-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R9MAgmnrWs8DecOHy1s+oSEmgs40ZMID8qPwbgNKx4cFhbQPyVD+Hb8criG+5e7Q jYd2Fu36sgQbxq8YtXtA/A== 0000898430-99-002095.txt : 19990517 0000898430-99-002095.hdr.sgml : 19990517 ACCESSION NUMBER: 0000898430-99-002095 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLYWOOD PARK INC/NEW/ CENTRAL INDEX KEY: 0000356213 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 953667491 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13641 FILM NUMBER: 99624441 BUSINESS ADDRESS: STREET 1: 1050 SOUTH PRAIRIE AVENUE CITY: INGLEWOOD STATE: CA ZIP: 90301 BUSINESS PHONE: 3104191500 MAIL ADDRESS: STREET 1: 1050 SOUTH PRAIRIE AVENUE CITY: INGLEWOOD STATE: CA ZIP: 90301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLYWOOD PARK OPERATING CO CENTRAL INDEX KEY: 0000356212 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 953667220 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-34471-02 FILM NUMBER: 99624442 BUSINESS ADDRESS: STREET 1: 1050 S PRAIRIE AVE CITY: INGLEWOOD STATE: CA ZIP: 90301 BUSINESS PHONE: 2134191500 MAIL ADDRESS: STREET 1: 1050 PRAIRIE AVE CITY: INGLEWOOD STATE: CA ZIP: 90301 10-Q 1 FORM 10-Q Securities and Exchange Commission Washington, D.C. 20549 Form 10-Q [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1999 Commission file number 0-10619 Commission file number 333-34471-02 Hollywood Park, Inc. Hollywood Park Operating Company (Exact Name of Registrant as Specified (Exact Name of Registrant as in Its Charter) Specified in Its Charter) Delaware Delaware (State or Other Jurisdiction of (State or Other Jurisdiction of Incorporation or Organization) Incorporation or Organization) 95-3667491 95-3667220 (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) 1050 South Prairie Avenue Inglewood, California 90301 (Address of Principal Executive Offices) (Zip Code) (310) 419 - 1500 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days. Yes [ X ] No [_ ] The number of outstanding shares of the Hollywood Park, Inc.'s common stock, as of the date of the close of business on May 7, 1999: 25,846,012. HOLLYWOOD PARK, INC. Table of Contents Part I
Hollywood Park, Inc. -------------------- Item 1. Financial Information Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998......................................... 1 Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998....................... 2 Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998....................... 3 Notes to Consolidated Financial Statements..................................................................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General........................................................................................................ 14 Results of Operations.......................................................................................... 17 Liquidity and Capital Resources................................................................................ 18 Part II Item 5. Other information................................................................................................. 22 Item 6.a Exhibits and Reports on Form 8K................................................................................... 22 Other Financial Information....................................................................................... 23 Signatures........................................................................................................ 25
Item 1. Financial Information Hollywood Park, Inc. Consolidated Balance Sheets
March 31, December 31, 1999 1998 ------------ ------------ (unaudited) Assets (in thousands) Current Assets: Cash and cash equivalents $104,069 $43,934 Restricted cash 710 300 Short term investments 3,210 3,179 Other receivables, net 14,284 16,783 Prepaid expenses and other assets 16,385 15,207 Deferred tax assets 18,449 18,425 Current portion of notes receivable 2,320 2,320 ------------ ------------ Total current assets 159,427 100,148 Notes receivable 17,598 17,852 Property, plant and equipment, net 602,331 602,912 Goodwill, net 96,342 97,098 Gaming license, Casino Magic Bossier City, net 36,045 36,446 Concession agreement, Casino Magic Argentina, net 7,354 7,591 Debt issuance costs, net 26,036 12,105 Other assets 16,914 17,187 ------------ ------------ $962,047 $891,339 ============ ============ - ------------------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $16,275 $20,970 Accrued interest 11,201 16,741 Accrued liabilities 44,596 46,541 Accrued compensation 17,628 17,819 Gaming liabilities 8,507 8,913 Racing liabilities 2,279 2,395 Current portion of notes payable 10,824 11,564 ------------ ------------- Total current liabilities 111,310 124,943 Notes payable, less current maturities 605,885 527,619 Deferred tax liabilities 2,430 400 Other liabilities 3,649 3,649 ------------ ------------ Total liabilities 723,274 656,611 Minority interests 3,646 3,752 Stockholders' Equity: Capital stock -- Preferred - $1.00 par value, authorized 250,000 shares; none issued and outstanding in 1999 and 1998 0 0 Common - $0.10 par value, authorized 40,000,000 shares; 25,800,069 issued and outstanding in 1999 and 1998 2,580 2,580 Capital in excess of par value 218,375 218,375 Retained earnings 14,471 10,338 Accumulated other comprehensive loss (299) (317) ------------ ------------ Total stockholders' equity 235,127 230,976 ------------ ------------ $962,047 $891,339 ============ ============ See accompanying notes to the consolidated financial statements.
1 Hollywood Park, Inc. Consolidated Statements of Operations
For the three months ended March 31, ------------------------------------------------- 1999 1998 --------- --------- (in thousands, except per share data - unaudited) Revenues: Gaming $140,391 $55,349 Racing 9,779 9,869 Food and beverage 9,671 5,569 Hotel and recreational vehicle park 2,668 276 Truck stop and service station 2,988 2,823 Other income 6,501 4,271 -------- -------- 171,998 78,157 -------- -------- Expenses: Gaming 77,378 31,967 Racing 5,355 5,469 Food and beverage 11,655 7,513 Hotel and recreational vehicle park 1,340 127 Truck stop and service station 2,758 2,566 General and administrative 35,853 20,097 Other 2,454 1,736 Depreciation and amortization 13,367 6,555 REIT restructuring 0 469 -------- -------- 150,160 76,499 -------- -------- Operating income 21,838 1,658 Interest expense 14,491 3,661 -------- -------- Income (loss) before minority interests and income taxes 7,347 (2,003) Minority interests 458 0 Income tax expense (benefit) 2,756 (769) -------- -------- Net income (loss) $ 4,133 $ (1,234) ======== ======== ======================================================================================================= Per common share: Net income (loss) - basic 0.16 (0.05) Net income (loss) - diluted 0.16 (0.05) Number of shares - basic 25,800 26,276 Number of shares - diluted 25,800 26,867
- ------ See accompanying notes to the consolidated financial statements. 2 Hollywood Park, Inc. Consolidated Statements of Cash Flows
For the three months ended March 31, -------------------------------- 1999 1998 ------------ ----------- (in thousands - unaudited) Cash Flows from operating activities: Net income (loss) $4,133 ($1,234) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 13,367 6,555 Amortization of financing costs and bond premium 812 0 Minority interests (106) 0 (Gain) loss on sale or disposal of property, plant and equipment, net 103 (195) (Increase) decrease in restricted cash (410) 158 Decrease in other receivables, net 2,499 2,355 (Increase) decrease in prepaid expenses and other assets (1,040) 1,197 (Increase) decrease in deferred tax assets (55) 1,522 Decrease in accounts payable (4,695) (1,005) Decrease in accrued lawsuit settlement 0 (2,750) Decrease in accrued interest (5,540) (2,675) Decrease in accrued liabilities (1,945) (2,463) (Decrease) increase in accrued compensation (191) 520 (Decrease) increase in gaming liabilities (406) 62 Decrease in racing liabilities (116) (3,539) Increase (decrease) in deferred tax liabilities 2,030 (1,371) -------- ---------- Net cash provided by (used for) operating activities 8,440 (2,863) -------- ---------- Cash flows from investing activites: Additions to propery, plant and equipment, net (11,281) (14,295) Receipts from sale of property, plant and equipment, net 37 274 Principal collected on notes receivable 254 11 Purchase of short term investments 0 (2,098) Payment to buy-out minority interest in Crystal Park LLC 0 (1,946) -------- ---------- Net cash used in investing activities (10,990) (18,054) -------- ---------- Cash flows from financing activites: Proceeds from secured Bank Credit Facility 17,000 20,000 Payment of secured Bank Credit Facility (287,000) 0 Payment on secured notes payable 0 (1,479) Payment of unsecured notes payable (2,006) 0 Proceeds from issuance of 9.25% Notes 350,000 0 Proceeds from unsecured notes payable 0 6 Common stock options excercised 0 1,023 Increase in debt issuance costs (15,309) 0 -------- ---------- Net cash provided by financing activites 62,685 19,550 -------- ---------- Increase (decrease) in cash and cash equivalents 60,135 (1,367) Cash and cash equivalents at beginning of the period 43,934 23,749 -------- ---------- Cash and cash equivalents at the end of the period $104,069 $22,382 ========= ==========
- -------------- See accompanying notes to the consolidated financial statements. 3 Hollywood Park, Inc. Condensed Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies General Hollywood Park, Inc. (the "Company" or "Hollywood Park") is a diversified gaming company that owns and/or operates eight casinos, two pari- mutuel horse racing facilities, and two card club casinos at locations in Nevada, Mississippi, Louisiana, California, Arizona and Argentina. Hollywood Park owns and operates, through its Boomtown, Inc. ("Boomtown") subsidiary, land-based, dockside and riverboat gaming operations in Verdi, Nevada ("Boomtown Reno"), Biloxi, Mississippi ("Boomtown Biloxi") and Harvey, Louisiana ("Boomtown New Orleans"), respectively. As of the Company's October 15, 1998 acquisition of Casino Magic Corp. ("Casino Magic"), Hollywood Park owns and operates dockside gaming casinos in the cities of Bay St. Louis and Biloxi, Mississippi ("Casino Magic Bay St. Louis" and "Casino Magic Biloxi"); riverboat gaming in Bossier City, Louisiana ("Casino Magic Bossier City"); and is a 51% partner in two land-based casinos in Argentina ("Casino Magic Argentina"). Hollywood Park also owns two card club casinos in California, both located in the Los Angeles metropolitan area. The Hollywood Park-Casino is operated by the Company, and located on the same property as the Hollywood Park Race Track. The Crystal Park Hotel and Casino (the "Crystal Park Casino") is owned by the Company and is leased to an unaffiliated operator. The Company's premier thoroughbred racing facilities include the Hollywood Park Race Track, which the Company has owned for over 60 years, and Turf Paradise, Inc. ("Turf Paradise"), located in Phoenix, Arizona. The Company is in the initial construction planning stages of a hotel and casino resort in Indiana (the "Indiana Project"), after being approved to receive the last available license to conduct riverboat gaming operations on the Ohio River in September 1998. The financial information included herein has been prepared in conformity with generally accepted accounting principles as reflected in Hollywood Park's consolidated Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, for the year ended December 31, 1998. This Quarterly Report on Form 10-Q does not include certain footnotes and financial presentations normally presented annually and should be read in conjunction with the Company's 1998 Annual Report on Form 10-K. The information furnished herein is unaudited; however, in the opinion of management it reflects all normal and recurring adjustments necessary to present a fair statement of the financial results for the interim periods. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The interim racing results of operations are not indicative of the results for the full year, due to the seasonality of the Company's horse racing business. Consolidation The consolidated financial statements presented herein include the accounts of Hollywood Park and its subsidiaries. All inter-company transactions have been eliminated. Gaming License In May 1996, Casino Magic acquired Crescent City Capital Development Corp., which included the Louisiana state gaming license to conduct the gaming operations of Casino Magic Bossier City. Casino Magic allocated a portion of the purchase price to the Louisiana state gaming license, which is being amortized on a straight line basis, over twenty-five years. 4 Concession Agreement In December 1994, Casino Magic acquired a twelve-year concession agreement to operate the two Casino Magic Argentina casinos, and capitalized the costs related to obtaining the concession agreement. The costs are being amortized on a straight line basis, over the twelve-year life of the concession agreement. Goodwill The majority of goodwill is being amortized over 40 years, with the balance being amortized over fifteen to twenty years. Racing Revenues and Expenses The Company records pari-mutuel revenues, admissions, food and beverage and other racing income associated with racing on a daily basis, except for prepaid admissions, which were recorded ratably over the racing season. Expenses associated with racing revenues were charged against income in those periods in which racing revenues were recognized. Other expenses were recognized as they occurred throughout the year. Gaming Revenue and Promotional Allowances Gaming revenues at the Boomtown and Casino Magic properties consisted of the difference between gaming wins and losses, or net win from gaming activity, and at the Hollywood Park-Casino consisted of fees collected from patrons on a per seat or per hand basis. Revenues in the accompanying statements of operations exclude the retail value of food and beverage, hotel rooms and other items provided to patrons on a complimentary basis. The estimated cost of providing these promotional allowances (which is included in gaming expenses) during the three months ended March 31, 1999 and 1998 was approximately $11,436,000 and $3,906,000, respectively (which for the three months ended March 31, 1998, does not include promotional allowances for Casino Magic). Accounting Pronouncements Start-Up Costs The Company's policy has been to -------------- expense start-up costs as incurred. In April 1998, Statement of Position 98-5 Reporting on the Costs of Start-Up Activities was issued and was effective for years after December 31, 1998. Statement of Position 98-5 required that start- up activities and organizational costs be expensed as incurred. In the three months ended March 31, 1999, the Company expensed $707,000 of pre-opening costs associated with the Indiana Project. There were no similar costs in the three months ended March 31, 1998. Comprehensive Income Statement of Financial Accounting Standards No. 130, - -------------------- Reporting Comprehensive Income ("SFAS 130") requires that the Company disclose comprehensive income and its components. The objective of SFAS 130 is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Comprehensive income is the sum of the following: net income (loss) and other comprehensive income (loss), which is defined as all other nonowner changes in equity. The Company has recorded unrealized gains as other comprehensive income in the accompanying financial statements. Comprehensive income was computed as follows:
For the three months ended March 31, ----------------------------- 1999 1998 ----------- ------------- (in thousands, unaudited) Net income (loss) $4,133 ($1,234) Other comprehensive income: Unrealized gain on securities 18 75 ----------- ------------- Comprehensive income (loss) $4,151 ($1,159) =========== =============
5 Capitalized Interest During the three months ended March 31, 1999, and 1998, the Company capitalized interest related to construction projects of approximately $711,000 and $226,000, respectively. Earnings Per Share Basic earnings per share were computed by dividing net income (loss) attributable to (allocated to) common shareholders by the weighted average number of common shares outstanding during the period. Diluted per share amounts were similarly computed, but include the effect, when dilutive, of the exercise of stock options. Restricted Cash Restricted cash as of March 31, 1999 and December 31, 1998, was for amounts due to horsemen for purses, stakes and awards. Cash Flows Cash and cash equivalents consist of certificates of deposit and investment grade commercial paper issued by major corporations and financial institutions that are highly liquid and have original maturities of up to one year, and maturities from date of acquisition of three months or less. Cash equivalents are carried at cost, which approximates market value. Estimates Financial statements prepared according to generally accepted accounting principles require the use of management estimates, including estimates used to evaluate the recoverability of property, plant and equipment, to determine the fair value of financial instruments, to account for the valuation allowance for deferred tax assets and to determine litigation related obligations. Actual results could differ from these estimates. Reclassifications Certain reclassifications have been made to the 1998 balances to be consistent with the 1999 financial statement presentation. Note 2 - 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) (the "Casino Magic Merger"). Hollywood Park paid cash of approximately $80,904,000 for Casino Magic's common stock. At the date of the acquisition, Hollywood Park had purchased 792,900 common shares of Casino Magic on the open market, at a total cost of approximately $1,615,000. Hollywood Park paid $2.27 per share for the remaining 34,929,224 shares of Casino Magic common stock outstanding. The Casino Magic Merger was accounted for under the purchase method of accounting for a business combination. The Company has performed a preliminary purchase price allocation and will finalize this allocation in 1999. The purchase price of the Casino Magic Merger was allocated to identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Based on financial analyses, which considered the impact of general economic, financial and market conditions on the assets acquired and the liabilities assumed were, when found to be necessary, written up or down to their fair market values. The Casino Magic Merger generated approximately $43,284,000 of excess acquisition cost over the recorded value of the net assets acquired, all of which was allocated to goodwill, and is being amortized over 40 years. The amortization of this goodwill is not deductible for income tax purposes. 6 Note 3 - Short Term Investments At of March 31, 1999, and December 31, 1998, short term investments consisted of investments in equity securities of approximately $3,210,000 and $3,179,000, respectively (inclusive of an unrealized gain of approximately $501,000 and $407,000, respectively), which are presently being held as available-for-sale. Note 4 - Property, Plant and Equipment Property, plant and equipment held as of March 31, 1999, and December 31, 1998, consisted of the following:
March 31, December 31, 1999 1998 ------------ ------------- (unaudited) (in thousands) Land and land improvements $141,527 $141,536 Buildings 393,365 393,200 Equipment 178,414 174,270 Vessels 76,613 76,605 Construction in progress 52,787 46,297 ------------- ------------- 842,706 831,908 Less accumulated depreciation 240,375 228,996 ------------- ------------- $602,331 $602,912 ============= =============
Note 5 - Long Term Debt Notes payable as of March 31, 1999, and December 31, 1998, consisted of the following:
March 31, December 31, 1999 1998 ------------ ------------- (unaudited) (in thousands) Secured notes payable, Bank Credit Facility $ 0 $270,000 Hollywood Park Unsecured 9.25% Notes 350,000 0 Hollywood Park Unsecured 9.5% Notes 125,000 125,000 Casino Magic 13% Notes (a) 121,217 121,685 Secured notes payable, other 15,300 16,569 Unsecured notes payable 4,726 5,288 Capital lease obligations 466 641 ------------- ------------- 616,709 539,183 Less current maturities 10,824 11,564 ------------- ------------- $605,885 $527,619 ============= =============
(a) Includes a write up to fair market value (net of amortization), as of the October 15, 1998, acquisition of Casino Magic, of $8,342,000 and $8,810,000 as of March 31, 1999, and December 31, 1998, respectively, as required under the purchase accounting method of accounting for a business combination. Secured Notes Payable, Bank Credit Facility On October 14, 1998, the Company executed the Amended and Restated Reducing Revolving Loan Agreement with a bank syndicate lead by Bank of America National Trust and Savings Association NT&SA ("Bank of America") (the "Bank Credit Facility") for up to $300,000,000, with an option to increase this amount to $375,000,000. The Bank Credit Facility also provides for sub-facilities for letters of credit up to $30,000,000, and 7 swing line loans of up to $10,000,000. Prior to the execution of the Bank Credit Facility, the Company was operating with a former 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 due 2007 (the "9.5% Notes"). The Bank Credit Facility extended the maturity of the former Bank Credit Facility to December 31, 2003, reduced interest and commitment fee rates, and amended certain covenants, as compared to the former Bank Credit Facility. The Bank Credit Facility was fully repaid on February 18, 1999, with the issuance of the 9.25% Notes (described below) and therefore did not have any borrowings outstanding as of March 31, 1999. The repayment of all borrowings outstanding under the Bank Credit Facility does not reduce the size of the bank's commitment to lend and, if Hollywood Park meets the relevant conditions for borrowing, Hollywood Park could borrow the full amount available under the Bank Credit Facility in the future. Unsecured 9.25% Notes On February 18, 1999, Hollywood Park issued $350,000,000 aggregate principal amount of Series A 9.25% Senior Subordinated Notes due 2007 (the "Series A Notes"). On May 6, 1999, the Company completed a registered exchange offer for the Series A Notes, pursuant to which all $350,000,000 principal amount of the Series A Notes were exchanged by the holders for $350,000,000 aggregate principal amount of Series B 9.25% Senior Subordinated Notes due 2007, of the Company (the "Series B Notes"), which were registered under the Securities Act on Form S-4. The Series A Notes and the Series B Notes are collectively referred to as the "9.25% Notes". The 9.25% Notes are redeemable, at the option of the Company, in whole or in part, on or after February 15, 2003, at a premium to face amount, plus accrued interest, as follows: (a) February 15, 2003 at 104.625%; (b) February 15, 2004 at 103.083%; (c) February 15, 2005 at 101.542%; and (d) February 15, 2006 and thereafter at 100%. The 9.25% Notes are unsecured obligations of Hollywood Park, guaranteed by all other material restricted subsidiaries of Hollywood Park excluding certain Casino Magic subsidiaries, principally Casino Magic of Louisiana, Corp. and the Casino Magic Argentina subsidiaries. Hollywood Park received net proceeds of approximately $339,900,000 from the 9.25% Note offering. Of these proceeds, Hollywood Park used $287,000,000 to repay all outstanding borrowings under the Bank Credit Facility. The remaining proceeds of approximately $52,900,000 are currently invested in various cash equivalents and are expected to be used to fund Hollywood Park's capital expenditures. The indenture governing the 9.25% Notes contains certain covenants limiting the ability of the Company and its restricted subsidiaries to incur additional indebtedness, issue preferred stock, pay dividends or make certain distributions, repurchase equity interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, sell assets, issue or sell equity interest in its subsidiaries, or enter into certain mergers and consolidations. Unsecured 9.5% Notes On August 6, 1997, Hollywood Park and Hollywood Park Operating Company (a wholly owned subsidiary of Hollywood Park) co-issued $125,000,000 aggregate principal amount of 9.5% Notes. The 9.5% Notes are redeemable, at the option of Hollywood Park and Hollywood Park Operating Company, in whole or in part, on or after August 1, 2002, at a premium to face amount, plus accrued interest, as follows: (a) August 1, 2002 at 104.75%; (b) August 1, 2003 at 102.375%; (c) August 1, 2004 at 101.188%; and (d) August 1, 2005 and thereafter at 100%. The 9.5% Notes are unsecured obligations of Hollywood Park and Hollywood Park Operating Company, guaranteed by all other material restricted subsidiaries of either Hollywood Park or Hollywood Park Operating Company excluding certain Casino Magic 8 subsidiaries, principally Casino Magic of Louisiana, Corp. and the Casino Magic Argentina subsidiaries. On January 29, 1999, Hollywood Park received the required number of consents to modify selected covenants associated with the 9.5% Notes. Among other things, the modifications lowered the required minimum consolidated coverage ratio for debt assumption to 2.00:1.00 and increased the size of Hollywood Park's allowed borrowings under the Bank Credit Facility from $100,000,000 to $350,000,000. The Company paid a consent fee of $50.00 per $1,000 principal amount of the 9.5% Notes, or a total cost of approximately $6,781,000, inclusive of transaction related expenses. The indenture governing the 9.5% Notes contains certain covenants that, among other things, limit the ability of Hollywood Park, 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. Casino Magic 13% Notes On August 22, 1996, Casino Magic of Louisiana, Corp. (owner of Casino Magic Bossier City), a wholly owned subsidiary of Jefferson Casino Corporation, which is a wholly owned subsidiary of Casino Magic, issued $115,000,000 in aggregate principal amount of 13% First Mortgage Notes (the "Casino Magic 13% Notes"), with contingent interest at 5% of Casino Magic Bossier City's adjusted consolidated cash flow (as defined under the indenture governing these notes). The Casino Magic 13% Notes are secured by a first priority lien and security interest in substantially all of the assets of Casino Magic Bossier City, and Jefferson Casino Corporation guarantees the Casino Magic 13% Notes, and the guarantee is secured by all of the assets of Jefferson Casino Corporation including all of the capital stock of Casino Magic of Louisiana, Corp. The Casino Magic 13% Notes are redeemable, in whole or in part, on or after August 15, 2000, at a premium to face amount, plus accrued interest, as follows: (a) August 15, 2000, at 106.5%; (b) August 15, 2001, at 104.332%; and (c) August 15, 2002, and thereafter at 102.166%. On December 23, 1998, the Company completed the required post Casino Magic Merger change of control purchase offer, whereby $2,125,000 in principal amount of the Casino Magic 13% Notes were tendered, at a price of $1,010 for each $1,000 of principal amount. The indenture governing the Casino Magic 13% Notes contains certain covenants limiting the ability of Casino Magic of Louisiana, Corp. and its subsidiaries to engage in any line of business other than the current gaming operations of Casino Magic Bossier City and incidental related activities, to borrow funds or otherwise become liable for additional debt, to pay dividends, issue preferred stock, make investments and certain types of payments, to grant liens on its property, enter into mergers or consolidations, or to enter into certain specified transactions with affiliates. Other Information As of March 31, 1999, Casino Magic had various secured notes payable totaling $12,800,000, primarily secured by various fixed assets at Casino Magic Biloxi and Casino Magic Bossier City. The Company is currently evaluating the various Casino Magic notes payable for early retirement. Casino Magic also had unsecured notes payable totaling $1,683,000 and capital leases of $415,000. 9 Note 6 - Stock Options Gaming Executive Options As discussed in the Annual Report on Form 10K, on September 10, 1998, the Company granted 817,500 stock options (625,000 at an exercise price of $10.1875 and 192,500 at an exercise price of $18.00) outside of the Company's 1993 and 1996 Stock Option Plans to the new executive gaming staff hired as of January 1, 1999. Of these grants, 613,125 (420,625 at an exercise price of $10.1875 and 192,500 at an exercise price of $18.00) were made subject to shareholder approval at the next shareholder meeting, which is to be held May 25, 1999 (the "Measurement Date"). Accounting Principles Board Opinion No. 25 requires that compensation be determined on the Measurement Date based on the excess of the quoted market price over the exercise price of the stock and charged over the service period of the executives in their employment agreements or option vesting period, whichever is shorter. Compensation related to these options through the quarter ended March 31, 1999 was immaterial. Director Options and Proposed New Interpretation of APB Opinion No. 25 The Financial Accounting Standards Board ("FASB") issued an Exposure Draft on March 31, 1999 in connection with a proposed new interpretation of APB Opinion No. 25. The FASB Exposure Draft proposes that independent members of an entity's board of directors are not employees and therefore stock compensation granted to independent directors is excluded from the scope of APB Opinion No. 25. The FASB has proposed that the effective date would be the issuance date of the new interpretation (expected to be in September 1999) and that the interpretation would cover events occurring after December 15, 1998. On December 16, 1998, the Company issued 16,000 stock options to independent members of its board of directors. If the Exposure Draft is adopted in its present form, the Company will charge to expense the value of the 16,000 options granted to the independent board of directors in the quarter of adoption of the Exposure Draft. 10 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 9.25% Notes and the 9.5% Notes. Separate financial statements and other disclosures regarding the subsidiary guarantors are not included herein because management has determined that such information is not material to investors. In lieu thereof, the Company includes the following:
Hollywood Park, Inc. Consolidating Condensed Financial Information As of and for the three months ended March 31, 1999 and 1998 and balance sheet as of December 31, 1998 Hollywood Park Operating (b) (c) Hollywood Co. (a) Wholly Non Wholly Park, Inc. (Co-Obligor Wholly Owned Owned Consolidating Guarantor 9.5% Notes/ Owned Non- Non- And Hollywood (Parent Guarantor Guarantor Guarantor Guarantor Eliminating Park, Inc. Obligor) 9.25% Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated ---------- ------------ ------------ ------------- ------------ -------------- ------------ (in thousands) As of and for the three Months ended March 31, 1999 Balance Sheet - ------------- Current assets $70,199 $ 4,581 $ 66,053 $ 12,811 $ 5,783 $ 0 $159,427 Property, plant and equipment, net 64,894 21,062 423,302 91,566 1,507 0 602,331 Other non-current assets 44,671 9,964 40,129 40,592 7,354 57,579 200,289 Investment in subsidiaries 287,532 17,701 161,944 0 0 (467,177) 0 Inter-company 275,679 131,874 333,513 6,405 382 (747,853) 0 -------- -------- ---------- -------- ------- ------------ -------- $742,975 $185,182 $1,024,941 $151,374 $15,026 ($1,157,451) $962,047 ======== ======== ========== ======== ======= ============ ======== Current liabilities $ 13,694 $ 10,683 $ 66,223 $ 17,294 $ 3,001 $ 415 $111,310 Notes payable, long term 358,550 125,228 9,183 112,924 0 0 605,885 Other non-current liabilities 1,068 0 22,848 (9,454) 3,353 (11,736) 6,079 Inter-company 134,536 24,738 566,420 16,503 5,656 (747,853) 0 Minority interest 0 0 4,260 0 0 (614) 3,646 Equity (deficit) 235,127 24,533 356,007 14,107 3,016 (397,663) 235,127 -------- -------- ---------- -------- ------- ------------ -------- $742,975 $185,182 $1,024,941 $151,374 $15,026 ($1,157,451) $962,047 ======== ======== ========== ======== ======= ============ ======== Statement of Operations - ----------------------- Revenues: Gaming $ 11,856 $ 0 $ 91,219 $ 32,398 $ 4,918 $ 0 $140,391 Racing 0 3,842 5,937 0 0 0 9,779 Food and beverage 1,226 0 7,457 648 340 0 9,671 Equity in subsidiaries 14,865 (138) 22,112 0 0 (36,839) 0 Other 1,294 915 9,073 806 69 0 12,157 -------- -------- ---------- -------- ------- ------------ -------- 29,241 4,619 135,798 33,852 5,327 (36,839) 171,998 -------- -------- ---------- -------- ------- ------------ -------- Expenses: Gaming 6,500 0 49,419 20,059 1,400 0 77,378 Racing 0 2,892 2,463 0 0 0 5,355 Food and beverage 2,429 0 8,188 736 302 0 11,655 Administrative and other 5,904 3,505 26,861 4,682 1,453 0 42,405 Depreciation and amortization 1,121 1,030 8,584 1,889 372 371 13,367 -------- -------- ---------- -------- ------- ------------ -------- 15,954 7,427 95,515 27,366 3,527 371 150,160 -------- -------- ---------- -------- ------- ------------ -------- Operating income (loss) 13,287 (2,808) 40,283 6,486 1,800 (37,210) 21,838 Interest expense 6,882 3,252 (231) 4,588 0 0 14,491 -------- -------- ---------- -------- ------- ------------ -------- Income (loss) before taxes 6,405 (6,060) 40,514 1,898 1,800 (37,210) 7,347 Minority interests 0 0 0 0 0 458 458 Income tax expense (benefit) 2,243 0 10 0 503 0 2,756 -------- -------- ---------- -------- ------- ------------ -------- Net income (loss) $ 4,162 ($6,060) $ 40,504 $ 1,898 $ 1,297 ($37,668) $ 4,133 ======== ======== ========== ======== ======= ============ ========
11
Hollywood Park, Inc. Consolidating Condensed Financial Information As of and for the three months ended March 31, 1999 and 1998 and balance sheet as of December 31, 1998 Hollywood Park Operating (b) (c) Hollywood Co. (a) Wholly Non Wholly Park, Inc. (Co-Obligor Wholly Owned Owned Consolidating Guarantor 9.5% Notes/ Owned Non- Non- And Hollywood (Parent Guarantor Guarantor Guarantor Guarantor Eliminating Park, Inc. Obligor) 9.25% Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated ----------- ------------ ------------ ------------- ------------- ------------- ------------ (in thousands) For the three months ended March 31, 1999 Statement of Cash Flows: - ------------------------ Net cash provided by (used in) operating activities ($15,507) $ 6,798 $ 5,857 $ 10,227 $ 680 $ 385 $ 8,440 Net cash used in investing activities (486) (193) (9,253) (915) (143) 0 (10,990) Net cash provided by (used in) financing activities 70,423 (5,726) 6,249 (8,261) 0 0 62,685 For the three months ended March 31, 1998 Statement of Operations - ----------------------- Revenues: Gaming $ 11,404 $ 0 $ 29,915 $ 0 $14,030 $ 0 $ 55,349 Racing 0 3,788 6,081 0 0 0 9,869 Food and beverage 1,063 0 3,343 0 1,163 0 5,569 Equity in subsidiaries (1,265) (56) 3,679 0 0 (2,358) 0 Inter-company 0 0 1,356 0 0 (1,356) 0 Other 887 878 4,925 0 680 0 7,370 --------- -------- ---------- -------- ------- -------- -------- 12,089 4,610 49,299 0 15,873 (3,714) 78,157 --------- -------- ---------- -------- ------- -------- -------- Expenses: Gaming 6,742 0 17,579 0 7,646 0 31,967 Racing 0 2,891 2,578 0 0 0 5,469 Food and beverage 2,362 0 3,711 0 1,440 0 7,513 Administrative and other 4,567 3,548 12,177 0 4,234 0 24,526 REIT restructuring 469 0 0 0 0 0 469 Depreciation and amortization 1,125 1,001 3,530 0 882 17 6,555 --------- -------- ---------- -------- ------- -------- -------- 15,265 7,440 39,575 0 14,202 17 76,499 --------- -------- ---------- -------- ------- -------- -------- Operating income (loss) (3,176) (2,830) 9,724 0 1,671 (3,731) 1,658 Interest expense 591 3,058 (79) 0 91 0 3,661 Inter-company interest 0 0 0 0 1,356 (1,356) 0 --------- -------- ---------- -------- ------- -------- -------- Income (loss) before taxes (3,767) (5,888) 9,803 0 224 (2,375) (2,003) Income tax expense (benefit) (2,577) 0 1,808 0 0 0 (769) --------- -------- ---------- -------- ------- -------- -------- Net income (loss) ($1,190) ($5,888) $ 7,995 $ 0 $ 224 ($2,375) ($1,234) ========= ======== ========== ======== ======= ======== ======== Statement of Cash Flows: - ------------------------ Net cash provided by (used in) operating activities $ (12,504) $ 1,142 $ 10,100 $ 0 $ 808 ($2,409) ($2,863) Net cash used in investing activities (8,025) (563) (9,147) 0 (319) 0 (18,054) Net cash provided by (used in) financing activities 21,033 6 (1,677) 0 (198) 0 19,550
12
Hollywood Park, Inc. Consolidating Condensed Financial Information As of and for the three months ended March 31, 1999 and 1998 and balance sheet as of December 31, 1998 Hollywood Park Operating (b) (c) Hollywood Co. (a) Wholly Non Wholly Park, Inc. (Co-Obligor Wholly Owned Owned Consolidating Guarantor 9.5% Notes/ Owned Non- Non- And Hollywood (Parent Guarantor Guarantor Guarantor Guarantor Eliminating Park, Inc. Obligor) 9.25% Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated ---------- ------------ ------------ ------------ ------------ ------------- ------------ (in thousands) As of December 31, 1998 Balance Sheet - ----------------------- Current assets $ 14,820 $ 2,574 $ 69,790 $ 17,726 $15,046 ($19,808) $100,148 Property, plant and equipment, net 85,870 1,953 421,380 92,218 1,491 0 602,912 Other non-current assets 41,365 4,196 31,275 53,452 7,591 50,400 188,279 Investment in subsidiaries 279,442 17,839 174,141 0 0 (444,536) 0 Inter-company 252,556 144,569 303,855 0 5,012 (732,878) 0 --------- -------- ---------- -------- ------- ------------ -------- $ 674,053 $171,131 $1,000,441 $163,396 $29,140 ($1,146,822) $891,339 ========= ======== ========== ======== ======= ============ ======== Current liabilities $ 11,048 $ 12,547 $ 75,529 $ 29,266 $ 5,604 ($9,051) $124,943 Notes payable, long term 279,018 125,228 10,042 118,349 0 (5,018) 527,619 Other non-current liabilities 5,889 0 13,396 2,727 7,532 (25,495) 4,049 Inter-company 147,122 23,323 564,207 0 21,549 (756,201) 0 Minority interest 0 0 4,366 0 0 (614) 3,752 Equity 230,976 10,033 332,901 13,054 (5,545) (350,443) 230,976 --------- -------- ---------- -------- ------- ------------ -------- $ 674,053 $171,131 $1,000,441 $163,396 $29,140 ($1,146,822) $891,339 ========= ======== ========== ======== ======= ============ ========
(a) All of the subsidiaries mentioned in this footnote (a) became wholly owned subsidiaries of the Company at different points in time, in some cases, during the periods presented. All of such subsidiaries were guarantors on both the 9.5% Notes and the 9.25% Notes. The following subsidiaries were treated as guarantors for all periods presented: Turf Paradise, Inc., Hollywood Park Food Services, Inc., Hollywood Park Fall Operating Company, and with respect to the 9.25% Notes, Hollywood Park Operating Company (it is a co-obligor on the 9.5% Notes), HP Casino, Inc., HP/Compton, Inc., HP Yakama, Inc., and HP Consulting, Inc., Boomtown, Inc., Boomtown Hotel & Casino, Inc., Bay View Yacht Club, Inc., Louisiana - I Gaming, Louisiana Gaming Enterprises, Inc., and Boomtown Hoosier, Inc. The following subsidiaries were treated as guarantors for periods beginning on October 15, 1998, when the Casino Magic Merger was consummated: Casino Magic Corp., Mardi Gras Casino Corp., Biloxi Casino Corp., Bay St. Louis Casino Corp., Casino Magic Finance Corp., Casino Magic American Corp., and Casino One Corporation. Crystal Park Hotel and Casino Development Company, LLC and Mississippi - I Gaming L.P. were treated as wholly owned guarantors for periods beginning in January 1998 and October 1998, respectively, when the Company acquired the outstanding minority interests therein and they became wholly owned subsidiaries. (b) The following wholly owned subsidiaries were not guarantors on either the 9.5% Notes or the 9.25% Notes and became subsidiaries of the Company on October 15, 1998, when the Casino Magic Merger was consummated: Jefferson Casino Corporation, Casino Magic of Louisiana, Corp., and Casino Magic Management Services, Corp. (c) The following non-wholly owned subsidiaries were not guarantors on either the 9.5% notes or the 9.25% Notes and became subsidiaries of the Company on October 15, 1998, when the Casino Magic Merger was consummated: Casino Magic Neuquen S.A. and its subsidiary, Casino Magic Support Services S.A. (d) The following majority owned subsidiaries of the Company were guarantors on both the 9.5% Notes and the 9.25% Notes and became subsidiaries on June 30, 1997, when the Boomtown Merger was consummated: Mississippi - I Gaming, L.P. and Indiana Ventures LLC and its wholly owned subsidiaries, Switzerland County Development Corp. and Pinnacle Gaming Development Corp. Mississippi - I Gaming, L.P., a guarantor subsidiary, became a wholly owned subsidiary in October 1998. In addition, Crystal Park Hotel and Casino Development Company, LLC, a guarantor subsidiary, was a majority owned subsidiary until January 1998, when it became a wholly owned subsidiary. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations - ------------- Forward Looking Statements and Risk Factors Except for the historical information contained herein, the matters addressed in this Quarterly Report on Form 10-Q may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Such forward-looking statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated by the Company's management. Factors that may cause actual performance of Hollywood Park to differ materially from that contemplated by such forward-looking statements include, among others: the failure to complete the sale transactions with Churchill Downs Incorporated (discussed below); the failure to complete or successfully operate planned expansion projects (including the Indiana Project); the failure to obtain adequate financing to meet strategic goals; possible Year 2000 issues (discussed in more detail below); the failure to adequately integrate Casino Magic into Hollywood Park's operations; the failure to obtain or retain gaming licenses or regulatory approvals; severe weather conditions; the failure to meet Hollywood Park's debt service obligations; and the saturation of, or other adverse changes in, the gaming markets in which the Company operates (particularly in the southeastern United States). The Private Securities Litigation Reform Act of 1995 (the "Act") provides certain "safe harbor" provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act. For more information on the potential factors which could affect the Company's financial results, please review the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K, for the year ended December 31, 1998, and the Company's Form S-4 Registration Statement dated March 26, 1999 and the discussion contained therein under the caption "Risk Factors". Churchill Downs Negotiations On May 6, 1999, the Company announced that it had entered into a definitive agreement with Churchill Downs Incorporated ("Churchill Downs") to sell both the Hollywood Park Race Track and the Hollywood Park-Casino. Churchill Downs will acquire 240 acres of the Company's 378 acres of real estate related to the Hollywood Park racing operations. The relative sales prices of the Hollywood Park Race Track and Hollywood Park-Casino, totaling $140,000,000, are to be agreed upon prior to the closing of the transaction. Churchill Downs will lease the Hollywood Park-Casino to the Company for annual rental payments of $3,000,000 and the Company expects to sub-lease to an unaffiliated third party operator. The sales are expected to close in the third quarter of 1999, however, there are no assurances that the sale transactions will be completed. 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) (the "Casino Magic Merger"). Hollywood Park paid cash of approximately $80,904,000 for Casino Magic's common stock. At the date of the acquisition, Hollywood Park had purchased 792,900 common shares of Casino Magic, on the open market, at a total cost of approximately $1,615,000. Hollywood Park paid $2.27 per share for the remaining 34,929,224 Casino Magic common stock outstanding. The Casino Magic Merger was accounted for under the purchase method of accounting for a business combination. The Company has performed a preliminary purchase price allocation and will finalize this allocation in 1999. The purchase price of the Casino Magic Merger was allocated to identifiable assets acquired and liabilities assumed based on their estimated fair values at the 14 date of acquisition. Based on financial analyses, which considered the impact of general economic, financial and market conditions on the assets acquired and the liabilities assumed were, when found to be necessary, written up or down to their fair market values. The Casino Magic Merger generated approximately $43,284,000 of excess acquisition cost over the recorded value of the net assets acquired, all of which was allocated to goodwill, and is being amortized over 40 years. The amortization of this goodwill is not deductible for income tax purposes. Gaming Management In January 1999, the Company strengthened its gaming management team by hiring Paul Alanis as its President and Chief Operating Officer and J. Michael Allen as Senior Vice President-Gaming Operations. Both Mr. Alanis and Mr. Allen held similar positions with Horseshoe Gaming, Inc. Mr. Alanis and Mr. Allen were hired to actively participate in the overall execution of the Company's business and operating strategies including re-positioning the Boomtown and Casino Magic properties and overseeing the construction and operations of the Indiana Project. Indiana Hotel and Casino Resort In September 1998, the Indiana Gaming Commission approved the Company to receive the last available license to conduct riverboat gaming operations on the Ohio River in Indiana. The application was originally filed under a joint venture between the Company and Hilton Gaming Corporation ("Hilton"). In May 1998, Hollywood Park paid Hilton approximately $750,000 in exchange for Hilton's interest. Hollywood Park owns 97% of the Indiana Project, with the remaining 3% held by a non-voting local partner. The Indiana Project will be located in the City of Vevay, in Switzerland County, which is approximately 35 miles southwest of Cincinnati, Ohio and will be the gaming site most readily accessible to northern Kentucky, including the city of Lexington. The Company plans to spend between $160,000,000 and $165,000,000 in construction costs (including land but excluding capitalized interest, pre-opening expenses, organizational expenses and community grants) on the Indiana Project which will include a new riverboat, a 300 room hotel, a golf course, convention center, restaurants and related amenities. It is expected that the Indiana Project will be completed in the third quarter of 2000; however there can be no assurance that construction or other issues will not delay the opening. Mississippi Anti-Gaming Initiative In 1998, two referenda were proposed which, if approved, would have amended the Mississippi Constitution to ban gaming in Mississippi and would have required 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 illegal because, among other reasons, it failed to include required information regarding its anticipated effect on government revenues. The Mississippi Supreme Court affirmed the Circuit Court ruling, but only on procedural grounds. 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. On March 22, 1999, another such referendum was filed with the Mississippi Secretary of State. This most recent proposal was declared null and void by the Hinds County Mississippi Circuit Court on May 6, 1999, primarily for its lack of a government revenue statement; such declaration maybe appealed by the proponents of the proposal. 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 such a proposal to be included on a statewide ballot for consideration by the voters. The next election, for which the proponents could attempt such a proposal on the ballot, would be November 2000. It is likely at some point that a revised initiative will be filed which would adequately address the issues regarding the effect on 15 government revenues of prohibition of gaming in Mississippi. However, while 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, if such a referendum were passed and gaming were prohibited in Mississippi, it would have a materially adverse effect on the Company. Hollywood Park-Casino The Hollywood Park-Casino is located in Inglewood, California adjacent to the Hollywood Park Race Track. By law, a California card club may neither bank card games nor offer certain of the familiar card games permitted in Nevada and other traditional gaming jurisdictions, and thus does not participate in the wagers made or in the outcome of any of the games played. As of January 1, 1998's enactment of Senate Bill 8, Hollywood Park was able to operate the Hollywood Park-Casino indefinitely. Under the previous law, as of January 1, 1999, Hollywood Park would not have been able to operate the Hollywood Park-Casino and would have had to lease the property. Should the Company consummate the transactions with Churchill Downs, it anticipates it will lease the casino back from Churchill Downs and then sublease to an unrelated third party operator. Crystal Park Hotel and Casino As of February 1, 1999, rent was scheduled to increase to $350,000 per month, but, in present market conditions, it is expected that the rent will be continued at the $100,000 level rather than increase as scheduled in the lease. Hollywood Park Race Track In September 1998, legislation was passed (effective January 1, 1999) which removed prior restrictions and allows the Company to increase the number of simulcast races it can accept from out of state race tracks. The new legislation also provides annual license fee (or tax) relief on pari-mutuel wagers made on thoroughbred races in California. The impact that the new legislation will have on the Hollywood Park Race Track is subject to a number of factors and assumptions, and thus is difficult to estimate. 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 composed of individuals from each business unit and each corporate function to identify and mitigate Year 2000 issues, with respect to the Company's information systems, products, facilities, suppliers and customers. Internal Computer Systems The Company believes that its various financial reporting software and associated hardware are Year 2000 compatible. The Company has identified the following software and hardware applications that 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. This cost estimate is based on numerous assumptions, including the assumption that the Company has already identified the most significant Year 2000 issues. There can be no guarantee that these assumptions are accurate, and actual results could differ materially from those anticipated. External Computer Systems Both the Hollywood Park and the Turf Paradise Race Tracks lease pari-mutuel wagering software and associated hardware, though from different providers, which are essential to operations. The Year 2000 project team met with each provider of the pari- 16 mutuel wagering systems during the three months ended March 31, 1999 and each provider assured the Company their systems were Year 2000 compatible at such time. The Company does not have an alternative software system to handle pari- mutuel wagering, and if the pari-mutuel wagering service providers have mis-lead the Company regarding their Year 2000 readiness, or discover unanticipated Year 2000 issues, this would have a materially adverse effect on the Company's operations. The Company cannot be assured that its Year 2000 program will be effective, or that estimates about timing and costs of completing the Year 2000 program will be accurate, or that third party suppliers will timely resolve any or all Year 2000 problems with their systems. Any failure of a third party supplier to timely resolve their Year 2000 issues could result in material disruption of the Company's business. Such disruption could have a materially adverse effect on Hollywood Park's business, financial condition and results of operations. Results of Operations On October 15, 1998, Hollywood Park acquired Casino Magic, and accounted for the acquisition under the purchase method of accounting for a business combination. As required under the rules of the purchase method of accounting for a business combination, Casino Magic's results of operations were not consolidated with those of Hollywood Park, prior to the acquisition date, thus generating significant variances when comparing 1999's financial results with those of 1998. Three months ended March 31, 1999 compared to the ------------------------------------------------- three months ended March 31, 1998 --------------------------------- Total revenues for the three months ended March 31, 1999, increased by $93,841,000, or 120.1%, as compared to the three months ended March 31, 1998. Approximately $86,953,000 of the increase was due to the timing of the Casino Magic acquisition. Gaming revenues increased by $85,042,000, or 153.6%, with $80,312,000 of the increase due to the timing of the Casino Magic acquisition and the balance primarily due to increases at Boomtown New Orleans and Boomtown Biloxi. Gaming revenues at Boomtown New Orleans increased by $2,679,000, primarily due to the new larger riverboat which was placed in service in February 1998. Gaming revenues at Boomtown Biloxi increased by $1,549,000, primarily due to an increase of approximately 5% of patrons visiting the property compared with the same period in 1998 due to new marketing programs. Food and beverage sales increased by $4,102,000, or 73.7%, with $2,872,000 of the increase due to the timing of the Casino Magic acquisition and the balance of the increase attributed to increases at each of the Boomtown properties. At Boomtown Reno, food and beverage revenues increased by $464,000, primarily due to the hotel and casino expansion project, which opened in December 1998. At Boomtown Biloxi, food and beverage revenues increased by $362,000, primarily due to the increase in the number of patrons visiting the property. At Boomtown New Orleans, food and beverage revenues increased by $219,000, primarily due to the opening of the adult oriented arcade in July 1998. Hotel and recreational vehicle park revenues increased by $2,392,000, with $2,129,000 of the increase due to the timing of the Casino Magic acquisition and the balance due to the hotel expansion at Boomtown Reno. Truck stop and service station revenue increased by $165,000, or 5.8%, primarily due to increased fuel prices at Boomtown Reno. Other income increased by $2,230,000, or 52.2%, with $1,640,000 due to the timing of the Casino Magic acquisition and the balance primarily due to interest earned on notes receivable and the excess funds generated from the 9.25% Notes issued in February 1999. Total operating expenses for the three months ended March 31, 1999, increased by $73,661,000, or 96.3%, as compared to the three months ended March 31, 1998. Approximately $69,881,000 of the increase was due to the timing of the Casino Magic 17 acquisition. Gaming expenses increased $45,411,000 (inclusive of $46,287,000 due to the Casino Magic acquisition, offset by a net decrease in gaming expenses at Boomtown Reno resulting from a reduction in marketing program costs and an increase at Boomtown New Orleans). Food and beverage expenses increased by $4,142,000, or 55.1%, with $2,915,000 of the increase due to the timing of the Casino Magic acquisition, and the balance a result of the corresponding increases in food and beverage sales at each of the Boomtown properties. Hotel and recreational vehicle park increased $1,213,000, with $973,000 of the increase due to the timing of the Casino Magic acquisition, and the balance due to the hotel expansion at Boomtown Reno. Truck stop and service station expenses increased by $192,000, or 7.5%, due to increases in fuel costs at Boomtown Reno. General and administrative expenses increased by $15,756,000, or 78.4%, with $12,845,000 of the increase due to the timing of the Casino Magic acquisition. The balance of the increase in general and administrative expenses is due to costs associated with the proposed transaction with Churchill Downs, and the additional gaming management team. Other expenses increased by $718,000, or 41.4%, with $681,000 of the increase due to the timing of the Casino Magic acquisition. REIT restructuring costs decreased by $469,000, because the Company abandoned its plans to pursue a Real Estate Investment Trust Structure, and thus no costs were incurred in 1999. Depreciation and amortization expenses increased by $6,812,000, or 103.9%, with $6,180,000 of the increase due to the timing of the Casino Magic acquisition and the balance due to the depreciation on the expansion projects at Boomtown New Orleans and Boomtown Reno. Interest expense increased by $10,830,000, or 295.8%, with $4,882,000 of the increase due to the timing of the Casino Magic acquisition and the balance due primarily to interest on the Bank Credit Facility borrowings and on the 9.25% Notes issued in February 1999. Liquidity and Capital Resources Hollywood Park's principal source of liquidity as of March 31, 1999, was cash and cash equivalents of $104,069,000. Cash and cash equivalents increased by $60,135,000 during the three months ended March 31, 1999. Net cash of $8,440,000 was provided by operating activities. Net cash of $10,990,000 was used in investing activities, with cash of $11,281,000 used for capital improvements. Net cash of $62,685,000 was provided by financing activities. In February 1999, the Company issued the 9.25% Notes, for net proceeds of approximately $339,900,000, of which $287,000,000 was used to repay the Bank Credit Facility. Cash and cash equivalents decreased by $1,367,000 during the three months ended March 31, 1998. Net cash of $2,863,000 was used for operating activities, including the payment of $2,750,000 for a settlement of a lawsuit. Net cash of $18,054,000 was used in investing activities. Cash of $14,295,000 was used to purchase capital assets, including amounts spent for the Boomtown Reno and Boomtown New Orleans construction projects, and for the Yakama expansion. Cash was used for short term investing and the Company also, through its wholly owned subsidiary HP Casino, Inc., used cash of $1,946,000 to acquire the remaining minority interest in Crystal Park LLC. Net cash provided by financing activities was $19,550,000, which included short term borrowings of $20,000,000 under the Company's Bank Credit Facility. Bank Credit Facility On October 14, 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 NT&SA ("Bank of America") (the "Bank Credit Facility") for up to $300,000,000, with an option to increase this amount to $375,000,000. The Bank Credit Facility also provides for sub- facilities for letters of credit up to $30,000,000, and swing line loans of up to $10,000,000. Prior to the execution of the Bank Credit Facility, the Company was operating with a former 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 18 Subordinated Notes due 2007 (the "9.5% Notes"). The Bank Credit Facility extended the maturity of the former Bank Credit Facility to December 31, 2003, reduced interest and commitment fee rates, and amended certain covenants, as compared to the former Bank Credit Facility. The Bank Credit Facility was fully repaid on February 18, 1999, with the issuance of the 9.25% Notes (described below) and therefore did not have any borrowings outstanding as of March 31, 1999. The repayment of all borrowings outstanding under the Bank Credit Facility does not reduce the size of the bank's commitment to lend and, if Hollywood Park meets the relevant conditions for borrowing, Hollywood Park can borrow the full amount available under the revolving Bank Credit Facility in the future. 9.25% Notes On February 18, 1999, Hollywood Park issued $350,000,000 aggregate principal amount of Series A 9.25% Senior Subordinated Notes due 2007 (the "Series A Notes"). On May 6, 1999, the Company completed a registered exchange offer for the Series A Notes, pursuant to which all $350,000,000 principal amount of the Series A Notes were exchanged by the holders for $350,000,000 aggregate principal amount of Series B 9.25% Senior Subordinated Notes due 2007, of the Company (the "Series B Notes"), which were registered under the Securities Act on Form S-4. The Series A Notes and the Series B Notes are collectively referred to as the "9.25% Notes". The 9.25% Notes are redeemable, at the option of the Company, in whole or in part, on or after February 15, 2003, at a premium to face amount, plus accrued interest, as follows: (a) February 15, 2003 at 104.625%; (b) February 15, 2004 at 103.083%; (c) February 15, 2005 at 101.542%; and (d) February 15, 2006 and thereafter at 100%. The 9.25% Notes are unsecured obligations of Hollywood Park, guaranteed by all other material restricted subsidiaries of Hollywood Park excluding certain Casino Magic subsidiaries, principally Casino Magic of Louisiana, Corp. and the Casino Magic Argentina subsidiaries. Hollywood Park received net proceeds of approximately $339,900,000 from the 9.25% Note offering. Of these proceeds, Hollywood Park used $287,000,000 to repay all outstanding borrowings under the Bank Credit Facility. The remaining proceeds of approximately $52,900,000 are currently invested in various cash equivalents and are expected to be used to fund Hollywood Park's capital expenditures. The indenture governing the 9.25% Notes contains certain covenants limiting the ability of the Company and its restricted subsidiaries to incur additional indebtedness, issue preferred stock, pay dividends or make certain distributions, repurchase equity interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, sell assets, issue or sell equity interest in its subsidiaries, or enter into certain mergers and consolidations. 9.5% Notes On August 6, 1997, Hollywood Park and Hollywood Park Operating Company (a wholly owned subsidiary of Hollywood Park) co-issued $125,000,000 aggregate principal amount of 9.5% Notes. The 9.5% Notes are redeemable, at the option of Hollywood Park and Hollywood Park Operating Company, in whole or in part, on or after August 1, 2002, at a premium to face amount, plus accrued interest, as follows: (a) August 1, 2002 at 104.75%; (b) August 1, 2003 at 102.375%; (c) August 1, 2004 at 101.188%; and (d) August 1, 2005 and thereafter at 100%. The 9.5% Notes are unsecured obligations of Hollywood Park and Hollywood Park Operating Company, guaranteed by all other material restricted subsidiaries of either Hollywood Park or Hollywood Park Operating Company excluding certain Casino Magic subsidiaries, principally Casino Magic of Louisiana, Corp. and the Casino Magic Argentina subsidiaries. On January 29, 1999, Hollywood Park received the required number of consents to modify selected covenants associated with the 9.5% Notes. Among other things, the modifications 19 lowered the required minimum consolidated coverage ratio for debt assumption to 2.00:1.00 and increased the size of Hollywood Park's allowed borrowings under the Bank Credit Facility from $100,000,000 to $350,000,000. The Company paid a consent fee of $50.00 per $1,000 principal amount of the 9.5% Notes, or a total cost of approximately $6,781,000, inclusive of transaction related expenses. The consent fee is included in debt issuance costs and is being amortized over the remaining term of the 9.5% Notes. The indenture governing the 9.5% Notes contains certain covenants that, among other things, limit the ability of Hollywood Park, Hollywood Park Operating Company and their restricted subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, repurchase equity interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, sell assets, issue or sell equity interests in their respective subsidiaries or enter into certain mergers and consolidations. Casino Magic 13% Notes On August 22, 1996, Casino Magic of Louisiana, Corp. (owner of Casino Magic Bossier City), a wholly owned subsidiary of Jefferson Casino Corporation, which is a wholly owned subsidiary of Casino Magic, issued $115,000,000 in aggregate principal amount of 13% First Mortgage Notes (the "Casino Magic 13% Notes"), with contingent interest at 5% of Casino Magic Bossier City's adjusted consolidated cash flow (as defined under the indenture governing these notes). The Casino Magic 13% Notes are secured by a first priority lien and security interest in substantially all of the assets of Casino Magic Bossier City, and Jefferson Casino Corporation guarantees the Casino Magic 13% Notes, and the guarantee is secured by all of the assets of Jefferson Casino Corporation including all of the capital stock of Casino Magic of Louisiana, Corp. The Casino Magic 13% Notes are redeemable, in whole or in part, on or after August 15, 2000, at a premium to face amount, plus accrued interest, as follows: (a) August 15, 2000, at 106.5%; (b) August 15, 2001, at 104.332%; and (c) August 15, 2002, and thereafter at 102.166%. On December 23, 1998, the Company completed the required post Casino Magic Merger change of control purchase offer, whereby $2,125,000 in principal amount of the Casino Magic 13% Notes were tendered, at a price of $1,010 for each $1,000 of principal amount. The indenture governing the Casino Magic 13% Notes contains certain covenants limiting the ability of Casino Magic of Louisiana, Corp. and its subsidiaries to engage in any line of business other than the current gaming operations of Casino Magic Bossier City and incidental related activities, to borrow funds or otherwise become liable for additional debt, to pay dividends, issue preferred stock, make investments and certain types of payments, to grant liens on its property, enter into mergers or consolidations, or to enter into certain specified transactions with affiliates. Other Debt As of March 31, 1999, Casino Magic had various secured notes payable totaling $12,800,000, primarily secured by various fixed assets at Casino Magic Biloxi and Casino Magic Bossier City. The Company is currently evaluating the various Casino Magic notes payable for early retirement. Casino Magic also had unsecured notes payable totaling $1,683,000 and capital leases of $415,000. Other Information As of March 31, 1999, the Company has invested approximately $3,210,000 (inclusive of an unrealized gain of approximately $501,000) in equity securities, which are presently being held as available-for-sale. The Company holds a promissory note for up to $3,500,000 from Paul Alanis, for which as of March 31, 1999, the Company has lent $3,386,000 (which includes approximately $154,000 of accrued interest). Mr. Alanis used the funds to purchase 300,000 shares of the Company's 20 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, which has an approximate value in excess of $3,500,000. As consideration for the sale of its Las Vegas property, Boomtown received two promissory notes receivable from 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 and at March 31, 1999, had an outstanding balance of $4,000,000. The second note is for approximately $3,465,000, bearing interest at Bank of America's reference rate plus 0.5% per year, with the principal and accrued interest payable, in full, on July 1, 2000. Capital Commitments The Company was approved to receive the last available gaming license to own and operate a riverboat casino on the Ohio River in Indiana. The Indiana Project is expected to cost between $160,000,000 and $165,000,000 (including land but excluding capitalized interest, pre-opening expenses, organizational expenses and community grants) and is expected to be completed in the third quarter of 2000. The Company believes that the Bank Credit Facility, the unused proceeds from the 9.25% Note offering, and available future cash flow will be sufficient to fund the construction of the Indiana Project; however, there can be no assurance that additional funds will not be required to complete anticipated projects. General Hollywood Park is continually evaluating future growth opportunities in the gaming industry, as well as the sale of other assets not employed in the gaming industry. Hollywood Park expects that funding for the Indiana Project, payment of interest on the 9.5% Notes, 9.25% Notes and the Casino Magic 13% Notes, payment of notes payable, and normal and necessary capital expenditure needs will come from existing cash and cash equivalent balances generated from operating activities and borrowings from the Bank Credit Facility. In the opinion of management, these resources will be sufficient to meet Hollywood Park's anticipated cash requirements for the foreseeable future and in any event for at least the next twelve months. 21 Part II Other Information Item 5. Other Information - ------------------------- On April 1, 1999, Bruce C. Hinckley was appointed Senior Vice President, Chief Financial Officer and Treasurer. Item 6.a Exhibits - ----------------- Exhibit Number Description of Exhibit - ------- ---------------------- 27.1 Financial Data Schedule ____ (b) Reports on Form 8-K A Current Report on Form 8-K was filed January 19, 1999, to report the January 14, 1999, press release announcing that the Company was commencing a consent solicitation to amend the 9.5% Notes. A Current Report on Form 8-K was filed March 2, 1999, to report the February 23, 1999, press release announcing the Company's financial results for the quarter and the year ended December 31, 1998. 22 Hollywood Park, Inc. Calculation of Earnings Per Share
For the three months ended March 31, --------------------------------------------------- Basic Diluted (a) --------------------- ----------------------- 1999 1998 1999 1998 --------------------- ----------------------- (in thousands, except per share data) Average number of common shares outstanding 25,800 26,276 25,800 26,276 Average common shares due to assumed conversion of stock options 0 0 405 591 -------- -------- -------- ------- Total shares 25,800 26,276 26,205 26,867 ======== ======== ======== ======== Net income (loss) allocated to shareholders $4,133 ($1,234) $4,133 ($1,234) ======== ======== ======== ======== Net income (loss) per share $0.16 ($0.05) $ 0.16 ($0.05) ======== ======== ======== ======== - --------------------------- (a) When the computed dilluted values are anit-dilutive, the basic per share values are presented on the face of the consolidated statements of operations.
Hollywood Park, Inc. Selected Financial Data by Property
For the three months ended March 31, ---------------------------------------------- 1999 1998 ---------------------------------------------- (in thousands, except per share - unaudited) Revenues: Hollywood Park, Inc. - Casino Division $14,025 $13,211 Crystal Park and HP Yakama, Inc. 589 300 Boomtown Reno 14,142 13,436 Boomtown New Orleans 25,721 22,695 Boomtown Biloxi 17,799 15,873 Casino Magic Bay St. Louis 22,963 0 Casino Magic Biloxi 24,631 0 Casino Magic Bossier City 33,852 0 Casino Magic Argentina 5,327 0 Hollywood Park Race Track 5,465 5,478 Turf Paradise, Inc. 6,786 6,810 Hollywood Park, Inc. - Corporate 698 354 --------- --------- 171,998 78,157 --------- --------- Expenses: Hollywood Park, Inc. - Casino Division 11,839 11,707 Crystal Park and HP Yakama, Inc. 26 46 Boomtown Reno 13,198 14,299 Boomtown New Orleans 17,269 15,796 Boomtown Biloxi 14,086 13,354 Casino Magic Bay St. Louis 16,753 0 Casino Magic Biloxi 17,587 0 Casino Magic Bossier City 25,477 0 Casino Magic Argentina 3,155 0 Hollywood Park Race Track 7,184 7,242 Turf Paradise, Inc. 4,205 4,374 Hollywood Park, Inc. - Corporate 5,307 2,657 --------- --------- 136,086 69,475 --------- --------- Non-recurring expenses: REIT Reorganization/Strategic Merger 0 469 Indiana - pre-opening costs 707 0 Depreciation and amortization: Hollywood Park, Inc. - Casino Division 665 698 Crystal Park and HP Yakama, Inc. 485 510 Boomtown Reno 1,659 1,469 Boomtown New Orleans 1,425 1,191 Boomtown Biloxi 993 882 Casino Magic Bay St. Louis 1,438 0 Casino Magic Biloxi 1,739 0 Casino Magic Bossier City 1,889 0 Casino Magic Argentina 372 0 Hollywood Park Race Track 1,090 1,065 Turf Paradise, Inc. 295 296 Hollywood Park, Inc. - Corporate 1,317 444 --------- --------- 13,367 6,555 --------- --------- Operating income (loss): Hollywood Park, Inc. - Casino Division 1,521 806 Crystal Park and HP Yakama, Inc. 78 (256) Boomtown Reno (715) (2,332) Boomtown New Orleans 7,027 5,708 Boomtown Biloxi 2,720 1,637 Casino Magic Bay St. Louis 4,772 0 Casino Magic Biloxi 5,305 0 Casino Magic Bossier City 6,486 0 Casino Magic Argentina 1,800 0 Hollywood Park Race Track (2,809) (2,829) Turf Paradise, Inc. 2,286 2,140 Hollywood Park, Inc. - Corporate (5,926) (2,747) REIT Reorganization/Strategic Merger 0 (469) Indiana - pre-opening costs (707) 0 --------- --------- 21,838 1,658 --------- --------- Interest expense 14,491 3,661 --------- --------- Income (loss) before minority interest and income tax expense 7,347 (2,003) --------- --------- Minority interest - Casino Magic Argentina 458 0 Income tax expense (benefit) 2,756 (769) --------- --------- Net income (loss) $ 4,133 $(1,234) ========= ========= Per common share: Net income (loss) - basic $ 0.16 $ (0.05) Net income (loss) - diluted $ 0.16 $ (0.05) Number of shares: Basic 25,800 26,276 Diluted 25,800 26,867
24 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Hollywood Park, Inc. (Registrant) By: /s/ R.D. Hubbard ______________________________ Dated: May 12, 1999 R.D. Hubbard Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ Bruce C. Hinckley ______________________________ Dated: May 12, 1999 Bruce C. Hinckley Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Hollywood Park Operating Company (Registrant) By: /s/ R.D. Hubbard ______________________________ Dated: May 12, 1999 R.D. Hubbard Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ Bruce C. Hinckley Dated: May 12, 1999 ______________________________ Bruce C. Hinckley Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 25 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 0000356213 HOLLYWOOD PARK, INC. 3-MOS DEC-31-1999 MAR-31-1999 104,069,000 3,210,000 34,202,000 2,465,153 0 159,427,000 842,706,000 240,375,000 962,047,000 111,310,000 616,709,000 0 0 2,580,000 232,547,000 962,047,000 12,659,000 171,998,1000 14,413,000 136,793,000 13,825,000 75,000 14,491,000 6,889,000 2,756,000 4,133,000 0 0 0 4,133,000 0.16 0.16
-----END PRIVACY-ENHANCED MESSAGE-----