<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 September 30, 1998
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<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 November 11, 1998: 25,800,069.
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Hollywood Park, Inc.
Table of Contents
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Part I
Item 1. Financial Information
Hollywood Park, Inc.
--------------------
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Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997.................. 1
Consolidated Statements of Operations for the three and nine months ended
September 30, 1998 and 1997............................................................... 2
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997............................................................... 3
Notes to Consolidated Financial Statements.................................................. 4
Mississippi - I Gaming, L.P.
----------------------------
Balance Sheets as of September 30, 1998 and December 31, 1997............................... 14
Statements of Operations for the three and nine months ended
September 30, 1998 and 1997............................................................... 15
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997............................................................... 16
Notes to Financial Statements............................................................... 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General................................................................................... 20
Results of Operations..................................................................... 25
Liquidity and Capital Resources........................................................... 27
Item 3. Quantitative and Qualitative Disclosure About Market Risk................................... 29
Part II
Item 5. Other information........................................................................... 30
Item 6.a Exhibits.................................................................................... 30
Other Financial Information................................................................. 31
Signatures.................................................................................. 33
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Item 1. Financial Information
Hollywood Park, Inc.
Consolidated Balance Sheets
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<CAPTION>
As of
-------------------------------
September 30, December 31,
1998 1997
------------ ------------
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 20,126 $ 23,749
Restricted cash 798 407
Short term investments 3,459 0
Other receivables, net 7,061 9,417
Prepaid expenses and other assets 16,160 10,948
Deferred tax assets 10,250 8,118
Current portion of notes receivable 2,340 42
-------- --------
Total current assets 60,194 52,681
Notes receivable 18,250 9,548
Property, plant and equipment, net 301,125 300,666
Goodwill, net 50,341 33,017
Other assets 23,009 23,117
-------- --------
$452,919 $419,029
======== ========
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $8,848 $11,277
Accrued lawsuit settlement 0 2,750
Accrued compensation 7,620 7,627
Accrued liabilities 26,986 19,105
Accrued interest 2,642 5,175
Gaming liabilities 3,698 3,853
Racing liabilities 263 4,093
Current portion of notes payable 2,058 3,437
-------- --------
Total current liabilities 52,115 57,317
Notes payable 168,574 132,102
Deferred tax liabilities 6,606 6,310
-------- --------
Total liabilities 227,295 195,729
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;
25,800,069 issued and outstanding in 1998, and 2,580 2,622
26,220,528 in 1997
Capital in excess of par value 218,023 222,350
Retained earnings (accumulated deficit) 5,338 (3,532)
Accumulated other comprehensive loss (317) (86)
-------- --------
Total stockholders' equity 225,624 221,354
-------- --------
$452,919 $419,029
======== ========
</TABLE>
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See accompanying notes to consolidated financial statements.
1
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Hollywood Park, Inc.
Consolidated Statements of Operations
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<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
------------ ------------ ------------ ------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(in thousands, except per share data - unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Gaming $ 58,846 $ 57,143 $173,552 $ 83,990
Racing 11,371 12,216 48,085 48,084
Food and beverage 7,383 6,156 21,245 13,016
Hotel and recreational vehicle park 637 581 1,362 581
Truck stop and service station 4,525 4,897 11,071 4,897
Other income 4,705 4,217 13,434 7,781
-------- -------- -------- --------
87,467 85,210 268,749 158,349
-------- -------- -------- --------
EXPENSES:
Gaming 30,604 29,956 93,920 45,117
Racing 5,562 6,206 21,244 21,615
Food and beverage 10,065 8,101 27,601 16,920
Hotel and recreational vehicle park 212 199 499 199
Truck stop and service station 4,177 4,461 10,164 4,461
Administration 20,088 20,091 62,209 38,622
Other 2,011 1,823 5,586 3,262
REIT restructuring 0 609 469 609
Depreciation and amortization 6,825 6,159 19,874 11,939
-------- -------- -------- --------
79,544 77,605 241,566 142,744
-------- -------- -------- --------
Operating income 7,923 7,605 27,183 15,605
Loss on write off of assets 1,586 0 1,586 0
Interest expense 4,112 3,653 11,827 3,782
-------- -------- -------- --------
Income before minority interests and income taxes 2,225 3,952 13,770 11,823
Minority interests 0 17 0 80
Income tax expense 253 1,524 4,903 4,624
-------- -------- -------- --------
Net income $ 1,972 $ 2,411 $ 8,867 $ 7,119
======== ======== ======== ========
=================================================================================================================
Dividend requirements on convertible preferred stock $ 0 $ 558 $ 0 $ 1,520
Net income available to common shareholders $ 1,972 $ 1,853 $ 8,867 $ 5,599
Per common share:
Net income - basic $ 0.08 $ 0.08 $ 0.34 $ 0.27
Net income - diluted $ 0.08 $ 0.08 $ 0.34 $ 0.27
Number of shares - basic 26,101 24,706 26,115 20,596
Number of shares - diluted 26,101 24,706 26,277 20,596
</TABLE>
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Hollywood Park, Inc.
Consolidated Statements of Cash Flows
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<CAPTION>
For the nine months ended September 30,
---------------------------------------
1998 1997
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(in thousands - unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,867 $ 7,119
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,874 11,939
Minority interests 0 17
Loss on sale or disposal of property, plant and equipment 985 488
(Increase) decrease in restricted cash (391) 3,277
Decrease (increase) in other receivables, net 2,356 (944)
(Increase) decrease in prepaid expenses and other assets (5,648) 894
Increase in deferred tax assets (2,132) (1,681)
Decrease in accounts payable (2,429) (2,151)
Decrease in accrued lawsuit settlement (2,750) 0
Decrease in accrued compensation (7) (1,788)
Increase (decrease) in accrued liabilities 2,287 (10,381)
(Decrease) increase in gaming liabilities (155) 1,197
Decrease in racing liabilities (3,830) (3,496)
Decrease in accrued interest payable (2,533) 0
Increase in deferred tax liabilities 296 1,569
------- -------
Net cash provided by operating activities 14,790 6,059
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (34,981) (23,059)
Receipts from sale of property, plant and equipment 650 114
Principal collected on notes receivable 2,071 31
Note receivable, Paul Alanis (3,232) 0
Note receivable, HP Yakama investment (8,012) 0
Purchase of short term investments (3,690) (1,946)
Proceeds from short term investments 0 6,712
Payment to buy-out minority interest in Crystal Park LLC (1,946) 0
Cash acquired in the purchase of a business, net of
transaction and other costs 0 12,264
------- -------
Net cash used in investing activities (49,140) (5,884)
------- -------
Cash flows from financing activities:
Proceeds from secured Bank Credit Facility 40,000 112,000
Payment of secured Bank Credit Facility 0 (112,000)
Redemption of Boomtown 11.5% First Mortgage Notes (1,253) (110,924)
Proceeds from issuance of 9.5% Notes 0 125,000
Payment of secured notes payable 0 (4,282)
Payment of unsecured notes payable (3,654) (31)
Common stock options exercised 1,174 1,667
Purchase and retirement of Hollywood Park common stock (5,540) 0
Dividends paid to preferred stockholders 0 (1,520)
------- -------
Net cash provided by financing activities 30,727 9,910
------- -------
(Decrease) increase in cash and cash equivalents (3,623) 10,085
Cash and cash equivalents at the beginning of the period 23,749 11,922
------- -------
Cash and cash equivalents at the end of the period $20,126 $22,007
======= =======
</TABLE>
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See accompanying notes to consolidated financial statements.
3
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Hollywood Park, Inc.
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL Hollywood Park, Inc. (the "Company" or "Hollywood Park") is a
diversified gaming, sports and entertainment company engaged in the ownership
and operation of casinos (including card club casinos), pari-mutuel racing
facilities, and the development of other gaming and sports related
opportunities. Hollywood Park owns and operates, through its Boomtown, Inc.
("Boomtown") subsidiary, land-based, riverboat and dockside gaming operations in
Verdi, Nevada ("Boomtown Reno"), Harvey, Louisiana ("Boomtown New Orleans") and
Biloxi, Mississippi ("Boomtown Biloxi"), respectively. As of October 15, 1998,
the Company expanded its gaming operations through the acquisition of Casino
Magic Corp. ("Casino Magic"). Casino Magic operates dockside gaming in Bay St.
Louis, Mississippi ("Casino Magic Bay St. Louis") and in Biloxi, Mississippi
("Casino Magic Biloxi"); riverboat gaming in Bossier City, Louisiana ("Casino
Magic Bossier"); and is 51% owner of two land-based casinos in Argentina
("Casino Magic Argentina"). 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 are, 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, as filed with the Securities and
Exchange Commission, for the year ended December 31, 1997. This Quarterly
Report on Form 10-Q does not include certain footnotes and financial
presentations normally presented annually and should be read in conjunction with
the Company's 1997 Annual Report on Form 10-K.
The information furnished herein is unaudited; however, in the opinion of
management it reflects all normal and recurring adjustments necessary to present
a fair statement of the financial results for the interim periods. It should be
understood that accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The interim racing results of
operations are not indicative of the results for the full year, due to the
seasonality of the Company's horse racing business.
CONSOLIDATION The consolidated financial statements presented herein, include
the accounts of Hollywood Park and its wholly owned subsidiaries: (a) Boomtown,
and Boomtown's six active subsidiaries; (1) Boomtown Hotel & Casino, Inc., (2)
Bayview Yacht Club, Inc., (3) Mississippi - I Gaming, L.P., (4) Louisiana Gaming
Enterprises, Inc., (5) Louisiana - I Gaming, and (6) Boomtown Hoosier, Inc.; (b)
Hollywood Park Operating Company and its two wholly owned subsidiaries,
Hollywood Park Food Services, Inc. and Hollywood Park Fall Operating Company;
(c) Turf Paradise, Inc.; (d) HP Yakama, Inc.; and (e) HP/Compton, Inc. and HP
Casino, Inc., which own 89.8% and 10.2%, respectively, of the Crystal Park Hotel
and Casino Development Company LLC ("Crystal Park LLC"). The Hollywood Park-
Casino is a division of Hollywood Park, Inc.
As of October 15, 1998, the consolidated financial statements will also include
Casino Magic's thirteen active subsidiaries: (1) Mardi Gras Casino Corp., (2)
Biloxi Casino Corp., (3) Casino Magic Finance Corp., (4) Jefferson Casino Corp.,
(5) Casino Magic of Louisiana, Corp., (6) Casino Magic Neuquen, (7) Casino Magic
Support Services SA, (8) Casino Magic American Corp., (9) Casino Magic
Management Services Corp., (10) Bay St. Louis Casino Corp., (11) Boston Casino
Corp., (12) Casino One Corporation, and (13) St. Louis Casino Corp.
4
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RESTRICTED CASH Restricted cash as of September 30, 1998 and December 31, 1997,
was for amounts due to horsemen for purses, stakes and awards.
CAPITALIZED INTEREST During the three and nine months ended September 30, 1998,
the Company capitalized interest related to construction projects of
approximately $295,000 and $802,000, respectively. Capitalized interest for
both the three and nine months ended September 30, 1997 was $15,000.
COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130,
("SFAS 130") Reporting Comprehensive Income, requires that the Company disclose
--------- --------------------
comprehensive income and its components. The objective of SFAS 130 is to report
a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners. Comprehensive income is the sum of the following; net income
(loss) and other comprehensive income (loss), which is defined as all other
nonowner changes in equity.
The Company has recorded unrealized gain (loss) on securities as other
comprehensive income (loss) in the accompanying financial statements.
Comprehensive income was computed as follows:
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For the three months ended
September 30,
------------------------------------------------
1998 1997
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(in thousands, unaudited)
Net income $1,972 $2,411
Other comprehensive income (loss):
Unrealized loss on securities (315) 0
Less reclassification adjustment for
realized (gain) loss 0 0
--------------------- ---------------------
Comprehensive income $1,657 $2,411
===================== =====================
For the nine months ended
September 30,
------------------------------------------------
1998 1997
--------------------- ---------------------
(in thousands, unaudited)
Net income $8,867 $7,119
Other comprehensive income (loss):
Unrealized loss on securities (231) 0
Less reclassification adjustment for
realized loss 0 1
--------------------- ---------------------
Comprehensive income $8,636 $7,120
===================== =====================
</TABLE>
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
5
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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.
EARNINGS PER SHARE Basic earnings per share were computed by dividing net
income available to common shareholders (net income less preferred dividend
requirements) by the weighted average number of common shares outstanding during
the period. Diluted per share amounts were similarly computed, but include the
effect, when dilutive, of the conversion of the convertible preferred shares
(which is applicable to the three and nine months ended September 30, 1997,
only), and the assumed 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 future annual preferred stock cash
dividend payments of approximately $1,925,000.
CASH FLOWS Cash and cash equivalents included certificates of deposit and short
term investments with maturities of 90 days or less.
RACING REVENUES AND EXPENSES The Company records pari-mutuel revenues,
admissions, food and beverage and other income associated with racing on a daily
basis, except for seasonal admissions, which are recorded ratably over the
racing season. Expenses associated with racing revenues were charged against
income in those periods in which racing revenues were recognized.
GAMING REVENUE AND PROMOTIONAL ALLOWANCES Gaming revenues at the Boomtown
properties consisted of the difference between gaming wins and losses, or net
win from gaming activity, and at the Hollywood Park-Casino consisted of fees
collected from patrons on a per seat or per hand basis. Revenues in the
accompanying statements of operations excluded the retail value of food and
beverage provided to players on a complimentary basis. The estimated cost of
providing these promotional allowances during the three months ended September
30, 1998 and 1997, was $3,206,000 and $2,745,000, respectively, and for the nine
months ended September 30, 1998 and 1997, was $10,683,000 and $3,410,000,
respectively. (The amount for the nine months ended September 30, 1997, is
exclusive of the costs associated with Boomtown's operations, prior to June 30,
1997.)
RECLASSIFICATIONS Certain reclassifications have been made to the 1997 balances
to be consistent with the 1998 financial statement presentation.
NOTE 2 - ACQUISITION OF CASINO MAGIC CORP.
On October 15, 1998, Hollywood Park acquired Casino Magic, pursuant to the
February 19, 1998 Agreement of Merger among Casino Magic Corp., Hollywood Park,
Inc., and HP Acquisition II, Inc. (a wholly owned subsidiary of Hollywood Park),
pursuant to which HP Acquisition II, Inc., was merged into Casino Magic, with
Casino Magic surviving and becoming a wholly owned subsidiary of Hollywood Park.
The Casino Magic Merger will be accounted for under the purchase method of
accounting for a business combination. Hollywood Park paid $2.27 per Casino
Magic common share outstanding, or approximately $81,100,000.
Casino Magic owns and operates dockside gaming properties in Bay St. Louis,
Mississippi, and Biloxi, Mississippi, riverboat gaming in Bossier City,
Louisiana, and is a 51% partner in two land-based casinos in Argentina.
6
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NOTE 3 - ACQUISITION OF BOOMTOWN, INC.
On June 30, 1997, pursuant to the Agreement and Plan of Merger dated as of April
23, 1996, by and among Hollywood Park, HP Acquisition, Inc., a wholly owned
subsidiary of the Company, and Boomtown, HP Acquisition, Inc. was merged with
and into Boomtown (the "Boomtown Merger"). As a result of the Boomtown Merger,
Boomtown became a wholly owned subsidiary of the Company and each share of
Boomtown common stock was converted into the right to receive 0.625 of a share
of Hollywood Park's common stock. Approximately 5,362,850 shares of Hollywood
Park common stock, valued at $9.8125 per share (excluding shares repurchased
from Edward P. Roski, Jr. ("Roski") and subsequently retired) were issued in the
Boomtown Merger.
The Boomtown Merger was accounted for under the purchase method of accounting
for a business combination. The purchase price of the Boomtown Merger was
allocated to the identifiable assets acquired and liabilities assumed based on
their estimated fair values at the date of acquisition. Based on financial
analyses which considered the impact of general economic, financial and market
conditions on the assets acquired and liabilities assumed, it was determined
that the estimated fair values approximated their carrying value. The Boomtown
Merger generated approximately $21,136,000 of excess acquisition cost over the
recorded value of the net assets acquired, all of which was allocated to
goodwill, to be amortized over 40 years. The amortization of the goodwill is
not deductible for income tax purposes. As of June 30, 1997, the excess
acquisition cost over the recorded value of the assets was estimated at
approximately $2,683,000. As of June 30, 1998, the Company revised its initial
estimates of the excess acquisition cost over the recorded value to $21,136,000,
due primarily to a reduction in the valuation of certain gaming fixed assets and
provisions for additional liabilities.
The Company acquired three of the four Boomtown properties; Boomtown Reno,
Boomtown New Orleans, and Boomtown Biloxi. In connection with the Boomtown
Merger, Boomtown's Las Vegas property was divested on July 1, 1997.
NOTE 4 - SHORT TERM INVESTMENTS
As of September 30, 1998, short term investments consisted of investments in
equity securities. These investments were recorded at fair value in the
accompanying financial statements, as determined by the quoted market price, and
are classified as available-for-sale. As of September 30, 1998, the Company
recorded an unrealized loss on these investments of approximately $231,000.
Included in the portfolio of equity securities were 792,900 shares of Casino
Magic common stock, for which the Company paid approximately $2.00 per common
share, or a total cost of approximately $1,615,000 (inclusive of commissions).
7
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NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held as of September 30, 1998, and December 31,
1997, consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------------- ---------------------
<S> <C> <C>
(unaudited)
(in thousands)
Land and land improvements $ 50,349 $ 50,945
Buildings and building improvements 279,451 270,271
Equipment 88,561 77,337
Vessels 16,690 18,925
Construction in progress 15,875 21,896
--------------------- ---------------------
450,926 439,374
Less accumulated depreciation 149,801 138,708
--------------------- ---------------------
$301,125 $300,666
===================== =====================
</TABLE>
NOTE 6 - SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of September 30, 1998, and December 31, 1997, consisted of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------------- ---------------------
<S> <C> <C>
(unaudited)
(in thousands)
Secured notes payable, Bank Credit Facility $ 40,000 $ 0
Secured notes payable, other 2,500 3,750
Unsecured 9.5% Notes 125,000 125,000
Boomtown 11.5% First Mortgage Notes 0 1,253
Unsecured notes payable 3,031 4,009
Capital lease obligations 101 1,527
--------------------- ---------------------
170,632 135,539
Less current maturities 2,058 3,437
--------------------- ---------------------
$168,574 $132,102
===================== =====================
</TABLE>
SECURED NOTES PAYABLE, BANK CREDIT FACILITY On October 15, 1998, the Company
executed the Amended and Restated Reducing Revolving Loan Agreement with a bank
syndicate led by Bank of America National Trust and Savings Association (the
"Amended Bank Credit Facility") for up to $300,000,000, with an option to
increase this amount to $375,000,000. The Amended Bank Credit Facility also
provides for sub-facilities for letters of credit up to $30,000,000, and swing
line loans of up to $10,000,000. Prior to the execution of the Amended Bank
Credit Facility, the Company was operating with a Bank Credit Facility, which
was initially for $225,000,000, and was reduced to $100,000,000 with the August
1997 issuance of the 9.5% Hollywood Park Notes. The Amended Bank Credit
Facility extended the maturity of the Bank Credit Facility to December 31, 2003,
reduced interest and commitment fee rates, and amended certain covenants, as
compared to the previous Bank Credit Facility.
UNSECURED 9.5% NOTES On August 6, 1997, Hollywood Park, Inc. and Hollywood
Park Operating Company, co-issued $125,000,000 of Series A 9.5% Senior
Subordinated Notes due 2007 (the "Series A Notes"). On March 20, 1998, the
Company completed a registered exchange offer for the Series A Notes, pursuant
to which all $125,000,000 principal amount of the Series A Notes were exchanged
by the holders for $125,000,000 aggregate principal amount of Series B 9.5%
Senior Subordinated Notes due 2007, of the Company and Hollywood Park Operating
Company (the "Series B Notes") and, together with the Series A Notes, (the
"Notes") were registered under the Securities Act on Form S-4. Interest on the
Notes is payable
8
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semi-annually, on February 1st and August 1st. The Company paid Liquidated
Damages at an annual rate of 0.5% of the principal amount of the Notes for the
period January 27, 1998 to March 20, 1998 (the date of consummation of the
exchange offer). The Notes are redeemable, at the option of Hollywood Park and
Hollywood Park Operating Company, in whole or in part, on or after August 1,
2002, at a premium to face amount, plus accrued interest, as follows: (a) August
1, 2002 at 104.75%; (b) August 1, 2003 at 102.375%; (c) August 1, 2004 at
101.188%; and (d) August 1, 2005 and thereafter at 100%. The Notes are unsecured
obligations of Hollywood Park and Hollywood Park Operating Company, guaranteed
by all other material restricted subsidiaries of either Hollywood Park or
Hollywood Park Operating Company.
The indenture governing the Notes 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 Casino Magic Merger and the execution of the Amended Bank Credit Facility,
were permitted under the terms of the indenture, given the redemption of the
$135,000,000 Casino Magic Notes and establishing certain Casino Magic
subsidiaries as Unrestricted, as defined in the indenture.
BOOMTOWN 11.5% FIRST MORTGAGE NOTES As permitted in the indenture (the
"Boomtown Indenture") governing the Boomtown 11.5% First Mortgage Notes (the
"Boomtown Notes") in June 1998, Boomtown elected to satisfy and discharge its
obligation regarding the $1,253,000 of Boomtown Notes. As of June 9, 1998,
Boomtown had satisfied all conditions required to discharge its obligations
under the Boomtown Indenture. The total cost to redeem the Boomtown Notes was
$1,378,000.
9
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NOTE 7 - CONSOLIDATING CONDENSED FINANCIAL INFORMATION
Hollywood Park's subsidiaries (excluding non-material subsidiaries) have fully
and unconditionally guaranteed the payment of all obligations under the Notes.
The following is the consolidating information for the co-obligors and their
respective subsidiaries:
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and nine months ended September 30, 1998 and 1997
and balance sheets as of September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
(c)
Hollywood (a) (b) Wholly
Hollywood Park Wholly Majority Owned
Park, Inc. Operating Owned Owned Non-
(Parent Co. Guarantor Guarantor Guarantor
co-obligor) (co-obligor) Subsidiaries Subsidiaries Subsidiaries
----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(in thousands)
Balance Sheet
- -------------
As of September 30, 1998
Current assets $ 16,057 $ 4,670 $ 33,143 $ 6,272 $ 69
Property, plant and
equipment, net 65,513 22,010 169,060 44,542 0
Other non-current assets 33,683 4,564 39,662 2,061 1,294
Investment in subsidiaries 207,061 15,373 97,687 0 0
Inter-company 129,610 142,200 128,587 13 0
-------- -------- -------- ------- ------
$451,924 $188,817 $468,139 $52,888 $1,363
======== ======== ======== ======= ======
Current liabilities $ 12,730 $ 10,509 $ 21,350 $ 5,485 $ 0
Notes payable, current 693 32 67 1,266 0
Notes payable, long term 42,079 125,228 17 1,250 0
Other non-current
liabilities 13,312 0 3,853 0
Inter-company 142,174 21,004 188,551 48,681 0
Equity (deficit) 240,936 32,044 254,301 (3,794) 1,363
-------- -------- -------- ------- ------
$451,924 $188,817 $468,139 $52,888 $1,363
======== ======== ======== ======= ======
Statement of Operations
- -----------------------
For the three months
ended September 30, 1998
Revenues:
Gaming $ 11,542 $ 0 $ 33,977 $13,327 $ 0
Racing 0 10,112 1,259 0 0
Food and beverage 1,228 0 4,817 1,338 0
Equity in subsidiaries 6,408 4 8,370 0 0
Inter-company interest 0 0 1,352 0 0
Other 939 240 7,874 814 0
-------- -------- -------- ------- ------
20,117 10,356 57,649 15,479 0
-------- -------- -------- ------- ------
Expenses:
Gaming 6,617 0 16,934 7,053 0
Racing 0 4,807 755 0 0
Food and beverage 2,857 0 5,488 1,720 0
Administrative and other 3,985 4,420 13,155 4,561 367
REIT restructuring 0 0 0 0 0
Depreciation and
amortization 1,041 993 3,710 945 0
-------- -------- -------- ------- ------
14,500 10,220 40,042 14,279 367
-------- -------- -------- ------- ------
Operating income (loss) 5,617 136 17,607 1,200 (367)
Loss on write off of assets 1,586 0 0 0 0
Interest expense 1,050 3,194 (211) 79 0
Inter-company interest 0 0 0 1,352 0
-------- -------- -------- ------- ------
Income (loss) before taxes 2,981 (3,058) 17,818 (231) (367)
Income tax expense
(benefit) 973 0 (720) 0 0
-------- -------- -------- ------- ------
Net income (loss) $ 2,008 ($3,058) $ 18,538 ($231) ($367)
======== ======== ======== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Consolidating
and Hollywood
Eliminating Park, Inc.
Entries Consolidated
-------------- ------------
<S> <C> <C>
Balance Sheet
- -------------
As of September 30, 1998
Current assets ($17) $ 60,194
Property, plant and
equipment, net 0 301,125
Other non-current assets 10,336 91,600
Investment in subsidiaries (320,121) 0
Inter-company (400,410) 0
---------- --------
($710,212) $452,919
========== ========
Current liabilities ($17) $ 50,057
Notes payable, current 0 2,058
Notes payable, long term 0 168,574
Other non-current
liabilities (10,559) 6,606
Inter-company (400,410) 0
Equity (deficit) (299,226) 225,624
---------- --------
($710,212) $452,919
========== ========
Statement of Operations
- -----------------------
For the three months
ended September 30, 1998
Revenues:
Gaming $ 0 $ 58,846
Racing 0 11,371
Food and beverage 0 7,383
Equity in subsidiaries (14,782) 0
Inter-company interest (1,352) 0
Other 0 9,867
---------- --------
(16,134) 87,467
---------- --------
Expenses:
Gaming 0 30,604
Racing 0 5,562
Food and beverage 0 10,065
Administrative and other 0 26,488
REIT restructuring 0 0
Depreciation and
amortization 136 6,825
---------- --------
136 79,544
---------- --------
Operating income (loss) (16,270) 7,923
Loss on write off of assets 1,586
Interest expense 0 4,112
Inter-company interest (1,352) 0
---------- --------
Income (loss) before taxes (14,918) 2,225
Income tax expense
(benefit) 0 253
---------- --------
Net income (loss) ($14,918) $ 1,972
========== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and nine months ended September 30, 1998 and 1997
and balance sheets as of September 30, 1998 and December 31, 1997
(c)
Hollywood (a) (b) Wholly
Hollywood Park Wholly Majority Owned Consolidating
Park, Inc. Operating Owned Owned Non- and Hollywood
(Parent 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)
For the nine months
ended September 30, 1998
Revenues:
Gaming $ 34,659 $ 0 $ 97,296 $41,597 $ 0 $ 0 $173,552
Racing 0 37,984 10,101 0 0 0 48,085
Food and beverage 3,527 0 13,894 3,824 0 0 21,245
Equity in subsidiaries 22,688 240 7,031 0 0 (29,959) 0
Inter-company interest 0 0 4,053 0 0 (4,053) 0
Other 2,836 1,706 19,040 2,285 0 0 25,867
-------- -------- -------- ------- ------ --------- --------
63,710 39,930 151,415 47,706 0 (34,012) 268,749
-------- -------- -------- ------- ------ --------- --------
Expenses:
Gaming 20,078 0 51,906 21,936 0 0 93,920
Racing 0 16,588 4,656 0 0 0 21,244
Food and beverage 7,608 0 15,201 4,792 0 0 27,601
Administrative and other 13,505 13,179 38,154 13,160 460 0 78,458
REIT restructuring 469 0 0 0 0 0 469
Depreciation and
amortization 3,248 2,981 10,709 2,727 0 209 19,874
-------- -------- -------- ------- ------ --------- --------
44,908 32,748 120,626 42,615 460 209 241,566
-------- -------- -------- ------- ------ --------- --------
Operating income (loss) 18,802 7,182 30,789 5,091 (460) (34,221) 27,183
Loss on write off of assets 1,586 0 0 0 0 0 1,586
Interest expense 2,598 9,377 (412) 264 0 0 11,827
Inter-company interest 0 0 0 4,053 0 (4,053) 0
-------- -------- -------- ------- ------ --------- --------
Income (loss) before
taxes 14,618 (2,195) 31,201 774 (460) (30,168) 13,770
Income tax expense
(benefit) 5,613 0 (710) 0 0 0 4,903
-------- -------- -------- ------- ------ --------- --------
Net income (loss) $ 9,005 ($2,195) $ 31,911 $ 774 ($460) ($30,168) $ 8,867
======== ======== ======== ======= ====== ========= ========
Statement of Cash Flows:
- ----------------------------
For the nine months ended
September 30, 1998
Net cash provided by
(used in) operating
activities ($2,921) $ 2,053 $ 35,132 $ 2,110 ($460) ($21,124) $ 14,790
Net cash used in investing
activities (9,020) (1,266) (37,139) (1,715) 0 0 (49,140)
Net cash provided by
(used in) financing
activities 34,909 0 (2,902) (745) 0 (535) 30,727
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and nine months ended September 30, 1998 and 1997
and balance sheets as of September 30, 1998 and December 31, 1997
(c)
Hollywood (a) (b) Wholly
Hollywood Park Wholly Majority Owned Consolidating
Park, Inc. Operating Owned Owned Non- and Hollywood
(Parent 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)
Statement of Operations
- ----------------------------
For the three months
ended September 30, 1997
Revenues:
Gaming $12,676 $ 0 $30,460 $14,007 $0 $ 0 $ 57,143
Racing 0 10,791 1,425 0 0 0 12,216
Food and beverage 1,129 0 4,112 915 0 0 6,156
Equity in subsidiaries 9,108 (167) 7,911 0 0 (16,852) 0
Inter-company interest 0 0 2,354 0 0 (2,354) 0
Other 1,282 92 7,513 808 0 0 9,695
------- -------- ------- ------- -- --------- --------
24,195 10,716 53,775 15,730 0 (19,206) 85,210
------- -------- ------- ------- -- --------- --------
Expenses:
Gaming 6,600 0 16,163 7,193 0 0 29,956
Racing 0 5,357 849 0 0 0 6,206
Food and beverage 2,316 0 4,591 1,194 0 0 8,101
Administrative and other 4,900 4,266 13,340 4,280 0 0 26,786
REIT restructuring 397 0 0 0 0 0 397
Depreciation and
amortization 1,118 950 2,733 1,341 0 17 6,159
------- -------- ------- ------- -- --------- --------
15,331 10,573 37,676 14,008 0 17 77,605
------- -------- ------- ------- -- --------- --------
Operating income 8,864 143 16,099 1,722 0 (19,223) 7,605
Interest expense 1,252 2,080 232 89 0 0 3,653
Inter-company interest 102 0 974 1,278 0 (2,354) 0
------- -------- ------- ------- -- --------- --------
Income (loss) before taxes 7,510 (1,937) 14,893 355 0 (16,869) 3,952
Minority interests 0 0 0 0 0 17 17
Income tax expense
(benefit) (1,085) 0 2,609 0 0 0 1,524
------- -------- ------- ------- -- --------- --------
Net income (loss) $ 8,595 ($1,937) $12,284 $ 355 $0 ($16,886) $ 2,411
======= ======== ======= ======= == ========= ========
For the nine months
ended September 30, 1997
Revenues:
Gaming $38,023 $ 0 $30,460 $15,507 $0 $ 0 $ 83,990
Racing 0 38,195 9,889 0 0 0 48,084
Food and beverage 3,376 0 8,725 915 0 0 13,016
Equity in subsidiaries 11,961 126 8,505 0 0 (20,592) 0
Inter-company interest 0 0 2,354 0 0 (2,354) 0
Other 3,428 1,274 7,749 808 0 0 13,259
------- -------- ------- ------- -- --------- --------
56,788 39,595 67,682 17,230 0 (22,946) 158,349
------- -------- ------- ------- -- --------- --------
Expenses:
Gaming 21,761 0 16,163 7,193 0 0 45,117
Racing 0 16,895 4,720 0 0 0 21,615
Food and beverage 7,069 0 8,657 1,194 0 0 16,920
Administrative and other 13,175 13,557 15,491 4,321 0 0 46,544
REIT restructuring 609 0 0 0 0 0 609
Depreciation and
amortization 3,512 2,815 3,452 2,143 0 17 11,939
------- -------- ------- ------- -- --------- --------
46,126 33,267 48,483 14,851 0 17 142,744
------- -------- ------- ------- -- --------- --------
Operating income 10,662 6,328 19,199 2,379 0 (22,963) 15,605
Interest expense 1,368 2,093 232 89 0 0 3,782
Inter-company interest 102 0 974 1,278 0 (2,354) 0
------- -------- ------- ------- -- --------- --------
Income before taxes 9,192 4,235 17,993 1,012 0 (20,609) 11,823
Minority interests 0 0 0 0 0 80 80
Income tax expense 2,020 0 2,604 0 0 0 4,624
------- -------- ------- ------- -- --------- --------
Net income $ 7,172 $ 4,235 $15,389 $ 1,012 $0 ($20,689) $ 7,119
======= ======== ======= ======= == ========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Hollywood Park, Inc.
Consolidating Condensed Financial Information
For the three and nine months ended September 30, 1998 and 1997 and
balance sheets as of September 30, 1998 and December 31, 1997
(c)
Hollywood (a) (b) Wholly
Hollywood Park Wholly Majority Owned Consolidating
Park, Inc. Operating Owned Owned Non- and Hollywood
(Parent 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>
Statement of Cash Flows:
- ------------------------
For the nine months
ended September 30, 1997
Net cash provided by
(used in) operating
activities $ 16,964 ($131,497) $ 128,142 $ 8,070 $0 ($15,620) $ 6,059
Net cash provided by
(used in) investing
activities 16,619 (4,036) (14,091) (4,376) 0 0 (5,884)
Net cash provided by
(used in) financing
activities 147 124,968 (113,720) (2,100) 0 615 9,910
Balance Sheet
- -------------
As of December 31, 1997
Current assets $ 17,020 $ 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 25,130 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 Company's wholly owned guarantor subsidiaries are: HP Casino, Inc.,
HP/Compton, Inc., Turf Paradise, Inc., Hollywood Park Food Services, Inc.
Hollywood Park Fall Operating Company, Boomtown, Inc., Boomtown Hotel &
Casino, Inc., Inc., Louisiana -- I Gaming, Louisiana Enterprises, Inc.,
Bayview Yacht Club, Inc., and for periods after December 31, 1997, Crystal
Park Hotel and Casino Development Company, LLC. Due to the June 30, 1997,
Boomtown Merger being accounted for under the purchase method of accounting
for a business combination, the 1997 financial results do not include the
financial results of Boomtown, Inc., Boomtown Hotel & Casino, Inc.,
Louisiana -- I Gaming, Louisiana Enterprises, Inc., and Bayview Yacht Club,
Inc., prior to June 30, 1997.
(b) As of December 31, 1997, Mississippi -- I Gaming, L.P. which was added as
of the June 30, 1997, Boomtown Merger, was the Company's only majority
owned guarantor subsidiary. Due to the Boomtown Merger being accounted for
under the purchase method of accounting for a business combination,
Mississippi -- I Gaming, L.P.'s financial results were not included for the
period prior to June 30, 1997. Prior to December 31, 1997, Crystal Park
Hotel and Casino Development Company, LLC was also a majority owned
guarantor subsidiary.
(c) As of 1998, Boomtown Hoosier, Inc. was the Company's only wholly owned non-
guarantor subsidiary with financial activity. Boomtown Hoosier, Inc.'s
prior financial activity was not material.
13
<PAGE>
Mississippi - I Gaming, L.P.
Balance Sheets
<TABLE>
<CAPTION>
As of
------------------------------
September 30, December 31,
1998 1997
------------ ------------
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,793 $ 4,143
Other receivables, net 155 113
Prepaid expenses and other assets 2,337 1,614
------- -------
Total current assets 6,285 5,870
Property, plant and equipment, net 44,542 45,576
Other assets 2,061 2,068
------- -------
$52,888 $53,514
======= =======
==================================================================================
LIABILITIES AND PARTNERS' DEFICIT
Current Liabilities:
Accounts payable $ 1,013 $ 670
Accrued compensation 1,163 923
Accrued liabilities 3,309 3,250
Accrued interest payable, Boomtown, Inc. 3,692 4,989
Current portion of notes payable, Boomtown, Inc. 44,989 44,454
Current portion of notes payable, other 1,266 1,292
------- -------
Total current liabilities 55,432 55,578
Notes payable, other 1,250 2,504
Commitments and contingencies 0 0
Partners' deficit:
General partner 10 11
Limited partners (3,804) (4,579)
------- -------
Total partners' deficit (3,794) (4,568)
------- -------
$52,888 $53,514
======= =======
- -----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Mississippi - I Gaming, L.P.
Statements of Operations
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- ---------------------------
1998 1997 1998 1997
--------- --------- -------- --------
(in thousands, unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Gaming $13,327 $13,305 $41,597 $39,328
Food and beverage 1,338 915 3,824 2,481
Other 814 809 2,285 2,154
------- ------- ------- -------
15,479 15,029 47,706 43,963
------- ------- ------- -------
EXPENSES:
Gaming 7,053 7,223 21,936 21,554
Food and beverage 1,720 1,194 4,792 3,169
Administrative 4,148 3,825 11,972 11,335
Other 412 398 1,187 1,139
Depreciation and amortization 945 820 2,727 2,629
------- ------- ------- -------
14,278 13,460 42,614 39,826
------- ------- ------- -------
Operating income 1,201 1,569 5,092 4,137
Interest expense 1,431 1,367 4,318 3,989
------- ------- ------- -------
Net income (loss) $ (230) $ 202 $ 774 $ 148
======= ======= ======= =======
Net income (loss) allocated to partners:
General partner $ (2) $ 12 $ (1) $ 10
Limited partners (228) 190 775 138
------- ------- ------- -------
$ (230) $ 202 $ 774 $ 148
======= ======= ======= =======
</TABLE>
- ----
See accompanying notes to financial statements.
15
<PAGE>
Mississippi - I Gaming, L.P.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the nine months ended
September 30,
----------------------------------
1998 1997
----------- ----------
(in thousands, unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 774 $ 148
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,727 2,692
Gain on sale of property and equipment 22 0
(Increase) decrease in other receivables, net (42) 3
Increase in prepaid expenses and other assets (723) (579)
Decrease in other assets 7 2,324
Increase (decrease) in accounts payable 343 (9)
Increase (decrease) in accrued compensation 240 (64)
Increase in accrued liabilities 59 453
(Decrease) increase in accrued interest payable, Boomtown, Inc. (1,297) 1,214
------- -------
Net cash provided by operating activities 2,110 6,182
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,890) (5,634)
Proceeds from sale of property and equipment 175 0
------- -------
Net cash used in investing activities (1,715) (5,634)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable, Boomtown, Inc., net 535 2,389
Payment notes payable, other (1,280) (2,993)
------- -------
Net cash used for financing activities (745) (604)
------- -------
Decrease in cash and cash equivalents (350) (56)
Cash and cash equivalents at the beginning of the period 4,143 3,337
------- -------
Cash and cash equivalents at the end of the period $ 3,793 $ 3,281
======= =======
</TABLE>
- ---------
See accompanying notes to financial statments.
16
<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 as of September 11, 1998, is owned and
controlled by Hollywood Park, Inc. ("Hollywood Park"), through its wholly owned
subsidiaries, Boomtown, Inc. ("Boomtown") and Bayview Yacht Club, Inc., which
own 95% and 5%, respectively, of the Mississippi Partnership. On September 11,
1998, Hollywood Park, through its Boomtown subsidiary, purchased for $400,000
the 15% of the Mississippi Partnership 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.
The financial information included in this Quarterly Report on Form 10-Q has
been prepared in conformity with generally accepted accounting principles. The
information furnished herein is unaudited; however, in the opinion of
management, it reflects all normal and recurring adjustments that are necessary
to present a fair presentation of the financial results for this interim period.
It should be understood that accounting measurements at interim dates inherently
involve greater reliance on estimates than at year end. This Quarterly Report
on Form 10-Q does not include certain footnotes and financial presentations
normally presented annually and should be read in conjunction with the
Mississippi Partnership's 1997 Annual Report on Form 10-K.
Historically, the Mississippi Partnership reported financial results with a year
end of September 30. Subsequent to Hollywood Park's June 30, 1997 acquisition of
Boomtown, the Mississippi Partnership reports results on a calendar year end of
December 31.
ESTIMATES Financial statements prepared according to generally accepted
accounting principles require the use of management estimates, including
estimates used to evaluate the recoverability of real estate and leasehold
interests held for investment. These estimates are subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from those anticipated by management.
GAMING REVENUES AND PROMOTIONAL ALLOWANCES In accordance with industry
practices, the Mississippi Partnership recognized gaming revenues as the net win
from gaming activities, which is the difference between gaming wins and losses.
Revenues in the accompanying statements of operations excluded the retail value
of food, beverage and other promotional allowances which were provided to
patrons without charge. The estimated cost of providing such promotional
allowances which were reported as gaming expenses, for the three and nine months
ended September 30, 1998, was $964,000 and $3,392,000, respectively, and for the
three and nine months ended September 30, 1997, was $988,000 and $3,015,000,
respectively.
17
<PAGE>
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 September 30, 1998 and December
31, 1997 consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- ----------------
(in thousands)
<S> <C> <C>
Prepaid insurance $ 334 $ 405
Land lease, related party 500 0
Tidelands lease 319 213
Other prepaid leases 215 184
Inventories 524 382
Prepaid taxes and licenses 200 150
Other current assets 245 280
------ ------
$2,337 $1,614
====== ======
</TABLE>
Long term other assets as of September 30, 1998 and December 31, 1997 consisted
of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------- ----------------
(in thousands)
<S> <C> <C>
Land lease, related party $2,000 $2,000
Other assets 61 68
------ ------
$2,061 $2,068
====== ======
</TABLE>
18
<PAGE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held as of September 30, 1998 and December 31,
1997 consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------- ----------------
(in thousands)
<S> <C> <C>
Land and land improvements $ 1,236 $ 1,236
Buildings and building improvements 41,430 41,313
Equipment 11,340 9,998
Construction in progress 41 46
------- -------
54,047 52,593
Less accumulated depreciation 9,505 7,017
------- -------
$44,542 $45,576
======= =======
</TABLE>
NOTE 4 - SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of September 30, 1998 and December 31, 1997 consisted of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------- ----------------
(in thousands)
<S> <C> <C>
Secured notes payable $2,500 $3,750
Capital lease obligations 16 46
------- -------
2,516 3,796
Less current maturities 1,266 1,292
------- -------
$1,250 $2,504
======= =======
</TABLE>
As of September 30, 1998 and December 31, 1997, the Mississippi Partnership also
had an outstanding note payable to Boomtown in the amounts of $44,989,000 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 September 30, 1998 and December 31, 1997, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
DEBT GUARANTEES On August 6, 1997, Hollywood Park and Hollywood Park Operating
Company (a wholly owned subsidiary of Hollywood Park), as co-obligors, issued
$125,000,000 of Series A 9.5% Senior Subordinated Notes due 2007, which on March
20, 1998, were exchanged for a like principal amount of 9.5% Series B Senior
Subordinated Notes (collectively the "Notes"). The Notes are fully and
unconditionally, jointly and severally, guaranteed on a senior subordinated
basis by all of Hollywood Park's material subsidiaries, including Mississippi -
I Gaming, L.P. The Registrant is filing this Quarterly Report pursuant to the
rules of the Security and Exchange Commission and the indenture governing the
Notes, as a guarantor which is not wholly owned by the issuers of the Notes.
In June 1997, Boomtown repurchased and retired an aggregate of approximately
$102,700,000 in principal amount of Boomtown's 11.5% First Mortgage Notes (the
"Boomtown Notes"). The remaining balance of $1,253,000 was fully and
unconditionally guaranteed by Mississippi - I Gaming, L.P. As permitted in the
Indenture (the "Boomtown Indenture") governing the Boomtown Notes, in June 1998,
Boomtown elected to satisfy and discharge its obligation regarding the Boomtown
Notes. As of June 9, 1998, Boomtown had satisfied all conditions required to
discharge its obligations under the Boomtown Indenture.
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On October 14, 1998, Hollywood Park (the parent of the Mississippi Partnership)
executed an Amended and Restated Reducing Loan Agreement (the "Amended Bank
Credit Facility") with the banks named therein, Societe Generale and Bank of
Scotland (as Managing Agents), First National Bank of Commerce (as Co-Agent),
and Bank of America National Trust and Savings Association (as Administrative
Agent). A copy of the Amended Bank Credit Facility was included as Exhibit 10.1
to the Current Report on Form 8-K Filed by Hollywood Park on October 30, 1998.
The Amended Bank Credit Facility provides Hollywood Park with a credit facility
of up to $375,000,000, all of which has been unconditionally guaranteed by the
Mississippi Partnership.
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
Mississippi Partnership, which Boomtown purchased from Skrmetta, for $400,000 on
September 11, 1998. For the three and nine months ended September 30, 1998, the
Mississippi Partnership paid Skrmetta $766,000 and $2,375,000 of rent,
respectively, and for the three and nine months ended September 30, 1997, paid
$764,000 and $2,272,000 of rent, respectively.
BARGE LEASE On August 4, 1997, Hollywood Park executed an agreement to purchase
the barge that Boomtown Biloxi sits upon and the associated building shell for
$5,250,000. The Mississippi Partnership had been leasing these assets. The
Mississippi Partnership made a down payment of $1,500,000 upon signing the
agreement, with the balance payable in three equal annual installments of
$1,250,000 with interest set at the prime rate as of the first day of each year.
TIDELANDS LEASE The Mississippi Partnership leases 5.1 acres of submerged
tidelands at the Boomtown Biloxi site from the State of Mississippi. The lease
has a ten year term, (entered into in 1994) with a five year option to renew.
Lease rent for each of the first three years of the lease was $525,000, and will
be $425,000 for the next two years. Rent for the balance of the lease term will
be determined in accordance with Mississippi law, based on an appraisal the
State of Mississippi will obtain.
OTHER The Mississippi Gaming Commission requires (as a condition of licensing
or license renewal) gaming companies to make a one time capital investment in
facilities for general public use, such as restaurants and other non-gaming
facilities, equal to 25% of the initial casino construction and gaming equipment
costs. On October 26, 1997, the Mississippi Partnership received verbal
notification that its current land-based facility satisfies the Mississippi
Commission's requirement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
FORWARD LOOKING STATEMENTS 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:
severe weather, the failure to finance, complete or successfully operate planned
improvements and expansions, the failure to meet the Company's debt service
obligations or to improve Casino Magic's financial condition, the passage of
adverse gaming-related legislation in any of the Company's gaming jurisdictions
(including, if passed, the proposed anti-gaming legislation in Mississippi
described below) and a saturation of, or other adverse changes in gaming markets
in which Hollywood Park operates (particularly in the southeastern United
States). The Private Securities Litigation Reform Act of 1995 (the "Act")
provides certain "safe harbor" provisions for forward-looking statements. All
forward-looking statements made in this Quarterly Report on Form 10-Q are made
pursuant
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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.
CASINO MAGIC ACQUISITION On October 15, 1998, Hollywood Park acquired Casino
Magic, pursuant to the February 19, 1998 Agreement of Merger among Casino Magic
Corp., Hollywood Park, Inc., and HP Acquisition II, Inc. (a wholly owned
subsidiary of Hollywood Park), pursuant to which HP Acquisition II, Inc., was
merged into Casino Magic, with Casino Magic surviving and becoming a wholly
owned subsidiary of Hollywood Park. The Casino Magic Merger will be accounted
for under the purchase method of accounting for a business combination.
Hollywood Park paid $2.27 per Casino Magic common share outstanding, or
approximately $81,100,000.
Casino Magic owns and operates dockside casinos in Bay St. Louis, Mississippi
and Biloxi, Mississippi, riverboat gaming in Bossier City, Louisiana, 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 three story land-based building houses a restaurant,
buffet, snack bar, gift shop and live entertainment lounge. The property has a
201 room hotel, a 1,800 seat arena for concerts and sporting events, and an 18-
hole golf course.
Casino Magic Biloxi is located in the Mississippi Gulf Coast Region, and began
operations in June 1993. The property is situated on the Front Bay on the beach
of the Gulf of Mexico in a strip with four other casinos, and is located on the
major highway running through the Mississippi Gulf Coast. (Whereas, Boomtown
Biloxi is located on the Back Bay of Biloxi.) Casino Magic Biloxi conducts
gaming from a permanently moored barge with approximately 47,700 square feet of
gaming space with 1,174 slot machines and 41 gaming tables. The land-based
facility is located adjacent to the barge on the approximately 11.5 acre site.
On May 1, 1998, Casino Magic Biloxi opened its 378 room luxury hotel, which
includes 16 master suites, 70 junior suites, 6,600 square feet of convention and
meeting space, a full service restaurant and retail shops. Casino Magic
Biloxi's land-based facility is approximately 21,600 square feet and offers
buffets, full service restaurants and nationally franchised fast food services.
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, with a 350 seat buffet, a gift shop,
and live entertainment theater. Casino Magic Bossier is presently constructing
a 188 room hotel with four master suites, 88 junior suites and additional full
service restaurants. The hotel is expected to be completed in early 1999.
In December 1994, Casino Magic Argentina entered into a twelve year concession
agreement with the Province of Neuquen, Argentina. Casino Magic Argentina
operates two casinos in the Province of Neuquen in the cities of Neuquen and San
Martin de los Andes in west-central Argentina. Neuquen Province is the gateway
to the well established tour destinations and ski resorts of the Andes
Mountains. There are approximately 900,000 residents within a 50 mile radius of
the two cities. Casino Magic Argentina, which began operations in January 1995,
includes approximately 29,000 square feet of gaming space and contains
approximately 64 table games, 400 slot machines and a 384 seat bingo facility.
LEGENDS CASINO-YAKAMA Legends Casino opened on May 15, 1998, featuring a 600
seat bingo hall, electronic pull tabs, and table games including: Blackjack,
Poker, Craps, Roulette, Mini-bac, and Caribbean
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Stud. Games are played in the traditional Las Vegas style, with players betting
against the house. (Legends Casino does not have slot machines.) Legends Casino
is located in Toppenish, Washington, in a valley at the foot of Mt. Adams, a
major vacation destination. Legends Casino is approximately 130 miles from both
Seattle, Washington and Portland, Oregon. The nearest gaming facility is 157
miles away in Pendelton, Oregon.
Hollywood Park, through its wholly owned subsidiary HP Yakama, Inc. ("HP
Yakama") loaned approximately $9,618,000 to the Yakama Tribal Gaming Corporation
(the "Tribal Corporation") to construct the Legends Casino. The Tribal
Corporation gave HP Yakama a promissory note for the $9,618,000, payable in 84
equal installments at a 10% rate of interest, with the first installment payable
on July 1, 1998. The Tribal Corporation is current on amounts due under the
promissory note.
Pursuant to a seven year Master Lease between HP Yakama and the Confederated
Tribes and Bands of the Yakama Indian Nation (the "Tribes"), HP Yakama must pay
the Tribes monthly rent of $1,000. HP Yakama and the Tribal Corporation
entered into a corresponding seven year Sublease, under which the Tribal
Corporation owes rent to HP Yakama. Rent under the Sublease is initially set at
28% of Net Revenues (as defined in the relevant agreement), and decreases to 22%
over the seven year Sublease term.
Under the terms of a Profit Participation Agreement with North American Sports
Management ("NORAM") (who entered into the initial agreements with the Tribal
Corporation and the Tribes), HP Yakama is required to pay NORAM 22% of the
actual rent received from the Tribal Corporation under the Sublease.
BOOMTOWN BILOXI Boomtown Biloxi has been operating as a partnership, of which
Hollywood Park, through two wholly owned subsidiaries owned 85%, and Eric
Skrmetta ("Skrmetta") owned 15%. On September 11, 1998, Hollywood Park (through
its Boomtown, Inc. subsidiary) purchased Skrmetta's 15% interest for $400,000.
BOOMTOWN NEW ORLEANS EXPANSION On July 1, 1998, Boomtown New Orleans opened its
$10,000,000 land-based expansion, The Great Escape. The Great Escape is a
premier, adult oriented, dining and entertainment complex, featuring a 160 seat
casual dining restaurant with an open display kitchen. The Great Escape also
features a state-of-the-art arcade style amusement center including, among
numerous other games, a 3-D giant screen thrill ride; virtual reality rides; the
very popular golf simulators; and a billiard center. There are also new banquet
facilities for parties of up to 500. The Great Escape is located on the second
floor of the land based facility and provides a second story entrance to the
gaming floors of Boomtown New Orleans' new larger riverboat.
GAMING MANAGEMENT Hollywood Park has approved agreements with four potential
new executives who would manage the Company's expanding gaming operations.
Specifically, Paul Alanis is expected to be appointed as President and Chief
Operating Officer, Michael Allen is expected to be appointed as Senior Vice
President, Loren Ostrow is expected to be appointed as Senior Vice President and
General Counsel, and Cliff Kortman is expected to be appointed as Senior Vice
President, Construction and Development Operations. The Company anticipates
that these individuals will be appointed to and assume their positions by the
end of this year, although Mr. Allen's appointment may be delayed until May
1999. All four have been employed by Horseshoe Gaming LLC for the past five
years, with Mr. Alanis servicing as the President and Mr. Allen as the Chief
Operating Officer.
As of August 31, 1998, the Company holds a promissory note for up to $3,500,000
from Paul Alanis. As of November 11, 1998, the Company had lent Mr. Alanis
$3,232,000, who used the funds to purchase 300,000 shares of the Company's
common stock. Interest on the promissory note is the prime interest rate, but
not more than 10%. The principal amount of the promissory note, along with any
accrued interest is due in full, no later than December 31, 1999. The
promissory note is secured by Mr. Alanis' interest in Horseshoe Gaming LLC, with
an approximate value well in excess of $3,500,000.
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MISSISSIPPI ANTI-GAMING INITIATIVE In Mississippi (where as of the October 15,
1998, Casino Magic acquisition, the Company has three casinos, Boomtown Biloxi,
Casino Magic Biloxi, and Casino Magic Bay St. Louis), two referenda have been
proposed which, if approved, would amend the Mississippi Constitution to ban
gaming in Mississippi and require all currently legal gaming entities to cease
operations within two years of the ban. A Mississippi State Circuit Court judge
ruled that the first of the proposed referenda was invalid because, among other
reasons, it failed to include required information regarding its anticipated
effect on government revenues. Proponents of the referenda have filed an appeal
with the Mississippi Supreme Court to review the Circuit Court ruling. The
second referendum proposal included the same language on government revenues as
the first referendum and was struck down by another Mississippi State Circuit
Court judge on the same grounds as the first. Any such referendum must be
approved by the Mississippi Secretary of State and signatures of approximately
98,000 registered voters must be gathered and certified in order for the
proposal to be included on a statewide ballot for consideration by the voters.
The next election, for which the proponents could attempt successfully to place
such a proposal on the ballot, would be in November 2000. It is likely at some
point that a revised initiative will be filed which will adequately address the
issues regarding the effect on government revenues of a prohibition of gaming in
Mississippi. However, it is too early in the process for the Company to make
any predictions with respect to whether such a referendum will appear on a
ballot or the likelihood of such a referendum being approved by the voters.
INDIANA RIVERBOAT PROJECT On September 14, 1998, The Indiana Gaming Commission
awarded Hollywood Park the final riverboat gaming license on the Ohio River.
The application was originally 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. Hollywood Park will pay Hilton approximately $750,000 in exchange for
Hilton's interest.
The Indiana project will in Vevay, Indiana, in Switzerland County approximately
35 miles south of Cincinnati, Ohio. The Indiana project is expected to cost
$150,000,000 and will include a cruising riverboat with 38,000 square feet of
gaming space, a land-based facility with a 300 room hotel, an 18-hole golf
course, convention space, restaurants and other related amenities. The Indiana
project is currently scheduled to open in 18 to 24 months; however there can be
no assurance that construction or other issues will not delay the opening. (See
"-Forward Looking Statements")
TURF PARADISE The Company has entered into an agreement to sell 12 acres of
land at its Phoenix, Arizona based Turf Paradise racing facility, for
approximately $4,574,000. The purchaser (a national retailer) intends to
construct a major retail outlet at the site. The sale is expected to be
completed no later than first quarter 1999.
HOLLYWOOD PARK RACE TRACK In September 1998, Senate Bill 27 ("SB-27") was
enacted into law (effective January 1, 1999), and provides for annual license
fee (tax) relief on pari-mutuel wagers made on thoroughbred races in California,
and removes prior restrictions that required simulcasting of out of state races
based on a specific purse amount. Under SB-27 Hollywood Park Race Track will be
able to simulcast up to 20 races per day from out of state locations. SB-27
also provides for increased purses for races run at the Hollywood Park Race
Track, potentially attracting more and better quality horses to the facility.
The impact that SB-27 will have on the Hollywood Park Race Track is subject to a
number of factors and assumptions, and thus is difficult to estimate. The
Hollywood Park Race Track believes that at current business levels, SB-27 may
generate pre-tax income of between approximately $2,000,000 to $3,000,000,
though it is possible that SB-27 may generate significantly less pre-tax income,
if any. (See "-Forward Looking Statements)
CRYSTAL PARK HOTEL AND CASINO As of July 1, 1998, rent was scheduled to
increase to $350,000 per month, but, the Company has agreed to accept rent of
$150,000 per month through January 1999. In present market
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conditions, it is expected that the rent will be continued at the $150,000 level
rather than increase as scheduled in the lease.
YEAR 2000 The Company is actively evaluating and resolving any potential impact
of the Year 2000 problem on the processing of date-sensitive information by its
information systems, and the information systems of vendors upon whom the
Company is dependent. The Year 2000 problem exists because computer systems and
applications were historically designed to use two digit fields (rather than
four) to designate a year, and date sensitive systems may not properly recognize
2000, which could result in miscalculations or system failures.
Hollywood Park has established a Year 2000 project team to evaluate the
situation on the Company's computer systems and on enterprises that have
significant business relationships with the Company.
Internal Computer Systems The Company believes that its various financial
reporting software and associated hardware are Year 2000 compatible. The
Company has identified the following software and hardware applications that
will need to be upgraded or replaced at an estimated cost of $2,000,000: (a)
point of sale cash register systems; (b) personal computer networks; and (c)
gaming patron player tracking systems.
External Computer Systems Hollywood Park Race Track and Turf Paradise both
lease pari-mutuel wagering software and the associated hardware, though from
different providers, which are essential to operations. Each pari-mutuel
wagering service provider has assured the Company, in writing, that they will be
Year 2000 compatible by March 1999. The Company does not have an alternative
software system to handle pari-mutuel wagering, and if the pari-mutuel wagering
service providers are unable to overcome any potential Year 2000 issues, this
would have a materially adverse effect on the Company's racing operations.
The Company has sent Year 2000 compliance questionnaires to all significant
external goods and service providers, and to date responses have not indicated
any potential Year 2000 problems that would have a material effect on the
Company.
SUNFLOWER RACING, INC. Sunflower Racing, Inc. ("Sunflower") owns the Woodlands
Race Track located in Kansas City, Kansas. On May 17, 1996, Sunflower filed for
reorganization under Chapter 11 of the Bankruptcy Code. On March 31, 1996,
Hollywood Park recorded a non-cash write off of its approximately $11,412,000
investment in Sunflower. In April 1998, the court rejected Sunflower's plan of
reorganization. On June 4, 1998, the bankruptcy court in Sunflower's bankruptcy
case converted the case from Chapter 11 to Chapter 7 and appointed a trustee to
administer the assets of Sunflower. Sunflower is presently operating under the
supervision of the trustee. The trustee is moving ahead with plans to sell
Sunflower's assets later this year.
Sunflower has appealed the conversion order and the earlier order rejecting
Sunflower's plan of reorganization. On October 21, 1998, the U.S. District
Court for the district of Kansas entered an order affirming both orders.
REAL ESTATE INVESTMENT TRUST/PAIRED-SHARE STRUCTURE The Company has no present
intentions to pursue a Real Estate Investment Trust Structure.
STOCK REPURCHASE AND RETIREMENT On August 5, 1998, the Company announced its
intention to repurchase and retire up to 20%, or approximately 5,256,000, shares
of its currently issued and outstanding common stock on the open market or in
negotiated transactions. As of November 12, 1998, the Company had repurchased
500,000 shares at a total cost of approximately $5,540,000.
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RESULTS OF OPERATIONS
Hollywood Park's June 30, 1997 acquisition of Boomtown was accounted for under
the purchase method of accounting for a business combination. As required under
the purchase method of accounting, Boomtown's historical financial results were
not consolidated with Hollywood Park's historical financial results, and
therefore, the revenues and expenses vary significantly when comparing the
results of operations for the nine months ended September 30, 1998, to the
results of operations for the nine months ended September 30, 1997.
Three months ended September 30, 1998 compared to the three months ended
------------------------------------------------------------------------
September 30, 1997
------------------
Total revenues for the three months ended September 30, 1998, increased by
$2,257,000, or 2.6%, as compared to the three months ended September 30, 1997
(which included Boomtown's results of operations). Gaming revenues increased by
$1,703,000, or 3.0%, despite Boomtown New Orleans being closed for approximately
seven days and Boomtown Biloxi being closed for approximately six days, due to
hurricanes. Boomtown New Orleans gaming revenues exceeded prior year's results
due primarily to the new larger riverboat which was placed in service in
February 1998, and the July 1998 opening of the Great Escape adult oriented
arcade land-based facility. Boomtown Biloxi gaming revenues exceeded prior
year's results primarily due to expanded food service which has drawn
significantly more patrons to the property. Gaming revenues for the Hollywood
Park-Casino decreased by $3,364,000, or 8.8%, due primarily to the enforcement
of a ban on indoor smoking and the recent economic difficulties in various Asian
countries (a significant portion of the Hollywood Park-Casino patrons are
Asian). Racing revenues decreased by $845,000, or 6.9%, due primarily to
declines in on-track simulcast wagering. Food and beverage sales increased by
$1,227,000, or 19.9%, due primarily to new and expanded food service outlets at
the Boomtown properties. Truck stop and service station revenue decreased by
$372,000, or 7.6%, primarily due to increased price competition in the Reno
market. Other income increased by $488,000, or 11.6%, primarily due to
increased revenues associated with Boomtown New Orleans' Great Escape arcade,
which opened in July 1998.
Total operating expenses increased by $1,939,000, or 2.5%, for the three months
ended September 30, 1998, as compared to the three months ended September 30,
1997 (which included Boomtown's results of operations). Racing expenses
decreased by $644,000, or 10.4%, primarily due to 1997 advertising expenditures
for the Breeders' Cup racing series, for which there were no corresponding
expenses in 1998. Food and beverage expenses increased by $1,964,000, or 24.2%,
as a result of the corresponding increase in food and beverage sales. Truck
stop and service station expenses decreased by $284,000, or 6.4%, primarily due
to decreases in fuel costs. REIT restructuring costs decreased by $609,000,
because the Company abandoned its plans to pursue a Real Estate Investment Trust
Structure, and thus no costs were incurred in 1998. Depreciation and
amortization expenses increased by $666,000, or 10.8%, due primarily to Boomtown
New Orleans' February 1998 placement of the new riverboat into service, and the
July 1998 opening of the land-based Great Escapes arcade and restaurant
facility. Loss on write off of assets related to the closing of the Hollywood
Park Golf Center, and the associated $1,086,000 write off of the Hollywood Park
Golf Center assets, and the write off of $500,000 related to an abandoned
project in Kansas. Interest expense increased by $459,000, or 12.6%, due
primarily to the 1998 results including a full three months of 9.5% interest on
the Notes, which were issued in August 1997, and interest on borrowings from the
Company's bank facility (see "-Liquidity and Capital Resources"). Income tax
expense decreased due to certain tax benefits, which are non-recurring.
Nine months ended September 30, 1998 compared to the nine months ended
----------------------------------------------------------------------
September 30, 1997
------------------
Results of operations for the nine months ended September 30, 1998, included the
results of operations of Boomtown, which was acquired by the Company on June 30,
1997, and accounted for under the purchase method of accounting for a business
combination. As required under the rules of purchase accounting, Boomtown's
results of operations, prior to the acquisition, were not combined with those of
Hollywood Park, and therefore, the results of operations for the nine months
ended September 30, 1997, did not include
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Boomtown's results of operations for the first two quarters of 1997, accounting
for significant differences when comparing the results of operations for the
nine months ended September 30, 1998, to the nine months ended September 30,
1997.
Total revenues increased by $110,400,000, or 69.7%, for the nine months ended
September 30, 1998, as compared to the nine months ended September 30, 1997.
Included in the 1998 revenues was $110,454,000 of revenues attributable to
Boomtown, through June 1998, for which there are no corresponding revenues in
1997. Gaming revenues increased by $89,562,000, or 106.6%, with $90,989,000
attributable to the inclusion of Boomtown results in 1998, with no corresponding
revenues in 1997, netted against gaming revenue declines of $3,364,000 at the
Hollywood Park-Casino, primarily a result of the ban on indoor smoking and
recent economic problems in various Asian countries (a significant portion of
Hollywood Park-Casino's patrons are Asian). Gaming revenues also declined by
approximately $1,152,000 at the Crystal Park Casino, which in 1998 was leased to
a new operator with lower rent to allow time to grow the business. The prior
operator defaulted on the lease. Food and beverage revenues increased by
$8,229,000, or 63.2%, due primarily to the inclusion of Boomtown revenues of
$7,031,000 in 1998, with no corresponding revenues in 1997, with the balance of
the increase attributable to increased sales at the three Boomtown properties,
due to opening new food service outlets. Hotel and recreational vehicle park
revenues (all of which were attributable to Boomtown Reno) increased by
$781,000, or 134.4%, due to there being just three months of revenues in the
1997 amounts compared to nine months of revenues in the 1998 results. Truck
stop and service station revenues (all of which were attributable to Boomtown
Reno) increased by $6,174,000, or 126.1%, due primarily to the inclusion of
$6,546,000 of revenues in 1998 with no corresponding revenues in 1997, netted
against a revenue decrease due to price competition in the Reno market. Other
income increased by $5,653,000, or 72.7%, due to the inclusion of $5,163,000 of
Boomtown revenues in 1998, with no corresponding revenues in 1997, and increased
revenues associated with Boomtown New Orleans' Great Escape arcade, which opened
in July 1998.
Total operating expenses increased by $98,822,000, or 69.2%, during the nine
months ended September 30, 1998, as compared to the nine months ended September
30, 1997, due in part to the inclusion of approximately $96,966,000 of Boomtown
operating expenses, for which there are no corresponding amounts in the 1997
operating expenses. Gaming expenses increased by $48,803,000, or 108.2%,
primarily due to the inclusion of $49,855,000 of Boomtown expenses in 1998 and
no corresponding expenses in 1997, netted against $1,461,000 of expense savings
at the Hollywood Park-Casino, a corresponding result of the decrease in
revenues. Food and beverage expenses increased by $10,681,000, or 63.1%, due in
part to the inclusion of $8,593,000, of Boomtown expenses in 1998 with no
corresponding expenses in 1997, and cost increases at the Boomtown properties in
relation to increased food and beverage sales, due to the opening of new food
service outlets. Hotel and recreational vehicle park expenses (all of which
were attributable to Boomtown Reno) increased by $300,000, or 150.8%, due to the
inclusion of $287,000 of expenses in 1998 for which there are no corresponding
expenses in 1997. Truck stop and service station expenses (all of which were
attributable to Boomtown Reno) increased by $5,703,000, or 127.8%, due primarily
to the inclusion of $5,987,000 of expenses in 1998 with no corresponding
expenses in 1997, netted against fuel cost decreases during 1998.
Administrative expenses increased by $23,587,000, or 61.1%, due primarily to the
inclusion of $22,829,000 of Boomtown expenses in the 1998 results, with the
balance of the increase primarily due to additional staffing at Hollywood Park
corporate and other expansion related expense increases. Other expenses
increased by $2,324,000, or 71.2%, and included Boomtown costs of $2,280,000,
for which there are no corresponding costs in the 1997 results. Depreciation
and amortization increased by $7,935,000, or 66.5%, with $7,165,000 of the
increase attributable to the inclusion of Boomtown expenses in 1998, with no
corresponding expenses in 1997, with the balance of the increase due to Boomtown
New Orleans' February 1998 placement of the new riverboat into service and the
July 1998 opening of the land-based Great Escape arcade and restaurant. Loss on
write off of assets related to the closing of the Hollywood Park Golf Center,
and the associated $1,086,000 write off of the Hollywood Park Golf Center
assets, and the write off of $500,000 related to an abandoned project in Kansas.
Interest expense increased by $8,045,000, or 212.7%, due to interest on the
Notes, which were issued in August 1997 and interest on bank borrowings (see "-
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Liquidity and Capital Resources"). Income tax expense increased by $279,000, or
6.0%, due to increased pre-tax income in 1998 and certain non-recurring tax
benefits recorded in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Hollywood Park's principal source of liquidity as of September 30, 1998, was
cash and cash equivalents of $20,126,000. Cash and cash equivalents decreased
by $3,623,000 during the nine months ended September 30, 1998. Net cash of
$14,790,000 was provided by operating activities. Net cash of $49,140,000 was
used in investing activities. Cash of $33,375,000 was used to purchase capital
assets, including amounts spent for the Boomtown Reno and Boomtown New Orleans
construction projects. Cash of $8,012,000 was lent in connection with the HP
Yakama project. Cash of $3,232,000 was lent to Paul Alanis, for which the
Company holds a promissory note. Cash was used for short term investing (for
the purchase of Casino Magic common stock), and the Company, through it's wholly
owned subsidiary HP Casino, Inc., used cash of $1,946,000 to acquire the
remaining minority interest in Crystal Park LLC. Net cash provided by financing
activities was $30,727,000, which included short term borrowings of $40,000,000
under the Company's Bank Credit Facility.
Cash and cash equivalents increased by $10,085,000 during the nine months ended
September 30, 1997. Net cash of $6,059,000 was provided by operating
activities. Net cash of $5,884,000 was used in investing activities, which
included cash received in the Boomtown Merger and short term investment
proceeds, netted against disbursements for normal and necessary capital
improvements. Net cash provided by financing activities was $9,910,000, which
included $125,000,000 of cash received for the issuance of the Notes (as
discussed below), netted with the $110,924,000 redemption of the Boomtown 11.5%
Notes.
HOLLYWOOD PARK On October 15, 1998, the Company executed the Amended and
Restated Reducing Revolving Loan Agreement with a bank syndicate lead by Bank of
America National Trust and Savings Association ("Bank of America") (the "Amended
Bank Credit Facility") for up to $300,000,000, with an option to increase this
amount to $375,000,000. The Amended Bank Credit Facility also provides for sub-
facilities for letters of credit up to $30,000,000, and swing line loans of up
to $10,000,000. Prior to the execution of the Amended Bank Credit Facility, the
Company was operating with a Bank Credit Facility which was initially for
$225,000,000, and was reduced to $100,000,000 with the August 1997 issuance of
the 9.5% Hollywood Park Senior Subordinated Notes. The Amended Bank Credit
Facility extended the maturity of the Bank Credit Facility to December 31, 2003,
reduced interest and commitment fee rates, and amended certain covenants, as
compared to the previous Bank Credit Facility.
As of September 30, 1998, the Company had outstanding borrowings under the Bank
Credit Facility of $40,000,000 at an interest rate of 7.79%. On October 13,
1998, the Company borrowed an additional $5,000,000 under the Bank Credit
Facility. On October 15, 1998, the Company borrowed $225,000,000 under the
Amended Bank Credit Facility with respect to the Casino Magic Merger. The funds
were utilized as follows: approximately $81,100,000 to purchase Casino Magic's
outstanding common stock; $141,515,000 to redeem Casino Magic's 11.5% First
Mortgage Notes (the "Casino Magic Notes"); and $2,385,000 for general corporate
needs.
Under the Amended Bank Credit Facility, the Company is not required to make any
principal payments prior to March 31, 2001, but must make monthly interest
payments. Starting March 31, 2001, and on the last day of each subsequent
calendar quarter, through December 31, 2002, the then amount available under the
Amended Bank Credit Facility will decrease by 5.00%, and on the last day of each
calendar quarter for the period March 31, 2003, through September 30, 2003, it
will decrease by 8.33%, with the balance of any principal outstanding due on
December 31, 2003. If the Company has borrowings in excess of the reduced
availability of the Amended Bank Credit Facility, these amounts are due on the
same day as the scheduled reductions.
27
<PAGE>
The annual interest rate under the Amended Bank Credit Facility is determined,
at the Company's election, by reference to the "Eurodollar Rate" (for Eurodollar
loans) (for interest periods of one, two, three or six months) or the "Reference
Rate", (for Base Rate loans) as these terms are defined in the Amended Bank
Credit Facility, plus margins that vary upon the Company's ratio of funded debt
to earnings before interest, taxes, depreciation and amortization ("EBITDA").
With a funded debt to EBITDA ratio of less than 2.00 to 1.00, the margin for
Eurodollar loans is 1.00% and nothing for Base Rate loans. The margin for each
type of loan will increase by 25 basis points (except the initial price increase
for Eurodollar loans, which increases by 12.5 basis points) for each 50 basis
point increase in the funded debt to EBITDA ratio. The maximum margin for
Eurodollar loans is 2.25%, and for Base Rate loans is 1.125%. The margin for
the period October 15, 1998, through November 30, 1998, for Eurodollar loans is
2.00% and 0.875% for Base Rate loans.
The Amended Bank Credit Facility requires the payment of a quarterly commitment
fee, based on the Company's ratio of funded debt to EBITDA, applied to the
average amount of the unused portion of the Amended Bank Credit Facility. The
commitment fee starts at 25 basis points when the ratio of funded debt to EBITDA
is less than 2.00 to 1.00, and increases by 6.25 basis points, to a maximum of
50 basis points, for each 50 basis point increase in the ratio. When the ratio
of funded debt to EBITDA is greater than 3.00 to 1.00, but less than 3.50 to
1.00, the commitment fee does not increase. The commitment fee for the period
October 15, 1998, through November 30, 1998, is 43.75 basis points.
The Amended Bank Credit Facility allows for interest rate swap agreements, or
other interest rate protection agreements, up to a maximum notional amount of
$300,000,000. Presently, the Company does not use such financial instruments.
On August 6, 1997, Hollywood Park and Hollywood Park Operating Company co-issued
$125,000,000 of Series A Notes, pursuant to a private offering under the
Securities Act of 1933, as amended (the "Securities Act"). 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 paid Liquidated Damages
at an annual rate of 0.5% of the principal amount of the Notes for the period
January 27, 1998 to March 20, 1998 (the date of consummation of the exchange
offer). The Notes are redeemable, at the option of Hollywood Park and Hollywood
Park Operating Company, in whole or in part, on or after August 1, 2002, at a
premium to face amount, plus accrued interest, as follows: (a) August 1, 2002 at
104.75%; (b) August 1, 2003 at 102.375%; (c) August 1, 2004 at 101.188%; and (d)
August 1, 2005 and thereafter at 100%. The Notes are unsecured obligations of
Hollywood Park and Hollywood Park Operating Company, guaranteed by all other
material restricted subsidiaries of either Hollywood Park or Hollywood Park
Operating Company.
The indenture governing the Notes contains certain covenants that, among other
things, limits the ability of Hollywood Park, Hollywood Park Operating Company
and their restricted subsidiaries to incur additional indebtedness and issue
preferred stock, pay dividends or make other distributions, repurchase equity
interests (the previously discussed stock repurchase falls within the parameters
of the indenture) or subordinated indebtedness, create certain liens, enter into
certain transactions with affiliates, sell assets, issue or sell equity
interests in their respective subsidiaries or enter into certain mergers and
consolidations. The Casino Magic Merger and the execution of the Amended Bank
Credit Facility, were permitted under the terms of the indenture, given the
redemption of the $135,000,000 Casino Magic Notes and establishing certain
Casino Magic subsidiaries as Unrestricted, as defined in the identure.
Hollywood Park, through its wholly owned subsidiary HP Yakama, loaned
approximately $9,618,000 to the Yakama Tribal Corporation to construct the
Legends Casino. The Tribal Corporation gave HPI Yakama a promissory note for
the $9,618,000, payable in 84 equal installments at a 10% rate of interest.
28
<PAGE>
As of September 30, 1998, the Company has invested approximately $3,845,000 (net
of an unrealized loss of approximately $386,000) in equity securities (including
Casino Magic common stock), which are presently being held as available-for-
sale.
BOOMTOWN In November 1993, Boomtown issued $103,500,000 of 11.5% First Mortgage
Notes (the "Boomtown Notes"). On July 3, 1997, pursuant to a tender offer,
Boomtown repurchased and retired approximately $102,142,000 in principal amount
of the Boomtown Notes, at a purchase price of $1,085 per $1,000, along with
accrued interest thereon. An additional $105,000 of the remaining Boomtown
Notes were tendered in the post Boomtown Merger change of control purchase
offer, at a price of $1,010 for each $1,000, completed August 12, 1997. As
permitted in the indenture governing the Boomtown Notes (the "Boomtown
Indenture"), in June 1998, Boomtown elected to satisfy and discharge its
obligation regarding the remaining $1,253,000 of Boomtown Notes. As of June 9,
1998, Boomtown had satisfied all conditions required to discharge its
obligations under the Boomtown Indenture. Total cost to redeem the Boomtown
Notes was $1,378,000.
As consideration for the sale of its Las Vegas property, Boomtown received two
promissory notes receivable from Mr. Roski, the former lessor of Boomtown's Las
Vegas property, totaling approximately $8,465,000. The first note is for
$5,000,000, bearing interest at Bank of America's reference rate plus 1.5% per
year, with annual principal payments of $1,000,000 plus accrued interest
commencing on July 1, 1998. The second note is for approximately $3,465,000,
bearing interest at Bank of America's reference rate plus 0.5% per year, with
the principal and accrued interest payable, in full, on July 1, 2000. (Mr.
Roski made the required July 1, 1998, principal and interest payment.)
CAPITAL COMMITMENTS As previously discussed, the Company was awarded a gaming
license to own and operate a riverboat casino in Indiana. Upon being awarded
the license, the Company has capital commitments of approximately $4,450,000, or
approximately $3,700,000 for the purchase of the common stock of Pinnacle Gaming
Development Corporation (the entity that initially applied for the Indiana
gaming license), and $750,000 to Hilton. The Indiana riverboat project is
expected to cost $150,000,000, to be spent over the next 18 to 24 months. The
Company believes that the Amended Bank Credit Facility will be sufficient to
fund the construction of the Indiana riverboat project; however, there can be no
assurance that additional funds will not be required to complete anticipated
projects. (See "-Forward Looking Statements")
Expansion Costs In addition to the capital commitments as discussed, Hollywood
- ---------------
Park has other capital needs with respect to Boomtown Reno. The Company expects
to spend approximately $25,000,000 on the expansion and renovation of Boomtown
Reno, including additional hotel rooms, expanded gaming space and other
amenities, which is expected to be completed by the end of 1998. As of
September 30, 1998, the Company has disbursed approximately $13,640,000 related
to the Boomtown Reno expansion.
GENERAL Hollywood Park is continually evaluating future growth opportunities in
the gaming, sports and entertainment industries. Hollywood Park expects that
funding for the Indiana riverboat project, payment of interest on the Notes,
payment of notes payable, and normal and necessary capital expenditure needs
will come from existing cash balances generated from operating activities and
borrowings from the Amended 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 September 30, 1998, Hollywood Park did not hold any investments in market
risk sensitive instruments of the type described in Item 305 of Regulation S-K.
29
<PAGE>
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
- -------------------------
On October 20, 1998, Richard Goeglein, Peter L. Harris and Delbert W. Yocam
resigned from the Board of Directors, and Michael Ornest and Marlin F. Torguson
joined the Board of Directors.
ITEM 6.a EXHIBITS
- -----------------
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
10.53 Amended and Restated Reducing Revolving Loan Agreement, dated as of October 14, 1998, among
Hollywood Park, Inc., the banks named therein, Societe Generale and Bank of Scotland (as Managing
Agents), First National Bank of Commerce (as Co-Agent), and Bank of America National Trust and
Savings Association (as Administrative Agent), is hereby incorporated by reference to Exhibit 2
Hollywood Park, Inc.'s Current Report on Form 8-K, filed October 30, 1998.
27.1 Financial Data Schedule
____
(b) Reports on Form 8-K
None
</TABLE>
30
<PAGE>
Hollywood Park, Inc.
Calculation of Earnings Per Share
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------------
Basic Diluted (a)
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Average number of common shares outstanding 26,101 24,706 26,101 24,706
Average common shares due to assumed conversion
of convertible preferred shares (b) 0 0 0 0
Average common shares due to assumed conversion of
stock options 0 0 0 0
------ ------ ------ ------
Total shares 26,101 24,706 26,101 24,706
====== ====== ====== ======
Net income $1,972 $2,411 $1,972 $2,411
Less dividend requirements on convertible preferred shares 0 558 0 0
------ ------ ------ ------
Net income available to common shareholders $1,972 $1,853 $1,972 $2,411
====== ====== ====== ======
Net income per share $0.08 $0.08 $0.08 $0.10
====== ====== ====== ======
For the nine months ended September 30,
----------------------------------------------
Basic Diluted (a)
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(in thousands, except per share data)
Average number of common shares outstanding 26,115 20,596 26,115 20,596
Average common shares due to assumed conversion
of convertible preferred shares (b) 0 0 0 0
Average common shares due to assumed conversion of
stock options 0 0 162 0
------ ------ ------ ------
Total shares 26,115 20,596 26,277 20,596
====== ====== ====== ======
Net income $8,867 $7,119 $8,867 $7,119
Less dividend requirements on convertible preferred shares 0 1,520 0 0
------ ------ ------ ------
Net income available to common shareholders $8,867 $5,599 $8,867 $7,119
====== ====== ====== ======
Net income per share $0.34 $0.27 $0.34 $0.35
====== ====== ====== ======
</TABLE>
- ----------
(a) When the computed diluted values are anti-dilutive, the basic per share
values are presented on the face of the consolidated statement of
operations.
(b) As of August 28, 1997, the Company's 2,789,000 outstanding depositary
shares were converted into 2,291,492 shares of the Company's common stock.
<PAGE>
Hollywood Park, Inc.
Selected Financial Data by Property
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(in thousands, except per share data - unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Hollywood Park, Inc. - Casino Division $13,629 $14,759 $40,624 $44,076
Crystal Park and HP Yakama, Inc. 682 702 1,308 2,202
Boomtown Reno 20,747 20,978 52,095 20,978
Boomtown New Orleans 23,532 19,380 69,986 19,380
Boomtown Biloxi 15,479 15,028 47,706 15,028
Hollywood Park Race Track 11,683 12,334 44,661 44,527
Turf Paradise, Inc. 1,427 1,647 11,338 11,352
Hollywood Park, Inc. - Corporate 80 327 398 751
Boomtown, Inc. - Corporate 208 55 633 55
------- ------- -------- --------
87,467 85,210 268,749 158,349
------- ------- -------- --------
EXPENSES:
Hollywood Park, Inc. - Casino Division 12,515 12,071 35,975 37,577
Crystal Park and HP Yakama, Inc. 35 25 199 66
Boomtown Reno 15,907 16,665 46,212 16,665
Boomtown New Orleans 16,786 13,860 48,359 13,860
Boomtown Biloxi 13,334 12,642 39,888 12,642
Indiana Project 367 0 460 0
Hollywood Park Race Track 10,494 11,183 34,313 35,201
Turf Paradise, Inc. 1,871 2,023 8,829 8,923
Hollywood Park, Inc. - Corporate 944 1,532 5,216 4,426
Boomtown, Inc. - Corporate 466 836 1,772 836
------- ------- -------- --------
72,719 70,837 221,223 130,196
------- ------- -------- --------
NON-RECURRING EXPENSES:
REIT restructuring 0 609 469 609
Loss on write off of assets 1,586 0 1,586 0
DEPRECIATION AND AMORTIZATION:
Hollywood Park, Inc. - Casino Division 650 685 1,996 2,215
Crystal Park and HP Yakama, Inc. 463 521 1,433 1,323
Boomtown Reno 1,457 1,353 4,387 1,353
Boomtown New Orleans 1,436 1,031 3,816 1,031
Boomtown Biloxi 945 820 2,727 820
Hollywood Park Race Track 1,053 1,013 3,166 3,004
Turf Paradise, Inc. 294 288 888 880
Hollywood Park, Inc. - Corporate 391 431 1,252 1,296
Boomtown, Inc. - Corporate 136 17 209 17
------- ------- -------- --------
6,825 6,159 19,874 11,939
------- ------- -------- --------
OPERATING INCOME (LOSS):
Hollywood Park, Inc. - Casino Division 464 2,003 2,653 4,284
Crystal Park and HP Yakama, Inc. 184 156 (324) 813
Boomtown Reno 3,383 2,960 1,496 2,960
Boomtown New Orleans 5,310 4,489 17,811 4,489
Boomtown Biloxi 1,200 1,566 5,091 1,566
Indiana project (367) 0 (460) 0
Hollywood Park Race Track 136 138 7,182 6,322
Turf Paradise, Inc. (738) (664) 1,621 1,549
Hollywood Park, Inc. - Corporate (1,255) (1,636) (6,070) (4,971)
Boomtown, Inc. - Corporate (394) (798) (1,348) (798)
REIT restructuring 0 (609) (469) (609)
Loss on write off of assets (1,586) 0 (1,586) 0
------- ------- -------- --------
6,337 7,605 25,597 15,605
------- ------- -------- --------
Interest expense 4,112 3,653 11,827 3,782
MINORITY INTERESTS:
Crystal Park 0 17 0 80
------- ------- -------- --------
Income before income tax expense 2,225 3,935 13,770 11,743
Income tax expense 253 1,524 4,903 4,624
------- ------- -------- --------
Net income $1,972 $2,411 $8,867 $7,119
======= ======= ======== ========
Dividend requirements on convertible preferred stock $0 $558 $0 $1,520
------- ------- -------- --------
Net income available to common shareholders $1,972 $1,853 $8,867 $5,599
======= ======= ======== ========
Per common share:
Net income - basic $0.08 $0.08 $0.34 $0.27
Net income - diluted $0.08 $0.08 $0.34 $0.27
Number of shares - basic 26,101 24,706 26,115 20,596
Number of shares - diluted 26,101 24,706 26,277 20,596
</TABLE>
32
<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: November 12, 1998
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan
----------------------------------- Dated: November 12, 1998
G. Michael Finnigan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
HOLLYWOOD PARK OPERATING COMPANY
(Registrant)
By: /s/ R.D. Hubbard Dated: November 12, 1998
-----------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan Dated: November 12, 1998
------------------------------------
G. Michael Finnigan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
33
<PAGE>
Hollywood Park, Inc.
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
<S> <C> <C>
27.1 Financial Data Schedule 1
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 20,126,000
<SECURITIES> 3,459,000
<RECEIVABLES> 27,651,000
<ALLOWANCES> 922,000
<INVENTORY> 0
<CURRENT-ASSETS> 60,194,000
<PP&E> 450,926,000
<DEPRECIATION> 149,801,000
<TOTAL-ASSETS> 452,919,000
<CURRENT-LIABILITIES> 52,115,000
<BONDS> 170,632,000
0
0
<COMMON> 2,580,000
<OTHER-SE> 223,044,000
<TOTAL-LIABILITY-AND-EQUITY> 452,919,000
<SALES> 32,316,000
<TOTAL-REVENUES> 268,749,000
<CGS> 37,765,000
<TOTAL-COSTS> 221,692,000
<OTHER-EXPENSES> 21,460,000
<LOSS-PROVISION> 226,000
<INTEREST-EXPENSE> 11,827,000
<INCOME-PRETAX> 13,770,000
<INCOME-TAX> 4,903,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,867,000
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
