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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1996
Commission file number 0-10619
HOLLYWOOD PARK, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-3667491
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) 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)
Securities registered pursuant to Section 12(g) of the Act:
Title of each class and name of each exchange on which registered
Hollywood Park, Inc.
Common Stock, $.10 par value
Depositary Shares
NASDAQ National Market Issues
Indicate by check mark whether registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 25, 1997, was $278,189,514 based on a closing price of
$12.375 per common share and $12.00 per depositary share (convertible
preferred).
The number of outstanding shares of the registrant's common stock, as of the
close of business on March 25, 1997: 18,332,016.
Hollywood Park, Inc.
Table of Contents
Part I
Item 1. Description of Business.............................................. 1
General........................................................... 1
Casino Operations................................................. 1
Racing Operations................................................. 3
Expansion Plans................................................... 6
Other Uses of Property............................................ 8
Government Regulation............................................. 8
Casino Operations.............................................. 8
Racing Operations.............................................. 9
Competition....................................................... 10
Federal Income Tax Matters........................................ 11
Employees......................................................... 11
Other............................................................. 12
Item 2. Properties........................................................... 12
Item 3. Legal Proceedings.................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders.................. 13
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................... 13
Dividends......................................................... 14
Item 6. Selected Financial Data.............................................. 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 16
Results of Operations............................................ 16
Liquidity and Capital Resources.................................. 19
Item 8. Financial Statements................................................. 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................... 21
Part III
Item 10. Directors and Executive Officers of the Registrant................... 21
Director's Deferred Compensation Plan............................. 23
Compensation Committee Interlocks and Insider Participation24
Item 11. Executive Compensation............................................... 24
Stock Option Plan................................................. 25
Options/SAR Grants in Last Fiscal Year............................ 26
Report on Repricing of Options/SARs............................... 26
Pension Plan...................................................... 26
Compensation Committee Report on Executive Compensation........... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management....... 28
Item 13. Certain Relationships and Related Transactions....................... 30
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...... 30
Signatures........................................................ 34
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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GENERAL Hollywood Park, Inc. (the "Company" or "Hollywood Park") is a gaming,
sports and entertainment company engaged in the ownership and operation of card
club casinos, pari-mutuel racing facilities, and the development of other
gaming, sports and entertainment opportunities. The Company owns and operates
the Hollywood Park-Casino, a California card club located in the Los Angeles
metropolitan are, and owns 88% of Crystal Park Hotel and Casino Development
Company LLC, ("Crystal Park LLC") which built and presently leases, to an
unaffiliated third party, the Crystal Park Hotel and Casino ("Crystal Park"),
also located in the Los Angeles metropolitan area. Hollywood Park also owns and
operates the Hollywood Park Race Track, located on the same premises as the
Hollywood Park-Casino, which for the past 58 years has been ranked among the
country's most distinguished thoroughbred racing facilities. The Hollywood Park
Race Track was honored by being selected to host the 1997 Breeders' Cup
championship racing series. In 1994, the Company acquired Turf Paradise, Inc.
("Turf Paradise"), a thoroughbred racing facility located in Phoenix, Arizona,
and Sunflower Racing, Inc. ("Sunflower"), a greyhound and thoroughbred racing
facility located in Kansas City, Kansas. On May 17, 1996, as a result of
intense competition from Missouri riverboat gaming, Sunflower filed for
reorganization under Chapter 11 of the Bankruptcy Code. Sunflower is operating
as a debtor in possession during the bankruptcy.
Hollywood Park's strategic plan is to continue to diversify its gaming, sports
and entertainment businesses through the development, acquisition, ownership
and/or operation of casinos, race tracks and other gaming, sports and
entertainment attractions. Hollywood Park intends to identify and pursue
opportunities in the gaming business by taking advantage of its financial
resources, experience and contacts in the gaming and horse racing businesses,
and by building a strong gaming oriented management team.
In furtherance of this strategy, on April 23, 1996, Hollywood Park entered into
an Agreement and Plan of Merger with Boomtown, Inc. ("Boomtown"), whereby,
subject to certain remaining conditions, Boomtown will be merged with a
subsidiary of Hollywood Park, with Boomtown surviving and becoming a wholly
owned subsidiary of Hollywood Park. Boomtown owns and operates land-based,
dockside and riverboat gaming operations in Verdi, Nevada (near Reno), Biloxi,
Mississippi, and Harvey, Louisiana (near New Orleans). Boomtown also operates a
hotel and casino in Las Vegas, Nevada, but plans to dispose of this property
concurrently with the consummation of the proposed merger. (See "Expansion
Plans")
The Company is the successor to the Hollywood Park Turf Club, organized in 1938,
incorporated in 1981 under the name Hollywood Park Realty Enterprises, Inc., and
in 1992, as part of a restructuring, renamed Hollywood Park, Inc. Hollywood
Park has four active wholly owned subsidiaries: (i) Hollywood Park Operating
Company, which has two wholly owned subsidiaries, Hollywood Park Food Services,
Inc. and Hollywood Park Fall Operating Company; (ii) Sunflower Racing, Inc.,
which has one wholly owned subsidiary, SR Food and Beverage, Inc.; (iii) Turf
Paradise, Inc.; and (iv) HP/Compton, Inc. which is an 88% partner in the Crystal
Park Hotel and Casino Development Company LLC. The Hollywood Park-Casino is a
division of Hollywood Park, Inc.
CASINO OPERATIONS Hollywood Park-Casino The Hollywood Park-Casino opened in
---------------------
July 1994, under a third party leasing arrangement with Pacific Casino
Management, Inc. ("PCM"). On November 17, 1995, Hollywood Park acquired
substantially all the assets, property and business of PCM, and assumed
substantially all of PCM's liabilities. Prior to the acquisition, under a lease
with the Company, PCM operated the gaming floor activities of the Hollywood
Park-Casino.
In 1994, under the California Gaming Registration Act, it was the position of
the California Attorney General that, as a publicly traded company, Hollywood
Park was not eligible to register as an operator of a card club, but could lease
the site to a registered operator unaffiliated with the Company. On August 3,
1995, Senate Bill ("SB") 100 was enacted into law. SB 100 does the following:
(i) allows for a publicly traded racing
1
association, or a subsidiary thereof, (hereafter the "Racing Association") to
operate a gaming club on the premises of its race track; (ii) requires the
officers, directors and shareholders of 5.0% or more of a Racing Association
(excluding institutional investors) to be licensed by the Attorney General;
(iii) provisionally licenses a Racing Association and its officers, directors,
and 5.0% shareholders to operate a gaming club on the premises of its race
track, pending licenses pursuant to sub-paragraph (ii) above; (iv) allows a
Racing Association and its officers, directors and 5.0% shareholders to have an
interest in gaming activities located outside California that are not legal in
California. The provisions of SB 100 are repealed effective January 1, 1999,
unless prior thereto the California legislature enacts a comprehensive scheme
for the regulation of gaming under the jurisdiction of a gaming control
commission. The Company supports SB 900, currently pending in the California
Legislature, which would remove the sunset clause from SB 100 and, among other
things, would allow the Company to operate the Hollywood Park-Casino beyond
December 31, 1998. It is too early in the legislative session to comment on the
prospects of SB 900.
The purchase price of PCM's net assets was an aggregate $2,640,000, payable in
shares of Hollywood Park common stock, in three installments: (i) shares of
Hollywood Park common stock having a value of $1,600,000, or 136,008 common
shares, issued on November 17, 1995; (ii) shares of Hollywood Park common stock
having a value of $540,000, or 48,674 common shares, issued on November 19,
1996; and (iii) shares of Hollywood Park common stock having a value of
$500,000, or 33,417 common shares, issued on February 10, 1997.
Virtually all of the approximately $21,568,000 of excess acquisition cost over
the recorded value of the net assets acquired from PCM was allocated to
goodwill, and will be amortized over 40 years. The amortization of the goodwill
is not deductible for income tax purposes.
Patrons in the Hollywood Park-Casino pay a fee for seats at gaming tables, or
for each hand played. Approximate per hour collection rates per table for
conventional poker are $75 for low limit and $140 for high limit, and for the
California games, $140 for low limit and $500 for high limit. Players bet
solely against each other; the operator of the card club does not participate in
the wagers made nor in the outcome of any of the games played. Revenues are also
derived from food and beverage sales, gift shop sales and health club
operations.
The Hollywood Park-Casino is the only non-Indian gaming facility in California
that offers pari-mutuel wagering complete with bet runners, allowing card
players to place pari-mutuel wagers without interruption of their games. It has
one of the most advanced closed circuit television systems in the industry and
offers the cleanest air quality of any card club (due to the installation of a
state-of-the-art "CosaTron" air filtration system). It has a quiet and elegant
VIP player lounge and a full service health club with massage therapists. The
Hollywood Park-Casino is topped off with a 30 foot per letter red neon sign,
visible from all aircraft approaching the Los Angeles International Airport,
which is located only three miles from Hollywood Park. The Hollywood Park-Casino
also sponsors special entertainment events, including live concerts and
championship Thai Kick Boxing.
The Hollywood Park-Casino has been able to attract a significant portion of the
southern California High-End Poker market ($15 to $30 limit and above). The
High-End Poker Pegasus Room includes 17 gaming tables located in a private
setting including self service and bet runner pari-mutuel wagering, a private
cage and nine screen video. The expanded 1996 tournament schedule attracted
some of poker's most famous championship players, while the introduction of new
user friendly games, such as L.A. Blackjack, and new promotions helped to expand
the Hollywood Park-Casino's player base.
Crystal Park Hotel and Casino Crystal Park, California's first hotel and
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casino, opened on October 25, 1996, with 100 gaming tables, approximately 282
hotel rooms, including 41 VIP suites, a restaurant, gift shop, full service
health spa and a lobby sports bar and lounge. The hotel operates under a
Radisson Hotels International, Inc. ("Radisson") flag, under a 20 year License
Agreement between the Company and Radisson. Hollywood Park can terminate the
License Agreement, at no cost to the Company, at the end of the third, fifth or
tenth year.
2
Current California law does not allow publicly traded companies, such as
Hollywood Park, to operate a card club (other than on the same property as the
race track); therefore, Crystal Park LLC (the entity which owns the facility)
executed a 60 month lease with Compton Entertainment, Inc. ("CEI"). Under the
terms of the lease, as the landlord, Crystal Park LLC built and furnished
Crystal Park Hotel and Casino for CEI to operate. Crystal Park LLC is not
responsible for any segment of the daily operations of Crystal Park. Over the
60 month lease term, the fixed monthly rent payments are as follows: $200,000
per month for months one through six; $350,000 per month for months seven
through twelve; and approximately $759,000 per month for the balance of the
lease. CEI was current on rent payments during 1996. If there is a change in
California law, allowing the Company to operate card clubs at sites other than
its race track property, Crystal Park LLC would operate the card club in
partnership with CEI, (the "Crystal Park Partnership") with Crystal Park LLC
owning 67% of the business. Under the terms of the Crystal Park Partnership,
Crystal Park LLC would receive 90% of the distributable cash flow until it has
received its approximately $30,000,000 initial investment back, together with an
annualized 20% return on that investment.
On July 14, 1995, the Company and CEI executed an Amended and Restated Agreement
Respecting Pyramid Casino (the "Crystal Park Agreement") (Pyramid Casino was
subsequently changed to Crystal Park Hotel and Casino), finalizing the terms
concerning the development, ownership and operation of a card club in the city
of Compton (the "City"). CEI entered into an Amended and Restated Disposition
and Development Agreement (the "DDA") with the City to lease or purchase land
located within the City as the card club site.
Under the terms of the Crystal Park Agreement, on August 3, 1995, the Company
paid CEI $2,000,000 for the real property rights and assignment of the DDA to
Crystal Park LLC. On August 3, 1995, the Company paid CEI an additional
$500,000 to obtain the five year option to purchase CEI's gaming license. If at
the end of the five year term of the option to purchase the gaming license,
Hollywood Park is not able to own and operate a card club at the Crystal Park
site, CEI can elect to either negotiate a new lease, or acquire Hollywood Park's
right to the card club site for a purchase price to be determined by the Crystal
Park Agreement. On October 24, 1996, CEI paid Hollywood Park approximately
$1,203,000, as reimbursement for non-construction related pre-opening costs
incurred on CEI's behalf by the Company. Upon the October 25, 1996 opening of
Crystal Park, Hollywood Park paid CEI an additional $2,499,000, as required by
the Crystal Park Agreement.
As required by the DDA, on August 2, 1995, Hollywood Park paid approximately
$2,006,000 to the City to purchase the convention center to house the card club
operations and entered into a 50 year lease with the City for the hotel, parking
and expansion parcels at the same site. Initial improvements made by Hollywood
Park to construct, install and equip Crystal Park will be credited against the
annual base rent. No cash rent payments are expected to be made until after the
nineteenth year of the lease, or 2014.
Hollywood Park, through its wholly owned subsidiary HP/Compton, Inc., Redwood
Gaming LLC (controlled by the Edward J. DeBartolo Family) and First Park
Investments LLC (controlled by Leo Chu and Ivy Chu) formed the Crystal Park LLC,
and have an 88%, 8%, and 4% partnership interest therein, respectively.
RACING OPERATIONS With pari-mutuel wagering, patrons bet against each other in
a pool rather than against the operator of the facility or with pre-set odds.
Revenues are also derived from concession sales, admissions and program sales.
At the Hollywood Park and Turf Paradise race tracks, the Company operates all
aspects of racing, while under Kansas State racing laws Sunflower is not granted
any race days and does not generate any pari-mutuel commissions. The Kansas
Racing Commission granted Sunflower the facility ownership and manager licenses;
with all race days until the year 2014 granted to TRAK East, a Kansas not-for-
profit corporation. Sunflower has an agreement with TRAK East to provide the
physical race tracks along with management and consulting services for twenty-
five years with options to renew for one or more successive five year terms.
The Agreement and Restatement of Lease and Management Agreement was entered into
as of September 14, 1989.
Hollywood Park Race Track Hollywood Park conducts two live on-track
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thoroughbred horse race meets per year. Race dates must be applied for on an
annual basis from the California Horse Racing Board (the
3
"CHRB"). The 1996 Spring/Summer Meet ran for 13 weeks, for a total of 67 race
days. The Autumn Meeting ran for seven weeks, for a total of 36 race days (race
days include three charity days per meet). Live races run Wednesday through
Sunday, usually with nine live races a day. The Company also sends the signal of
its live races off-track to other locations including fairgrounds, other race
tracks, hotels and casinos. In total, the Company simulcasts its live races to
861 locations in 40 states and four countries. The Company also accepts the
simulcast signal from live races conducted at other race tracks, including the
four other local southern California tracks, which has helped to mitigate the
seasonality of the Company's horse racing business by allowing for year round
operations. In addition, the July 1994 passage of Assembly Bill ("AB") 1418
allowed for unrestricted simulcasting between northern and southern California.
Previous legislation limited such simulcasting to races with purses of at least
$20,000. With the passage of AB 1418, patrons have pari-mutuel wagering
opportunities approximately every 15 minutes. Although the Company has seen a
shift from pari-mutuel wagers placed on its live races, both on-track and off-
track, to wagers placed on northern California simulcast races, for which the
Company receives a lower pari-mutuel commission rate, the net effect of expanded
simulcasting upon pari-mutuel commissions to date has been positive, but there
can be no assurance that this effect will continue to be positive.
Hollywood Park derives revenues from a share of the pari-mutuel handle at rates
fixed by the state of California, admission fees and concession sales. The
approximate pari-mutuel percentage commission rates are fixed as follows:
Type of
Racing % Description
---------- ---- --------------------------------------------------------------------------------
On-track 6.4% Wagers placed at Hollywood Park on its live races.
Off-track 4.4% Wagers placed on live Hollywood Park races simulcast to California locations
other than northern California.
Off-track 1.25% Wagers placed on live Hollywood Park races simulcast to northern California.
Off-track 1.6% Wagers placed on live Hollywood Park races simulcast out-of-state.
Simulcast 2.0% Wagers placed at Hollywood Park on races simulcast from other tracks, except
northern California.
Simulcast 5.7% Wagers placed at Hollywood Park on races simulcast from northern California.
Simulcast 4.7% Wagers placed at Hollywood Park on races simulcast from out-of-state.
Simulcast 3.9% Wagers placed on races simulcast from northern California, when Hollywood Park
is conducting a live meet, and simulcasting the northern California races to
its off-track sites.
Turf Paradise The Company has owned and operated Turf Paradise since August
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1994, when it acquired Turf Paradise in a stock-for-stock merger accounted for
under the pooling of interests method of accounting, pursuant to which an
aggregate of 1,498,016 shares of the Company's common stock were issued to the
former Turf Paradise stockholders.
Turf Paradise has one continuous live thoroughbred meet that starts in September
and runs through May. In 1996, Turf Paradise raced live for the period January
1 through May 7, operated as a simulcast facility through September 4, and
resumed live racing on September 28 running through December 31. Along with
running live thoroughbreds, Turf Paradise also offers two quarter horse races a
day during the first two months of the live meet, and a limited number of
arabian races in the spring. Live racing is primarily conducted Friday through
Tuesday, with live races sent to 34 off-track sites in Arizona. The live racing
signal is also transmitted to 34 out of state hubs, from which the signal is
further disseminated to sites including: New York, New Jersey, Pennsylvania,
Nevada and Canada. On Monday and Tuesday, Turf Paradise generally conducts 12
live races and accepts a limited number simulcast races from other race tracks.
Friday through Sunday, Turf Paradise generally conducts 9 to 10 live races and
accepts simulcasts from other race tracks, for a total of approximately 17 to 20
races per day. Wednesday and Thursday Turf Paradise generally operates as a
simulcast facility, usually accepting 16 to 18 races from northern and southern
California. During the period from late May to early September, Turf Paradise
operates as a simulcast facility for Arizona's Prescott Downs and Coconino
County Fair.
4
At Turf Paradise, the state of Arizona fixes the pari-mutuel percentage
commissions for on-track, and within the state, off-track racing as follows:
Win, Place, Two-Horse Three or More
Show Pool Horse Pool
----------- ----------- -------------
On-track daily handle up to $1 million 9.0% 9.5% 11.5%
On-track daily handle above $1 million 7.5% 8.0% 10.0%
Off-track in state handle up to $175,000 12.0% 13.0% 17.0%
Off-track in state handle above $175,000 9.0% 9.5% 11.5%
Turf Paradise also receives approximately 2.0% to 3.5% of the out-of-state off-
track pari-mutuel handle wagered on its live races. When operating as a
simulcast facility for the smaller northern Arizona race tracks, Turf Paradise
receives 3.8% of the pari-mutuel handle generated at Turf Paradise. Turf
Paradise also receives any unclaimed pari-mutuel winnings, which totaled
approximately $310,000 in 1996 while at Hollywood Park, the unclaimed pari-
mutuel winnings are turned over to the state of California. Along with the
pari-mutuel commission rates earned, Turf Paradise presently receives an
additional 1.0% of all in-state handle as reimbursement for capital improvements
made to the track in prior years. In 1996, Turf Paradise was reimbursed
approximately $708,000 for such capital improvements. The capital improvement
credit is scheduled to expire in 1997. In 1996, Turf Paradise also received a
hardship tax credit of $241,000 based on the reduction of in-state handle caused
by the advent of Indian gaming.
Sunflower The Company has owned Sunflower since March 1994, when it acquired
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Sunflower in a stock-for-stock merger accounted for under the purchase method of
accounting, pursuant to which an aggregate of 591,715 shares of the Company's
common stock were issued to the former Sunflower stockholders.
On May 17, 1996, Sunflower filed for reorganization under Chapter 11 of the
Bankruptcy Code, because the Kansas legislature failed to pass legislation
allowing additional forms of gaming at Sunflower, which would have permitted
Sunflower to more effectively compete with Missouri riverboat. Sunflower's
operating results had dramatically worsened in recent periods due to intense
competitive pressure from recently legalized riverboat gaming in nearby
Missouri. On March 31, 1996, Hollywood Park recorded a non-cash write off of
its approximately $11,412,000 investment in Sunflower. Sunflower continues to
operate as a debtor in possession during the bankruptcy proceedings.
Sunflower's management is currently evaluating all options available to
Sunflower and intends to continue to operate Sunflower at least through the
current Kansas legislative session (scheduled to conclude in the second quarter
of 1997).
Sunflower does not directly earn pari-mutuel commissions, but instead TRAK East
pays Sunflower a lease and management fee equal to TRAK East's earnings less
minimum amounts that TRAK East retains for distribution to charities. Pursuant
to an agreement between Sunflower and TRAK East, that has been approved by the
Kansas Racing and Gaming Commission, charity payments by TRAK East have been
suspended until June 1, 1997.
TRAK East conducts live greyhound and horse racing and accepts simulcasts of
both. Live greyhound racing runs from January 1 through December 31, with a
brief seven day period without racing from December 16 through 25. Greyhounds
generally run Wednesday through Monday, with evening performances every day
except Sunday and matinee performances on Wednesday, Friday, Saturday and
Sunday. During 1996, TRAK East conducted 344 live greyhound performances over
252 race days. Usually there are 13 races per performance, except for Sunday
when there are 15 races. Horses ran live from August 29, 1996 through September
22, 1996, racing Wednesday through Sunday, for a total of 20 race days. TRAK
East accepts greyhound simulcasting year round from various other tracks.
Simulcast racing is held Wednesday through Monday. Simulcasts from various
other horse race tracks are also accepted year round. The pari-mutuel
commissions earned by TRAK East are set by the state of Kansas. The following
percentages represent the final net commission retained by TRAK East:
Live greyhounds and horses 12.76%
Greyhound simulcasts 10.75%
Horse simulcasts 10.44%
5
EXPANSION PLANS During 1996, the Company continued to pursue its expansion
strategy, including examining California card club opportunities, and other
gaming, sports and entertainment opportunities. The Company expects no change
in its expansion strategy in 1997.
Pending Merger with Boomtown, Inc. On April 23, 1996, the respective Boards of
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Directors of Hollywood Park and Boomtown (a publicly held company) approved and
signed the Agreement and Plan of Merger (the "Merger") among Hollywood Park,
Inc., HP Acquisition, Inc., (a wholly owned subsidiary of Hollywood Park) and
Boomtown, Inc. pursuant to which HP Acquisition, Inc., will merger into
Boomtown, and Boomtown will survive and become a wholly owned subsidiary of the
Company. The Merger, which has been approved by both Hollywood Park's and
Boomtown's common shareholders, is expected to be consummated in the second
quarter of 1997 and will significantly expand the Company's gaming operations.
The Merger will be accounted for under the purchase method of accounting, with
each issued and outstanding share of Boomtown common stock converted into 0.625
shares of Hollywood Park common stock. Approximately 5,798,000 shares of the
Company's common stock are expected to be newly issued in the Merger. Although
the Company has agreed to repurchase and then retire approximately 446,491 of
these shares concurrently with Boomtown's divestiture of Boomtown's Las Vegas
resort as discussed below.
The Merger remains subject to the following principal conditions: the consent of
the holders of the majority of the principal amount of Boomtown's outstanding
11.5% First Mortgage Notes; and Hollywood Park, its management and Board of
Directors, and Boomtown's management acquiring all required regulatory approvals
and gaming permits. On December 16, 1996, the Mississippi Gaming Commission
(Boomtown owns and operates a 33,000 square foot casino in Biloxi, Mississippi)
approved the Merger. The application process for the remaining gaming
jurisdictions is in progress. In addition, Boomtown intends to commence seeking
the consent of the holders of a majority in principal amount of the outstanding
Boomtown First Mortgage Notes on or about March 29, 1997.
Boomtown owns and operates land-based, dockside and riverboat gaming operations
in Verdi, Nevada ("Boomtown Reno"), Biloxi, Mississippi ("Boomtown Biloxi"),
Harvey, Louisiana ("Boomtown New Orleans"), and Las Vegas, Nevada ("Boomtown Las
Vegas"), although Boomtown Las Vegas is expected to be divested as described
below. Boomtown's properties offer full casino gaming, hotel accommodations (at
Boomtown Reno and Boomtown Las Vegas only), and other entertainment amenities to
primarily middle income, value oriented customers.
Boomtown Reno has been operating for over a quarter century and is located
approximately two miles from the California - Nevada border, and seven miles
from downtown Reno on Interstate 80, the major highway connecting northern
California and Reno. Boomtown Reno is situated on 569 acres with approximately
61 acres used for current operations. Boomtown Reno's customer base is
primarily drawn from Interstate 80 traffic. Boomtown Reno offers its guests a
40,000 square foot casino, including 1,307 slot machines and 44 table games, a
122-room hotel, a 16-acre truck stop, a full-service recreational vehicle park,
a service station, a mini-mart and other related amenities. In addition,
Boomtown Reno offers a 35,000 square foot family entertainment center.
Boomtown Biloxi, a limited partnership 85% majority owned and controlled by
Boomtown, occupies nine acres on Biloxi, Mississippi's back bay. Boomtown
Biloxi is located one-half mile from Interstate 110, the main highway connecting
Interstate 10 (the main thoroughfare connecting New Orleans and Mobile, Alabama)
and the Gulf of Mexico. Boomtown Biloxi, began operations in July 1994, and
consists of a land-based facility that houses non-gaming operations and a 33,000
square foot casino constructed on a 400 x 100 foot barge permanently moored to
the land-based building. The casino offers 1,030 slot machines, 37 table games
and other gaming amenities including restaurants, a western dance hall/cabaret
and a 20,000 square foot family entertainment center.
Boomtown New Orleans, began operations in August 1994 as a Louisiana limited
partnership 92.5% majority owned and controlled by Boomtown, on a 50 acre site
in Harvey, Louisiana, located in Jefferson Parish, approximately ten miles from
the French Quarter of New Orleans. Gaming operations are conducted from a
6
250 foot replica of a paddle wheel riverboat, offering 912 slot machines and 56
table games in a 30,000 square foot casino. The land-based facility is composed
of an 88,000 square foot entertainment center and a western saloon/dance hall.
On November 18, 1996, Boomtown entered into an agreement with the minority
partner, under which Boomtown would pay $5,673,000 in return for the minority
interest in addition to releasing Boomtown from any and all claims, liabilities
and causes of action of any kind arising from or related to the Louisiana
limited partnership. Under the terms of the agreement Boomtown has made a
$500,000 down payment, with the remaining $5,173,000 to be paid no later than
August 10, 1997. On November 5, 1996, there was a parish by parish vote
regarding the continuation of gaming, and the voters of Jefferson Parish
overwhelmingly approved retaining riverboat gaming.
Boomtown also owns the Blue Diamond Hotel and Casino, Inc. ("Blue Diamond") a
wholly owned subsidiary of Boomtown, which leases and operates Boomtown Las
Vegas. However, on August 12, 1996, Boomtown, Blue Diamond, Hollywood Park,
IVAC (the owner/lessor of Boomtown Las Vegas), Edward P. Roski, Jr. (a general
partner of IVAC), and an affiliate of Mr. Roski entered into the Blue Diamond
Swap Agreement (the "Swap Agreement"), pursuant to which the parties agreed
that, upon consummation of the Merger, Boomtown and Blue Diamond (or any
subsidiary thereof as set forth in the Swap Agreement) would exchange their
entire interest in Boomtown Las Vegas (including Boomtown's note receivable,
from IVAC, in the amount of $27,300,000) in exchange for, among other things, a
$5,000,000 unsecured promissory note (the "First Note") and a $3,465,000
unsecured promissory note (the "Second Note") (the "Blue Diamond Swap"), the
termination of the Boomtown Las Vegas lease, an estimated cash payment of
$2,100,000, and the release from liabilities and note obligations totaling
approximately $3,800,000 and from the ongoing expenses of Boomtown Las Vegas.
The First Note has an interest rate equal to the prime rate plus 1.5% per annum
and provides for annual principal payments of $1,000,000 over five years. The
Second Note has an interest rate equal to the prime rate plus 0.5% per annum and
provides for a payment of all principal on the third anniversary of the closing.
On August 12, 1996, Hollywood Park and Mr. Roski further entered into a Stock
Purchase Agreement pursuant to which Hollywood Park will, concurrently with the
Blue Diamond Swap and the Merger, repurchase 446,491 shares of Hollywood Park
common stock expected to be received by Mr. Roski for a purchase price of
approximately $3,465,000 paid in the form of a Hollywood Park unsecured
promissory note having an interest rate equal to the prime rate plus 1.0% per
annum, and providing for five equal annual principal payments after the closing.
Boomtown is actively seeking to expand its operations into jurisdictions that
have legalized casino gaming at sites that are near interstate highways or major
thoroughfares near major population or tourist centers.
Boomtown Indiana In December 1995, through a wholly owned subsidiary, Boomtown
- ----------------
formed a joint venture with Hilton Gaming (Switzerland County) Corporation
("Hilton Switzerland") and a local minority investor for the purpose of
acquiring Pinnacle Gaming Development Corp. ("Pinnacle"), which has a pending
application for the remaining riverboat gaming license to be awarded for
operations on the Ohio River in Indiana. The license is expected to be awarded
in the third quarter of 1997. The gaming license application for this project
was first heard on August 19 and 20, 1996, and the decision to grant the gaming
license was deferred until a hearing scheduled for January 1997. On February
21, 1997, the Indiana Gaming Commission met and determined to address the gaming
license in the summer of 1997. There can be no assurance that the joint venture
entity will receive the gaming license and other governmental approvals and
environmental permits necessary to proceed with the Indiana Project.
As amended, the application is for a license in Switzerland County, Indiana
which is located approximately 35 miles south of Cincinnati, Ohio. The Indiana
facility is planned to include a cruising riverboat with 38,000 square feet of
gaming space and supporting land-based facilities that will incorporate a
"western river-town" theme entertainment complex with up to 300 hotel rooms, a
700 seat multi-purpose special events room, several restaurants and retail
operations. Pinnacle further owns options to lease and purchase real property
in Switzerland County where the land-based facilities will be constructed.
7
Pursuant to the terms of the joint venture with Hilton Switzerland, Boomtown and
Hilton Switzerland each own 48.5% of the joint venture entity, with the
remaining interests held by a non-voting local minority partner. So long as
Hilton Switzerland and Boomtown hold their original percentages, they will share
management control of the project. In the event the parties no longer hold
their original percentages, the party with the larger interest will have
management control of the project subject to certain minority protections.
Stadium/Arena The Company continues to have discussions with potential stadium
- -------------
and arena developers with respect to possible projects on Hollywood Park's
Inglewood property; as well as with developers proposing retail, entertainment
and other projects for both the Inglewood and Turf Paradise properties. An
environmental impact report for a football stadium at Hollywood Park was
certified by the city of Inglewood on December 6, 1995. The Company has not
entered into any definitive agreements concerning any of these projects. Any
decisions to begin these projects would be dependent upon, among other things,
the execution of definitive agreements, the availability of project financing
with acceptable terms, and the attainment of the necessary permits and
certifications, for which there can be no assurance.
OTHER USES OF PROPERTY As of October 1, 1996, the Company has been operating
the parking for events at the Forum, which is located across the street from the
Hollywood Park Race Track, where the Los Angeles Lakers basketball team and Los
Angeles Kings hockey team play. Prior to October 1, 1996, the Company leased
the parking rights to the Forum for a minimum annual rent of $1,200,000. The
Company expects to receive net parking revenues in excess of $1,200,000 during
1997.
In January 1997, the Company terminated the lease between Hollywood Park and
Casex Co., whereby Casex Co. leased 2.0 acres of the Inglewood property for oil
and gas exploration. Casex Co. was unable to meet the minimum production
standards set forth in the lease, and thus the Company terminated the lease.
Abandonment of the well is underway, and is the full responsibility of Casex Co.
The Company is subject to state and local laws and regulations, ordinances and
similar provisions relating to zoning and other matters that may restrict the
possible uses of the Company's land and other assets. Any additional
development of the Company's land, including the expansion plans described
above, would require approval of such items as environmental impact reports and
similar certifications. There can be no assurance that other requisite
approvals will be obtained.
GOVERNMENT REGULATION The ownership and operation of gaming establishments and
pari-mutuel racing facilities are subject to extensive state and local
regulation. The Hollywood Park-Casino is subject to the registration and
regulatory control of the California Attorney General and the city of Inglewood.
Hollywood Park, Sunflower and Turf Paradise race tracks are subject to licensing
and regulatory control by the California Horse Racing Board, the Kansas Racing
Commission and the Arizona Racing Commission, respectively.
Casino Operations Operation of California card clubs such as the Hollywood
- -----------------
Park-Casino and Crystal Park is governed by the California Gaming Registration
Act (the "CGRA") and is subject to the oversight of the California Attorney
General (the "Attorney General").
Although the Attorney General takes the position that, under the CGRA, only
individuals, partnerships or privately-held companies (as opposed to publicly
traded companies such as Hollywood Park) are eligible to operate card clubs, the
1995 enactment of SB 100 also permits a publicly owned racing association to
operate a card club if it also owns and operates a race track on the same
premises. The provisions of SB 100 expire on January 1, 1999, unless the
California legislature enacts a comprehensive scheme for the regulation of
gaming under the jurisdiction of a gaming control commission. There can be no
assurance that such legislation will be adopted by such date or that the
legislature will extend the deadline. SB 100 also imposes a moratorium through
1998 on public votes or referendums to approve the enactment of any city
ordinance allowing additional card clubs in California. The Company supports SB
900, currently pending in the California Legislature, which would remove the
sunset clause from SB 100 and, among other things, would allow the Company to
operate the Hollywood Park-Casino beyond December 31, 1998. It is too early in
the legislative session to comment on the prospects of SB 900.
8
Pursuant to the CGRA, the operator of a card club, and its officers, directors
and certain stockholders are required to be registered by the Attorney General
and licensed by the municipality in which it is located. On September 1, 1996,
the Attorney General renewed the provisional registration originally granted to
the Company under SB 100 on September 15, 1995. A permanent registration will
not be granted until the California Department of Justice completes its review
of the applications of Hollywood Park and its corporate officers and directors.
The Attorney General has broad discretion to deny a gaming registration and may
impose reasonably necessary conditions upon the granting of a gaming
registration. Grounds for denial include felony convictions, criminal acts,
convictions involving dishonesty, illegal gambling activities, and false
statements on a gaming application. Such grounds also generally include having
a financial interest in a business or organization that engages in gaming
activities that are illegal under California law; however, this provision
contains an exception for publicly traded racing associations such as Hollywood
Park. In addition, the Attorney General possesses broad authority to suspend or
revoke a gaming registration on any of the foregoing grounds, as well as for
violation of any federal, state or local gambling law, failure to take
reasonable steps to prevent dishonest acts or illegal activities on the premises
of the card club, failure to cooperate with the Attorney General in its
oversight of the card club and failure to comply with any condition of the
registration.
Operations at the Hollywood Park-Casino are also regulated by a city of
Inglewood ordinance (the "Inglewood Ordinance"). The Inglewood Ordinance
provides for a single card club located on the premises of the Hollywood Park
Race Track and requires Hollywood Park, as the operator of the Hollywood Park-
Casino, to be licensed by the city of Inglewood and to obtain a card club
operations certificate. The Inglewood City Council approved Hollywood Park's
application for a gaming license, and on August 27, 1996, Hollywood Park was
granted the card club operations certificate. The gaming license and the
operations certificate are valid for five years unless revoked, suspended or
surrendered, and are renewable annually thereafter.
In addition to Hollywood Park, the Inglewood Ordinance also requires all
employees, each beneficial owner of at least 10% of Hollywood Park's common
stock, and certain key employees of Hollywood Park to have either a permit or a
valid registration from the city of Inglewood. The license to operate the card
club may be suspended or revoked if such a stockholder or employee fails to
obtain a permit. Without the prior consent of the city of Inglewood, a 10%
stockholder may not transfer or sell Hollywood Park shares to any person who is,
or by reason of such transaction would become, a 10% stockholder. These
licensing requirements and transfer restrictions apply to all 10% stockholders
of Hollywood Park, and no waiver of such requirements or restrictions is
provided for institutional or other investors who purchase for investment
purposes only.
The city of Compton has granted CEI municipal gaming licenses necessary for
operation of Crystal Park, and CEI has received a provisional registration from
the California Department of Justice.
Racing Operations The California Horse Racing Board has jurisdiction and
- -----------------
supervision over all horse race meets in the state of California. Licenses
granted by the CHRB to conduct horse race meets are of material importance to
the business of the Company. Such licenses must be applied for and obtained
annually by the Company to conduct both the Spring/Summer Meet and Autumn
Meeting. The CHRB has the authority, when granting each license, to vary the
number of weeks allotted and the time of the year in which such allocation
falls. The CHRB may, at its discretion, refuse to issue a license to a race
track operator, such as Hollywood Park, with a financial interest in another
licensed race track operation or in the conduct of horse racing meets by any
other person at any other race track in the state of California. Although no
future assurance can be given, the Company has applied for and received a
license to conduct thoroughbred horse race meets every year since 1938, except
for 1942 and 1943 due to wartime activities.
As the recipient of a California racing license, Hollywood Park is required to
pay the net proceeds of three designated charity days held during each of its
live race meets up to and including the 1994 Spring/Summer Meet to a charitable
distributing agent approved by the CHRB. As of the 1994 Autumn Meeting, the
charity day payments were changed to the net proceeds from the charity days not
to exceed 2/10 of 1.0% of the total live on-track handle for the respective race
meet. For 1996, the Company was required to have a total of six charity days,
and will pay approximately $338,000 to the distributing agent.
9
As of March 25, 1997, there were numerous bills relating to horse racing and
pari-mutuel wagering pending in the California Legislature. The majority of
these bills are "spot" bills at the present time and are not sufficiently
detailed to allow for meaningful analysis. The Company intends during the 1997
legislative session however, to pursue and support legislation that would reduce
state license fees as well as expand the number and types of races which can be
imported into and wagered on in California. It is too early in the legislative
session to comment on the prospects of the various bills or on the impact, if
any, they may have upon the Company.
The Arizona Racing Commission issues live racing permits that are valid for
three years, and off-track permits are granted on a year to year basis. In May
1994, Turf Paradise received a three year live racing permit from the Arizona
Racing Commission. The permit covers the race years of 1994/1995, 1995/1996,
and 1996/1997. The permit does not specify the number of race days, but does
specify that live racing may be conducted between the first week of September
through the third week of May. The management of Turf Paradise determines the
number of race days; however, for Turf Paradise to qualify for simulcasting on
days when there is no live racing, there must be live racing at least five days
a week.
Presently, the Company is not aware of any pending legislation related to gaming
on behalf of race tracks or the state lottery for the 1997 Arizona legislative
session.
The Kansas Racing Commission granted Sunflower only the facility ownership and
manager licenses. All race days until the year 2014 have been granted to TRAK
East, a Kansas not-for-profit corporation. Sunflower has an agreement with TRAK
East to provide the physical race tracks along with management and consulting
services for twenty-five years with options to renew for one or more successive
five year terms. The Agreement and Restatement of Lease and Management
Agreement was entered into as of September 14, 1989.
COMPETITION The Hollywood Park-Casino competes for players directly with card
clubs in neighboring cities, including three card clubs within approximately 12
miles of the Inglewood property, as well as card clubs located on Native
American reservations, where such card clubs are authorized by federal gaming
regulations. These include several reservations in San Bernardino County,
approximately 100 miles from Hollywood Park. The Hollywood Park-Casino also
faces competition from casinos in Las Vegas and other gaming venues. Other
municipalities may, in the future, propose ballot initiatives similar to the
card club initiative passed in Inglewood which, if approved by voters, could
lead to the establishment of additional card clubs in direct competition with
Hollywood Park. Currently, under SB 100, as of January 1, 1996, there is a
three year moratorium on public votes or referendums to approve the enactment of
any city ordinance to allow additional card clubs, and prohibits the amendment
of any existing ordinances.
Hollywood Park Race Track competes for patrons with a wide variety of live
sporting events and cultural activities. The race track also competes with Las
Vegas casinos and other gaming venues. The state of California sponsors a
lottery, which the Company believes has had a negative impact on racing
revenues. Although no local race tracks operate live thoroughbred meets
concurrently with Hollywood Park, the Company believes its operations have been
adversely impacted by the proliferation of additional racing opportunities both
in California and outside the state. These opportunities have made it more
difficult for Hollywood Park to attract quality thoroughbreds, particularly
during the spring and summer months when demand for such horses is greatest.
The Company believes that the simulcast legislation has had a positive impact on
the Company's overall revenues, primarily as the result of a significant
increase in off-track and simulcast racing revenues, although on-track
attendance and pari-mutuel handle have declined. No assurance can be given that
such a decline in on-track attendance and pari-mutuel wagering will not continue
or that the Company will continue to benefit from simulcast wagering in the
future.
Turf Paradise's primary competition is from local Indian casinos with Las Vegas-
style gaming. Twenty of the twenty-one tribes in Arizona are either already
involved in gaming or in the planning stages. Currently, there are eleven
operating casinos with a combined total of approximately 3,500 slot machines,
and a total of 38 additional authorized gaming sites. There are three
functioning casinos within 60 miles of Turf Paradise; with
10
the closest approximately 28 miles away. The proposed Salt River Indian Casino,
near Scottsdale, would be located approximately 20 miles from Turf Paradise,
although the proposed opening date for this casino has yet to be determined due
to pending compact negotiations with the Governor of Arizona, combined with a
recent legal challenge initiated by local Scottsdale residents as to the
legality of all Arizona tribal compacts. To date, the Company believes that the
present level of casino gaming in Arizona has been a significant deterrent to
future growth of in-state pari-mutuel handle.
Along with casino gaming, Turf Paradise also competes with a state run lottery,
year round greyhound pari-mutuel racing and simulcasts from Prescott Downs to
the same off-track sites Turf Paradise sends its live races.
On May 17, 1996, Sunflower filed for reorganization under Chapter 11 of the
Bankruptcy Code, as result of intense competition for patrons from riverboat
gaming on the nearby Missouri River.
FEDERAL INCOME TAX MATTERS The Company accounts for income taxes under
Statement of Financial Accounting Standards No. ("SFAS") 109 Accounting for
Income Taxes, whereby deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
As of December 31, 1995, the Company had a federal regular tax net operating
loss of approximately $2,200,000 that in 1996 the Company carried back to 1994
generating a cash refund of approximately $56,000 and increased the alternative
minimum tax credit by approximately $660,000, and also increased the general
business tax credits by approximately $19,000. As of December 31, 1996, the
Company had approximately $36,000 of general business credits and $1,244,000 of
alternative minimum tax credits available to reduce future federal income taxes,
although in either case, the tax credits generally cannot reduce federal taxes
paid below the calculated amount of alternative minimum tax. The general
business tax credits expire in 2000 and the alternative minimum tax credits do
not expire. The Company's use of its tax credit carryforwards is subject to
certain limitations imposed by Section 383 of the Internal Revenue Code and by
the separate return limitation year rules of the consolidated return
regulations. Although management currently expects that such limitations will
not prevent the Company from fully utilizing the benefits of its tax credits, it
is possible that such limitations could defer or reduce the Company's use of its
general business credit and alternative minimum tax credit carryforwards.
EMPLOYEES The Hollywood Park-Casino employs approximately 1,450 employees.
Presently, all Hollywood Park-Casino employees are non-union, with the exception
of the approximately 430 culinary employees who are represented by Hotel
Employees & Restaurant Employees, Local 11.
The Hollywood Park Race Track and corporate office employ approximately 575
full-time employees. The number of seasonal employees varies by race meet due
to differences in staffing needs during live on-track racing as compared to
simulcast racing. In 1996, the number of seasonal employees ranged from
approximately 420 to approximately 1,520. Most race track seasonal employees
are covered by collective bargaining agreements, as are approximately 400 of the
full-time employees.
The Company's collective bargaining agreement with Hotel Employees & Restaurant
Employees, Local 11 covering the race track employees expired in April 1996. As
of the filing date, negotiations on a new agreement had commenced, but had not
yet concluded. Several collective bargaining agreements (including racing
officials and plumbers) are scheduled to expire in 1997, but as of the filing
date negotiations had not yet commenced.
Turf Paradise has a permanent staff of approximately 150 and a non-union
seasonal staff that fluctuates between approximately 425 and 475.
Sunflower has a permanent staff of 32 and a non-union seasonal staff that
fluctuates between approximately 310 and 390. Sunflower is operating during the
bankruptcy.
11
OTHER Information concerning backlog, sources and availability of raw materials
is not essential to an understanding of the Company's business.
The Company does not engage in material research activities relating to
development of new products or services or improvement of existing products or
services.
Compliance with federal, state and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment have not had a material effect
upon capital expenditures, earnings or the competitive position of the Company.
The Company does not engage in material operations in any foreign country, nor
is a material portion of its sales or revenues derived from customers in any
foreign country.
ITEM 2. PROPERTIES
- ------- ----------
Hollywood Park owns approximately 378 acres in Inglewood, California, which is
located in the heart of the Los Angeles metropolitan area, with a population
base of approximately 14 million; making it the second most populous area in the
United States. The 60,000 square foot Hollywood Park-Casino is located next to
the race track. The Hollywood Park-Casino has approximately 140 to 150 tables
available for play at any given time, with ample expansion space. The race
track consists of the grandstand, clubhouse and Turf Club areas, which can
accommodate 25,000, 6,000 and 2,000 patrons, respectively. The stable area can
accommodate approximately 2,150 horses. There is abundant parking with spaces
for approximately 17,500 vehicles. The race track also houses the executive
offices of the Company.
The Race Track, Hollywood Park-Casino and required parking covers approximately
228 acres, leaving approximately 150 acres available for immediate development.
Crystal Park LLC, (88% owned by the Company) owns approximately six acres, upon
which sits a parking structure, and owns the ground floor of Crystal Park, which
houses the approximately 40,000 square feet of gaming floor space.
Turf Paradise, located in the popular northwest section of Phoenix, Arizona,
covers approximately 275 acres, with approximately 100 undeveloped acres, with a
surrounding area population of approximately 2.5 million. The race track
contains a grandstand, clubhouse and Turf Club section; with a combined seating
capacity of approximately 7,400. Overall capacity including both standing and
seating is estimated at 16,000. The stable area has the capacity to board
approximately 1,940 horses. Parking is available for 4,200 vehicles.
Sunflower is located in Kansas City, Kansas, and covers 393 acres, of which 222
acres are currently developed, leaving 171 undeveloped acres. There are 1.6
million people living within 60 miles of Sunflower. The facility has two
separate grandstands, one for greyhound racing and one for live horse racing.
The horse grandstand is closed except for the limited days of live horse racing
each fall. Both grandstands contain a clubhouse and Turf Club section. The
greyhound grandstand has capacity for 7,832 patrons (both seating and standing)
and the horse grandstand has capacity for 7,157 patrons (both seating and
standing). The facility has 18 greyhound kennels and 26 barns. There is
combined parking available for approximately 6,500 vehicles.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
As previously reported by the Company, and described in the Company's Annual
Report on Form 10-K for 1994, six purported class actions (the "Class Actions")
were filed beginning in September 1994, against the Company and certain of its
directors and officers in the United States District Court, Central District of
California (the "District Court") and consolidated in a single action entitled
In re Hollywood Park Securities Litigation. On September 15, 1995, a related
- ------------------------------------------
stockholder derivative action, entitled Barney v. Hubbard, et al.
-------------------------
12
(the "Derivative Action"), was filed in the California Superior Court for the
County of San Diego (the "State Court").
The Company and other defendants each denied any liability or wrongdoing and
asserted various defenses. The District Court ordered the parties to engage in
non-binding mediation in an effort to settle all related claims. As previously
reported, as a result of the court ordered mediation, the parties reached an
agreement-in-principle to settle all claims raised in the Class and Derivative
Actions. The Company entered into the settlements in order to avoid the
expense, uncertainty and distraction of further litigation.
On November 6 and 13, 1995, respectively, the parties executed definitive
settlement agreements in the Derivative and Class Actions. Those agreements
provided for the release and dismissal of all claims raised or which might have
been raised in the Class and Derivative actions, subject to approval by each of
the respective courts. In settlement of the Class Actions, a settlement fund in
the principal amount of $5,800,000 has been created for the benefit of the
alleged class with contributions from the Company and the insurance carrier for
its directors and officers. After giving consideration to the amounts to be
received by the Company in settlement of the Derivative Action, the Company's
net settlement payment in the Class Actions was less than $2,500,000. Under
settlement of the Derivative Action, the Company will receive a $2,000,000
payment from the insurance carrier which the Company will use to pay plaintiff's
attorneys fees and expenses and partially to defray the Company's payment in the
settlement of the Class Actions. The Derivative Action settlement also includes
provisions enhancing the Company's financial controls and modifying certain
terms of its acquisition of Sunflower.
On February 26, 1996, the District Court approved the settlement of the Class
Actions and entered a judgment dismissing the Class Actions in their entirety.
On May 6, 1996, the State Court approved the settlement of the Derivative Action
and entered a judgment dismissing the Derivative Action in its entirety. On or
about July 2, 1996, a notice of appeal was filed in connection with the
Derivative Action judgment, and on or about February 14, 1997, the appellant
filed her opening brief. The Company intends to oppose the purported appeal.
The Company also executed a separate settlement as to all purported claims
against the Company and its officers and directors by the former controlling
stockholder of Turf Paradise (the "Walkers") in connection with the Company's
acquisition of Turf Paradise. Under the terms of the consummation of the
settlement of the Class and Derivative Actions, the Walkers were excluded from
participating in the Class Actions settlement fund, agreed to release all of
their potential threatened claims, and are to receive a payment in the principal
amount of $2,750,000.
The accrued lawsuit settlement recorded in the accompanying financial statements
as of December 31, 1996, of $2,750,000 represents the settlement with the
Walkers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
During the fourth quarter of 1996, no matters were submitted to a vote of
security holders through the solicitation of proxies or otherwise, other than
those reported on the Company's Form 10-Q for the quarter ended September 30,
1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------- -----------------------------------------------------------------
MATTERS
- -------
The Company's common stock is listed on the NASDAQ National Market System and is
traded under the name Hollywood Park, Inc., identified by the symbol "HPRK".
The following table sets forth the high and low sales prices per common share of
the Company's common stock on the NASDAQ National Market System for the periods
listed. All sales prices are rounded to the
13
nearest 1/8. The prices shown are prices between dealers and do not reflect
retail markup, markdown or commissions, nor do they necessarily represent actual
transactions.
Price Range
--------------------
High Low
--------------------
1996
-----------------
Fourth Quarter $15 3/8 $ 7 5/8
Third Quarter 9 7/16 7 5/8
Second Quarter 11 3/4 9 1/8
First Quarter 10 3/4 9
1995
-----------------
Fourth Quarter $11 3/4 $ 9 1/4
Third Quarter 14 3/4 11 1/2
Second Quarter 14 1/4 11 1/2
First Quarter 13 1/4 10 3/8
There were approximately 3,628 stockholders of record of the Company's common
stock as of March 14, 1997.
On November 17, 1995, the Company finalized the acquisition of PCM. The
purchase price was $2,640,000 payable in newly issued shares of Hollywood Park
common stock. The stock was issued in three installments (i) 130,008 common
shares issued on November 17, 1995; (ii) 48,674 common shares issued on November
19, 1996; and (iii) 33,417 common shares issued on February 10, 1997.
DIVIDENDS The Company did not pay any common stock dividends in 1996 or 1995.
Payments of future common stock dividends would be at the discretion of the
Company's Board of Directors and would depend upon, among other things, future
earnings, operational and capital requirements, the overall financial condition
of the Company and general business conditions. The Board of Directors believes
that reinvestment of cash in its expansion program is in the best interest of
the Company and its shareholders, and does not anticipate paying any cash
dividends on the Company's common stock in the near future.
Cash dividends on the common stock may not be declared, paid or set aside unless
full cumulative dividends have been paid on the Company's $70.00 convertible
preferred stock.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following selected financial information for the years 1992 through 1996 was
derived from the consolidated financial statements of the Company, restated to
reflect the results of operations of Turf Paradise, a wholly owned subsidiary,
acquired on August 11, 1994, and accounted for under the pooling of interests
method of accounting. Historically, Turf Paradise had a fiscal year end of June
30, and as such, the selected financial data for the years 1992 and 1993 were
restated as a consolidation of Hollywood Park's results for the year ended
December 31, with Turf Paradise's results for the year ended June 30. The
Hollywood Park-Casino began operations on July 1, 1994, and as of November 17,
1995, Hollywood Park acquired the gaming floor business from PCM. Crystal Park
began operations on October 25, 1996, under a lease with an unaffiliated third
party, and Sunflower was acquired on March 23, 1994, accounted for under the
purchase method of accounting. As of March 31, 1996, Sunflower's results of
operations were no longer consolidated with Hollywood Park's due to Sunflower's
May 17, 1996, filing for reorganization under Chapter 11 of the Bankruptcy Code.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
financial statements and related notes thereto.
14
Hollywood Park, Inc.
Selected Financial Data
For the years ended December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues:
Racing operations and other income $ 84,098 $ 93,349 $ 98,743 $ 78,985 $80,944
Casino operations 59,127 37,223 18,581 0 0
-------- -------- -------- -------- --------
143,225 130,572 117,324 78,985 80,944
-------- -------- -------- -------- --------
Expenses:
Racing operations and other expenses 70,516 79,828 80,839 62,798 63,499
Casino operations 50,435 29,819 15,557 0 0
-------- -------- -------- -------- --------
120,951 109,647 96,396 62,798 63,499
-------- -------- -------- -------- --------
Income before interest, income taxes,
depreciation, amortization and other
non-recurring expenses 22,274 20,925 20,928 16,187 17,445
Casino pre-opening and training expenses 0 0 2,337 850 0
Turf Paradise acquisition costs 0 0 627 0 0
Lawsuit settlement 0 6,088 0 0 0
Write off of investment in Sunflower 11,412 0 0 0 0
-------- -------- -------- -------- --------
Income before interest, income taxes,
depreciation and amortization 10,862 14,837 17,964 15,337 17,445
Depreciation and amortization 10,695 11,384 9,563 6,402 5,899
Interest expense 942 3,922 3,061 1,517 4,883
-------- -------- -------- -------- --------
Income (loss) before income taxes, minority
interest and extraordinary item (775) (469) 5,340 7,418 6,663
Minority interest 15 0 0 0 0
Income tax expense 3,459 693 1,568 1,025 3,135
-------- -------- -------- -------- --------
Income (loss) before extraordinary item (4,249) (1,162) 3,772 6,393 3,528
Extraordinary item - Utilization of tax benefit
from net operating loss carryforwards 0 0 0 0 1,894
-------- -------- -------- -------- --------
Net income (loss) $ (4,249) $ (1,162) $ 3,772 $ 6,393 $ 5,422
======== ======== ======== ======== ========
=======================================================================================================================
Dividends on convertible preferred stock $ 1,925 $ 1,925 $ 1,925 $ 1,718 $ 0
-------- -------- -------- -------- --------
Net income (loss) available to (allocated to)
common shareholders $ (6,174) $ (3,087) $ 1,847 $ 4,675 $ 5,422
======== ======== ======== ======== ========
Per common share:
Income (loss) before extraordinary item:
Primary $ (0.33) $ (0.17) $ 0.10 $ 0.30 $ 0.27
Fully diluted $ (0.33) $ (0.17) $ 0.10 $ 0.30 $ 0.27
Net income (loss):
Primary $ (0.33) $ (0.17) $ 0.10 $ 0.30 $ 0.41
Fully diluted $ (0.33) $ (0.17) $ 0.10 $ 0.30 $ 0.41
Dividends $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.04
BALANCE SHEET DATA:
Total assets $205,886 $283,303 $246,573 $176,424 $ 90,219
Other liabilities 47,444 101,928 36,518 21,876 34,494
Long term obligations 282 15,629 42,800 348 45,538
Stockholders' equity 158,160 165,746 167,255 154,200 10,187
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
- -------------
Except for the historical information contained herein, the matters addressed in
this Annual Report on Form 10-K 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, including the failure to obtain gaming licenses, the
inability to directly operate the Hollywood-Park Casino beyond December 31,
1998, or to find a suitable operator if the Company can no longer directly
operate the Hollywood Park-Casino, failure to complete anticipated expansion
projects, and the failure to obtain adequate financing to meet the Company's
strategic goals. 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 Annual Report on Form 10-K 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 Quarterly
Reports on Form 10-Q, and the Company's other filings including the Joint
Proxy/Prospectus dated September 20, 1996.
RESULTS OF OPERATIONS
Year ended December 31, 1996 compared to the year ended December 31, 1995
-------------------------------------------------------------------------
The results of operations for the year ended December 31, 1996, included the
results of Hollywood Park operating all aspects of the Hollywood Park-Casino,
including the gaming floors. Hollywood Park acquired the Hollywood Park-Casino
gaming floor business from PCM on November 17, 1995; therefore, the results of
operations for the year ended December 31, 1995, do not include the operating
results of the gaming floor business prior to November 17, 1995, but rather are
reflective of the lease arrangement then in place. The results of operations
for the year ended December 31, 1996, included Sunflower's results of operations
for the three months ended March 31, 1996, only. As of March 31, 1996,
Sunflower's results of operations were no longer consolidated with Hollywood
Park's due to Sunflower's May 17, 1996, filing for reorganization under Chapter
11 of the Bankruptcy Code. Sunflower's results of operations are consolidated
in the financial statements for the year ended December 31, 1995.
Total revenues increased by $12,653,000, or 9.7%, for the year ended December
31, 1996, as compared to the year ended December 31, 1995, primarily due to
Hollywood Park-Casino gaming revenues. Lease and management fee - Sunflower,
decreased by $4,337,000, or 80.2%, due to the exclusion of Sunflower's operating
results for the nine months ended December 31, 1996. Gaming - Casino revenues
of $50,272,000 were generated from the Hollywood Park-Casino gaming activities,
which Hollywood Park acquired from PCM on November 17, 1995. During the year
ended December 31, 1995, the Company recorded $20,624,000 of Casino - Lease
revenues, $6,032,000 of Gaming - Casino revenues (covering the period November
17, 1995, through December 31, 1995), and concession sales to PCM of
approximately $2,773,000, or total 1995 Hollywood Park-Casino gaming and lease
related revenues of $29,429,000. On October 25, 1996, Crystal Park opened under
a triple net lease between the Company and CEI (the operator of Crystal Park).
Monthly lease rent is fixed at $200,000 per month for months one through six;
$350,000 per month for months seven through twelve, and approximately $759,000
per month for the remaining 48 months of the lease. CEI made all rent payments
in 1996. Admissions, programs and other racing income decreased by $1,978,000,
or 10.8%, due primarily to the exclusion of Sunflower's operating results for
the nine months ended December 31, 1996, and on-track attendance declines at
Hollywood Park. Concession sales decreased by $5,836,000, or 29.5%, due
primarily (i) to the exclusion of Sunflower's concession sales for the nine
months ended December 31, 1996, (ii) the inclusion of concession sales to PCM,
as mentioned earlier, in 1995 with no corresponding revenues in the 1996
concession sales, and (iii) on-track attendance declines at Hollywood Park.
Total operating expenses increased by $11,304,000, or 10.3%, for the year ended
December 31, 1996, compared to the year ended December 31, 1995, primarily due
to the inclusion of Hollywood Park-Casino
16
gaming floor expenses (with no corresponding gaming floor expenses in the 1995
financial results for the period prior to the November 17, 1995, acquisition of
PCM), which more than offset the exclusion of Sunflower's expenses for the nine
months ended December 31, 1996. Salaries, wages and employee benefits increased
by $13,081,000, or 30.3%, primarily because of wages and benefits associated
with the gaming floor staff, for which there were no corresponding expenses in
the 1995 results of operations prior to the November 17, 1995, acquisition of
PCM, union wage increases, and six additional live race days at Hollywood Park
in 1996 as compared to 1995. Operations of facilities expense decreased by
$1,915,000, or 17.6%, primarily a result of the exclusion of Sunflower's
expenses for the nine months ended December 31, 1996, and decreased property tax
expense at Hollywood Park. Cost of concession sales decreased by $4,338,000, or
17.2%, due primarily to the exclusion of Sunflower's results for the nine months
ended December 31, 1996, wages and benefit savings realized at the Hollywood
Park-Casino, and lower on-track attendance at Hollywood Park. Professional
services increased by $445,000, or 5.7%, due primarily to gaming floor costs at
the Hollywood Park-Casino, with no corresponding costs in the 1995 financial
results, prior to the November 17, 1995, acquisition of PCM, and the 1995
reclass of legal fees related to the class action settlement from professional
services to the lawsuit settlement expense. Utilities expense decreased by
$656,000, or 13.5%, primarily due to the exclusion of Sunflower's costs for the
nine months ended December 31, 1996, and cost savings programs implemented at
Hollywood Park. Marketing expenses increased by $2,165,000, or 39.0%, due
primarily to Hollywood Park-Casino marketing costs. Administrative expenses
increased by $2,554,000, or 23.4%, primarily a result of costs associated with
the operation of the Hollywood Park-Casino gaming floors, including the city of
Inglewood gaming license fees, netted with reduced Hollywood Park expansion
costs in 1996.
Included in the 1996 results of operations was the $11,412,000 one time, non-
cash write off of Hollywood Park's investment in Sunflower. On May 2, 1996, the
Kansas Legislature adjourned without passing legislation that would have allowed
additional gaming at Sunflower, and thereby, allowing Sunflower to compete with
Missouri riverboat gaming. On May 17, 1996, Sunflower filed for reorganization
under Chapter 11 of the Bankruptcy Code. Management is currently evaluating all
options available to Sunflower, and will continue to operate Sunflower, at least
through the current Kansas Legislative session scheduled to conclude in the
second quarter of 1997.
Included in the 1995 results of operations was $6,088,000 of expenses related to
the settlement of certain claims (see Item 3. Legal Proceedings) with no
corresponding expenses in 1996.
Depreciation and amortization expenses decreased by $689,000, or 6.1%, primarily
due to the exclusion of Sunflower's expenses for the nine months ended December
31, 1996, netted against the amortization of the goodwill associated with the
November 17, 1995, acquisition of PCM. Interest expense decreased by
$2,980,000, or 76.0%, due to the exclusion of Sunflower's interest expense for
the nine months ended December 31, 1996.
Income tax expense increased by $2,766,000, due primarily to the establishment
of certain tax reserves.
Year ended December 31, 1995 compared to the year ended December 31, 1994
-------------------------------------------------------------------------
The 1995 consolidated financial statements included the results of operations at
Hollywood Park, the Hollywood Park-Casino, Sunflower and Turf Paradise. From
July 1, 1994 until November 17, 1995, the Hollywood Park-Casino operated under a
lease with PCM who operated the gaming floor business and Hollywood Park
operated all other activities. After a change in California law permitting
Hollywood Park to directly operate the Hollywood Park-Casino, the gaming floor
business was acquired from PCM as of November 17, 1995, and was accounted for
under the purchase method of accounting. The 1995 Hollywood Park-Casino
operating results included ten and a half months of operations under the lease,
and one and a half months under Hollywood Park's direct ownership and control.
The 1994 operating results included six months of Hollywood Park-Casino
activities under the lease arrangement. Sunflower was acquired as of March 31,
1994, in a transaction accounted for under the purchase method of accounting.
Therefore, the 1994 statement of operations does not include Sunflower's first
quarter results. Turf Paradise was acquired
17
as of August 11, 1994, accounted for under the pooling of interests method of
accounting. Accordingly, Hollywood Park's historical 1994 results of operations
have been restated to include Turf Paradise's 1994 operating results.
Total revenues increased by $13,249,000, or 11.3%, during 1995, as compared to
1994. Included in the 1995 revenues was $20,624,000 of Hollywood Park-Casino
fixed lease rent revenue (of which PCM paid $12,000,000 in 1995 plus $4,377,000
for food and beverage and interest on accrued and unpaid rent) and $6,032,000 of
gaming floor revenue, compared to $11,745,000 of Hollywood Park-Casino fixed
lease rent revenue in 1994, covering six months of Hollywood Park-Casino
operations. Pari-mutuel commissions increased by $1,527,000, or 3.0%, primarily
due to increased simulcast racing at both Hollywood Park and Turf Paradise,
despite five fewer live race days at Hollywood Park and thirteen fewer live race
days at Turf Paradise. Sunflower revenues continued to be severely negatively
impacted by riverboat gaming in Missouri. For the year ended December 31, 1995,
as compared to the year ended December 31, 1994, Sunflower's total live pari-
mutuel handle decreased by $60,385,000, or 54.6%. From November 17, 1995,
through December 31, 1995, Hollywood Park generated $6,032,000 of Hollywood
Park-Casino gaming revenues. Admissions, programs and other racing income
decreased by $758,000, or 4.0%, due primarily to a 37.1% decline in on-track
attendance at Sunflower, and fewer live race days at Hollywood Park and Turf
Paradise. Concession sales declined by $757,000, or 3.7%, primarily due to a
31.9% decrease in Sunflower's concession sales, and fewer live race days at
Hollywood Park and Turf Paradise. Other income increased by $777,000, or 12.3%.
Revenue declines at Hollywood Park due to the cancellation of the Forum Parking
Agreement were offset primarily by Hollywood Park-Casino gift shop and health
club sales. A new Forum Parking Agreement was executed on October 24, 1995,
covering the one year from October 1, 1995.
Total operating expenses, inclusive of $29,819,000 of Hollywood Park-Casino
operating expenses (representing a month and a half of gaming floor operations
and twelve months of other Hollywood Park-Casino operations, for which there
were no gaming floor expenses and just six months of comparable other Hollywood
Park-Casino operations activity in 1994) increased by $13,251,000, or 13.7%,
during 1995 as compared to 1994. Salaries, wages and employee benefits
increased by $5,874,000, or 15.8%, primarily because of wages and benefits
associated with the gaming floor staff hired November 17, 1995, and six
additional months of other Hollywood Park-Casino operations wages in 1995, as
compared to the same period in 1994. Operations of facilities increased by
$770,000, or 7.6%, primarily related to increased insurance costs and Hollywood
Park-Casino operations. Cost of concession sales increased by $3,310,000, or
15.2%, primarily due to Hollywood Park-Casino operations. Professional services
increased by $213,000, or 2.8%, primarily due to legal costs incurred related to
Hollywood Park's expansion projects, including the proposed stadium. Rent
expense decreased by $517,000, or 28.4%, primarily due to the conclusion of
Hollywood Park's lease on the infield message board. Utilities increased by
$215,000, or 4.6%, due to a full year of Hollywood Park-Casino operations in
1995 compared to just six months of activity in 1994. Marketing costs decreased
by $516,000, or 8.5%, due primarily to savings related to reductions in
advertising for Friday night racing and five fewer live race days at Hollywood
Park. Administrative costs increased by $3,902,000, or 55.5%, primarily because
of costs incurred related to two card club initiative campaigns, which were
defeated in September and November, and costs for other expansion endeavors,
including the proposed stadium and other card clubs. All costs associated with
projects in the evaluation stages are expensed as incurred.
As previously reported, on February 26, 1996, the District Court approved the
settlement of the Class Actions and entered a judgment dismissing them in their
entirety. On April 3, 1996, the State Court entered an order approving the
settlement of the Derivative Action. Hollywood Park also separately settled all
purported claims against Hollywood Park and its officers and directors by the
former controlling stockholder of Turf Paradise in connection with Hollywood
Park's acquisition of Turf Paradise. After giving effect to the amounts to be
received by Hollywood Park in settlement of the Derivative Action and from its
insurance carrier, Hollywood Park's net settlement payment in the Class Actions,
the Derivative Action and in resolving the claims of the former controlling
stockholder of Turf Paradise, was approximately $6,088,000 (inclusive of all
related costs and expenses), which was expensed in the fourth quarter of 1995.
18
The 1994 Hollywood Park-Casino pre-opening and training costs of $2,337,000 were
primarily related to wages paid during the on-the-job training of staff hired to
open the Hollywood Park-Casino on July 1, 1994. There were no similar costs in
1995. The Turf Paradise acquisition costs were a result of the August 11, 1994,
acquisition of Turf Paradise by Hollywood Park, with no similar costs in 1995.
Depreciation and amortization increased by $1,821,000, or 19.0%, in 1995 as
compared to 1994. The increase was primarily due to Hollywood Park-Casino
operations, and costs associated with the first quarter of 1995 at Sunflower
with no corresponding amount in 1994. Interest expense increased by $861,000,
or 28.1%, primarily due to an additional three months of Sunflower interest
expense in the 1995 results. Sunflower's 1994 results were exclusive of the
first quarter.
Income tax expense decreased by $875,000, due primarily to the decrease in pre-
tax income in 1995 as compared to 1994.
LIQUIDITY AND CAPITAL RESOURCES
Hollywood Park's principal source of liquidity as of December 31, 1996, was cash
and cash equivalents of $11,922,000. Cash and cash equivalents decreased by
$10,484,000 during the year ended December 31, 1996, primarily a result of the
cost of constructing Crystal Park, payment of secured notes payable, common
stock repurchase and retirement, and the payment of convertible preferred stock
dividends, netted against cash provided by operating activities, the maturing of
short term investments, and capital contributions from the Crystal Park LLC
minority interest partners.
Cash and cash equivalents decreased by $14,716,000, during 1995, primarily a
result of land purchases, debt service payments on secured and unsecured notes
payable, and convertible preferred stock dividend payments.
HOLLYWOOD PARK On October 1, 1996, the Company and Bank of America National
Trust and Savings Association ("Bank of America") executed a commitment letter
to fund $75,000,000 of a $225,000,000 credit facility; and on January 8, 1997,
the Company executed additional commitment letters for the remaining
$150,000,000 of the $225,000,000 credit facility, thereby allowing the Company
to secure adequate funding to satisfy the financing requirement of the Merger
Agreement with Boomtown. The commitments for the $225,000,000 credit facility
will terminate if, among other conditions, the Merger with Boomtown is not
completed by June 30, 1997. Upon consummation of the Merger, this $225,000,000
credit facility will replace the present credit facility described below.
On April 14, 1995, the Company executed an unsecured loan facility of up to
$75,000,000 with Bank of America (the "Business Loan Agreement"). The Business
Loan Agreement consists of a $60,000,000 line of credit (the "Line of Credit")
and a $15,000,000 revolver (the "Revolver"). The Business Loan Agreement has
been amended five times to, among other matters, extend the date for drawing
down the Line of Credit and for using the Revolver to June 30, 1997, to amend
the quick asset to current liability ratio covenant, and to adjust the tangible
net worth covenant.
The Line of Credit is an interest only, revolving facility, under which the
Company may borrow, pay and reborrow principal amounts without penalty. Any
amount outstanding under the Line of Credit as of June 30, 1997, must be repaid
in eighty-four equal monthly installments starting on August 1, 1997. The Line
of Credit bears interest, at the option of the Company, at Bank of America's
prime rate plus 0.25%, or the offshore rate plus 2.0%, or an agreed upon fixed
rate.
The Revolver, inclusive of a within line facility for standby letters of credit
of up to a maximum of $5,000,000, allows the Company to borrow, pay and reborrow
principal amounts without penalty, until June 30, 1997. The Revolver bears
interest, at the option of the Company, at Bank of America's prime rate, or the
offshore rate plus 1.75%, or an agreed upon fixed rate.
19
During the year ended December 31, 1996, the Company did not borrow any funds
under the Business Loan Agreement, except for the May 1, 1996, issuance of a
standby letter of credit of $2,617,000, as security for the Company's workers'
compensation self-insurance program.
Due to a greater than anticipated percentage ownership in the Crystal Park LLC,
and therefore responsibility for a greater portion of the construction costs, as
of March 31, 1996, and September 30, 1996, the Company did not meet the quick
assets to current liabilities covenant of the Business Loan Agreement. Bank of
America waived compliance with this covenant for both periods. As of December
31, 1996, the Company was in compliance with all financial covenants.
Capital expenditures of $23,786,000, for the year ended December 31, 1996, were
primarily related to the construction of Crystal Park. Hollywood Park increased
its ownership in the Crystal Park LLC to 88% from 40%; therefore, the Company
was responsible for a greater portion of the construction costs than initially
anticipated.
On September 3, 1996, the Company paid $3,358,000 on the secured non-interest
bearing promissory note executed in conjunction with the October 27, 1995,
purchase of 37.33 acres of land adjacent to the Inglewood property.
During the year ended December 31, 1996, the Company paid dividends of
$1,925,000 on its convertible preferred stock, representing $70.00 per share, or
$0.70 per depositary share. On January 1, 1997, the Company declared the
regular quarterly preferred stock dividend of $481,000, paid on February 17,
1997. During the year ended December 31, 1995, the Company paid dividends of
$1,925,000 on its convertible preferred stock.
As of January 1, 1996, at the option of the Company, the convertible preferred
stock can be converted into shares of common stock. The conversion price is
equal to 83.33 shares of common stock for each share of convertible preferred
stock. The Company may exercise this option, only if, among other requirements,
for 20 trading days, within any 30 consecutive trading days, the closing price
of the Company's common stock exceeds $15.00, subject to adjustments in certain
circumstances. The Company anticipates converting the convertible preferred
stock into common stock at the earliest possible date.
As of December 31, 1996, the Company had invested $4,766,000 in corporate bonds,
with Moody's ratings of Ba2 to B3, and Standard and Poors ratings of BB+ to B-,
though some of the bonds are not rated by either agency. Investments in
corporate bonds carry a greater amount of principal risk than other investments
made by the Company, and yield a corresponding higher return. The corporate
bond investment as of December 31, 1996, had a weighted average maturity of 1.5
years, and because the Company reasonably expects to liquidate these investments
in its normal operating cycle the investments are classified as short term, are
held as available for sale, and recorded in the accompanying financial
statements at their fair value, as determined by the quoted market price.
SUNFLOWER On March 24, 1994, an Amended and Restated Credit and Security
Agreement (the "Sunflower Senior Credit") was executed between Sunflower and
five banks (the "Sunflower Banks") in connection with the Company's acquisition
of Sunflower. As of December 31, 1996, the outstanding balance of the Sunflower
Senior Credit was $28,667,000. The Sunflower Senior Credit is non-recourse to
Hollywood Park. As previously discussed, Hollywood Park no longer consolidates
Sunflower's financial results; therefore, the outstanding balance of the
Sunflower Senior Credit is not reflected on Hollywood Park's balance sheet as of
December 31, 1996.
On May 17, 1996, Sunflower filed for reorganization under Chapter 11 of the
Bankruptcy Code. Sunflower, the Bankruptcy court, and the Sunflower Banks have
agreed to suspend any action regarding collection of the Sunflower Senior Credit
until completion of the current Kansas Legislative session, which is expected to
run until early May 1997. Sunflower's management is pursuing legislation that
would permit Sunflower to more effectively compete with Missouri riverboat
gaming.
20
In October 1995, Sunflower and the Sunflower Banks executed a Standstill
Agreement, which among other things, provided for an extension of the Sunflower
Senior Credit maturity, the deferral of 100% of the Sunflower Senior Credit
principal payments, and 50% of the Sunflower Senior Credit interest payments,
with the remaining 50% of the interest payments guaranteed by Hollywood Park.
The Standstill Agreement terminated on May 2, 1996, along with Hollywood Park's
guarantee, without Hollywood Park having to make any interest payments.
In 1995, under a promissory note executed in December 1994, between Hollywood
Park and Sunflower, Hollywood Park advanced $2,500,000 to Sunflower to make
certain payments due on the Sunflower Senior Credit. The amounts borrowed under
the promissory note, along with accrued interest, are subordinate to the
Sunflower Senior Credit. Although the Company will continue to pursue payment
of the promissory note, for financial reporting purposes the outstanding balance
of the promissory note was written off as of March 31, 1996.
GENERAL Hollywood Park is continually evaluating future growth opportunities in
the gaming, sports and entertainment industries. The Company expects that
funding for growth opportunities, dividend requirements on the convertible
preferred stock, and capital expenditures will come from existing cash balances,
cash generated from operating activities, and borrowing from the credit
facilities. 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. In the event the Merger
with Boomtown is consummated, Hollywood Park's management believes that the
$225,000,000 credit facility will be sufficient to meet the combined Hollywood
Park and Boomtown anticipated cash requirements for the foreseeable future, and
in any event, for at least the first twelve months following consummation of the
Merger.
ITEM 8. FINANCIAL STATEMENTS
- ------- ---------------------
Financial statements and accompanying footnotes are set forth on pages 38
through 41 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------- ----------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The following table sets forth certain information with respect to the Directors
and Executive Officers of the Company:
Name Age Position
- ---------------------------- ----- ---------------------------------------------------------------
R.D. Hubbard (a) 62 Chairman of the Board of Directors and Chief Executive Officer
J. R. Johnson (b) 75 Director
Robert T. Manfuso 59 Director
Harry Ornest (a) 73 Vice Chairman of the Board of Directors
Lynn P. Reitnouer (a) (b) 64 Director
Herman Sarkowsky (c) 72 Director
Warren B. Williamson (c) 68 Director
Donald M. Robbins 49 President of Hollywood Park, President of Racing and Secretary
G. Michael Finnigan 48 President, Sports and Entertainment, Executive Vice President,
Treasurer and Chief Financial Officer
Mark A. Sterbens 44 President and Chief Operating Officer of Gaming
____
(a) Member of Executive Committee
(b) Member of Compensation Committee
(c) Member of Audit Committee
21
Mr. Hubbard has been a Director of the Company since 1990, Chairman of the Board
and Chief Executive Officer of the Company since September 1991; Chairman of the
Board and Chief Executive Officer of Hollywood Park Operating Company since
February 1991 and President of Hollywood Park Operating Company from February to
July 1991; Chairman of AFG Industries, Inc. and its parent company, Clarity
Holdings Corp. (glass manufacturing) and Director of AFG Industries, Inc.'s
subsidiaries from 1978 to July 1993; Chairman of the Board (and 60% stockholder
until March 1994) of Sunflower Racing, Inc. (the Woodlands Race Tracks -
greyhound racing and horse racing) from 1988 to March 1994; President, Director
and sole stockholder of Ruidoso Downs Racing, Inc. (horse racing) since 1988;
Chairman of the Board, Chief Executive Officer and sole stockholder of Multnomah
Kennel Club, Inc. (greyhound racing) since December 1991; owner and breeder of
numerous thoroughbreds and quarter horses since 1962. Sunflower Racing, Inc., a
wholly owned subsidiary of Hollywood Park, filed for reorganization under
Chapter 11 of the Bankruptcy code on May 17, 1996.
Mr. Johnson has been a Director of the Company since 1991 and was a Director of
Hollywood Park Operating Company from February 1991 to January 1992; Chairman,
President and Chief Executive Officer of NEWMAR (marine electronics
manufacturing) from 1980 to the present; and Trustee of Westminster College.
Mr. Manfuso has been a Director of the Company since 1991, and was a Director of
Hollywood Park Operating Company from February 1991 to January 1992; Co-Chairman
of the Board, Laurel Racing Association (horse race track management) from 1984
to February 1994; Vice Chairman of the Board, The Maryland Jockey Club (horse
racing) from 1986 to February 1994; Executive Vice President, Laurel Racing
Association from 1984 to May 1990; Executive Vice President, The Maryland Jockey
Club from 1986 to June 1990; Director, Maryland Horse Breeders Association from
1984 to 1992 and since 1993; Member, Executive Committee, Maryland Million since
1991.
Mr. Ornest has been Vice Chairman of the Board of the Company since September
1991; Director, Hollywood Park Operating Company since 1988; Vice Chairman of
the Board, Hollywood Park Operating Company since February 1991; Owner and
Chairman of the Toronto Argonauts Football Club (Canadian Football League club)
from 1988 to May 1991; Owner, St. Louis Blues (National Hockey League club) 1983
to 1987; Owner; St. Louis Arena, 1983 to 1987; Owner and Founder Canadians
(Pacific Coast Baseball League club), 1977 to 1981; Hollywood Park stockholder,
1962 to present.
Mr. Reitnouer has been a Director of the Company since 1991 and was a Director
of Hollywood Park Operating Company from September 1991 to January 1992;
Partner, Crowell Weedon & Co. (stock brokerage) since 1969; Director, (and
former Chairman of the Board) COHR, Inc. (subsidiary of Hospital Council of
Southern California) since 1986; Director, President and Regent, Forest Lawn
Memorial Parks Association since 1975; Trustee, University of California Santa
Barbara Foundation since 1992.
Mr. Sarkowsky has been a Director of the Company since 1991 and was a Director
of Hollywood Park Operating Company from February 1991 to January 1992; Owner,
Sarkowsky Investment Corporation (real estate development and investments) since
1980; Owner, SPF Holdings, Inc. (general partner of various limited
partnerships, including Sarkowsky Family Limited Partnership, real estate and
venture capital) since 1980; Director, The Sarkowsky Foundation (charitable
foundation) since 1982; a thoroughbred horse breeder and owner since 1959 s;
Director, Synetics, Inc. (porous plastic manufacturing); Director, Seafirst
Corporation (banking); Director, Eagle Hardware & Garden, since 1990.
Mr. Williamson has been a Director of the Company since 1988, and Vice President
and Secretary of the Company from September 1991 to August 1996; Chairman of the
Board and Chief Executive Officer of Hollywood Park from 1989 to September 1991;
Director, Hollywood Park Operating Company since 1985; Vice President and
Secretary, Hollywood Park Operating Company from February 1991 to August 1996;
Secretary and Treasurer, Hollywood Park Operating Company from 1985 to November
1990; Chairman and Chief Executive Officer, Chandis Securities Co. (holding
company) since 1985; Director, Times Mirror Company; Trustee, Hospital of the
Good Samaritan; Trustee, California Thoroughbred Breeders Foundation; Trustee,
22
Claremont McKenna College; Chairman Emeritus, Art Center College of Design;
breeder and racer of thoroughbreds since 1970.
Mr. Robbins has been President of Racing since February 1994; President of the
Company since September 1991; Secretary of the Company since 1996 (formerly
Assistant Secretary of the Company since September 1991); General Manager of
Hollywood Park Operating Company from 1986 to February 1994; Executive Vice
President of Hollywood Park Operating Company since 1988; President and
Secretary of Hollywood Park Operating Company since July 1991.
Mr. Finnigan has been President of Sports and Entertainment since January 1996,
President of Gaming and Entertainment from February 1994 to December 1995;
Executive Vice President and Chief Financial Officer of the Company since March
1989; Treasurer since March 1992; Chairman of the Board of Southern California
Special Olympics since 1996; Chairman of the Board of Centinela Hospital since
1996; and Director of the Shoemaker Foundation since 1993. Mr. Finnigan also
serves as Secretary and Treasurer of Sunflower Racing, Inc., a wholly owned
subsidiary of Hollywood Park, which filed for reorganization under Chapter 11 of
the Bankruptcy code.
Mr. Sterbens has been President and Chief Operating Officer of Gaming since
January 2, 1996; President and Chief Operating Officer, Par-A-Dice Riverboat
Casino, from March 1993 to December 1995; General Manager, Vice President of
Operations, Silver Eagle Casino Riverboat Casino, from September 1992 to March
1993; Chief Operating Officer, Aladdin Casino, May 1992 through September 1992;
and President, Chief Operating Officer and Corporate Officer, Riviera Hotel &
Casino, from 1979 to 1992.
All directors hold office until the next annual meeting of stockholders or until
their successors are duly elected and qualified. The executive officers of the
Company serve at the discretion of the Board of Directors. Directors are
entitled to an $18,000 fee each year, which they can take in cash, or may choose
to participate in the Company's Directors Deferred Compensation Plan (the
"Plan") as outlined below. In addition, members of the Executive Committee,
Audit Committee and Compensation Committee receive $1,000, $500 and $500,
respectively, for each committee meeting attended, and such amounts are also
eligible for the Plan. Furthermore, Directors and their guests are entitled,
without charge, to use the Directors' Room at Hollywood Park, which is open on
weekends and holidays during the racing season. Each director is elected to a
one-year term.
DIRECTORS DEFERRED COMPENSATION PLAN
Participation in the Company's Directors Deferred Compensation Plan is limited
to directors of the Company. Pursuant to the Plan, each eligible director may
elect to defer all or a portion of his annual retainer. Any such deferred
compensation is credited to a deferred compensation account, either in cash or
in shares of common stock, at each director's election. As of the date the
director's compensation would otherwise have been paid, and depending on the
director's election, the director's deferred compensation account will be
credited with either (i) cash, (ii) the number of full and/or fractional shares
of common stock obtained by dividing the amount of the director's compensation
for the calendar quarter or month which he elected to defer by the average of
the closing price of the common stock on the NASDAQ/NMS on the last ten business
days of the calendar quarter or month for which such compensation is payable or
(iii) a combination of (i) and (ii). All cash amounts credited to the
director's deferred compensation account bear interest at an amount to be
determined from time to time by the Board of Directors.
If a director has elected to receive shares of common stock in lieu of his
retainer, such director's deferred compensation account is credited at the end
of each calendar quarter with the number of full and/or fractional shares of
common stock obtained by dividing the dividends which would have been paid on
the shares credited to the director's deferred compensation account as of the
dividend record date, if any, occurring during such calendar quarter if such
shares had been shares of issued and outstanding common stock on such date, by
the closing price of the common stock on the NASDAQ/NMS on the date such
dividend(s) was paid. In addition, if the Company declares a dividend payable
in shares of common stock,
23
the director's deferred compensation account is credited at the end of each
calendar quarter with the number of full and/or fractional shares of the common
stock which such shares would have been entitled to if such shares had been
shares of issued and outstanding common stock on the record date for such stock
dividend(s).
Participating directors do not have any interest in the cash and/or common stock
credited to their deferred compensation accounts until distributed in accordance
with the Plan, nor do they have any voting rights with respect to such shares
until shares credited to their deferred compensation accounts are distributed.
The rights of a director to receive payments under the Plan are no greater than
the rights of an unsecured general creditor of the Company. Each participating
director may elect to have the aggregate amount of cash and shares credited to
his deferred compensation account distributed to him in one lump sum payment or
in a number of approximately equal annual installments over a period of time not
to exceed fifteen years. The lump sum payment or the first installment will be
paid as of the first business day of the calendar quarter immediately following
the cessation of the director's service as a director of the Company. Prior to
the beginning of any calendar year, a director may elect to change the method of
distribution, but amounts credited to a director's account prior to the
effective date of such change may not be affected, but rather will be
distributed in accordance with the election at the time such amounts were
credited to the director's deferred compensation account.
The maximum number of shares of common stock that can be issued pursuant to the
Plan is 100,000 shares. The Company is not required to reserve or set aside
funds or shares of common stock for the payment of its obligations pursuant to
the Plan. The Company is obligated to make available, as and when required, a
sufficient number of shares of common stock to meet the needs of the Plan. The
shares of common stock to be issued under the Plan may be either authorized and
unissued shares or reacquired shares.
Amendment, modification or termination of the Plan may not (i) adversely affect
any eligible director's rights with respect to amounts then credited to his
account or (ii) accelerate any payments or distributions under the Plan (except
with regard to bona fide financial hardships).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for the period January 1, 1996, to
October 30, 1996, were J.R. Johnson, Robert T. Manfuso, Herman Sarkowsky and
Warren B. Williamson, and as of October 30, 1996, the members were J.R. Johnson
and Lynn P. Reitnouer. Warren B. Williamson served as Secretary of the Company
for the period January 1996 to August 1996, and Donald M. Robbins served as
Secretary for the Company as of September 1996. Neither Mr. Williamson, nor Mr.
Robbins received compensation for services as an officer of the Company. None
of the members of the Compensation Committee were officers or employees or
former officers or employees of the Company or its subsidiaries.
ITEM 11. EXECUTIVE COMPENSATION
- -------- -----------------------
The following tables set forth certain information concerning compensation of
and stock options held by the Company's Chief Executive Officer and the three
most highly paid officers, respectively.
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SUMMARY COMPENSATION TABLE
Long Term
Compensation
Awards
----------------
Annual Compensation Securities
---------------------- Underlying
Name and Principal Salary Bonus Other Annual Options/ All Other
Position Year ($) ($) Compensation SARs (#) Compensation
- ----------------------------- ------ --------- --------- ------------ ---------------- ------------
R. D. Hubbard 1996 $400,000 $ 0 $ 0 85,000 $ 0
Chairman of the Board 1995 400,000 0 0 0 0
and Chief Executive 1994 400,000 0 0 0 0
Officer
G. Michael Finnigan 1996 $262,608 $25,000 $ 0 40,000 $ 0
President, Sports and 1995 262,608 0 0 0 0
Entertainment, Executive 1994 262,608 0 0 20,000 1,308 (a)
Vice President, Treasurer,
Chief Financial Officer
Donald M. Robbins 1996 $250,008 $25,000 $ 0 40,000 $ 0
President of Hollywood 1995 255,501 0 0 0 0
Park, Inc., President of 1994 255,501 0 0 20,000 246,313 (b)
Racing and Secretary
Mark A. Sterbens, 1996 $250,008 $ 0 $ 0 60,000 $ 0