<PAGE>
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 March 31, 1998
<TABLE>
<CAPTION>
Commission file number 0-10619 Commission file number 333-34471-02
<S> <C>
HOLLYWOOD PARK, INC. HOLLYWOOD PARK OPERATING COMPANY
(Exact Name of Registrant as Specified in Its Charter) (Exact Name of Registrant as Specified in Its Charter)
Delaware Delaware
(State or Other Jurisdiction of (State or Other Jurisdiction of
Incorporation or Organization) Incorporation or Organization)
95-3667491 95-3667220
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
</TABLE>
1050 South Prairie Avenue Inglewood, California 90301
(Address of Principal Executive Offices) (Zip Code)
(310) 419 - 1500
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrants: (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) have been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ _ ]
The number of outstanding shares of the Hollywood Park, Inc.'s common stock, as
of the date of the close of business on May 12, 1998: 26,286,235.
<PAGE>
Hollywood Park, Inc.
Table of Contents
<TABLE>
<CAPTION>
Part I
Hollywood Park, Inc.
--------------------
<S> <C> <C>
Item 1. Financial Information
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997... 1
Consolidated Statements of Operations for the three months ended
March 31, 1998 and 1997................................................ 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997................................................ 3
Notes to Consolidated Financial Statements............................... 4
Mississippi - I Gaming, L.P.
----------------------------
Balance Sheets as of March 31, 1998 and December 31, 1997............... 12
Statements of Operations for the three months ended
March 31, 1998 and 1997............................................... 13
Statements of Cash Flows for the three months ended
March 31, 1998 and 1997............................................... 14
Notes to Financial Statements........................................... 15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General................................................................ 18
Results of Operations.................................................. 22
Liquidity and Capital Resources........................................ 23
Item 3. Quantitative and Qualitative Disclosure About Market Risk............... 26
Part II
Item 4. Submission of Matters to a Vote of Security Holders.................... 26
Item 6.a Exhibits............................................................... 27
Other Financial Information............................................ 28
Signatures............................................................. 30
</TABLE>
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Item 1. Financial Information
- -----------------------------
Hollywood Park, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
Assets (unaudited)
(in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 22,382 $ 23,749
Restricted cash 249 407
Short term investments 2,173 0
Other receivables, net 7,062 9,417
Prepaid expenses and other assets 12,725 13,772
Deferred tax assets 6,596 8,118
Current portion of notes receivable 1,064 42
-------- --------
Total current assets 52,251 55,505
Notes receivable 8,515 9,548
Property, plant and equipment, net 308,917 300,666
Goodwill, net 32,693 33,017
Other assets 19,877 20,293
-------- --------
$422,253 $419,029
======== ========
- -----------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $10,272 $11,277
Accrued lawsuit settlement 0 2,750
Accrued compensation 8,147 7,627
Accrued liabilities 16,642 19,105
Accrued interest 2,500 5,175
Gaming liabilities 3,915 3,853
Racing liabilities 554 4,093
Current portion of notes payable 22,215 3,437
-------- --------
Total current liabilities 64,245 57,317
Notes payable 131,851 132,102
Deferred tax liabilities 4,939 6,310
-------- --------
Total liabilities 201,035 195,729
Minority interests 0 1,946
Stockholders' Equity:
Capital stock --
Preferred - $1.00 par value, authorized 250,000 shares;
none issued and outstanding 0 0
Common - $.10 par value, authorized 40,000,000 shares;
26,285,454 issued and outstanding in 1998, and
26,220,528 in 1997 2,629 2,622
Capital in excess of par value 223,367 222,350
Accumulated deficit (4,767) (3,532)
Accumulated other comprehensive loss (11) (86)
-------- --------
Total stockholders' equity 221,218 221,354
-------- --------
$422,253 $419,029
======== ========
</TABLE>
- -----
See accompanying notes to consolidated financial statements.
1
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Hollywood Park, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the three months ended March 31,
-------------------------------------
1998 1997
---------- ----------
(in thousands, except per share data - unaudited)
<S> <C> <C>
Revenues:
Gaming $55,349 $12,682
Racing 9,869 9,629
Food and beverage 5,569 2,568
Hotel and recreational vehicle park 276 0
Truck stop and service station 2,823 0
Other income 4,271 1,936
---------- ----------
78,157 26,815
---------- ----------
Expenses:
Gaming 31,967 7,049
Racing 5,469 5,168
Food and beverage 7,513 3,729
Hotel and recreational vehicle park 127 0
Truck stop and service station 2,566 0
Administration 20,097 8,746
Other 1,736 759
REIT restructuring 469 0
Depreciation and amortization 6,555 2,749
---------- ----------
76,499 28,200
---------- ----------
Operating income (loss) 1,658 (1,385)
Interest expense 3,661 65
---------- ----------
Loss before minority interests and income taxes (2,003) (1,450)
Minority interests 0 21
Income tax benefit (769) (576)
---------- ----------
Net loss ($1,234) ($895)
========= =========
================================================================================
Dividend requirements on convertible preferred stock $0 $481
Net loss allocated to common shareholders ($1,234) ($1,376)
Per common share:
Net loss - basic ($0.05) ($0.07)
Net loss - diluted ($0.05) ($0.07)
Number of shares - basic 26,276 18,373
Number of shares - diluted 26,867 20,664
</TABLE>
2
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Hollywood Park, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1998 1997
------- -------
(in thousands - unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,234) ($895)
Adjustments to reconcile net loss to net cash (used for)
provided by operating activities:
Depreciation and amortization 6,555 2,749
Minority interests 0 21
Loss on sale or disposal of property, plant and equipment (195) (1)
Decrease in restricted cash 158 4,164
Decrease in other receivables, net 2,355 636
Decrease (increase) in prepaid expenses and other assets 1,197 (890)
Decrease (increase) in deferred tax assets 1,522 (245)
Decrease in accounts payable (1,005) (234)
Decrease in accrued lawsuit settlement (2,750) 0
Increase in accrued compensation 520 305
Decrease in accrued liabilities (2,463) (1,214)
Increase (decrease) in gaming liabilities 62 (21)
Decrease in racing liabilities (3,539) (3,550)
Decrease in accrued interest payable (2,675) 0
Decrease in deferred tax liabilities (1,371) (410)
------- -------
Net cash (used for) provided by operating activities (2,863) 415
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (14,295) (1,778)
Receipts from sale of property, plant and equipment 274 0
Principal collected on notes receivable 11 9
Purchase of short term investments (2,098) (1,295)
Proceeds from short term investments 0 892
Payment to buy-out minority interest in Crystal Park LLC (1,946) 0
------- -------
Net cash used in investing activities (18,054) (2,172)
------- -------
Cash flows from financing activities:
Proceeds from secured Bank Credit Facility 20,000 0
Proceeds from unsecured notes payable 6 6
Payment of secured notes payable (1,479) 0
Common stock options exercised 1,023 135
Dividends paid to preferred stockholders 0 (481)
------- -------
Net cash provided by (used in) financing activities 19,550 (340)
------- -------
Decrease in cash and cash equivalents (1,367) (2,097)
Cash and cash equivalents at the beginning of the period 23,749 11,922
------- -------
Cash and cash equivalents at the end of the period $22,382 $9,825
======= =======
</TABLE>
- -----
See accompanying notes to consolidated financial statements.
3
<PAGE>
Hollywood Park, Inc.
Notes to Consolidated Financial Statements
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL Hollywood Park, Inc. (the "Company" or "Hollywood Park") is a
diversified gaming, sports and entertainment company engaged in the ownership
and operation of casinos (including card club casinos), pari-mutual racing
facilities, and the development of other gaming and sports related
opportunities. Hollywood Park owns and operates, through its Boomtown, Inc.
("Boomtown") subsidiary, land-based, riverboat and dockside gaming operations in
Verdi, Nevada ("Boomtown Reno"), Harvey, Louisiana ("Boomtown New Orleans") and
Biloxi, Mississippi ("Boomtown Biloxi"), respectively. Hollywood Park also owns
two card club casinos, located in the Los Angeles metropolitan area. The
Hollywood Park-Casino is operated by the Company, and is located on the same
property as the Hollywood Park Race Track. The Company also owns the Crystal
Park Hotel and Casino (the "Crystal Park Casino"), which is leased to an
unaffiliated operator. Presently, Hollywood Park is the only company that owns
and operates both California card club casinos and traditional casinos in
Nevada, Louisiana and Mississippi. The Company's premier thoroughbred racing
facilities include, the Hollywood Park Race Track, which the Company has owned
for 60 years, and Turf Paradise, Inc. ("Turf Paradise"), located in Phoenix,
Arizona.
The financial information included herein has been prepared in conformity with
generally accepted accounting principles as reflected in Hollywood Park's
consolidated Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1997. This Quarterly Report on Form
10-Q does not include certain footnotes and financial presentations normally
presented annually and should be read in conjunction with the Company's 1997
Annual Report on Form 10-K.
The information furnished herein is unaudited; however, in the opinion of
management it reflects all normal and recurring adjustments that are 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 horse racing business.
CONSOLIDATION The consolidated financial statements for the three months ended
March 31, 1998, included the accounts of Hollywood Park and its wholly owned
subsidiaries: (a) Boomtown, which was acquired by the Company on June 30, 1997,
with the acquisition accounted for under the purchase method of accounting for a
business combination, and Boomtown's six active subsidiaries; (1) Boomtown Hotel
& Casino, Inc., (2) Bayview Yacht Club, Inc., (3) Mississippi - I Gaming, L.P.,
(4) Louisiana Gaming Enterprises, Inc., (5) Louisiana - I Gaming, and (6)
Boomtown Hoosier, Inc.; (b) Hollywood Park Operating Company and its two wholly
owned subsidiaries, Hollywood Park Food Services, Inc. and Hollywood Park Fall
Operating Company; (c) Turf Paradise, Inc.; (d) HP Yakama, Inc.; (e) HP Kansas,
Inc.; and (f) HP/Compton, Inc. and HP Casino, Inc., which own 89.8% and 10.2%,
respectively, of the Crystal Park Hotel and Casino Development Company LLC
("Crystal Park LLC"). The Hollywood Park-Casino is a division of Hollywood
Park, Inc.
RACING REVENUES AND EXPENSES The Company records pari-mutuel revenues,
admissions, food and beverage and other income associated with racing on a daily
basis, except for seasonal admissions, which are recorded ratably over the
racing season. Expenses associated with racing revenues were charged against
income in those periods in which racing revenues were recognized.
RESTRICTED CASH Restricted cash as of March 31, 1998 and as of December 31,
1997, was for amounts due to horsemen for purses, stakes and awards.
4
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GAMING REVENUE AND PROMOTIONAL ALLOWANCES Gaming revenues at the Boomtown
properties consisted of the difference between gaming wins and losses, or net
win from gaming activity, and at the Hollywood Park-Casino consisted of fees
collected from patrons on a per seat or per hand basis. Revenues in the
accompanying statements of operations exclude the retail value of food and
beverage provided to players on a complimentary basis. The estimated cost of
providing these promotional allowances during the three months ended March 31,
1998 and 1997 (which does not include costs related to the Boomtown properties),
was $3,906,000 and $326,000, respectively.
CAPITALIZED INTEREST During the three months ended March 31, 1998, the Company
capitalized interest related to construction projects of approximately $226,000.
The Company did not capitalize interest during the three months ended March 31,
1997.
COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, ("SFAS
130") Reporting Comprehensive Income, requires that the Company disclose
------------------------------
comprehensive income and its components. The objective of SFAS 130 is to report
a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners. Comprehensive income is the sum of the following; net income (loss)
and other comprehensive income (loss), which is defined as all other nonowner
changes in equity.
The Company has recorded unrealized gain (loss) on securities as other
comprehensive income (loss) in the accompanying financial statements.
Comprehensive loss was computed as follows:
For the three months ended
March 31,
--------------------------
1998 1997
------- -------
(in thousands - unaudited)
Net loss ($1,234) ($895)
Other comprehensive income (loss):
Unrealized gain (loss) on securities 75 (34)
Less reclassification adjustment for
realized (gain) loss 0 1
------- -------
Comprehensive loss ($1,159) ($928)
======= =======
ESTIMATES Financial statements prepared according to generally accepted
accounting principles require the use of management estimates, including
estimates used to evaluate the recoverability of property, plant and equipment,
to determine the fair value of financial instruments, to account for the
valuation allowance for deferred tax assets and to determine litigation related
obligations. Actual results could differ from these estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Whenever there are recognized events or changes in circumstances that indicate
the carrying amount of an asset may not be recoverable, management reviews the
asset for possible impairment. In accordance with current accounting standards,
management uses estimated expected future net cash flows (undiscounted and
excluding interest costs, and grouped at the lowest level for which there are
identifiable cash flows that are as independent as possible of other asset
groups) to measure the recoverability of the asset. If the expected future net
cash flows are less than the carrying amount of the asset an impairment loss
would be recognized. An impairment loss would be measured as the amount by
which the carrying amount of the asset exceeded the fair value of the asset,
with fair value measured as the amount at which the asset could be bought or
sold in a current transaction between willing parties, other than in a forced
liquidation sale. The estimation of expected future net cash flows is
inherently uncertain and relies to a considerable extent on assumptions
regarding current and future net cash flows, market conditions, and the
availability of capital. If, in future periods, there are changes in the
estimates or assumptions incorporated into the impairment review analysis
5
<PAGE>
the changes could result in an adjustment to the carrying amount of the asset,
but at no time would previously recognized impairment losses be restored.
EARNINGS PER SHARE Basic earnings per share were computed by dividing net loss
allocated to common shareholders (net loss less preferred dividend requirements)
by the weighted average number of common shares outstanding during the period.
Diluted per share amounts were similarly computed, but include the effect, when
dilutive, of the conversion of the convertible preferred shares (for the three
months ended March 31, 1997), and exercise of stock options.
REDEMPTION OF DEPOSITARY SHARES As of August 28, 1997, the Company's 2,749,900
outstanding depositary shares were converted into 2,291,492 shares of the
Company's common stock, thereby, eliminating the annual preferred stock cash
dividend payment of approximately $1,925,000 for future periods.
CASH FLOWS Cash and cash equivalents included certificates of deposit and short
term investments with maturities of 90 days or less.
RECLASSIFICATIONS Certain reclassifications have been made to the 1997 balances
to be consistent with the 1998 financial statement presentation.
NOTE 2 -- ACQUISITION OF BOOMTOWN, INC.
On June 30, 1997, pursuant to the Agreement and Plan of Merger dated as of April
23, 1996, by and among Hollywood Park, HP Acquisition, Inc., a wholly owned
subsidiary of the Company, and Boomtown, HP Acquisition, Inc. was merged with
and into Boomtown (the "Merger"). As a result of the Merger, Boomtown became a
wholly owned subsidiary of the Company and each share of Boomtown common stock
was converted into the right to receive 0.625 of a share of Hollywood Park's
common stock. Approximately 5,362,850 shares of Hollywood Park common stock,
valued at $9.8125 per share (excluding shares repurchased from Edward P. Roski,
Jr. ("Roski") and subsequently retired) were issued in the Merger.
The Merger was accounted for under the purchase method of accounting for a
business combination. The purchase price of the Merger was allocated to the
identifiable assets acquired and liabilities assumed based on their estimated
fair values at the date of acquisition. Based on financial analyses which
considered the impact of general economic, financial and market conditions on
the assets acquired and liabilities assumed, it was determined that the
estimated fair values approximated their carrying value. The Merger generated
approximately $2,683,000 of excess acquisition cost over the recorded value of
the net assets acquired, all of which was allocated to goodwill, to be amortized
over 40 years. The amortization of the goodwill is not deductible for income
tax purposes.
The Company acquired three of the four Boomtown properties; Boomtown Reno,
Boomtown New Orleans, and Boomtown Biloxi. In connection with the Merger,
Boomtown's Las Vegas property was divested on July 1, 1997, because this
property had generated significant operating losses since it opened, thus
reducing the overall profitability of Boomtown.
NOTE 3 -- SHORT TERM INVESTMENTS
As of March 31, 1998, short term investments consisted of investments in equity
securities. These investments are recorded at fair value in the accompanying
financial statements, as determined by the quoted market price, and are
classified as available-for-sale. During the three months ended March 31, 1998,
the Company recorded an unrealized gain on these investments of approximately
$75,000.
6
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NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held as of March 31, 1998, and December 31, 1997,
consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------------- ---------------------
<S> <C> <C>
(unaudited)
(in thousands)
Land and land improvements $ 50,969 $ 50,945
Buildings and building improvements 272,101 270,271
Equipment 81,881 77,337
Vessel 32,483 18,925
Construction in progress 14,778 21,896
---------------------- ---------------------
452,212 439,374
Less accumulated depreciation 143,295 138,708
--------------------- ---------------------
$308,917 $300,666
===================== =====================
</TABLE>
NOTE 5 -- SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of March 31, 1998, and December 31, 1997, consisted of the
following:
<TABLE>
March 31, December 31,
1998 1997
--------------------- ---------------------
<S> <C> <C>
(unaudited)
(in thousands)
Secured notes payable, Bank Credit Facility $ 20,000 $ 0
Secured notes payable, other 3,750 3,750
Unsecured 9.5% Series A or Series B Notes 125,000 125,000
Boomtown 11.5% First Mortgage Notes 1,253 1,253
Unsecured notes payable 3,763 4,009
Capital lease obligations 300 1,527
--------------------- ---------------------
154,066 135,539
Less current maturities 22,215 3,437
--------------------- ---------------------
$131,851 $132,102
===================== =====================
</TABLE>
SECURED NOTES PAYABLE, BANK CREDIT FACILITY The Company's Bank Credit Facility
is a five year agreement, entered into on June 30, 1997, with a bank syndicate
led by Bank of America National Trust and Savings Association ("Bank of
America"). Presently, $100,000,000 is available under the Bank Credit Facility,
but due to covenant limitations, approximately, $79,945,000 was available as of
March 31, 1998, of which $20,000,000 was outstanding, at an interest rate of
7.66%. The Bank Credit Facility is secured by substantially all of the assets
of Hollywood Park and its significant subsidiaries, and imposes certain
customary affirmative and negative covenants.
UNSECURED 9.5% SERIES A AND SERIES B NOTES On August 6, 1997, Hollywood Park,
Inc. and Hollywood Park Operating Company, co-issued $125,000,000 of Series A
9.5% Senior Subordinated Notes due 2007 (the "Series A Notes"). On March 20,
1998, the Company completed a registered exchange offer for the Series A Notes,
pursuant to which all $125,000,000 principal amount of the Series A Notes were
exchanged by the holders for $125,000,000 aggregate principal amount of Series B
9.5% Senior Subordinated Notes due 2007, of the Company and Hollywood Park
Operating Company (the "Series B Notes") and, together with the Series A Notes,
(the "Notes") were registered under the Securities Act on Form S-4. Interest on
the Notes is payable semi-annually, on February 1st and August 1st. The Notes
are redeemable, at the option of Hollywood Park and Hollywood Park Operating
Company, in whole or in part, on or after August 1, 2002, at a premium to face
amount, plus accrued interest, as follows: (a) August 1, 2002 at 104.75%; (b)
August 1, 2003 at 102.375%; (c) August 1, 2004 at 101.188%; and (d) August 1,
2005 and thereafter at 100%. The Notes are unsecured
7
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obligations of Hollywood Park and Hollywood Park Operating Company, guaranteed
by all other material restricted subsidiaries of either Hollywood Park or
Hollywood Park Operating Company.
The indenture governing the Notes (the "Indenture") contains certain covenants
that, among other things, limit the ability of Hollywood Park, Hollywood Park
Operating Company and their restricted subsidiaries to incur additional
indebtedness and issue preferred stock, pay dividends or make other
distributions, repurchase equity interests or subordinated indebtedness, create
certain liens, enter into certain transactions with affiliates, sell assets,
issue or sell equity interests in their respective subsidiaries or enter into
certain mergers and consolidations. The Company believes that the consummation
of the Casino Magic Merger (as defined below) will be permitted under the terms
of the Indenture provided that, among other things, Casino Magic redeems a
portion of its long term indebtedness in a manner currently contemplated by the
parties. (See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.")
Boomtown 11.5% First Mortgage Notes As of March 31, 1998, there were $1,253,000
of Boomtown Notes outstanding, which are redeemable as follows: (a) November 1,
1998 at 104.25%; (b) November 1, 1999 at 102.75%; (c) November 1, 2000 at
101.25%; and (d) November 1, 2001 and thereafter at 100%.
8
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NOTE 6 -- CONSOLIDATING CONDENSED FINANCIAL INFORMATION
Hollywood Park's subsidiaries (excluding Sunflower and other non-material
subsidiaries) have fully and unconditionally guaranteed the payment of all
obligations under the Series B Notes. The following is the consolidating
information for the co-obligors and their respective subsidiaries:
<TABLE>
<CAPTION>
Hollywood Park, Inc.
Consolidating Condensed Financial Information
As of and for the three months ended March 31, 1998 and 1997 and balance sheet as of December 31, 1997
(c)
(a) (b) Wholly
Hollywood Hollywood Wholly Majority Owned Consolidating
Park, Inc. Park Owned Owned Non- and Hollywood
(Parent Operating Co. Guarantor Guarantor Guarantor Eliminating Park, Inc.
co-obligor) (co-obligor) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
----------- ------------- ------------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
Balance Sheet
- -------------
Current assets $ 20,293 $ 4,089 $ 21,268 $ 6,601 $0 $ 0 $ 52,251
Property, plant and
equipment, net 67,954 23,315 172,595 45,053 0 0 308,917
Other non-current assets 21,974 4,564 38,573 2,066 0 (6,092) 61,085
Investment in subsidiaries 130,428 15,076 121,444 0 0 (266,948) 0
Inter-company 128,889 140,408 128,636 0 0 (397,933) 0
--------- -------- -------- ------- -- ---------- --------
$ 369,538 $187,452 $482,516 $53,720 $0 ($670,973) $422,253
========= ======== ======== ======= == ========== ========
Current liabilities $ 9,660 $ 11,519 $ 16,295 $ 4,522 $0 $ 34 $ 42,030
Notes payable, current 20,692 42 196 1,285 0 0 22,215
Notes payable, long term 2,772 125,256 1,323 2,500 0 0 131,851
Other non-current
liabilities 4,771 5,210 3,683 0 0 (8,725) 4,939
Inter-company 139,951 21,741 186,483 49,758 0 (397,933) 0
Equity 191,692 23,684 274,536 (4,345) 0 (264,349) 221,218
--------- -------- -------- ------- -- ---------- --------
$ 369,538 $187,452 $482,516 $53,720 $0 ($670,973) $422,253
========= ======== ======== ======= == ========== ========
Statement of Operations
- -----------------------
Revenues:
Gaming $ 11,404 $ 0 $ 29,915 $14,030 $0 $ 0 $ 55,349
Racing 0 3,788 6,081 0 0 0 9,869
Food and beverage 1,063 0 3,343 1,163 0 0 5,569
Equity in subsidiaries (1,265) (56) 3,679 0 0 (2,358) 0
Inter-company 0 0 1,356 0 0 (1,356) 0
Other 887 878 4,925 680 0 0 7,370
--------- -------- -------- ------- -- ---------- --------
12,089 4,610 49,299 15,873 0 (3,714) 78,157
--------- -------- -------- ------- -- ---------- --------
Expenses:
Gaming 6,742 0 17,579 7,646 0 0 31,967
Racing 0 2,891 2,578 0 0 0 5,469
Food and beverage 2,362 0 3,711 1,440 0 0 7,513
Administrative and other 4,567 3,548 12,177 4,234 0 0 24,526
REIT restructuring 469 0 0 0 0 0 469
Depreciation and
Amortization 1,125 1,001 3,530 882 0 17 6,555
--------- -------- -------- ------- -- ---------- --------
15,265 7,440 39,575 14,202 0 17 76,499
--------- -------- -------- ------- -- ---------- --------
Operating income (loss) (3,176) (2,830) 9,724 1,671 0 (3,731) 1,658
Interest expense 591 3,058 (79) 91 0 0 3,661
Inter-company interest 0 0 0 1,356 0 (1,356) 0
--------- -------- -------- ------- -- ---------- --------
Income (loss) before taxes (3,767) (5,888) 9,803 224 0 (2,375) (2,003)
Income tax expense
(benefit) (2,577) 0 1,808 0 0 0 (769)
--------- -------- -------- ------- -- ---------- --------
Net income (loss) ($1,190) ($5,888) $ 7,995 $ 224 $0 ($2,375) ($1,234)
========= ======== ======== ======= == ========== ========
Statement of Cash Flows:
- ------------------------
Net cash provided by
(used in) operating
activities ($12,504) $ 1,142 $ 10,100 $ 808 $0 ($2,409) ($2,863)
Net cash used in investing
activities (8,025) (563) (9,147) (319) 0 0 (18,054)
Net cash provided by
(used in) financing
activities 21,033 6 (1,677) (198) 0 0 19,550
</TABLE>
9
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Hollywood Park, Inc.
Consolidating Condensed Financial Information
As of and for the three months ended March 31, 1998 and 1997 and balance sheet
as of December 31, 1997
<TABLE>
<CAPTION>
(c)
(a) (b) Wholly
Hollywood Hollywood Wholly Majority Owned Consolidating
Park, Inc. Park Owned Owned Non- and Hollywood
(Parent Operating Co. Guarantor Guarantor Guarantor Eliminating Park, Inc.
co-obligor) (co-obligor) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
----------- ------------- ------------- ------------- ------------ -------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS
ENDED MARCH 31, 1997
Statement of Operations
- -----------------------
Revenues:
Gaming $ 12,082 $ 0 $ 0 $ 600 $0 $ 0 $ 12,682
Racing 0 3,933 5,696 0 0 0 9,629
Food and beverage 1,049 0 1,519 0 0 0 2,568
Equity in subsidiaries 2,197 (144) 156 0 0 (2,209) 0
Other 1,076 726 134 0 0 0 1,936
--------- -------- -------- ------- -- ---------- --------
16,404 4,515 7,505 600 0 (2,209) 26,815
--------- -------- -------- ------- -- ---------- --------
Expenses:
Gaming 7,049 0 0 0 0 0 7,049
Racing 0 2,656 2,512 0 0 0 5,168
Food and beverage 2,289 0 1,440 0 0 0 3,729
Administrative and other 4,578 3,757 1,147 23 0 0 9,505
Depreciation and
Amortization 1,064 927 358 400 0 0 2,749
--------- -------- -------- ------- -- ---------- --------
14,980 7,340 5,457 423 0 0 28,200
--------- -------- -------- ------- -- ---------- --------
Operating income (loss) 1,424 (2,825) 2,048 177 0 (2,209) (1,385)
Interest expense 58 7 0 0 0 0 65
--------- -------- -------- ------- -- ---------- --------
Income (loss) before taxes 1,366 (2,832) 2,048 177 0 (2,209) (1,450)
Minority interests 0 0 0 0 0 21 21
Income tax benefit (571) 0 (5) 0 0 0 (576)
--------- -------- -------- ------- -- ---------- --------
Net income (loss) $ 1,937 ($2,832) $ 2,053 $ 177 $0 ($2,230) ($895)
========= ======== ======== ======= == ========== ========
Statement of Cash Flows:
- -----------------------
Net cash provided by
(used in) operating
activities $ 2,569 $ 467 ($1,191) $ 623 $0 ($2,053) $ 415
Net cash used in investing
activities (1,464) (419) (265) (24) 0 0 (2,172)
Net cash provided by
(used in) financing
activities (346) 6 0 0 0 0 (340)
AS OF DECEMBER 31, 1997
Balance Sheet
- -------------
Current assets $ 19,844 $ 3,867 $ 25,074 $ 6,720 $0 $ 0 $ 55,505
Property, plant and
equipment, net 68,515 23,753 140,105 68,293 0 0 300,666
Other non-current assets 22,306 4,701 29,320 7,611 0 (1,080) 62,858
Investment in subsidiaries 126,121 15,132 116,020 0 0 (257,273) 0
Inter-company 125,210 148,380 122,035 0 0 (395,625) 0
--------- -------- -------- ------- -- ---------- --------
$ 361,996 $195,833 $432,554 $82,624 $0 ($653,978) $419,029
========= ======== ======== ======= == ========== ========
Current liabilities $ 16,890 $ 14,232 $ 19,583 $ 6,612 $0 $ 0 $ 57,317
Notes payable, long term 2,406 125,256 1,936 2,504 0 0 132,102
Other non-current
liabilities 4,753 5,202 83 0 0 (3,728) 6,310
Inter-company 146,145 21,589 178,448 49,443 0 (395,625) 0
Minority interest 0 0 0 0 0 1,946 1,946
Equity 191,802 29,554 232,504 24,065 0 (256,571) 221,354
--------- -------- -------- ------- -- ---------- --------
$ 361,996 $195,833 $432,554 $82,624 $0 ($653,978) $419,029
========= ======== ======== ======= == ========== ========
</TABLE>
(a) The following wholly owned guarantor subsidiaries were included in each
period presented: Turf Paradise, Inc., Hollywood Park Food Services, Inc.,
and Hollywood Park Fall Operating Company, and as of December 31, 1997, the
following wholly owned guarantor subsidiaries were also included: HP
Yakama, Inc., Boomtown, Inc., Boomtown Hotel & Casino, Inc., Louisiana - I
Gaming, HP/Compton, Inc. and Louisiana Gaming Enterprises, Inc. Due to the
June 30, 1997, Boomtown Merger being accounted for under the purchase
method of accounting for a business combination, the
10
<PAGE>
financial results as of March 31, 1997, do not include Boomtown, Inc.'s,
Boomtown Hotel & Casino, Inc.'s, Louisiana - I Gaming's, and Louisiana
Gaming Enterprises, Inc.'s financial results for the three months ended
March 31, 1997.
(b) The Company's majority owned guarantor subsidiaries are Crystal Park Hotel
and Casino Development Company, LLC (which as of December 31, 1997, became
a wholly owned subsidiary) and Mississippi - I Gaming, L.P., (which was
added as of the June 30, 1997, Boomtown Merger). As a result of the
Boomtown Merger, Mississippi - I Gaming, L.P.'s financial results were not
included for the three months ended March 31, 1997.
(c) Sunflower Racing, Inc. and its wholly owned subsidiary, SR Food and
Beverage, Inc., were the Company's only wholly owned non-guarantor
subsidiaries with material financial activity during the periods presented.
As of March 31, 1996, the financial results of these two wholly owned non-
guarantor subsidiaries were no longer consolidated with the Company's
financial results, due to the write off of Hollywood Park's investment in
these subsidiaries. All other wholly owned non-guarantor subsidiaries had
immaterial financial activity for the periods presented.
11
<PAGE>
Mississippi - I Gaming, L.P.
Balance Sheets
<TABLE>
<CAPTION>
As of
---------------------------
March 31, December 31,
1998 1997
------------ ------------
(in thousands)
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $4,830 $4,143
Other receivables, net 48 113
Prepaid expenses and other assets 1,723 1,614
----------- ------------
Total current assets 6,601 5,870
Property, plant and equipment, net 45,053 45,576
Other assets 2,066 2,068
------------ ------------
$53,720 $53,514
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Current Liabilities:
Accounts payable $507 $670
Accrued compensation 885 923
Accrued liabilities 3,130 3,250
Accrued interest payable, Boomtown, Inc. 5,095 4,989
Current portion of notes payable, Boomtown, Inc. 44,663 44,454
Current portion of notes payable, other 1,285 1,292
------------ ------------
Total current liabilities 55,565 55,578
Notes payable, other 2,500 2,504
Commitments and contingencies
Partners' deficit:
General partner 22 11
Limited partners (4,367) (4,579)
------------ ------------
Total partners' deficit (4,345) (4,568)
------------ ------------
$53,720 $53,514
============ ============
</TABLE>
12
<PAGE>
Mississippi - I Gaming, L.P.
Statements of Operations
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1998 1997
---------- ----------
(in thousands - unaudited)
<S> <C> <C>
Revenues:
Gaming $14,030 $13,101
Food and beverage 1,163 737
Other 680 615
---------- ----------
15,873 14,453
---------- ----------
Expenses:
Gaming 7,646 7,388
Food and beverage 1,440 894
Administrative 3,857 3,594
Other 377 356
Depreciation and amortization 882 732
---------- ----------
14,202 12,964
---------- ----------
Operating income 1,671 1,489
Interest expense 1,448 1,314
---------- ----------
Net income $ 223 $ 175
========== ==========
Net income allocated to partners:
General partner $ 11 $ 9
Limited parnters 212 166
---------- ----------
$ 223 $ 175
========== ==========
</TABLE>
13
<PAGE>
Mississippi - I Gaming, L.P.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1998 1997
---------- ----------
(in thousands - unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 223 $ 175
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 882 732
Loss on sale of property and equipment (40) 0
Decrease (increase) in other receivables, net 65 (121)
Increase in prepaid expenses and other assets (109) (315)
Decrease in other assets 2 35
(Decrease) increase in accounts payable (163) 76
Decrease in accrued compensation (38) (318)
(Decrease) increase in accrued liabilities (120) 121
Increase (decrease) in accrued interest payable, Boomtown, Inc. 106 (44)
---------- ----------
Net cash provided by operating activities 808 341
---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (425) (452)
Proceeds from sale of property and equipment 106 0
---------- ----------
Net cash used in investing activities (319) (452)
---------- ----------
Cash flows from financing activities:
Note payable, Boomtown, Inc., net 209 358
Payment notes payable, other (11) (747)
---------- ----------
Net cash provided by (used for) financing activities 198 (389)
---------- ----------
Increase (decrease) in cash and cash equivalents 687 (500)
Cash and cash equivalents at the beginning of the period 4,143 3,337
---------- ----------
Cash and cash equivalents at the end of the period $4,830 $2,837
========== ==========
</TABLE>
14
<PAGE>
Mississippi - I Gaming, L.P.
Notes to Financial Statements
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL Mississippi - I Gaming, L.P. (the "Mississippi Partnership"), is a
Mississippi limited partnership, which is majority owned and controlled by
Hollywood Park, Inc. ("Hollywood Park"), through its wholly owned subsidiaries,
Boomtown, Inc. ("Boomtown") and Bayview Yacht Club, Inc., which own 80% and 5%,
respectively, of the Mississippi Partnership, with the remaining 15% owned by
Eric Skrmetta ("Skrmetta").
The Mississippi Partnership owns and operates a casino ("Boomtown Biloxi"),
which opened in July 1994. Boomtown Biloxi occupies nineteen acres on Biloxi
Mississippi's historic Back Bay. The Mississippi Gulf Coast is marketed as the
"Playground of the South" and has been a major tourist destination, even prior
to the advent of full casino gaming in 1992. The Mississippi Gulf Coast
comprises a land area of nearly 1,800 square miles, with more than 30 miles of
white sand beaches fronting the Gulf of Mexico. Recent statistics indicated
that on an annual basis approximately 22 million patrons visited the Gulf Coast
casinos, of which 64% were drawn to the Mississippi Gulf Coast from outside the
state. Boomtown Biloxi operates an "old west" themed 33,632 square foot casino,
which sits on a permanently moored 400 x 110 foot barge. Boomtown Biloxi offers
1,038 slot machines and 35 table games. The land-based facility houses all non-
gaming activities, including restaurants, buffets, a family video fun center and
gift shops.
On August 13, 1997, Hollywood Park exercised its option under the Mississippi
Partnership Agreement to exchange Skrmetta's interest in the Mississippi
Partnership, at Skrmetta's option for either cash and/or shares of Hollywood
Park common stock with an aggregate value equal to the value of Skrmetta's 15%
interest in the Mississippi Partnership, with such value determined by a formula
set forth in the relevant Mississippi Partnership Agreement. Hollywood Park
supplied Skrmetta with its calculation of the value of his 15% Mississippi
Partnership interest, and Skrmetta did not agree with the valuation. Hollywood
Park has initiated arbitration proceedings to settle the valuation issue.
The financial information included in this Quarterly Report on Form 10-Q has
been prepared in conformity with generally accepted accounting principles. The
information furnished herein is unaudited; however, in the opinion of management
it reflects all normal and recurring adjustments that are necessary to present a
fair presentation of the financial results for this interim period. It should
be understood that accounting measurements at interim dates inherently involve
greater reliance on estimates that at year end. This Quarterly Report on Form
10-Q does not include certain footnotes and financial presentations normally
presented annually and should be read in conjunction with the Mississippi
Partnership's 1997 Annual Report on Form 10-K.
Historically, the Mississippi Partnership reported financial results with a year
end of September 30. Subsequent to Hollywood Park's June 30, 1997 acquisition of
Boomtown, the Mississippi Partnership will be reporting results on a calendar
year end of December 31.
ESTIMATES Financial statements prepared according to generally accepted
accounting principles require the use of management estimates, including
estimates used to evaluate the recoverability of real estate and leasehold
interests held for investment. These estimates are subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from those anticipated by management.
GAMING REVENUES AND PROMOTIONAL ALLOWANCES In accordance with industry
practices, the Mississippi Partnership recognized gaming revenues, as the net
win from gaming activities, which is the difference between gaming wins and
losses. Revenues in the accompanying statements of operations exclude the
retail value of food, beverage and other promotional allowances which are
provided to patrons without
15
<PAGE>
charge. The estimated cost of providing such promotional allowances which are
reported as gaming expenses, for the three months ended March 31, 1998 and 1997,
was $1,331,000 and $1,084,000, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Whenever there are recognized events or changes in circumstances that indicate
the carrying amount of an asset may not be recoverable, management reviews the
asset for possible impairment. In accordance with current accounting standards,
management uses estimated expected future net cash flows (undiscounted and
excluding interest costs, and grouped at the lowest level for which there are
identifiable cash flows that are as independent as possible of other asset
groups) to measure the recoverability of the asset. If the expected future net
cash flows are less than the carrying amount of the asset an impairment loss
would be recognized. An impairment loss would be measured as the amount by
which the carrying amount of the asset exceeded the fair value of the asset,
with fair value measured as the amount at which the asset could be bought or
sold in a current transaction between willing parties, other than in a forced
liquidation sale. The estimation of expected future net cash flows is
inherently uncertain and relies to a considerable extent on assumptions
regarding current and future net cash flows, market conditions, and the
availability of capital. If, in future periods, there are changes in the
estimates or assumptions incorporated into the impairment review analysis the
changes could result in an adjustment to the carrying amount of the asset, but
at no time would previously recognized impairment losses be restored.
RECLASSIFICATIONS Certain reclassifications have been made to the 1997 balances
to be consistent with the 1998 financial statement presentation.
NOTE 2 -- CURRENT PREPAID EXPENSES AND OTHER ASSETS AND LONG TERM OTHER ASSETS
Current prepaid expenses and other assets as of March 31, 1998 and December 31,
1997 consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------------- --------------------
(in thousands)
<S> <C> <C>
Prepaid insurance $ 200 $ 405
Land lease, related party 500 0
Tidelands lease 106 213
Other prepaid leases 169 184
Inventories 445 382
Prepaid taxes and licenses 94 150
Other current assets 209 280
-------------------- --------------------
$1,723 $1,614
==================== ====================
</TABLE>
Long term other assets as of March 31, 1998 and December 31, 1997 consisted of
the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------------- --------------------
(in thousands)
<S> <C> <C>
Land lease, related party $2,000 $2,000
Other assets 66 68
-------------------- --------------------
$2,066 $2,068
==================== ====================
</TABLE>
16
<PAGE>
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held as of March 31, 1998 and December 31, 1997
consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------------- --------------------
(in thousands)
<S> <C> <C>
Land and land improvements $ 1,236 $ 1,236
Buildings and building improvements 41,382 41,313
Equipment 10,260 9,998
-------------------- --------------------
Construction in progress 20 46
52,898 52,593
Less accumulated depreciation 7,845 7,017
-------------------- --------------------
$45,053 $45,576
==================== ====================
</TABLE>
NOTE 4 -- SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of March 31, 1998 and December 31, 1997 consisted of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------------- --------------------
(in thousands)
<S> <C> <C>
Secured notes payable $3,750 $3,750
Capital lease obligations 35 46
-------------------- --------------------
3,785 3,796
Less current maturities 1,285 1,292
-------------------- --------------------
$2,500 $2,504
==================== ====================
</TABLE>
As of March 31, 1998 and December 31, 1997, the Mississippi Partnership also had
an outstanding note payable to Boomtown in the amounts of $44,663,000 and
$44,454,000, respectively. These amounts primarily related to funds invested by
Boomtown for the initial construction of the property, and the net of subsequent
cash transfers to Boomtown from the Mississippi Partnership, and from Boomtown
to the Mississippi Partnership. Interest on the note payable to Boomtown was
11.0% and 11.5%, as of March 31, 1998 and December 31, 1997, respectively.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
DEBT GUARANTEES On August 6, 1997, Hollywood Park and Hollywood Park Operating
Company (a wholly owned subsidiary of Hollywood Park), as co-obligors, issued
$125,000,000 of Series A 9.5% Senior Subordinated Notes due 2007, which on March
20, 1998, were exchanged for a like principal amount of 9.5% Series B Senior
Subordinated Notes (collectively the "Notes"). The Notes are fully and
unconditionally, jointly and severally, guaranteed on a senior subordinated
basis by all of Hollywood Park's material subsidiaries, including Mississippi -
I Gaming, L.P. This Quarterly Report is being filed pursuant to the Indenture
governing the Notes as a guarantor which is not wholly owned by the issuers of
the Notes.
In June, 1997, Boomtown repurchased and retired an aggregate of approximately
$102,700,000 in principal amount of Boomtown's 11.5% First Mortgage Notes. The
remaining balance of $1,253,000 is fully and unconditionally guaranteed by
Mississippi - I Gaming, L.P.
LEASES WITH RELATED PARTIES The Mississippi Partnership leases land from
Skrmetta for use by Boomtown Biloxi. The lease term is 99 years and is
cancelable upon one year's notice. The lease called for an initial deposit by
the Mississippi Partnership of $2,000,000, for annual base lease rent payments
of $2,000,000 and percentage rent equal to 5.0% of adjusted gaming win (as
defined in the lease) over $25,000,000. Skrmetta agreed to provide the land,
free of annual base rent, for two years in exchange for a 15% interest in the
17
<PAGE>
Mississippi Partnership. For the three months ended March 31, 1998 and 1997,
the Mississippi Partnership paid Skrmetta $798,000 and $758,000 of rent,
respectively.
BARGE LEASE On August 4, 1997, Hollywood Park executed an agreement to purchase
the barge that Boomtown Biloxi sits upon and the associated building shell for
$5,250,000. The Mississippi Partnership had been leasing these assets. The
Mississippi Partnership made a down payment of $1,500,000 upon signing the
agreement, with the balance payable in three equal annual installments of
$1,250,000 with interest set at the prime rate as of the first day of each year.
TIDELANDS LEASE The Mississippi Partnership leases 5.1 acres of submerged
tidelands at the Boomtown Biloxi site from the State of Mississippi. The lease
has a ten year term, (entered into in 1994) with a five year option to renew.
Lease rent for each of the first three years of the lease was $525,000, and will
be $425,000 for the next two years. Rent for the balance of the lease term will
be determined in accordance with Mississippi law, based on an appraisal the
State of Mississippi will obtain.
OTHER The Mississippi Gaming Commission requires (as a condition of licensing
or license renewal) gaming companies to make a one time capital investment in
facilities for general public use, such as restaurants and other non-gaming
facilities, equal to 25% of the initial casino construction and gaming equipment
costs. On October 26, 1997, the Mississippi Partnership received verbal
notification that its current land-based facility satisfies the Mississippi
Commission's requirement. However, the Mississippi Partnership's gaming license
must be renewed in June 1998, and it is possible that the Mississippi Gaming
Commission could require further development at Boomtown Biloxi in connection
with the renewal.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Except for the historical information contained herein, the matters addressed in
this Quarterly Report on Form 10-Q may constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements are subject to a variety of risks and uncertainties
that could cause actual results to differ materially from those anticipated by
the Company's management. Factors that may cause actual performance of
Hollywood Park to differ materially from that contemplated by such forward-
looking statements include, among others, possible inability to reinstate a
paired-share/REIT structure or a decision by the Company not to consummate the
Reorganization (as defined below), a failure by the Company to qualify as a REIT
under the Internal Revenue Code if the Reorganization is consummated, the
uncertain magnitude of the tax liability of Hollywood Park and its shareholders
if the Reorganization is consummated, proposed legislation that could adversely
impact REIT's in general or paired-share REIT's in particular, the failure to
finance or complete or successfully operate planned improvements and expansions,
including the Casino Magic Merger (and, if the Casino Magic Merger is
consummated, the ability to meet the combined company's debt service obligations
or to improve Casino Magic's financial condition), and a saturation of or other
adverse changes in gaming markets in which Hollywood Park operates (particularly
in the southeastern United States). The Private Securities Litigation Reform
Act of 1995 (the "Act") provides certain "safe harbor" provisions for forward-
looking statements. All forward-looking statements made in this Quarterly
Report on Form 10-Q are made pursuant to the Act. For more information on the
potential factors which could affect the Company's financial results, please
review the Company's filings with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K, for the year ended December
31, 1997, Definitive Proxy Statement dated February 13, 1998, and the discussion
contained therein under the caption "Risk Factors".
GENERAL The Company has assessed and continues to assess the impact of the Year
2000 Issue on its reporting systems and operations. The Year 2000 Issue exists
because computer systems and applications were historically designed to use two
digit fields to designate a year, and date sensitive systems may not recognize
2000 at all, or if recognized, as 1900. Hollywood Park believes that its
financial accounting software will require limited changes to overcome the Year
2000 Issue, and any changes are not expected to
18
<PAGE>
require material expenditures. Based on the nature of Hollywood Park's business,
it is not expected that any non-financial software applications that may be
impacted by the Year 2000 Issue would cause any interruption in operations. The
Company expects to complete any changes required to overcome the Year 2000 Issue
during 1998.
PENDING MERGER WITH CASINO MAGIC CORP. On February 19, 1998, Hollywood Park and
Casino Magic Corp. ("Casino Magic") approved and signed an Agreement and Plan of
Merger among Casino Magic Corp., Hollywood Park, Inc., and HP Acquisition II,
Inc. (a wholly owned subsidiary of Hollywood Park) (the "Casino Magic Merger"),
pursuant to which HP Acquisition II, Inc., will merge into Casino Magic, and
Casino Magic will survive and become a wholly owned subsidiary of Hollywood
Park. Hollywood Park will pay cash of $2.27 for each issued and outstanding
share of Casino Magic common stock, or an aggregate of approximately
$81,000,000.
The consummation of the Casino Magic Merger requires, among other things, the
approval of the Casino Magic shareholders, approval of the appropriate gaming
authorities in Mississippi and Louisiana, and an amendment to the Company's
present bank credit facility to provide for the funds required to consummate the
Casino Magic Merger. The Company has filed applications for approval of the
Casino Magic Merger with both the Mississippi and Louisiana gaming authorities,
and anticipates the approval review process to be completed by September 1998,
provided that the Casino Magic stockholders approval is obtained sufficiently in
advance of that date. The Company has also begun negotiations with the lenders
under its credit facility and believes an agreement in principle has been
reached regarding an amendment to the Credit Agreement, which the lenders are
currently drafting. There can, however, be no assurance of approval by the
Mississippi or Louisiana gaming authorities, nor completion of the necessary
amendment to the Credit Agreement.
On February 23, 1998, Hollywood Park entered into a voting agreement (the
"Voting Agreement") with Marlin F. Torguson ("Mr. Torguson") pursuant to which,
among other things, Mr. Torguson has agreed to vote the 7,954,500 shares, or
approximately 22%, of Casino Magic common stock he beneficially owns in favor of
approval and adoption of the Agreement and Plan of Merger and the Casino Magic
Merger and any matter that could reasonably be expected to facilitate the Casino
Magic Merger. Mr. Torguson also agreed to continue to serve as an employee of
Casino Magic for three years following the Casino Magic Merger, and not to
compete with Hollywood Park or Casino Magic in any jurisdictions in which either
presently operates.
Casino Magic owns and operates dockside and riverboat gaming properties in Bay
St. Louis, Mississippi ("Casino Magic Bay St. Louis"), Biloxi, Mississippi
("Casino Magic Biloxi") and Bossier City, Louisiana ("Casino Magic Bossier"),
respectively, and is a 51% partner in two land-based casinos in Argentina.
Casino Magic Bay St. Louis began operations in September 1992 on a permanently
moored barge in a 17 acre marina with the adjoining land based facilities
situated on 591 acres. Bay St. Louis is approximately 46 miles east of New
Orleans and 40 miles west of Biloxi. Casino Magic Bay St. Louis offers
approximately 39,500 square feet of gaming space, with 1,132 slot machines and
42 table games. The land based building is three stories with a restaurant,
buffet, snack bar, gift shop and live entertainment lounge. In December 1994,
Casino Magic Bay St. Louis also opened the Casino Magic Inn; a 201 room hotel,
including four deluxe and 20 junior suites. The property also contains the
Magic Dome, an 1,800 seat arena, which hosts approximately 50 events annually,
including nationally televised boxing matches, concerts and other special
events. With the late 1997 addition of the 18 hole Bridges Golf Resort, Casino
Magic Bay St. Louis is positioned as a full service vacation destination.
Casino Magic Biloxi began casino operations in June 1993 and is located on the
Gulf of Mexico in the Mississippi Gulf Coast Region. The property is situated
on the Front Bay on the beach of the Gulf of Mexico in a strip with four other
casinos, and is located on the major highway running through the Mississippi
Gulf Coast. (Whereas, Boomtown Biloxi is located on the Back Bay of Biloxi.)
Casino Magic Biloxi conducts gaming from a permanently moored barge with
approximately 47,700 square feet of gaming space with 1,174 slot
19
<PAGE>
machines and 41 gaming tables. The land based facility is located adjacent to
the barge on the approximately 11.5 acre site. On May 1, 1998, Casino Magic
Biloxi opened its 378 room luxury hotel (Casino Magic is anticipating a four-
star rating for this hotel), which includes 16 master suites, 70 junior suites,
6,600 square feet of convention and meeting space, a full service restaurant and
numerous themed retail shops. Casino Magic Biloxi's land based facility is
approximately 21,600 square feet and offers buffets, full service restaurants
and nationally franchised fast food services.
Casino Magic Bossier opened in October 1996, with casino operations conducted
from a dockside riverboat. The property is highly visible with convenient
access from Interstate Highway 20, a major thoroughfare between Bossier
City/Shreveport and the Dallas-Fort Worth area approximately 180 miles to the
west. The Casino Magic Bossier riverboat measures 254 feet long and 78 feet
wide with approximately 30,000 square feet of gaming space, and offers 980 slot
machines and 44 table games. The Casino Magic Bossier facility includes a
55,000 square foot entertainment pavilion connected to a garage providing
parking for approximately 1,400 vehicles. The entertainment pavilion includes
the 350 seat Abracadabra buffet restaurant, a gift shop, a bar and lounge area,
and a 300 seat live entertainment theater. The entertainment pavilion also
includes two smaller full service restaurants. Casino Magic Bossier is just
beginning construction on a 188 room hotel with four master suites, 88 junior
suites and additional full service restaurants. The hotel addition is expected
to be completed in early 1999.
In December 1994, Casino Magic, through its wholly owned subsidiary, Casino
Magic Neuquen SA ("Casino Magic Argentina"), entered into a twelve year
concession agreement with the Province of Neuquen, Argentina. Casino Magic
Argentina operates two casinos in the Province of Neuquen in the cities of
Neuquen and San Martin de los Andes in west-central Argentina. Neuquen Province
is the gateway to the well established tour destinations and ski resorts of the
Andes Mountains. There are approximately 900,000 residents within a 50 mile
radius of the two cities. Casino Magic Argentina, which began operations in
January 1995, includes approximately 29,000 square feet of gaming space and
contains approximately 64 table games, 400 slot machines and a 384 seat bingo
facility.
YAKAMA EXPANSION Hollywood Park, through its wholly owned subsidiary HP Yakama,
Inc. ("HP Yakama") has entered into agreements with the Yakama Tribal Gaming
Corporation (the "Tribal Corporation") and The Confederated Tribes and Bands of
the Yakama Indian Nation (the "Tribes") to fund the construction, development
and operation of a casino in Yakima County, Washington. HP Yakama has committed
to fund up to $9,000,000 to construct and equip the casino, and the Tribal
Corporation has signed a promissory note to repay up to $9,000,000, at a 10%
annual interest rate over seven years from the date of completion. As of March
31, 1998, HP Yakama had funded approximately $5,172,000 of the $9,000,000.
HP Yakama has also entered into a Master Lease to lease the completed casino and
underlying land (the "Facility") from the Tribes, for a seven year term
commencing with the opening of the casino, for $12,000 per year, and then to
Sublease the Facility to the Tribal Corporation, for the same seven year term.
Rent due from the Tribal Corporation to HP Yakama, under the Sublease, is
initially set at 28% of Net Revenues (as defined), until such time as the
aggregate accrued Net Revenues equal $26,000,000, and then the rent decreases to
25% of Net Revenues, until such time as the aggregate accrued Net Revenues equal
$41,000,000, and then rent decreases to 22% for the remainder of the Sublease
period. "Net Revenues" is defined as Gross Revenues less normal and necessary
operating expenses as determined under generally accepted accounting principles,
to include interest payments due from the Tribal Corporation to HP Yakama and to
exclude rent due under the Sublease.
Hollywood Park has entered into a Profit Participation Agreement with North
American Sports Management, Inc. ("NORAM"), which entered into the original
Memorandum of Understanding with the Tribes. NORAM will receive 22% of the
portion of the Net Revenues (as described above) actually received by HP Yakama
under the Sublease.
20
<PAGE>
Construction of the casino is on schedule, and it is expected to open in the
second quarter of 1998 as the "Legends Casino". The Legends Casino will feature
a 600 seat bingo hall, certain table games including: Blackjack, Poker, Craps,
Roulette, Mini-bac, Caribbean Stud, and will offer electronic pull tabs and
electronic bingo, but will not offer slot machines. Gaming will be played in
the traditional Las Vegas style, where players bet against the house. The
Legends Casino will be located approximately 130 miles from both Seattle,
Washington and Portland, Oregon, in a valley at the foot of Mt. Adams, which is
a major vacation site. The nearest gaming facility is 157 miles away in
Pendelton, Oregon.
As of February 1998, HP Yakama had received all required approvals from both the
National Indian Gaming Commission and the Washington Gambling Commission.
PROPOSED INDIANA PROJECT The Company has an application pending for the
remaining riverboat gaming license to be awarded for operations on the Ohio
River in Indiana. The application was filed under a joint venture between the
Company and Hilton Gaming Corporation ("Hilton"). On May 6, 1998, Hollywood
Park and Hilton agreed that the Company would acquire Hilton's interest in the
joint venture, and Hilton withdrew as an applicant for the remaining Indiana
gaming license. If the Company is awarded the Indiana gaming license, then the
Company will pay Hilton approximately $750,000 in exchange for Hilton's
interest. If awarded the Indiana gaming license, the Company may form a joint
venture with Horseshoe Gaming, LLC ("Horseshoe Gaming") with respect to the
ownership and operation of a riverboat casino in Indiana. If granted the
Indiana gaming license, the Company will proceed with the project, regardless of
the outcome of the discussions with Horseshoe Gaming.
On May 6, 1998, the Indiana Gaming Commission (the "Commission") met and decided
that it would grant the remaining Indiana gaming license on September 14, 1998.
There can be no assurance that the Commission will grant the gaming license or
that it will be granted to Hollywood Park, or if granted the gaming license,
that it will receive all other required approvals and environmental permits
necessary to proceed with this project.
SUNFLOWER RACING, INC. Sunflower Racing, Inc. ("Sunflower") owns the Woodlands
Race Track located in Kansas City, Kansas. On May 17, 1996, Sunflower filed for
reorganization under Chapter 11 of the Bankruptcy Code, because the Kansas
legislature failed to pass legislation allowing additional forms of gaming at
Sunflower, which would have permitted Sunflower to more effectively compete with
Missouri riverboat gaming. On March 31, 1996, Hollywood Park recorded a non-
cash write off of its approximately $11,412,000 investment in Sunflower.
Sunflower has been operating as a debtor in possession during the bankruptcy
proceedings. On April 8, 1998, a federal bankruptcy judge rejected Sunflowers'
plan of reorganization. The Company has filed a motion for reconsideration of
the judge's decision and a reply from the creditor committee is due to be filed
by May 20, 1998. Though it cannot be certain, the Company expects the judge's
decision on the motion for reconsideration sometime in June 1998.
POSSIBLE RESTORATION OF REAL ESTATE INVESTMENT TRUST/PAIRED-SHARE STRUCTURE
Prior to 1991, the Company operated as a "paired share" structure, with the
Company (under the name Hollywood Park Realty Enterprises, Inc.) acting as a
real estate investment trust ("REIT") and Hollywood Park Operating Company
("HPOC") operating the racing and related operations of the Company. The
Company has received stockholder approval for, and, subject to, regulatory and
other approval, may pursue a corporate reorganization (the "Reorganization")
designed to reinstate the paired share structure in which the Company would
elect to be treated as a REIT and HPOC, along with its subsidiaries, would
conduct certain business operations, including the Company's current gaming,
racing and entertainment businesses. In the Reorganization, the shares of HPOC
would be spun off to the Company's stockholders and the stock of the Company
would be paired with, or stapled to, that of HPOC. Generally, a REIT is
required to distribute, as dividends to its stockholders, at least 95% of its
taxable income (other than net capital gains), and such amounts distributed are
not subject to federal income tax at the corporate level. The Company's
stockholders approved a number of proposals relating to the Reorganization. The
Proxy Statement relating to the Annual Meeting (the "Proxy Statement") contains
a detailed description of the Reorganization, including a variety of
21
<PAGE>
significant risk factors, including that no rulings will be issued by the
Internal Revenue Service in connection with the Reorganization and that
stockholders should assume that the spin-off of HPOC and the other
Reorganization transactions will constitute taxable transactions which will
result in tax liabilities for both the Company and its stockholders. The Company
estimates that the corporate level tax liability associated with the
Reorganization would be approximately $54 million and the Company's stockholders
would be treated as having received a taxable non-cash distribution of
approximately $4.95 per share. These estimates are based on the Company's
estimate of the fair market value of the shares of HPOC. If such fair market
value were found to be significantly greater, it would result in increased
corporate level and stockholder level tax liabilities. The Proxy Statement also
describes other risks associated with the Reorganization, including the
consequences of failing to qualify as a REIT, constraints on future transactions
and equity financings, and the potential consequences of proposed legislation
which would, if enacted, severely limit the utility of the paired-share
structure. For information regarding the Reorganization and the potential tax
consequences thereof, interested persons should read the Proxy Statement, a copy
of which is filed as an exhibit to the Company's 1997 Form 10-K. Copies of the
Proxy Statement may be obtained directly from the Company upon request.
In March 1998, bills were introduced in the House and Senate which, among other
provisions, would preclude Hollywood Park from qualifying as a paired-share Real
Estate Investment Trust. There can be no assurance that these bills will not be
passed as presently proposed, or in a modified form any more favorable to the
Company. Upon the ultimate resolution of this or other REIT-related
legislation, the Company will determine if it will pursue the Reorganization or
any other REIT-related restructuring.
RESULTS OF OPERATIONS
Three months ended March 31, 1998 compared to the three months ended March 31,
------------------------------------------------------------------------------
1997
----
Hollywood Park's June 30, 1997 acquisition of Boomtown was accounted for under
the purchase method of accounting for a business combination. As required under
the purchase method of accounting, Boomtown's historical financial results were
not consolidated with Hollywood Park's historical financial results, therefore,
the various revenue and expense categories vary significantly when comparing the
results of operations for the three months ended March 31, 1998, to the results
of operations for the three months ended March 31, 1997.
Total revenues for the three months ended March 31, 1998, increased by
$51,342,000, or 191.5%, as compared to the three months ended March 31, 1997,
primarily due to the inclusion of $52,215,000 of Boomtown revenues in 1998, with
no corresponding revenues recorded in 1997. Gaming revenues increased by
$42,667,000, or 336.4%, despite California card club gaming revenues at the
Hollywood Park-Casino and lease rent revenue at the Crystal Park Casino,
declining, on a combined basis, by approximately $978,000, due to increased
competition in the local card club market and lower lease rent due under the
current lease as compared to the lease in place in 1997 (1998's monthly lease
rent was $100,000, compared to monthly lease rent of $200,000 in 1997). The net
increase in gaming revenues was primarily due to the inclusion of Boomtown
revenues in 1998, with no corresponding revenues recorded in 1997. Food and
beverage revenues increased by $3,001,000, or 116.9%, due primarily to Boomtown
revenues recorded in 1998 with no corresponding revenues recorded in 1997.
Hotel and recreational vehicle park and truck stop and service station revenues
related to Boomtown Reno, with no corresponding revenues in the 1997 results.
Other income increased by $2,335,000, or 120.6%, primarily due to Boomtown
revenues recorded in 1998 with no corresponding revenues in 1997.
Total operating expenses increased by $48,299,000, or 171.3%, for the three
months ended March 31, 1998, as compared to the three months ended March 31,
1997, primarily as a result of the inclusion of approximately $44,140,000 of
operating expenses related to Boomtown in 1998, with no corresponding expenses
recorded in 1997. Gaming expenses increased by $24,918,000, or 353.5%,
primarily due to the inclusion of Boomtown gaming expenses in 1998 with no
similar costs recorded in 1997. Racing expenses increased by $301,000, or 5.8%,
primarily due to increased track maintenance costs at the Hollywood Park
22
<PAGE>
Race Track, due to winter weather conditions. Food and beverage expense
increased by $3,784,000, or 101.5%, due to the inclusion of Boomtown related
expenses in 1998 with no corresponding expenses in 1997. Hotel and recreational
vehicle park and truck stop and service station expenses related to operations
at Boomtown Reno; therefore, there are no similar costs in the 1997 results.
Administrative expenses increased by $11,351,000, or 129.8%, with approximately
$631,000 of the increase related to expansion costs (including legal and other
consulting costs) incurred by Hollywood Park Corporate, with the balance of the
increase due to Boomtown's administrative costs included in the 1998 expenses,
with no corresponding costs in the 1997 expenses. Depreciation and amortization
expense increased by $3,806,000, or 138.5%, primarily due to the inclusion of
Boomtown depreciation and amortization in the 1998 expense with no corresponding
expense in the 1997 results and depreciation on normal and necessary capital
improvements at other Hollywood Park properties. Interest expense increased by
$3,596,000, due to interest on the Notes, which were issued in August 1997, and
interest on short term borrowings (see Liquidity and Capital Resources below).
LIQUIDITY AND CAPITAL RESOURCES
Hollywood Park's principal source of liquidity as of March 31, 1998, was cash
and cash equivalents of $22,382,000. Cash and cash equivalents decreased by
$1,367,000 during the three months ended March 31, 1998. Historically, due to
the seasonality of the Company's horse racing business, the first quarter of the
year does not generate significant cash. Net cash of $2,863,000 was used for
operating activities, including the payment of $2,750,000 for a settlement of a
lawsuit. Net cash of $18,054,000 was used in investing activities. Cash of
$14,295,000 was used to purchase capital assets, including amounts spent for the
Boomtown Reno and Boomtown New Orleans construction projects, and for the Yakama
expansion. Cash was used for short term investing and the Company also, through
it's wholly owned subsidiary HP Casino, Inc. used cash of $1,946,000 to acquire
the remaining minority interest in Crystal Park LLC. Net cash provided by
financing activities was $19,550,000, which included short term borrowings of
$20,000,000 under the Company's Bank Credit Facility.
Cash and cash equivalents decreased by $2,097,000 during the three months ended
March 31, 1997. Net cash provided by operating activities was $415,000. Net
cash used in investing activities was $2,172,000, which included disbursements
for normal and necessary capital improvements and short term investments. Net
cash used in financing activities was $340,000.
HOLLYWOOD PARK The Company's Bank Credit Facility is a five year agreement,
entered into on June 30, 1997, with a bank syndicate led by Bank of America
National Trust and Savings Association ("Bank of America"). Presently,
$100,000,000 is available under the Bank Credit Facility, but due to covenant
limitations, approximately $79,945,000 was available as of March 31, 1998, of
which $20,000,000 was outstanding, at an interest rate of 7.66%. The Bank
Credit Facility also provides for a letter of credit sub-facility of
$10,000,000, of which $2,035,000 was outstanding as of March 31, 1998, for the
benefit of the Company's California self insured workers' compensation program.
The $2,035,000 letter of credit expired on May 1, 1998, and the Company
purchased a surety bond in its place. The Bank Credit Facility also provides
for a swing line sub-facility of up to $10,000,000. The Bank Credit Facility is
secured by substantially all of the assets of Hollywood Park and its significant
subsidiaries, and imposes certain customary affirmative and negative covenants.
On February 19, 1998, Hollywood Park announced the Casino Magic Merger, and,
under the terms of the Agreement and Plan of Merger, Hollywood Park will pay
cash of $2.27 for each issued and outstanding share of Casino Magic common
stock, or approximately $81,000,000. The Company has begun discussions to amend
the Bank Credit Facility to increase the borrowing capacity to provide the funds
required for the Casino Magic Merger. A formal amendment has not yet been
signed, and there is no assurance that such an amendment will be completed,
although the bank group has given verbal assurance of its intent to provide such
an increased facility.
The Bank Credit Facility has been amended twice. The first amendment, among
other matters, reduced the availability of the facility until the Bank Credit
Facility was approved by the Louisiana Gaming Control Board.
23
<PAGE>
Hollywood Park received this approval on July 10, 1997. The second amendment,
among other things, allowed the co-issuance of the Notes by Hollywood Park
Operating Company with Hollywood Park.
Debt service requirements on the Bank Credit Facility consist of current
interest payments on outstanding indebtedness through September 30, 1999.
Beginning September 30, 1999, and on the last day of each third calendar month
thereafter, through June 30, 2001, the Bank Credit Facility will decrease by
7.5% of the commitment in effect on September 30, 1999. Beginning September 30,
2001, and on the last day of each third calendar month thereafter, the Bank
Credit Facility will decrease by 10% of the commitment in effect on September
30, 1999. Any principal amounts outstanding in excess of the Bank Credit
Facility commitment, as so reduced, will be payable on such quarterly reduction
dates.
Borrowings under the Bank Credit Facility bear interest at an annual rate
determined, at the election of Hollywood Park, by reference to the "Eurodollar
Rate" (for interest periods of 1, 2, 3 or 6 months) or the "Reference Rate", as
such terms are respectively defined in the Bank Credit Facility, plus margins
which vary depending upon Hollywood Park's ratio of funded debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA"). The margins
start at 1.25% for Eurodollar loans and at 0.25% for Base Rate loans, at a
funded debt to EBITDA ratio of less than 1.50. Thereafter, the margin for each
type of loan increases by 25 basis points for each increase in the ratio of
funded debt to EBITDA of 50 basis points or more, up to 2.625% for Eurodollar
loans and 1.625% for Base Rate loans. However, if the ratio of senior funded
debt to EBITDA exceeds 2.50, the applicable margins will increase to 3.25% for
Eurodollar loans, and 2.25% for Base Rate loans. Thereafter, the margins would
increase by 25 basis points for each increase in the ratio of senior funded debt
to EBITDA of 50 basis points or more, up to a maximum of 4.25% for Eurodollar
loans and 3.25% for Base Rate loans. The applicable margins as of March 31,
1998, were 2.00% with respect to the Eurodollar Rate based interest rate and
1.00% with respect to the Base Rate interest rate.
The Bank Credit Facility allows for interest rate swap agreements, or other
interest rate protection agreements, up to a maximum notional amount of
$125,000,000. Presently, Hollywood Park does not utilize such financial
instruments.
Hollywood Park pays a quarterly commitment fee for the average daily amount of
unused portions of the Bank Credit Facility. The commitment fee is also
dependent upon Hollywood Park's ratio of funded debt to EBITDA. The commitment
fee for the Bank Credit Facility starts at 31.25 basis points when the ratio is
less than 1.00, and increases by 6.25 basis points for each increase in the
ratio of 0.50, up to a maximum of 50 basis points. For the quarter beginning
January 1, 1998, the commitment fee is 50 basis points.
On July 3, 1997, Hollywood Park borrowed $112,000,000 from the Bank Credit
Facility to fund Boomtown's offer to purchase the 11.5% Boomtown First Mortgage
Notes (the "Boomtown Notes"), and repaid this amount on August 7, 1997, with a
portion of the proceeds from the August 6, 1997, issuance of $125,000,000 of
Series A Notes due 2007. The Series A Notes were co-issued by Hollywood Park
and Hollywood Park Operating Company, and were issued pursuant to a private
offering under the Securities Act of 1933, as amended (the "Securities Act").
The balance of the proceeds from the issuance of the Series A Notes was used
primarily for the purchase of a new riverboat for Boomtown New Orleans, and
other general corporate needs.
On March 20, 1998, the Company completed a registered exchange offer for the
Series A Notes, pursuant to which all $125,000,000 principal amount of the
Series A Notes were exchanged by the holders for $125,000,000 aggregate
principal amount of Series B Notes of the Company and Hollywood Park Operating
Company which were registered under the Securities Act on Form S-4. Interest on
the Notes is payable semi-annually, on February 1st and August 1st. The Company
will also pay Liquidated Damages at the annual rate of 0.5% of the principal
amount of the Notes for the period January 27, 1998 to March 20, 1998 (the date
of consummation of the exchange offer). The Notes are redeemable, at the option
of Hollywood Park and Hollywood Park Operating Company, in whole or in part, on
or after August 1, 2002, at a premium to face amount, plus accrued interest, as
follows: (a) August 1, 2002 at 104.75%; (b) August 1, 2003 at 102.375%; (c)
August 1, 2004 at 101.188%; and (d) August 1, 2005 and thereafter at 100%. The
Notes are unsecured
24
<PAGE>
obligations of Hollywood Park and Hollywood Park Operating Company, guaranteed
by all other material restricted subsidiaries of either Hollywood Park or
Hollywood Park Operating Company.
The indenture governing the Notes contains certain covenants that, among other
things, limit the ability of Hollywood Park, Hollywood Park Operating Company
and their restricted subsidiaries to incur additional indebtedness and issue
preferred stock, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, create certain liens, enter into certain
transactions with affiliates, sell assets, issue or sell equity interests in
their respective subsidiaries or enter into certain mergers and consolidations.
The Company believes that the consummation of the Casino Magic Merger will be
permitted under the terms of the Indenture provided that, among other things,
Casino Magic redeems a portion of its long term indebtedness in a manner
currently contemplated by the parties.
Effective August 28, 1997, the Company's 2,749,900 outstanding depositary shares
were converted into approximately 2,291,500 shares of its common stock, thereby
eliminating the annual preferred cash dividend payment of approximately
$1,925,000 for future periods.
As of March 31, 1998, the Company has invested approximately $2,173,000 in
equity securities, which are presently being held as available-for-sale.
BOOMTOWN In November 1993, Boomtown issued $103,500,000 of 11.5% Boomtown Notes
(the "Boomtown Notes"). On July 3, 1997, pursuant to a tender offer, Boomtown
repurchased and retired approximately $102,142,000 in principal amount of the
Boomtown Notes, at a purchase price of $1,085 per $1,000, along with accrued
interest thereon. An additional $105,000 of the remaining Boomtown Notes were
tendered in the post Boomtown Merger change of control purchase offer, at a
price of $1,010 for each $1,000, completed August 12, 1997. As of March 31,
1998, there were $1,253,000 of Boomtown Notes outstanding, which are redeemable
as follows: (a) November 1, 1998 at 104.25%; (b) November 1, 1999 at 102.75%;
(c) November 1, 2000 at 101.25%; and (d) November 1, 2001 and thereafter at
100%.
As consideration for the sale of its Las Vegas property, Boomtown received two
promissory notes receivable from Roski, the former lessor of Boomtown's Las
Vegas property, totaling approximately $8,465,000. The first note is for
$5,000,000, bearing interest at Bank of America's reference rate plus 1.5% per
year, with annual principal payments of $1,000,000 plus accrued interest
commencing on July 1, 1998. The second note is for approximately $3,465,000,
bearing interest at Bank of America's reference rate plus 0.5% per year, with
the principal and accrued interest payable, in full, on July 1, 2000.
CAPITAL COMMITMENTS As of March 31, 1998, the Company had a remaining capital
commitment of approximately $3,828,000 (total amount committed was $9,000,000)
with respect to construction of the casino for the Yakama expansion, as
previously described. The Company also has a commitment of approximately
$81,000,000, with respect to the Casino Magic Merger, which is expected to close
in the fourth quarter of 1998.
Expansion Costs In addition to the capital commitments as discussed, Hollywood
- ---------------
Park has other potential capital needs with respect to Boomtown Reno and
Boomtown New Orleans. The Company expects to spend approximately $25,000,000 on
the expansion and renovation of Boomtown Reno, including additional hotel rooms,
expanded gaming space and other amenities, which is expected to be completed by
the end of 1998. The Company also expects to spend approximately $10,000,000 on
the expansion and upgrade of Boomtown New Orleans, including the build-out of
the second floor of the land-based facility which is expected to be completed by
late summer 1998.
GENERAL Hollywood Park is continually evaluating future growth opportunities in
the gaming, sports and entertainment industries. Hollywood Park expects that
funding for the Casino Magic Merger, other expansion, payment of interest on the
Notes, payment of notes payable, and normal and necessary capital expenditure
needs will come from existing cash balances generated from operating activities
and borrowings
25
<PAGE>
from the Bank Credit Facility. In the opinion of management, these resources
will be sufficient to meet Hollywood Park's anticipated cash requirements for
the foreseeable future and in any event for at least the next twelve months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
As of March 31, 1998, Hollywood Park did not hold any investments in market risk
sensitive instruments of the type described in Item 305 of Regulation S-K.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
At an Annual Meeting of Stockholders, held on April 13, 1998, the Company's
stockholders approved the following:
PROPOSAL ONE: Proposal to approve and adopt amendments to the Company's
Certificate of Incorporation, which are necessary to effect the reorganization
of the Company into a paired share real estate investment trust and operating
company structure.
For votes 16,434,221
Against votes 413,652
Abstain votes 112,885
Broker non-votes 7,809,023
PROPOSAL TWO: Proposal to approve and adopt the Hollywood Park Operating
Company 1998 Stock Option Plan.
For votes 13,575,789
Against votes 3,226,343
Abstain votes 158,626
Broker non-votes 7,809,023
PROPOSAL THREE: Proposal to approve and adopt the Hollywood Park Operating
Company 1998 Directors Deferred Compensation Plan.
For votes 16,177,218
Against votes 539,373
Abstain votes 249,279
Broker non-votes 7,803,911
PROPOSAL FOUR: Proposal to approve the Supermajority Elimination Amendment,
which would remove the requirement in the Company's Certificate of Incorporation
that certain transactions be approved by 70% of the Company's outstanding stock.
For votes 18,362,570
Against votes 658,527
Abstain votes 236,742
Broker non-votes 6,934,131
26
<PAGE>
PROPOSAL FIVE: Proposal to approve and adopt the Gaming Amendment to the
Company's Certificate of Incorporation, intended to expand the protection of the
Company's gaming licenses.
For votes 16,762,258
Against votes 91,883
Abstain votes 106,617
Broker non-votes 7,809,023
PROPOSAL SIX: Proposal to elect eleven directors.
<TABLE>
<CAPTION>
Nominee For Votes Against Votes
- ------- --------- -------------
<S> <C> <C>
R.D. Hubbard 24,474,576 295,205
Richard Goeglein 24,490,384 279,397
Peter L. Harris 24,491,701 278,080
J.R. Johnson 24,490,105 279,676
Robert T. Manfuso 24,491,332 278,449
Harry Ornest 24,492,884 276,897
Timothy J. Parrott 24,493,886 275,895
Lynn P. Reitnouer 24,489,639 280,142
Herman Sarkowsky 24,492,187 277,594
William B. Williamson 24,491,933 277,848
Delbert W. Yocam 24,487,617 282,164
</TABLE>
ITEM 6.a EXHIBITS
<TABLE>
Exhibit
Number Description of Exhibit
- --------- -----------------------------------------------------------------------------------------------------
<S> <C>
2.4 Agreement and Plan of Merger, dated as of February 19, 1998, among Hollywood Park, Inc., HP
Acquisition II, Inc. and Casino Magic Corp., is hereby incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K, filed February 26, 1998.
10.45 Voting Agreement, dated as of February 25, 1998, by and between Hollywood Park, Inc. and Marlin F.
Torguson, is hereby incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K, filed February 26, 1998.
10.46* First Amendment to License Agreement for Radisson Crystal Park Hotel and Casino Compton, California,
between Radisson Hotels International, Inc. and Crystal Park Hotel and Casino Development Company
LLC, dated February 28, 1998.
27.1 Financial Data Schedule
____
* Filed herewith
</TABLE>
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed February 26, 1998, to report
the February 19, 1998, execution of the Agreement and Plan of
Merger, among Hollywood Park, Inc., HP Acquisition II, Inc. and
Casino Magic Corp.
27
<PAGE>
Hollywood Park, Inc.
Calculation of Earnings Per Share
<TABLE>
<CAPTION>
For the three months ended March 31,
-----------------------------------------------------
Basic Diluted (a)
--------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Average number of common shares outstanding 26,276 18,373 26,276 18,373
Average common shares due to assumed conversion
of convertible preferred shares (b) 0 0 0 2,291
Average common shares due to assumed conversion of
stock options 0 0 591 0
------- ------- ------- -------
Total shares 26,276 18,373 26,867 20,664
======= ======= ======= =======
Net loss ($1,234) ($895) ($1,234) ($895)
Less dividend requirements on convertible preferred shares 0 481 0 0
------- ------- ------- -------
Net loss allocated to common shareholders ($1,234) ($1,376) ($1,234) ($895)
======= ======= ======= =======
Net loss per share ($0.05) ($0.07) ($0.05) ($0.04)
======= ======= ======= =======
</TABLE>
____
(a) When the computed diluted values are anti-dilutive, the basic per share
values are presented on the face of the consolidated statements of
operations.
(b) As of August 28, 1997, the Company's 2,749,000 outstanding depositary shares
were converted into 2,291,492 shares of the Company's common stock.
28
<PAGE>
Hollywood Park, Inc.
Selected Financial Data by Operational Location
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1998 1997
------- -------
(in thousands, except per share data - unaudited)
<S> <C> <C>
Revenues:
Hollywood Park, Inc. - Casino Division $13,211 $13,994
HP/Compton, Inc. - Crystal Park Hotel and Casino 300 600
Boomtown Reno 13,436 0
Boomtown New Orleans 22,695 0
Boomtown Biloxi 15,873 0
Hollywood Park Race Track 5,478 5,446
Turf Paradise, Inc. 6,810 6,562
Hollywood Park, Inc. - Corporate 143 213
Boomtown, Inc. - Corporate 211 0
------- -------
78,157 26,815
------- -------
Expenses:
Hollywood Park, Inc. - Casino Division 11,707 12,441
HP/Compton, Inc. - Crystal Park Hotel and Casino 46 22
Boomtown Reno 14,299 0
Boomtown New Orleans 15,796 0
Boomtown Biloxi 13,354 0
Hollywood Park Race Track 7,242 7,286
Turf Paradise, Inc. 4,374 4,230
Hollywood Park, Inc. - Corporate 1,966 1,336
Boomtown, Inc. - Corporate 691 0
------- -------
69,475 25,315
------- -------
Non-recurring expenses:
REIT restructuring 469 0
Depreciation and amortization:
Hollywood Park, Inc. - Casino Division 698 764
HP/Compton, Inc. - Crystal Park Hotel and Casino 510 400
Boomtown Reno 1,469 0
Boomtown New Orleans 1,191 0
Boomtown Biloxi 882 0
Hollywood Park Race Track 1,065 991
Turf Paradise, Inc. 296 295
Hollywood Park, Inc. - Corporate 427 434
Boomtown, Inc. - Corporate 17 0
------- -------
6,555 2,884
------- -------
Operating income (loss):
Hollywood Park, Inc. - Casino Division 806 789
HP/Compton, Inc. - Crystal Park Hotel and Casino (256) 178
Boomtown Reno (2,332) 0
Boomtown New Orleans 5,708 0
Boomtown Biloxi 1,637 0
Hollywood Park Race Track (2,829) (2,831)
Turf Paradise, Inc. 2,140 2,037
Hollywood Park, Inc. - Corporate (2,250) (1,557)
Boomtown, Inc. - Corporate (497) 0
REIT restructuring (469) 0
------- -------
1,658 (1,384)
------- -------
Interest expense 3,661 64
Minority interests:
HP/Compton, Inc. - Crystal Park Hotel and Casino 0 22
------- -------
Loss before income tax benefit (2,003) (1,470)
Income tax benefit (769) (575)
------- -------
Net loss ($1,234) ($895)
======= =======
Dividend requirements on convertible preferred stock $0 $481
------- -------
Net loss allocated to common shareholders ($1,234) ($1,376)
======= =======
Per common share:
Net loss - basic ($0.05) ($0.07)
Net loss - diluted ($0.05) ($0.07)
Number of shares - basic 26,276 18,372
Number of shares - diluted 26,867 20,664
</TABLE>
29
<PAGE>
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: May 13, 1998
--------------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan Dated: May 13, 1998
--------------------------------------
G. Michael Finnigan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
HOLLYWOOD PARK OPERATING COMPANY
(Registrant)
By: /s/ R.D. Hubbard Dated: May 13, 1998
--------------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan Dated: May 13, 1998
--------------------------------------
G. Michael Finnigan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
30
<PAGE>
Hollywood Park, Inc.
Exhibit Index
.
<TABLE>
<CAPTION>
Exhibit Description Page
- --------- ------------------------------------------------------------------------------------------ ----------
<S> <C> <C>
10.46 First Amendment to License Agreement for Radisson Crystal Park Hotel and Casino Compton, 1
California, between Radisson Hotels International, Inc. and Crystal Park Hotel and Casino
Development Company LLC, dated February 28, 1998.
27.1 Financial Data Schedule
</TABLE>
31
<PAGE>
Hollywood Park, Inc.
Quarterly Report on Form 10-Q, March 31, 1998
Exhibit 10.46
FIRST AMENDMENT TO LICENSE AGREEMENT
FOR
RADISSON CRYSTAL PARK HOTEL & CASINO
COMPTON, CALIFORNIA
This First Amendment to License Agreement for Radisson Crystal Park Hotel &
Casino ("Amendment") is made as of this 28th day of February, 1998, between
RADISSON HOTELS INTERNATIONAL, INC., (the "Licensor") and CRYSTAL PARK HOTEL &
CASINO DEVELOPMENT COMPANY, LLC (the "Licensee"), in order to amend the License
Agreement dated as of June 27, 1996 (the "License Agreement") between Licensor
and Licensee's predecessor in interest, HP/Compton, Inc. related to the property
situated at 111 E. Artesia Boulevard, Crystal City, California 90220 and
operated as the Radisson Crystal Park Hotel & Casino ("Hotel").
WHEREAS, the original licensee under the License Agreement, HP/Compton, Inc.
transferred all of its interest therein to Licensee pursuant to Paragraph 6 of
the Addendum to License Agreement, and Licensor recognizes Crystal Park Hotel &
Casino Development Company, LLC as the Licensee under the License Agreement; and
WHEREAS, the management company designated by Licensee in the License
Agreement ceased all operations of the Hotel in October of 1997 without
authority and in breach of the License Agreement and in response to Licensor's
default notice, Licensor and Licensee negotiated a suspension of the license
while Licensee obtained a qualified replacement management company; and
WHEREAS, the Hotel reopened on December 26, 1997 under the control of the new
management company selected by Licensee and consented to by Licensor; and
WHEREAS, Licensor and Licensee want to amend the License Agreement in
accordance with their mutual understanding of the terms negotiated between the
parties with respect to the foregoing circumstances;
NOW THEREFORE, for good and valuable consideration, Licensor and Licensee
agree as follows:
1. Licensor hereby approves California Casino Management, Inc., as management
company for the Hotel.
2. Wherever, in the License Agreement, reference is made to the former
management company, "Compton Entertainment, Inc.", or "CEI", all such
references shall be deemed deleted and replaced with "California Casino
Management, Inc.".
3. As an accommodation to Licensee and is new management company, Licensor
will endeavor to direct invoices for all amounts incurred or accrued under the
License Agreement for periods prior to December 26, 1997 directly to Licensee,
c/o Hollywood Park, 1050 South Prairie Avenue, Inglewood, CA 90301, Attention:
G. Michael Finnigan, and invoices for all amounts incurred or accrued under
the License Agreement for periods subsequent to December 26, 1997 to
California Casino Management, Inc. at the Hotel. In addition, Licensor will
forward to Licensee at the above address an Aged Receivables Report detailing
account activity with respect to the Hotel on a monthly basis, on or about the
20th day of each calendar month, to enable Licensee to monitor the payment
performance of its management company.
<PAGE>
4. Licensee will continue to be responsible with respect to any costs
associated with relocation of guests who had confirmed reservations at the
Hotel during the period of closure and will either reimburse such guests
directly and/or reimburse Radisson for any expenses incurred in that
connection or otherwise in responding to the unauthorized closure of the
Hotel, in accordance with the applicable provisions of the License Agreement.
5. Licensee acknowledges and agrees that in the unlikely event that the
Crystal Park Casino should at some future date again be caused or required to
close, for any reason, the Licensee shall continue the operation of the Hotel
(notwithstanding the fact that such operation may be economically unfeasible)
until such time as Licensor and Licensee mutually agree, in writing, on
whether and under what circumstances a suspension of the License Agreement and
closure of the Hotel will be permitted. Voluntary closure under any other
circumstances shall constitute an abandonment of the franchise relationship by
Licensee under California law, entitling Licensor to terminate the License
Agreement forthwith, upon notice, and pursue all remedies available under the
License Agreement.
6. Except as amended hereby, all of the other terms and provisions contained
in the License Agreement shall remain in full force and effect and this
Amendment and the License Agreement shall be merged and considered one
instrument. Licensor hereby rescinds the notice of default previously issued
to Licensee and declares the License Agreement to be currently in good
standing.
RADISSON HOTELS INTERNATIONAL, INC. CRYSTAL PARK HOTEL & CASINO
DEVELOPMENT COMPANY, LLC
By: /s/ Brian Stage By: /s/ G. Michael Finnigan
-------------------------------- --------------------------------
Print Name: Brian Stage Print Name: G. Michael Finnigan
------------------------ ------------------------
Its: Executive Vice President Its: President
------------------------------- -------------------------------
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000356213
<NAME> HOLLYWOOD PARK, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 22,382,000
<SECURITIES> 2,173,000
<RECEIVABLES> 16,641,000
<ALLOWANCES> 823,000
<INVENTORY> 0
<CURRENT-ASSETS> 52,251,000
<PP&E> 452,212,000
<DEPRECIATION> 143,295,000
<TOTAL-ASSETS> 422,253,000
<CURRENT-LIABILITIES> 64,245,000
<BONDS> 154,066,000
0
0
<COMMON> 2,629,000
<OTHER-SE> 218,589,000
<TOTAL-LIABILITY-AND-EQUITY> 422,253,000
<SALES> 8,392,000
<TOTAL-REVENUES> 78,157,000
<CGS> 10,079,000
<TOTAL-COSTS> 76,499,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> 3,661,000
<INCOME-PRETAX> (2,003,000)
<INCOME-TAX> (769,000)
<INCOME-CONTINUING> (1,234,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,234,000)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
