of an option which expires in November 1996. On
August 12, 1996, Boomtown, Blue Diamond, Hollywood Park, Roski, IVAC and
Majestic Realty Co. entered into the Blue Diamond Swap Agreement (the "Swap
Agreement") pursuant to which the parties agreed that, immediately following
consummation of the Merger, and contingent upon the closing of the Merger,
Boomtown and Blue Diamond (or any transferee thereof as set forth in the Swap
Agreement) would exchange their entire interest in the Blue Diamond Resort
(the "Resort") (including the IVAC Loans which will be transferred to IVAC
and, as a result, will no longer be owed to or collectible by Boomtown), and
effectively transfer all interest in the Resort to Roski, in exchange for a
$5.0 million unsecured promissory note (the "First Note") and an unsecured
promissory note (the "Second Note") equal in amount to be issued by Hollywood
Park to Roski, for the purchase of his Boomtown common stock referred to in
the following paragraph (valued at approximately $3.5 million) and assumption
by Roski, IVAC or an affiliate of certain liabilities (the "Swap"). The
First Note has an interest rate equal to the prime rate plus one and one half
percent (1.5%) per annum and provides for annual principal payments of $1
million plus accrued interest and matures on the date that is five years
after closing. The Second Note has an interest rate equal to the prime rate
plus one-half percent (.5%) per annum and provides for a payment of all
principal plus accrued interest on the date that is three (3) years after the
closing.
In exchange for its interest in the Resort, Boomtown will receive notes
from Roski with an estimated value totaling $8.5 million, an estimated cash
payment of $2.1 million, release from lease obligations under the Resort
lease, Roski's assumption of certain liabilities, note and capital lease
obligations totaling approximately $3.8 million and the ongoing expenses of
the Resort. Additionally, Roski will assume all operating leases including
any residual balances due under such leases. The Swap Agreement requires
approvals from applicable gaming authorities and Boomtown intends to seek the
consent of the holders of a majority of the outstanding principal amount on
the Notes. The Swap would be effected immediately following the Merger.
In accordance with the terms of the Swap Agreement, with certain
exceptions set forth in the Swap Agreement, the Company will continue to
operate the property until consummation of the Merger. Boomtown and Blue
Diamond will be responsible for the liabilities of the Resort prior to the
exchange date and Roski will be responsible for the liabilities of the Resort
subsequent to the exchange date. In addition, Roski will resign from
Boomtown's Board of Directors, effective as of the closing of the Swap.
Subject to certain conditions set forth in the Swap Agreement, the Swap may
be effectuated through any structure agreed upon by Boomtown and Hollywood
Park. If the Swap were not consummated for any reason, Boomtown would
continue to operate the property through the expiration of the lease term in
July 1999, and the IVAC loans would be required to be repaid to Boomtown at
such time.
On August 12, 1996, Hollywood Park and Roski further entered into a
Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to which
Hollywood Park will, concurrently with the Swap, purchase the stock in
Boomtown held by Roski ("Roski Stock") for its market price on the date of
the Swap (estimated to be $3.5 million). The purchase price will be paid
through issuance of an unsecured promissory note having an interest rate
equal to the prime rate plus one percent (1%) per annum and providing for
four equal annual principal payments plus accrued interest and maturing on
the date that is four years after closing.
3
Boomtown took a non-cash, pre-tax charge of $36.6 million related to the
Swap Agreement. The charge is comprised of the write-offs of Boomtown's
investment in lease of $12.7 million, an $18.9 million write-down of the
related party notes receivable to $8.5 million and the write-down of the
remaining net assets less the liabilities assumed by Roski of $5.0 million.
In the event that the actual amount of the second note is less than $3.5
million, the Company will incur an additional loss on the loss on the sale of
Blue Diamond.
For a full discussion of the terms of the above described transactions
and relationships, see Hollywood Park, Inc.'s registration statement on Form
S-4 filed with the SEC on September 18, 1996.
COMPETITION Management believes that Boomtown Las Vegas competes with
other casinos in the Las Vegas area, as well as with four casinos located
near the California border adjacent to Interstate 15, the closest of which is
25 miles from Boomtown Las Vegas. The Company believes it has been adversely
affected by the intense competition in the Las Vegas local market. Based on
studies by management, the Company believes that 70-80% of Boomtown Las
Vegas' customers are local Las Vegas residents. The competition for local
customers is intense and there are several major Las Vegas hotel/casinos that
target locals as a primary market. The loss of a significant portion of
these customers to one of the other "locals' casinos" could have a
significant adverse effect on Boomtown Las Vegas' operations. Additionally,
the Company believes its operations are adversely affected at least
temporarily during the opening and commencement of operations of each new
major Las Vegas gaming resort. The Las Vegas hotel capacity is continuing to
expand and is expected to increase significantly during the next three years
upon completion and opening of several new hotel/casinos and expansion
projects, including Bellagio and New York New York.
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local regulations.
The Company's gaming operations are subject to the licensing and regulatory
control of the Nevada Gaming Commission ("Nevada Commission"), the Nevada
State Gaming Control Board ("Nevada Board"), Washoe County and the Clark
County Liquor and Gaming Licensing Board ("CCLGLB"). The Nevada Commission,
the Nevada Board, Washoe County and the CCLGLB are collectively referred to
as the "Nevada Gaming Authorities".
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things; (i) the prevention of unsavory or unsuitable
persons from having a direct or indirect involvement with gaming at any time
or in any capacity; (ii) the establishment and maintenance of responsible
accounting practices and procedures; (iii) the maintenance of effective
controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping and
requiring the filing of periodic reports with the Nevada Gaming Authorities;
(iv) the prevention of cheating and fraudulent practices; and (v) providing a
source of state and local revenues though taxation and licensing fees.
Changes in such laws, regulations and procedures could have an adverse effect
on the Company's gaming operations.
Boomtown's subsidiaries which operate Boomtown Las Vegas are required to
be licensed by the Nevada Gaming Authorities. The gaming licenses require
the periodic payment of fees and taxes and are not transferable. Boomtown is
registered by the Nevada Commission as a publicly
4
traded corporation ("Registered Corporation") and as such , it is required
periodically to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information which the Nevada Commission may
require. No person may become a stockholder of, or receive any percentage of
profits from, the operating subsidiaries without first obtaining licenses and
approvals from the Nevada Gaming Authorities. Boomtown and its operating
subsidiaries have obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Boomtown or its
operating subsidiaries, in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors and certain key employees of the operating subsidiaries
must file applications with the Nevada Gaming Authorities and may be required
to be licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors and key employees of Boomtown who are actively and directly
involved in gaming activities of the operating subsidiaries may be required
to be licensed or found suitable by the Nevada Gaming Authorities. The
Nevada Gaming Authorities may deny an application for licensing for any cause
which they deem reasonable. A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensee positions must be reported to the Nevada
Gaming Authorities and in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue to have a
relationship with Boomtown or its operating subsidiaries, the companies
involved would have to server all relationships with such person. In
addition, the Nevada Commission may require Boomtown or the operating
subsidiaries to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability and questions
pertaining to licensing are not subject to judicial review in Nevada.
Boomtown and its operating subsidiaries are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing
transactions by the operating subsidiaries must be reported to, or approved
by, the Nevada Commission.
If it were determined that the Nevada Act was violated by either of the
operating subsidiaries, the gaming licenses they hold could be limited,
conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, the Company, and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Act, at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission to operate
the Boomtown's gaming properties and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the reasonable
rental value of Boomtown's gaming properties) could be forfeited to the State
of Nevada. Limitation, conditioning or suspension of any gaming license or
the appointment of a supervisor could (and revocation of any gaming license
would) materially adversely affect the Company's gaming operations and its
results of operations.
5
Any beneficial holder of Boomtown's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of Boomtown's
voting securities determined, if the Nevada Commission has reason to believe
that such ownership would otherwise be inconsistent with the declared
policies of the State of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting any
such investigation.
The Nevada Act requires any persons who acquires more than 5% of
Boomtown's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10%
of Boomtown's voting securities apply to the Nevada Commission for a finding
of suitability within thirty days after the Chairman of the Nevada Board
mails the written notice requiring such filing. Under certain circumstances,
an "institutional investor", as defined in the Nevada Act, which requires
more than 10%, but not more than 15%, of Boomtown's voting securities may
apply to the Nevada Commission for a waiver of such finding of suitability if
such institutional investor holds the joint securities for investment
purposes only. An institutional investor shall not be deemed to hold voting
securities for investment purposes unless the voting securities were acquired
and are held in the ordinary course of business as an institutional investor
and not for the purpose of causing, directly or indirectly, the election of a
majority of the members of the Board of Directors of Boomtown, any change in
Boomtown's corporate charter, bylaws, management, policies or operations or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding Boomtown's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i)
voting on all matters voted on by stockholders; (ii) making financial and
other inquiries of management of the type normally made by securities
analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent.
If the beneficial holder of voting securities who must be found suitable
is a corporation, partnership or trust, it must submit detailed business and
financial information, including a list of beneficial owners. The applicant
is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or
a license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common
stock of a Registered Corporation beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a criminal offense.
Boomtown is subject to disciplinary action if, after it receives notice that
a person is unsuitable to be a stockholder or to have any other relationship
with Boomtown or the operating subsidiaries, Boomtown (i) pays that person
any dividend or interest upon voting securities of Boomtown, (ii) allows that
person to exercise, directly or indirectly, any voting right conferred
through securities held by that person, (iii) pays remuneration in any form
to that person for services rendered or otherwise, or (iv) fails to pursue
all lawful efforts to require such unsuitable person to relinquish his voting
securities for cash at fair market value. Additionally, the CCLGLB has taken
the position that it has the authority to approve all persons owning or
controlling the stock of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be
investigated and be found suitable to own the debt security of a Registered
Corporation. If the Nevada Commission determines that a person is
6
unsuitable to own such security, then pursuant to the Nevada Act, the
Registered Corporation can be sanctioned, including the loss of its
approvals, if without the prior approval of the Nevada Commission, it (i)
pays to the unsuitable person any dividend, interest, or any distribution
whatsoever; (ii) recognizes any voting right by such unsuitable person in
connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person
by way of principal, redemption, conversion, exchange, liquidation, or
similar transaction.
Boomtown is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the
Nevada Gaming Authorities. A failure to make such disclosure may be grounds
for finding the record holder unsuitable. Boomtown is also required to
render maximum assistance in determining the identity of the beneficial
owner. The Nevada Commission has the power to require Boomtown's stock
certificates to bear a legend indicating that the securities are subject to
the Nevada Act. However, to date, the Nevada Commission has not imposed such
a requirement on the Company.
Boomtown may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities. Any representation to the contrary is unlawful.
Changes in control of the Company through merger (including the Merger),
consolidation, stock or asset acquisitions, management or consulting
agreements, or any act or conduct by a person where by such person obtains
control of the Company, may not occur without the prior approval of the
Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission in a variety
of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to
be investigated and licenses as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licensees and Registered Corporations that
are affiliated with those licensees, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a
regulatory scheme to ameliorate the potentially adverse effects of these
business practices upon Nevada's gaming industry and to further Nevada's
policy to: (i) assure the financial stability of corporate gaming operators
and their affiliates; (ii) preserve the beneficial aspects of conducting
business in the corporate form; and (iii) promote a neutral environment for
the orderly governance of corporate affairs. Approvals are, in certain
circumstances, required from the Nevada Commission before the Company can
make exceptional repurchases of voting securities above the current market
price thereof and before a corporate acquisition opposed by management can be
consummated. The Nevada Act also requires prior approval of a plan of
recapitalization proposed by Boomtown's Board of Directors in response to a
tender offer made directly to the Registered Corporation's stockholders for
the purposes of acquiring control of the Registered Corporation.
7
License fees and taxes, computed in various ways depending on the type
of gaming or activity involved, as payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
wither: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A
casino entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the selling of food or
refreshments. Nevada licensees that hold a license as an operator of a slot
route, or a manufacturer's or distributor's license, also pay certain fees
and taxes to the State of Nevada.
Any person who is licensed, registered, required to be registered, or is
under common control with such persons (collectively, "Licensees"), and who
proposes to become involved in a gaming venture outside of Nevada, is
required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of the Nevada
Board's investigation of their participation in such foreign gaming. The
revolving fund is subject to increase or decrease in the discretion of the
Nevada Commission. Thereafter, Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. A licensee is also subject
to disciplinary action by the Nevada Commission it knowingly violates any
laws of the foreign jurisdiction pertaining to the foreign gaming operation,
fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations,
engages in activities that are harmful to the State of Nevada or its ability
to collect gaming taxes and fees, or employs a person in the foreign
operation who has been denied a license or finding of suitability in Nevada
on the ground of personal unsuitability.
ITEM 2. PROPERTIES
The Company leases all buildings and ground at its property site. On
June 30, 1993, Blue Diamond entered into a lease with IVAC, a California
general partnership, for the Boomtown Las Vegas building and related land of
56 acres. The lease is for an initial term of five years with renewal options
in certain very limited circumstances. Subject to the terms of the lease,
Blue Diamond had an option to acquire the leased property for a six-month
period, commencing May 20, 1996.
On August 12, 1996, Boomtown, Blue Diamond, Hollywood Park, Roski, IVAC
and Majestic Realty Co. entered into the Blue Diamond Swap Agreement (the
"Swap Agreement") pursuant to which the parties agreed that, upon
consummation of the Merger, and contingent upon the closing of the Merger,
Boomtown and Blue Diamond (or any transferee thereof as set forth in the Swap
Agreement) would exchange their entire interest in the Blue Diamond Resort
(the "Resort") (including the IVAC Loans), and effectively transfer all
interest in the Resort to Roski, in exchange for a $5.0 million unsecured
promissory note (the "First Note") and an unsecured promissory note (the
"Second Note") valued at approximately $3.5 million and assumption by Roski,
IVAC or an affiliate of certain liabilities (the "Swap"). Boomtown and IVAC,
among other parties, have entered into the Swap Agreement to effect the Swap,
pursuant to which the lease would terminate and Boomtown would exchange its
entire interest in the Boomtown Las Vegas resort for certain promissory notes
and an assumption of certain liabilities by IVAC.
ITEM 3. LEGAL PROCEEDINGS
8
The Company has no history of material claims and no material actions are
currently pending against the Company, nor is the Company a plaintiff in any
material actions currently pending.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's equity securities are not publicly traded. The Company is
a wholly-owned subsidiary of Boomtown.
ITEM 7. NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------
1995 1996
------------------------ -------------------------
Revenues:
Gaming $ 32,917 70.6% $ 30,547 68.3%
Non-gaming 13,725 29.4 14,174 31.7
------ ----- ------ -----
46,642 100.0 44,721 100.0
Operating expenses:
Gaming 14,893 31.9 14,341 32.1
Non-gaming 12,328 26.4 12,407 27.7
Marketing, general and
administrative 19,446 41.7 18,919 42.3
Rent 5,455 11.7 5,455 12.2
Loss on Sale of
Blue Diamond -- -- 17,734 39.6
Management fee-
Boomtown, Inc. 876 1.9 840 1.9
Depreciation and
amortization 1,476 3.2 1,032 2.3
------ ----- ------ -----
54,474 116.8 70,728 158.2
Loss from operations (7,832) (16.8) (26,007) (58.2)
Interest and other
expense, net 3,239 6.9 3,914 8.7
------ ----- ------ -----
Loss before tax benefit (11,071) (23.7) (29,921) (66.9)
Income tax benefit 3,462 7.4 5,727 12.8
------ ----- ------ -----
Net loss ($ 7,609) (16.3)% ($24,194) (54.1)%
------ ----- ------ -----
------ ----- ------ -----
FISCAL 1996 COMPARED TO FISCAL 1995
Total revenues for the year ended September 30, 1996 were $44.7 million,
a decrease of $1.9 million, or 4.1% compared to $46.6 million during the
prior year. Revenues were derived primarily from 1,100 slot machines, 25
table games and Keno, with slot machines providing approximately 82% of
casino revenues. During the 1996 fiscal year the Company reported gaming
revenues of $30.5 million compared to $32.9 million during the commensurate
prior year period. The Company's slot machine win per unit fell from $65.00
per day to $62.00 per day during fiscal 1996. This represents a 7.3% decline
primarily attributed to intense competition in the local customer market,
lower hold percentages on gaming machines and disruption of the gaming floor
during the second fiscal quarter of 1996 due to remodeling of the casino
layout. The Company continues to position itself to compete with the local's
market and has implemented marketing
10
strategies designed at increasing its local customer gaming play through
player incentives and players club benefits.
Non-casino revenues consist primarily of income generated from food and
beverage, a 300 room hotel, a 460 space full service recreational vehicle
park, a showroom, mini-mart, video games and a mine feature where guests pan
for gold in the family entertainment center. Non-casino revenues were
approximately 31.7% of total revenues during fiscal 1996 compared to 29.4%
during fiscal 1995. The majority of the non-gaming revenues represent food
and beverage sales from the Company's three restaurants and deli-style snack
bar.
During fiscal 1996 the Company generated approximately $7.6 million of
food and beverage revenues or 17.1% of total revenues compared to $7.6
million and 16.2%, respectively during the prior year. The Company's hotel
generated approximately $3.8 million or 8.5% of total revenues compared to
$3.4 million and 7.3% of total revenues during the prior year. The Company
generated $1.7 million from its RV park compared to $1.4 million during the
prior year period. The increase in the Company's hotel revenue resulted
primarily from the property reaching near capacity occupancy as well as an
increase in the average room rate charged to its hotel guests. The increase
in the recreational vehicle park revenues resulted primarily from the
increased awareness of the park and weather conditions in the Las Vegas area
that provided for an earlier start to the vacationing season.
For the fiscal year ended September 30, 1996 the gaming margin was 53.1%
or $16.2 million compared to 54.8% or $18.0 million. The decline in the
gaming margin primarily represents a lower win per unit associated with fewer
gaming patrons. The non-gaming margin increased approximately $370,000
primarily attributable to a higher margin from the Company's hotel revenues,
net of the effects of a lower margin in its food and beverage products as the
Company has implemented measures to increase their quality in efforts to lure
additional patrons at the casino.
Marketing expenses were $5.2 million and $4.9 million for the fiscal
years ended September 30, 1996 and 1995, respectively. Marketing expenses
consist primarily of costs associated with printed advertising, outdoor
signs, media advertising, promotional events, direct mailings and bus
programs. The increase in marketing costs is a result of additional
promotional events designed to stimulate gaming play, including higher
redemption amounts from the Company's players club program and a new casino
marketing program designed at attracting higher wagering patrons.
General and administrative expenses were $13.7 million and $14.5 million
for the fiscal years ended September 30, 1996 and 1995, respectively. The
5.6% decline resulted from the Company's continuing effort to reduce overhead
and the implementation of cost reduction measures. Included in general and
administrative expenses are operating leases of $4.0 million and $3.8 million
for the fiscal years ended 1996 and 1995, respectively, primarily from
leasing of furniture, fixtures, equipment and gaming machines under three
year terms. All of the leases expire between August and September of 1997.
Additionally, included in general and administrative expenses are management
fees charged by Boomtown. Boomtown is responsible for managing the
operations of the Company and charges a pro-rata share of the costs incurred
relative to this management function. During the year ended September 30,
1996 the Company recorded management fees of $840,000 compared to $876,000
recorded during the prior year period.
11
During the year the Company took a non-cash charge of $17.7 million
related to the Swap Agreement which would effectively provide for an early
termination of the existing property lease between Boomtown and IVAC. The
agreement calls for, upon consummation of Boomtown's proposed Merger with
Hollywood Park, Boomtown would transfer of its entire interest in the Resort
to Roski in exchange for certain assets and assumption of certain
liabilities. The charge included the write-off of the Company's investment
in lease of $12.7 million, and the write-off of the remaining net assets to
be exchanged less the liabilities to be assumed by Roski of approximately
$5.1 million. Consummation of the Swap is subject to obtaining all necessary
Governmental approvals, including gaming approval.
Depreciation expense for the year ended September 30, 1996 was $623,000
compared to $1.1 million recorded during the prior year period. The
reduction in depreciation resulted primarily from the Company's write-down of
$5.1 million of fixed assets due to the signing of the Company's Swap
Agreement.
Interest and other expenses, net were $3.9 million during fiscal year
1996 compared to $3.2 million recorded during the prior year period. The
increase primarily relates to additional interest charged by Boomtown on the
Company's notes payable to Boomtown which increased during fiscal 1996.
The recorded benefit for income taxes for the year ended September 30,
1996 does not reflect the anticipated benefit from the write-off associated
with the Swap Agreement. The $12.7 million write-off of the investment in
lease is not tax deductible for income tax purposes. Additionally, the
remaining income tax benefit arising from the Swap Agreement has been offset
by a valuation allowance due to the uncertainty regarding future realization
of the deferred tax asset.
TERMINATION OF LEASE
On August 12, 1996 the Company entered into an agreement with the lessor
of the property pursuant to which the parties agreed that Boomtown and Blue
Diamond would exchange their entire interest in the resort and effectively
transfer all interest in the resort to Ed Roski the properties owner and
lessor. For a full discussion and description of the transaction refer to
Item 1. "Business" in addition to Hollywood Park Inc.'s Registration
Statement on Form S-4 filed with the SEC on September 18, 1996.
LIMITED GUARANTEE OF BOOMTOWN NOTES BY THE COMPANY
Unless defined herein, capitalized terms used in this section have the
meaning set forth in the Indenture entered into in connection with the
issuance and sale by Boomtown of the Notes described below (the "Indenture").
The Indenture is incorporated by reference as Exhibit 10.36 to Boomtown's
Annual Report on Form 10-K for the year ended September 30, 1994.
In November 1993, Boomtown closed the issuance and sale of an aggregate
of $103.5 million principal amount of 11-1/2% First Mortgage Notes due
November 1, 2003 (the "Notes") and warrants to purchase 472,500 shares of
Boomtown's Common Stock. Payment of the principal, interest and any other
amounts owing under the Notes has been unconditionally guaranteed by certain
subsidiaries of Boomtown. The Company has provided a guarantee of the
12
Notes which is limited as follows: (A) the Company's liability under its
guarantee will be limited to an amount equal to the sum of the outstanding
principal balance from time to time of (x) loans, investments and other
transfers of assets made to the Company by Boomtown, Inc., any other
guarantor subsidiary of Boomtown, Inc. and certain other material
subsidiaries which may be in existence and (y) loans made by Boomtown to
IVAC, a California general partnership, the entity which constructed the
Resort, and (B) the Company's guarantee is triggered by Specified Events of
Default rather than all events of default set forth in the Indenture.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information is incorporated by reference to the financial statements
and data listed in Item 14 of Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following items are filed as part of this Report:
Item 1. FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors..................15
Balance Sheets, September 30, 1995 and 1996........................16
Statements of Operations for the years
ended September 30, 1994, 1995 and 1996............................17
Statements of Stockholder's Deficit for the years
ended September 30, 1994, 1995 and 1996............................18
Statements of Cash Flows for the years
ended September 30, 1994, 1995 and 1996............................19
Notes to Financial Statements......................................20
Item 2. FINANCIAL STATEMENT SCHEDULES
Valuation and Qualifying Accounts..................................29
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
Item 3. EXHIBITS
The Exhibits listed on the accompanying index immediately following
the signature page are filed as part of this Report.
(b) Reports on Form 8-K. Not applicable.
(c) Exhibits
See Item 14(a)(3) above.
(d) Financial Statement Schedules
See Item 14(a)(2) above.
14
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Blue Diamond Hotel & Casino, Inc.
We have audited the accompanying balance sheets of Blue Diamond Hotel &
Casino, Inc. (the "Company") as of September 30, 1995 and 1996, and the
related statements of operations, stockholder's deficit and cash flows for
each of the three years in the period ended September 30, 1996. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at September 30,
1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Reno, Nevada
November 8, 1996
15
BLUE DIAMOND HOTEL & CASINO, INC.
BALANCE SHEETS
(in thousands)
(except share data)
September 30,
1995 1996
--------- -------
ASSETS:
Current assets:
Cash and cash equivalents $ 2,630 $ 2,563
Accounts receivable, net 208 301
Inventories 873 336
Prepaid expenses 1,350 1,367
Other current assets 214 189
------- -----
Total current assets 5,275 4,756
Property and equipment, net 5,761 1,040
Deferred income taxes 987 1,803
Investment in lease, net 13,077 --
Other assets 53 237
------- -----
Total assets $ 25,153 $ 7,836
------- -----
------- -----
LIABILITIES AND STOCKHOLDER'S DEFICIT:
Current liabilities:
Accounts payable $ 1,119 $ 895
Accrued compensation 545 704
Other accrued liabilities 2,042 1,283
Note payable - Boomtown, Inc. 29,021 33,785
Accrued interest payable - Boomtown, Inc. 3,754 7,372
Long-term debt due within one year (Note 4) 587 800
------- -----
Total current liabilities 37,068 44,839
Long-term debt due after one year (Note 4) 894 --
Commitment and contingencies (Note 6)
Stockholder's deficit:
Common stock, no par value, 2,500 shares
authorized, 100 shares issued and outstanding 11
Accumulated deficit (12,810) (37,004)
------- -----
Total stockholder's deficit (12,809) (37,003)
------- -----
Total liabilities and stockholder's deficit $ 25,153 $ 7,836
------- -----
------- -----
See accompanying notes.
16
BLUE DIAMOND HOTEL & CASINO, INC.
STATEMENTS OF OPERATIONS
(in thousands)
Years ended September 30,
------------------------------------
1994 1995 1996
------ ------ ------
Revenues:
Gaming $ 12,306 $ 32,917 $ 30,547
Food and beverage 2,634 7,558 7,587
Hotel and recreational vehicle park 1,473 4,844 5,549
Family entertainment center 175 334 296
Mini-mart 38 150 157
Showroom 329 107 --
Other income 151 732 585
------ ------ ------
17,106 46,642 44,721
Costs and Expenses:
Gaming 4,496 12,229 11,677
Gaming equipment leases 222 2,664 2,664
Food and beverage 3,094 9,452 9,840
Hotel and recreational vehicle park 1,080 2,461 2,346
Family entertainment center 92 221 137
Mini-mart 24 94 84
Showroom 2,130 100 --
Marketing 1,338 4,910 5,200
General and administrative 3,695 14,536 13,719
Pre-opening expenses 5,039 -- --
Property rent 1,974 5,455 5,455
Loss on sale of Blue Diamond -- -- 17,734
Management fee-Boomtown, Inc. -- 876 840
Depreciation and amortization 555 1,476 1,032
------ ------ ------
23,739 54,474 70,728
Loss from operations (6,633) (7,832) (26,007)
Interest and other expense, net 1,210 3,239 3,914
------ ------ ------
Loss before income tax benefit (7,843) (11,071) (29,921)
Income tax benefit 2,642 3,462 5,727
------ ------ ------
Net loss ($ 5,201) ($ 7,609) ($ 24,194)
------ ------ ------
------ ------ ------
See accompanying notes.
17
BLUE DIAMOND HOTEL & CASINO, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
Years ended September 30, 1994, 1995 and 1996
(in thousands except share amounts)
Common Stock Total
-------------- Accumulated Stockholder's
Shares Amount Deficit Deficit
------ ------ ----------- -------------
Balances, September 30, 1993 100 $ 1 $ -- $ 1
Net loss -- -- (5,201) (5,201)
---- ------ -------- ---------
Balances, September 30, 1994 100 1 (5,201) (5,200)
Net loss -- -- (7,609) (7,609)
---- ------ -------- ---------
Balances, September 30, 1995 100 1 (12,810) (12,809)
Net loss -- -- (24,194) (24,194)
---- ------ -------- ---------
Balances, September 30, 1996 100 $ 1 ($37,004) ($37,003)
---- ------ -------- ---------
---- ------ -------- ---------
See accompanying notes.
BLUE DIAMOND HOTEL & CASINO, INC.
STATEMENTS OF CASH FLOWS
18
Increase (decrease) in cash and cash equivalents
(in thousands)
Years ended September 30,
--------------------------------------
1994 1995 1996
-------- -------- --------
Cash flows from operating activities:
Net loss ($ 5,201) ($ 7,609) ($ 24,194)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss on sale of Blue Diamond -- -- 17,734
Depreciation and amortization 555 1,476 1,032
Loss (gain) on the sale of property
and equipment (11) (169) 86
Changes in operating assets
and liabilities:
Accounts receivable, net (523) 315 (93)
Inventories (1,059) 186 249
Prepaid expenses (1,302) (48) (17)
Other current assets (169) (98) 30
Deferred income taxes (1,279) 292 (1,227)
Accounts payable 659 460 (224)
Accrued compensation 252 293 159
Other accrued liabilities 1,682 302 (759)
Accrued interest payable-Boomtown, Inc. 953 2,801 3,618
-------- -------- --------
Net cash used in operating activities (5,443) (1,799) (3,606)
-------- -------- --------
Cash flows from investing activities:
Payments for purchases of property
and equipment (9,424) (871) (544)
Reductions of other assets 165 -- --
Proceeds from sale of property and
equipment 3,337 1,243 --
Net cash (used in) provided by
investing activities (5,922) 372 (544)
-------- -------- --------
Cash flows from financing activities:
Note payable-Boomtown, Inc. 13,298 2,101 4,764
Payments on advances from
Boomtown, Inc. (509) --
Proceeds from long-term debt 490 758 195
Principal payments on long-term debt (106) (617) (876)
-------- -------- --------
Net cash provided by financing activities 13,173 2,242 4,083
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 1,808 815 (67)
Cash and cash equivalents:
Beginning of year 7 1,815 2,630
-------- -------- --------
End of year $ 1,815 $ 2,630 $ 2,563
-------- -------- --------
-------- -------- --------
See accompanying notes.
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
19
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
BASIS OF PRESENTATION AND NATURE OF BUSINESS - Blue Diamond Hotel &
Casino, Inc. (the "Company" or "Blue Diamond"), a Nevada Corporation
incorporated on November 1, 1989, is a wholly-owned subsidiary of Boomtown,
Inc. ("Boomtown"). Previously, Boomtown owned 50% of the Company and Edward
P. Roski, Jr. ("Roski"), owned the remaining 50% of the Company. Roski is a
member of the Board of Directors of Boomtown and an affiliate of IVAC, a
California general partnership, which owns the land and building leased by
the Company for the Resort. Boomtown has loaned IVAC $27.3 million (the
"IVAC Loans") which was used to help construct the resort. The IVAC Loans
are secured by separate deeds of trust on the Resort, which deeds of trusts
are subordinate to separate deeds of trust securing Blue Diamond and
Boomtown's obligations in connection with Boomtown's Indenture. Boomtown
receives interest income of $2.7 million annually from IVAC as a result of
these loans. In turn, Blue Diamond pays rent to IVAC in the amount of $5.4
million annually to lease the facility. After commencement of operations,
Boomtown exercised its option to purchase all of Roski's ownership interest
in the Company for 714,286 shares of Boomtown's Common Stock. The market
value of the stock plus professional fees related to the stock issuance along
with capitalized interest of $1.2 million, was capitalized as an investment
in lease on the Company's balance sheet.
BOOMTOWN'S PROPOSED MERGER WITH HOLLYWOOD PARK, INC. ("HOLLYWOOD PARK")
- -On April 23, 1996, the Boomtown entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Hollywood Park relating to the strategic
combination of Hollywood Park and Boomtown. Pursuant to the Merger Agreement
and subject to the terms and conditions set forth therein, the Company would
become a wholly-owned subsidiary of Hollywood Park (the "Merger"). Pursuant
to the Merger Agreement, at the effective date of the Merger (the "Effective
Date"), each issued and outstanding share of Boomtown Common Stock will be
converted into the right to receive 0.625 (the "Exchange Ratio"), of a share
of Hollywood Park Common Stock. The Merger is intended to be structured as a
tax-free reorganization, for income tax purposes and will be accounted for as
a purchase for financial reporting purposes.
TERMINATION OF LAS VEGAS PROPERTY LEASE - On August 12, 1996, Boomtown,
Blue Diamond, Hollywood Park, Roski, IVAC and Majestic Realty entered into
the Blue Diamond Swap Agreement (the "Swap Agreement") pursuant to which the
parties agreed that, upon consummation of the Merger, and contingent upon the
closing of the Merger, Boomtown and Blue Diamond (or any transferee thereof
as set forth in the Swap Agreement) would exchange their entire interest in
the Blue Diamond Resort (the "Resort") (including the IVAC Loans), and
effectively transfer all interest in the Resort to Roski, in exchange for a
$5.0 million unsecured promissory note (the "First Note") and an unsecured
promissory note (the "Second Note") equal in amount to the note to be issued
by Hollywood Park to Roski for the purchase of his Boomtown common stock
referred to in the following paragraph (valued at approximately $3.5 million)
and assumption by Roski, IVAC or an affiliate of certain liabilities (the
"Swap"). The First Note has an interest rate equal to the prime rate plus
one and one half percent (1.5%) per annum and provides for annual principal
payments of one million dollars ($1,000,000) plus accrued interest and
maturing on the date that is five years after the Exchange Date (as such term
is defined in the
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
20
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
Swap Agreement). The Second Note has an interest rate equal to the prime
rate plus one-half percent (.5%) per annum and provides for a payment of all
principal plus accrued interest on the date that is three (3) years after the
Exchange Date. Consummation of the Swap is subject to obtaining all necessary
Governmental approvals, including gaming approval.
In exchange for its interest in the Resort, Boomtown will receive notes
payable to Boomtown with an estimated value totaling $8.5 million, an
estimated cash payment of $2.1 million, release from lease obligations under
the Resort lease, Roski's assumption of certain liabilities and note
obligations totaling approximately $3.8 million and the ongoing expenses of
the Resort. Additionally, Roski will assume all operating leases including
any residual balances due under such leases. The Swap Agreement requires
approvals from applicable gaming authorities and Boomtown intends to seek the
consent of the holders of a majority of the outstanding principal amount on
the Notes (see Note 3). The Swap would be effected immediately following the
Boomtown's Merger with Hollywood Park which is expected to be completed by
the end of the first quarter of calendar 1997.
In accordance with the terms of the Swap Agreement, with certain
exceptions set forth in the Swap Agreement, the Company will continue to
operate the property until consummation of the Merger. Boomtown and Blue
Diamond will be responsible for the liabilities of the Resort prior to the
Swap and Roski will be responsible for the liabilities of the Resort
subsequent to the Swap. In addition, Roski will resign from Boomtown's Board
of Directors, effective as of the Exchange Date. Subject to certain
conditions set forth in the Swap Agreement, the Swap may be effectuated
through any structure agreed upon by Boomtown and Hollywood Park. If the
Swap were not consummated for any reason, Boomtown would continue to operate
the property through the expiration of the lease term in July 1999, and the
IVAC Notes would be required to be repaid to Boomtown at such time.
On August 12, 1996, Hollywood Park and Roski further entered into a
Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to which
Hollywood Park will, concurrently with the Swap, purchase the stock in
Boomtown held by Roski ("Roski Stock") for its market price on the date of
the Swap (estimated to be $3.5 million). The purchase will be paid through the
issuance of an unsecured promissory note having an interest rate equal to the
prime rate plus one percent (1%) per annum and providing for four equal
annual principal payments plus accrued interest and maturing on the date that
is four years after the Exchange Date. The Stock Purchase Agreement may also
be terminated by Hollywood Park in the event that Boomtown and Hollywood
Park, in accordance with the provisions set forth in the Swap Agreement,
elect to utilize a structure to effect the Swap which would require Roski to
retain the Roski Stock.
Boomtown took a non-cash, pre-tax charge of $36.6 million related to the
Swap Agreement. The charge is comprised of the write-off of Boomtown's
investment in lease of $12.7 million, an $18.9 million write-down of the
related party notes receivable to $8.5 million and the write-down of the
remaining net assets less the liabilities assumed by Roski of $5.0 million.
In the
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
21
event that the actual amount of the second note is less than 3.5 million the
Company will incur an additional loss on the sale of Blue Diamond.
For a full discussion of the terms of the above described transactions
and relationships, see Boomtown's 1994 Registration Statement on Form S-4,
and Hollywood Park, Inc.'s Form S-4 dated September 18, 1996 as filed with
the SEC.
USE OF ESTIMATES - The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles which
require the Partnership's management to make estimates and assumptions that
effect the amounts reported therein. Actual results could vary from such
estimates.
FAIR VALUES OF FINANCIAL INSTRUMENTS - The carrying amounts reported in
the accompanying balance sheets for cash and cash equivalents approximate
their respective fair values. The carrying amounts of the Company's
borrowings under its debt agreements approximate their fair value. The fair
value was based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of cash on
hand and in banks. For purposes of the statements of cash flows, the Company
considers highly liquid investments with original maturities of three months
or less as cash equivalents. During the years ended September 30, 1994, 1995
and 1996, the Company paid interest of approximately $132,000, $452,000, and
$216,000, respectively. Long-term debt incurred for the purchase of
equipment during the years ended September 30, 1994, 1995 and 1996 amounted
to approximately $6,296,000, $910,000, and $411,000, respectively. In
addition, approximately $6,191,000 of the Company's debt related to certain
equipment was relieved in a sales-leaseback transaction during the year ended
September 30, 1995.
CONCENTRATIONS OF CREDIT RISK - The Company places its cash in
short-term investments which potentially subjects the Company to
concentration of credit risk. Such investments are made with financial
institutions having a high credit quality, and are collateralized by
securities issued by the United States Government and other investment grade
securities.
INVENTORIES - Inventories consist primarily of food and beverage stock,
hotel linens, supplies and uniforms, and are stated at the lower of cost
(determined using the first-in, first-out method) or market.
PRE-OPENING EXPENSES - Pre-opening expenses were associated with the
development and opening of the Company's casino/hotel resort. These amounts
include items that were capitalized as incurred prior to opening and items
that are directly related to the opening of the of the Company's
casino/hotel. Such amounts were expensed when the Company commenced gaming
operations (May 20, 1994).
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
22
DEPRECIATION AND AMORTIZATION - Depreciation and amortization of
property and equipment is provided on the straight-line method over the
lesser of the estimated useful lives of the respective assets or the lease
term. The estimated useful lives range from three to thirty-five years. In
connection with the Swap Agreement the Company's property and equipment were
written down to net realizable value as of September 30, 1996 and
depreciation and amortization ceased. Amortization of the investment in
lease was provided on the straight line method over 25 years. Accumulated
amortization as of September 30, 1995 was approximately $545,000.
Additionally, as a result of the Swap Agreement the investment in lease was
written-off as of June 30, 1996.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes", which requires the Company to record deferred income taxes for
temporary differences that are reported in different years for financial
reporting and for income tax purposes, and classify deferred tax liabilities
and assets into current and non-current amounts based on the classification
of the related assets and liabilities. The Company files its income tax
return as a part of a consolidated return filed by Boomtown. The income tax
accounts are computed as if the Company had filed a separate return. The
Company reflects benefits for losses incurred when the losses would be
utilized in their separate return or in the consolidated return.
GAMING REVENUES AND PROMOTIONAL ALLOWANCES - In accordance with industry
practice, the Company recognizes as gaming revenues the net win from gaming
activities, which is the difference between gaming wins and losses. Revenues
in the accompanying statements of operations exclude the retail value of
rooms, food, beverage and other promotional allowances provided to customers
without charge. The estimated costs of providing such promotional allowances
have been classified as gaming operating expenses through interdepartmental
allocations as follows:
Years ended September 30,
----------------------------
1994 1995 1996
------------ ------------ ------------
Food and beverage $ 1,055,000 $ 3,012,000 $ 2,696,000
Hotel 32,000 239,000 120,000
Other -- 74,000 --
------------ ------------ ------------
Total costs allocated to gaming
operating expenses $ 1,087,000 $ 3,325,000 $ 2,816,000
------------ ------------ ------------
ADVERTISING COSTS - Advertising costs are expensed as incurred.
Advertising expenses for the years ended September 30, 1996, 1995 and 1994
totaled $1.9 million, $2.0 million and $561,000, respectively.
COMMON STOCK OUTSTANDING AND NET LOSS PER SHARE - The Company is a
wholly-owned and consolidated subsidiary of Boomtown. There are 100 shares
of Company common stock issued
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
23
and there are no common stock equivalents outstanding. Therefore, the net
loss per share of the Company has little or no meaning and is not presented
herein.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1994
and 1995 financial statements to conform to the 1996 presentation.
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30,
---------------------------
1995 1996
------------ ------------
Equipment $ 1,559,000 $ 2,536,000
Furniture and fixtures 3,584,000 2,677,000
Building improvements 1,495,000 2,441,000
Construction in progress 66,000 --
------------ ------------
6,704,000 7,654,000
Less accumulated depreciation
and amortization 943,000 1,549,000
Write-down of assets in connection
with the Swap Agreement (Note 1) -- 5,065,000
------------ ------------
$ 5,761,000 $ 1,040,000
------------ ------------
------------ ------------
Amortization of leased assets is included in depreciation and amortization
expense.
NOTE PAYABLE - BOOMTOWN, INC.
Note payable - Boomtown, Inc., consists of (1) advances of approximately
$10.1 million to the Company from Boomtown used to fund the Company's
operating expenses, (2) advances of approximately $10.8 million to the
Company from Boomtown used to fund the Company's pre-opening expenses and to
acquire property and equipment for the resort and (3) approximately $13.6
million, including $1.2 million in capitalized interest representing non-cash
transactions in which Boomtown exercised an option to purchase Roski's
ownership interest in the Company in exchange for Boomtown stock and
capitalized interest in the notes receivable from IVAC (Note 1). The
principal of the note is variable and is due on demand along with the accrued
interest. However, management of Boomtown will not require payment except to
the extent of the Company's available cash flow. Payments are applied first
to accrued interest and then to principal. Interest is calculated on the
note at 11.5% and is based on the average monthly outstanding balance. In
addition, management of Boomtown has agreed to continue to fund the Company's
negative cash flows for the year ended September 30, 1997.
Certain cash payments were made by Boomtown on behalf of the Company,
primarily while in the Company's development stage, and are included in the
accompanying statements of cash flows for the year ended September 30, 1994.
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
3. NOTE PAYABLE - BOOMTOWN, INC. (CONTINUED)
24
During the years ended, September 30, 1994, 1995 and 1996, the Company
incurred interest costs of $1,473,000 ($520,000 was capitalized), $2,801,000
(none capitalized) and $3,616,000 (none capitalized), respectively on
advances and notes from Boomtown.
The advances, note payable, accrued interest payable, interest expense
to Boomtown, and management fee (Note 8), are eliminated in the consolidated
financial statements of Boomtown.
LONG-TERM DEBT
Long-term debt consists of the following:
September 30,
------------------------
1995 1996
--------- -------
11.5% note payable $ 808,000 $ 442,000
Capital lease obligation 673,000 358,000
--------- -------
1,481,000 800,000
Less amounts due within one year 587,000 800,000
--------- -------
$ 894,000 $ --
--------- -------
--------- -------
The 11.5% note payable is secured by furniture, fixtures and equipment
with a net book value of approximately $1,480,000 as of September 30, 1996
(prior to the write down related to the Swap Agreement). This note matures
in September 1997. The Capital lease obligation is secured by equipment with
a net book value of approximately $727,600 as of September 30, 1996 (prior to
the write down related to the Swap Agreement).. The capital lease obligation
matures in September 1997.
5. INCOME TAXES
The benefit for income taxes consists of the following:
Years ended September 30,
1994 1995 1996
Current ($1,362,000) ($3,754,000) ($4,722,000)
Deferred (1,280,000) 292,000 (1,005,000)
---------- ---------- ----------
($2,642,000) ($3,462,000) ($5,727,000)
---------- ---------- ----------
---------- ---------- ----------
The difference between the Company's benefit for federal income taxes as
presented in the accompanying statements of operation and benefit for income
taxes computed at the statutory rate is comprised of the items shown in the
following table as a percent of loss before income tax benefit.
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
5. INCOME TAXES (CONTINUED)
Years ended September 30,
1994 1995 1996
---- ---- ----
25
Income tax benefit at statutory rate (34.0)% (34.0)% (34.0)%
Meals and entertainment 0.3 % 1.3 % --
Operating loss benefit limitation -- 1.4 % --
Write-off of investment in lease -- -- 14.9 %
---- ---- ----
(33.7)% (31.3)% (19.1)%
---- ---- ----
---- ---- ----
The significant components of the deferred income tax assets and
liabilities included on the accompanying balance sheets are as follows:
Years ended September 30,
-------------------------
1995 1996
--------- --------
Deferred tax assets:
Pre-opening expenses $ 1,238,000 $ 769,000
Unrecognized loss on fixed assets
under Swap Agreement -- 1,722,000
Accrued expenses 194,000 272,000
Operating loss carry forwards 161,000 161,000
Less valuation allowance - loss
carry forwards (161,000) (161,000)
--------- --------
1,432,000 2,763,000
Deferred tax liabilities:
Depreciation 123,000 474,000
Prepaid expenses 322,000 297,000
--------- --------
445,000 771,000
Net deferred tax assets $ 987,000 $ 1,992,000
--------- --------
--------- --------
COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company leases its facilities and certain
operating equipment under non-cancelable operating lease arrangements with
terms in excess of one year. The aggregate future minimum annual rental
commitments as of September 30, 1996 under operating leases having
non-cancelable lease terms in excess of one year are as follows:
Related Party Other
---------------------------
1997 $ 5,429,000 $4,210,000
1998 5,429,000 465,000
1999 3,456,000 266,000
---------- ---------
$ 14,314,000 $4,941,000
---------- ---------
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
RENTAL EXPENSE - During the years ended September 30, 1994, 1995 and
1996, rent expense amounted to approximately $2.2 million in 1994 and $9.4
million 1n 1995 and 1996, of which
26
approximately $5.4 million was related to the resort lease with IVAC (Note
1). The resort lease commitments to IVAC are included in the above schedule
even though the Company entered into the "Swap Agreement" on August 12, 1996,
and following the closing of Boomtown's merger with Hollywood Park (refer to
Item 1. "Business") the Swap Agreement will be consummated and the lease
agreement will be terminated.
SELF-INSURANCE - The Company maintains a plan of partial self-insurance
for medical and dental coverage for substantially all full-time employees and
their dependents. Claims aggregating $75,000 or more per individual during
the policy year are fully covered by insurance. Management has established
reserves (approximately $172,000 at September 30, 1996) considered adequate
to cover estimated future payments on claims incurred through September 30,
1996.
DEBT GUARANTEES - On November 24, 1993, Boomtown completed the private
placement of $103.5 million of 11.5% First Mortgage Notes due November 2003
(the "Notes"). The Notes are secured by, among other things, a limited
guarantee by the Company. As defined in the Indenture relating to the Notes,
the Company's guarantee is limited to loans made by Boomtown to IVAC
(approximately $27.3 million at September 30, 1996) any outstanding liability
related to advances received by the Company from Boomtown ($34.5 million at
September 30, 1996). However, under the terms of the Swap Agreement, the
Company would not be required to repay the loans made by Boomtown upon
transferring the interest in the Company.
In addition, the Company is a guarantor for a ship mortgage with an
outstanding balance of $ 3.2 million at September 30, 1996, of Louisiana-I
Gaming, L.P., a majority owned and controlled partnership of Boomtown.
The Indenture governing the Notes places certain business, financial and
operating restrictions on Boomtown and its subsidiaries including, among
other things, the incurrence of additional indebtedness, issuance of
preferred equity interests and entering into operating leases; limitations on
dividends, repurchases of capital stock of Boomtown and redemption of
subordinated debt; limitations on transactions with affiliates; limitations
on mergers, consolidations and sales of assets; limitations on amending
existing partnership and facility construction agreements; and limitations on
the use of proceeds from the issuance of the Notes.
7. 401(K) PLAN
The Company's employees are covered under the Boomtown, Inc., 401(k)
Plan (the "Plan"). Under the Plan, the Company will match 50% of employees'
contributions up to a maximum of 5% of the employees' wages. The Company
recorded approximately, $6,000, $55,000 and $139,000 of expense during the
years ended September 30, 1994, 1995 and 1996, respectively, related to their
matching contributions.
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
8. MANAGEMENT FEE
Boomtown is responsible for managing the operations of the Company and
other of its subsidiaries (collectively the "Subsidiaries"). During 1995 and
1996, Boomtown charged the Subsidiaries for their pro-rata share of the costs
it incurred relative to this management function
27
(the "Management Fee"). During the year ended September 30, 1995 and 1996,
the Company recorded Management Fees of $876,000 and $840,000, respectively
(none in 1994).
9. OTHER EVENTS
BOOMTOWN'S PROPOSED MERGER WITH HOLLYWOOD PARK, INC. ("HOLLYWOOD PARK")
- - On April 23, 1996, the Boomtown entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Hollywood Park relating to the strategic
combination of Hollywood Park and Boomtown. Pursuant to the Merger Agreement
and subject to the terms and conditions set forth therein, the Company would
become a wholly-owned subsidiary of Hollywood Park (the "Merger"). Pursuant
to the Merger Agreement, at the effective date of the Merger (the "Effective
Date"), each issued and outstanding share of Boomtown Common Stock will be
converted into the right to receive 0.625 (the "Exchange Ratio"), of a share
of Hollywood Park Common Stock. The Merger is intended to be structured as a
tax-free reorganization, for income tax purposes and will be accounted for as
a purchase for financial reporting purposes.
Certain additional matters relating to the signing of the Merger
Agreement and a complete description of the Merger Agreement are more fully
described in Boomtown's Form 8-K dated April 23, 1996, including the
Agreement and Plan of Merger filed as exhibit 2.1 thereto, and filed with the
Securities and Exchange Commission on May 3, 1996, in addition to Boomtown's
Form 10-K dated December 27, 1996 and filed with the SEC.
28
BLUE DIAMOND HOTEL & CASINO, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
(IN THOUSANDS)
Additions Deductions
Balance at Charged to Write-offs,
beginning of Costs and net of Balance at
Description Period Expenses Collections End of Period
- ----------------------------------- ------------ ----------- ----------- -------------
Year ended September 30, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts: $ -- $ 2 $ -- $ 2
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts: $ 2 $ 32 ($20) $ 14
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts: $ 14 $ 66 ($33) $ 47
SIGNATURES
29
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized on this
27th day of December, 1996.
Blue Diamond Hotel & Casino, Inc.
/s/ Timothy J. Parrott
---------------------------------------------
Timothy J. Parrott, Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Timothy J. Parrott and Phil Bryan and
each of them acting individually, as such person's true and lawful
attorneys-in-fact and agents, each with power of substitution, for such
person, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Report on Form 10-K, and to file with
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------------------------------------------------------------------------------
/s/ Timothy J. Parrott Chairman of the Board and Chief December 27 , 1996
- ---------------------- Officer (Principal Executive Officer)
Timothy J. Parrott
/s/ Phil E. Bryan President and Director December 27, 1996
- ----------------------
Phil E. Bryan
/s/ Jon L. Whipple Vice President of Finance (Principal December 27 , 1996
- ---------------------- Financial and Accounting Officer)
Jon L. Whipple
/s/ Robert F. List Director December 27, 1996
- ----------------------
Robert F. List
SCHEDULE OF EXHIBITS
30
EXHIBIT
NUMBER DESCRIPTION
10.1(1) Memorandum of Understanding dated March 15, 1993 among Boomtown, Inc.,
Industry Hills Visitor Accommodations Center, Blue Diamond Hotel &
Casino, Inc. ("Blue Diamond"), Majestic Realty Co. ("Majestic"), and
Edward P.Roski, Jr. ("Roski").
10.2(2) Stockholders and Affiliates Agreement dated as of June 30, 1993 by and
among Blue Diamond, Edward P. Roski, Sr., Roski, Boomtown, Inc., IVAC,
a California general partnership formerly known as Industry Hills
Visitor Accommodations Center, a California general partnership
("IVAC") and Majestic.
10.3(5) First Amendment to and Clarification of Stockholders and Affiliates
Agreement dated as of November 10, 1993 between Blue Diamond,
Edward P. Roski, Sr., Roski, Roski, the Roski Community Property
Trust, the Roski Senior Revocable Trust, Boomtown, Inc., IVAC and
Majestic.
10.4(2) Lease dated as of June 30, 1993 between IVAC and Blue Diamond.
10.5(5) First Amendment to lease dated as of November 10, 1993 between IVAC
and Blue Diamond.
10.6(2) Purchase Option Agreement dated as of June 30, 1993 by and among IVAC,
Boomtown, Inc. and Blue Diamond.
10.7(5) Amendment to Purchase Option Agreement; Consent to Assignment dated
as of November 10, 1993 between IVAC, Boomtown, Inc. and Blue Diamond.
10.8(2) Development and Pre-Opening Services Agreement dated as of June 30,
1993 between Boomtown, Inc., Blue Diamond and IVAC.
10.9(2) Management Agreement dated as of June 30, 1993 between Boomtown, Inc.,
Blue Diamond.
10.10(2) Affiliate Loan Agreement dated as of June 30, 1993 by and among IVAC,
Majestic and Boomtown, Inc.
10.11(2) Bridge Loan Agreement dated as of June 30, 1993 by and among IVAC and
Boomtown, Inc.
10.12(5) Amendment No. 1 to Bridge Loan Agreement dated as of November 10, 1993
between IVAC and Boomtown, Inc.
31
SCHEDULE OF EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION
10.13(2) Trademark License Agreement dated as of June 30, 1993 by and between
Boomtown, Inc. and Blue Diamond.
10.14(2) Boomtown Stockholders Agreement dated as of June 30, 1993 by and among
Boomtown, IVAC and Roski.
10.15(2) Standard Form Agreement Between Owner and Designer/Builder, Part I
Agreement - Preliminary Design and Budgeting, dated as of May 10, 1993
between IVAC and Commerce Construction Co., Inc., and the Standard
Form of Agreement Between Owner and Designer/Builder, Part 2
Agreement - Final Design and Construction dated as of May 17, 1993
between Commerce Construction Co., Inc. and related documents.
10.16(5) Subordination Agreement dated as of November 10, 1993 between
Majestic, IVAC and Boomtown, Inc.
10.17(5) Omnibus Consent Agreement dated as of November 10, 1993 between Blue
Diamond, Edward P. Roski, Sr., Roski, Roski, the Roski Community
Property Trust, the Roski Senior Revocable Trust, Boomtown, Inc.,
IVAC and Majestic.
10.18(3) Purchase Agreement dated as of November 3, 1993 among Boomtown, Inc.,
Boomtown Hotel & Casino, Inc., Blue Diamond, Louisiana-I Gaming,
L.P., Louisiana Gaming Enterprises, Inc., Mississippi-I Gaming, L.P.,
Bayview Yacht Club, Inc., Oppenheimer & Co., Inc. and Sutro &
Co. Incorporated.
10.19(4) Stock Acquisition Agreement and Plan of Reorganization dated June 30,
1994 by and between Boomtown, Inc. and Roski.
10.20(6) Agreement between Boomtown, Hollywood Park and Edward P. Roski, Jr.
("Swap Agreement") effectively terminating the lease of the Blue
Diamond Property and selling virtually all assets and liabilities
effective with the close of Boomtown's merger with Hollywood Park.
- -----------------------
(1) Incorporated by reference to the exhibit filed with Boomtown Inc.'s
Current Report on Form 8-K filed with the SEC on March 18, 1993.
(2) Incorporated by reference to the exhibit filed with Boomtown Inc.'s
Current Report on Form 8-K filed with the SEC on July 28, 1993.
(3) Incorporated by reference to the exhibit filed with Boomtown Inc.'s
Form 10-K for the fiscal year ended September 30, 1993.
SCHEDULE OF EXHIBITS (CONTINUED)
32
EXHIBIT
NUMBER DESCRIPTION
(4) Incorporated by reference to the exhibit filed with the Company's Form
10-Q for the quarter ended June 30, 1994.
(5) Incorporated by reference to the exhibit filed with Boomtown Inc.'s Form
10-K for the fiscal year ended September 30, 1994.
(6) Incorporated by reference to the exhibit filed with Boomtown Inc.'s Form
10-Q for the quarter ended June 30, 1996.