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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.
24
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
President and Chief 1995 0 0 0 0 0
Operating Officer of 1994 0 0 0 0 0
Gaming
- -------------
(a) Reflects matching contributions under the Hollywood Park 401(k) Plan.
(b) In April 1992, the Company and Mr. Robbins entered into an agreement
terminating his employment agreement with the Company and providing for the
payment to Mr. Robbins of the change of control benefit under that contract in
three equal annual installments of $245,833 in April 1992, 1993 and 1994. Mr.
Robbins is currently employed by the Company without an employment contract.
STOCK OPTION PLAN
In 1996, the shareholders of the Company adopted the 1996 Stock Option Plan (the
"1996 Plan"), which provides for the issuance of up to 900,000 shares. Except
for the provisions governing the number of shares issuable under the 1996 Plan
and except for provisions which reflect changes in tax and securities laws, the
provisions of the 1996 Plan are substantially similar to the provision of the
prior plan adopted in 1993. The 1996 Plan is administered and terms of option
grants are established by the Board of Directors' Compensation Committee. Under
the terms of the 1996 Plan, options alone or coupled with stock appreciation
rights may be granted to selected key employees, directors, consultants and
advisors of the Company. Options become exercisable ratably over a vesting
period as determined by the Compensation Committee and expire over terms not
exceeding ten years from the date of grant, one month after termination of
employment, or six months after the death or permanent disability of the
optionee. The purchase price for all shares granted under the 1996 Plan shall
be determined by the Compensation Committee, but in the case of incentive stock
options, the price will not be less than the fair market value of the common
stock at the date of grant. On April 26, 1996, the Company amended the non-
qualified stock option agreements issued through this date, to lower the per
share price of the outstanding options to $10.00.
25
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
- -------------------------------------------------------------------------------
Percent of
Total Potential Realizable Value
Number of Options/ at Assumed Annual Rates
Securities SARs of Stock Price Appreciation
Underlying Granted to for Option Term
Options/SARs Employees Exercise of -----------------------------
Granted in Fiscal Base Price Expiration
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
- ------------------------ ------------ ---------- ----------- -------------- -----------------------------
R.D. Hubbard 85,000 20% $10.00 April 26, 2006 $892,500 $935,000
G. Michael Finnigan 40,000 9% $10.00 April 26, 2006 $420,000 $440,000
Donald M. Robbins 40,000 9% $10.00 April 26, 2006 $420,000 $440,000
Mark A. Sterbens 60,000 14% $10.00(a) Feb. 1, 2006 $630,000 $660,000
_____
(a) The options issued to Mark Sterbens were granted at an exercise price of
$10.125, and were repriced on April 26, 1996, to $10.00.
REPORT ON REPRICING OF OPTIONS/SARS
No. of Market Price Length of
Securities of Stock at Exercise Price Original Term
Underlying Time of at Time of New Remaining at
Options/SA Rs Repricing or Repricing or Exercise Date of
Repriced or Amendment Amendment Price Repricing or
Name Date Amended (#) ($) ($) ($) Amendment
- ------------------------ ------------ ------------- -------------- -------------- ---------- ----------------
G. Michael Finnigan 4/26/96 30,000 $10.00 $ 13.00 $10.00 7 yrs, 2 months
4/26/96 20,000 $10.00 $ 13.00 $10.00 7 yrs, 10 months
Donald M. Robbins 4/26/96 30,000 $10.00 $ 13.00 $10.00 7 yrs, 2 months
4/26/96 20,000 $10.00 $ 13.00 $10.00 7 yrs, 10 months
Mark A. Sterbens 4/26/96 60,000 $10.00 $10.125 $10.00 9 yrs, 10 months
PENSION PLAN
Years of Qualified Service
----------------------------------------------------
Final Average Annual Salary 10 15 20 25 30
- ------------------------------ ------- ------- ------- ------- --------
$100,000 $24,745 $37,118 $49,490 $61,863 $ 66,863
$150,000 to $500,000 (a) 37,995 56,993 75,990 94,988 102,488
- ----
(a) Under current provisions of the Internal Revenue Code, the maximum average
salary that may be used in calculating retirement benefits in 1996 was $150,000.
Benefits accrued on April 1, 1994 (based on prior compensation limits) are
grandfathered. Pension benefits were frozen as of September 1, 1996, for all
plan participants, except retained participants, whose benefits were frozen as
of December 31, 1996.
Hollywood Park elected to terminate the Hollywood Park Pension Plan (the
"Pension Plan") as of January 31, 1997. Accrued Pension Plan benefits were
frozen as of September 1, 1996, for all Pension Plan participants, except
retained participants, (participants who, because of legal requirements,
including the provisions of the National Labor Relation Act, are represented by
a collective bargaining agent) whose benefits were frozen as of December 31,
1996.
The Pension Plan is a non-contributory, defined benefit plan covering employees
of Hollywood Park, Inc., and all employees of Hollywood Park Operating Company,
not eligible for participation in a multi-employer defined benefit plan, who
meet the Pension Plan's service requirement. In general, Pension Plan benefits
were based on years of service and eligible earnings. R.D. Hubbard, G. Michael
Finnigan, and Donald M. Robbins, are the only officers or directors of the
Company who participated in the Pension Plan, and their Pension Plan benefits
were frozen as of September 1, 1996. Only amounts earned by Messers. Hubbard,
26
Finnigan and Robbins listed under "Annual Compensation Salary" as shown in the
Summary Compensation Table, were considered in determining their Pension Plan
benefit levels.
The amounts listed in the above Pension Plan table are estimated annual
retirement benefits under the Pension Plan (assuming payments were made on the
normal life annuity basis, and not under the provisions on survivor benefits) at
a normal retirement age of 65 in 1996, after various years of qualified service,
at selected average annual compensation levels.
The amounts required to fund the Pension Plan were determined actuarially, and
were paid by Hollywood Park to a life insurance company under an unallocated
annuity contract.
Effective January 31, 1997, in conjunction with the termination of the Pension
Plan, Hollywood Park elected to terminate its non-qualified Supplementary
Employment Retirement Plan (the "SERP"). The SERP was an unfunded plan,
established primarily for the purpose of restoring the retirement benefits for
highly compensated employees that were eliminated by the Internal Revenue
Service in 1994, when the maximum annual earnings allowed for qualified pension
plans was reduced to $150,000 from $235,850. Messers, Hubbard, Finnigan and
Robbins participated in the SERP, prior to its termination.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, which is composed entirely
of independent outside directors, is responsible for making recommendations to
the Board regarding the annual salaries and other compensation of the officers
of the Company, providing assistance and recommendations with respect to the
compensation policies and practices of the Company and assisting with the
administration of the Company's compensation plans.
In order to attract and retain well-qualified executives, which the Compensation
Committee believes is crucial to the Company's success, the Compensation
Committee's general approach to compensating executives is to pay cash salaries
which are commensurate with the executives' experience and expertise and, where
relevant, are competitive with the salaries paid to executives in the Company's
main industries and primary geographic locations, which are currently
thoroughbred horse racing tracks and card clubs in Southern California and horse
and dog racing tracks in Kansas, Arizona and other jurisdictions. In addition,
to align its executives' compensation with the Company's business strategies,
values and management initiatives, both short and long term, the Committee may,
with the Board's approval, authorize the payment of discretionary bonuses based
upon an assessment of each executive's contributions to the Company. In
general, the Compensation Committee believes that these discretionary bonuses
should be related to the Company's and the executive's performance, although
specific performance criteria have not been established.
The Compensation Committee also believes that stock ownership by key executives
provides a valuable incentive for such executives and helps align executives'
and stockholders' interests. To facilitate these objectives, the Company
adopted the 1993 Stock Option Plan and the 1996 Stock Option Plan, pursuant to
which the Company may grant stock options to executives (as well as other
employees and directors) to purchase up to 625,000 shares and 900,000 shares,
respectively, of the Company's Common Stock. The Compensation Committee
believes that the key officers of the Company have provided excellent services
and been diligent in their commitment to the Company. Although the Company's
stock price in the marketplace did not reflect the quality of their efforts, the
Committee believes that stock ownership by such officers provides an important
incentive for their continued efforts and diligence. In order to ensure that
the options fulfilled their purpose of helping the Company attract and retain
key employees, in April 1996, the Compensation Committee determined to lower the
exercise price for all of the Company's outstanding stock options to $10.00 per
share, the Company's closing stock price on the date on which the action was
taken. This action was also taken so as to ensure that executives of the
combined company following the pending merger with Boomtown, Inc., will be
treated similarly. Accordingly, the stock options of Messrs. Robbins and
Finnigan were so amended. Although under the 1993 Stock Option Plan and/or 1996
Stock Option Plan the Committee could have granted additional options to the
Company's key executives in lieu of repricing the
27
existing options, the Committee believes that the Company is better served by a
repricing of existing options, which preserves options for additional grants
under the Company's stock option plans. In addition, in April 1996, options
aggregating 80,000, 40,000 and 40,000 shares, were granted to Messrs. Hubbard,
Robbins and Finnigan, respectively, at an exercise price of $10.00 per share.
In 1996, Mr. Hubbard was paid a salary of $400,000. This payment was fixed in
1992 based upon an analysis of (i) the annual compensation received by the Chief
Executive Officer of Santa Anita Race Track, (ii) the annual base salaries
currently being paid to Messrs. Robbins and Finnigan, (iii) the prominence of
Mr. Hubbard in the business community in general and the horse racing community
in particular, (iv) the level and value of the contribution that the
Compensation Committee believes Mr. Hubbard has made, and can make in the
future, to the Company and (v) the fact that Mr. Hubbard was willing to accept
this amount even though the Committee believes that he could command a much
higher compensation level based upon his business experience and expertise. The
Compensation Committee continued this salary level even though it believes that
Mr. Hubbard would be entitled to significantly higher levels of base
compensation based upon not only the above-mentioned factors, but also the
Company's expansion into the card club and gaming business, where executive
salaries tend to be substantially higher than those in the thoroughbred horse
racing business. While Mr. Hubbard's base salary is not dependent upon the
Company's performance, it is anticipated that any bonuses he may receive, based
upon the recommendation of the Compensation Committee and the approval of the
Board of Directors, would be, at least in part, so dependent.
COMPENSATION COMMITTEE
March 20, 1997
J.R. Johnson (Chairman)
Lynn P. Reitnouer
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The following table sets forth the name, address (only provided for persons
listed as beneficial owners of 5.0% or more of the Common Stock, or Depositary
Shares) and number of shares and percent of the Common Stock or Depositary
Shares, respectively, beneficially owned as of March 26, 1997, by each person
known to the Board of Directors to be the beneficial owner of 5.0% or more of
the outstanding shares of Common Stock or the Depositary Shares, each Director,
each named Officer and Directors and Executive Officers as a group.
28
Common Stock (a) Depositary Shares (b)
------------------------------------------ -------------------------
Amount and
Amount and Nature of
Nature of Beneficial Amount and
Beneficial Ownership Percent of Nature of Percent of
Ownership (Fully Shares Beneficial Shares
Name of Beneficial Owner (Primary) Diluted) Outstanding Ownership Outstanding
- -------------------------------- ------------ ----------- ----------- ---------- -----------
R.D. Hubbard 2,119,841 2,619,820 (c) 13.9% 600,000 (d) 21.8%
Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, California 90301
Legg Mason 1,911,950 1,911,950 (e) 10.4% 0 0
111 South Calvert Street
Baltimore, Maryland 21202
State of Wisconsin 1,752,000 1,752,000 (f) 9.6% 0 0
P.O. Box 7842
Madison, Wisconsin 53707
Harry Ornest 606,300 606,300 (g) 3.3% 0 0
J.R. Johnson 189,583 368,743 (h) 2.0% 215,000 7.8%
Robert Manfuso 20,000 28,333 (i) ** 10,000 **
Lynn P. Reitnouer 35,000 35,000 ** 0 0
Herman Sarkowsky 10,938 10,938 ** 0 0
Warren B. Williamson 125,000 147,916 (j) ** 27,500 1.0%
G. Michael Finnigan 25,415 88,748 (k) ** 0 0
Donald M. Robbins 12,339 75,672 (l) ** 0 0
Mark A. Sterbens 0 39,000 (m) ** 0 0
Directors and Executive Officers
as a group (10 persons) 3,144,416 4,020,471 (n) 20.9% 852,500 30.6%
** Less than one percent (1%) of the outstanding Common Stock or Depositary
Shares.
- ----
(a) Fully-diluted amounts assume exercise of stock options or conversion of the
Depositary Shares beneficially owned by the named individual or entity into
shares of Common Stock.
(b) Each Depositary Share may be converted into 0.8333 shares of Common Stock,
subject to adjustment in certain circumstances.
(c) Includes 499,980 shares of Common Stock issuable upon conversion of 600,000
Depositary Shares, including 300,000 Depositary Shares owned by the R.D. and
Joan Dale Hubbard Foundation.
(d) Includes 300,000 Depositary Shares owned by the R.D. and Joan Dale Hubbard
Foundation.
(e) Based upon information provided by the stockholder in Schedule 13G filed
with the Securities and Exchange Commission on February 14, 1997.
(f) Based upon information provided by the stockholder in Schedule 13G filed
with the Securities and Exchange Commission on February 10, 1997.
(g) Includes 70,000 shares of Common Stock held by The Ornest Family Foundation,
for which Mr. Ornest and his wife Ruth Ornest act as trustees. (Mr. Ornest
disclaims any pecuniary interest in these shares.) In addition, as trustees of
the Harry and Ruth Ornest Trust, Mr. Ornest and his wife share the power to vote
60% of the interest in the Ornest Family Partnership (the "Partnership"), which
in turn has the power to dispose of the 536,300 shares of Common Stock held in
the name of the Partnership.
(i) Includes 8,333 shares of Common Stock issuable upon conversion of his
Depositary Shares.
(j) Includes 22,916 shares of Common Stock issuable upon conversion of his
Depositary Shares.
(k) Includes 63,333 shares of Common Stock which Mr. Finnigan has the right to
acquire pursuant to options granted under Hollywood Park's 1993 Stock Option
Plan, which are exercisable within 60 days of March 26, 1997.
(l) Includes 63,333 shares of Common Stock which Mr. Robbins has the right to
acquire pursuant to options granted under Hollywood Park's 1993 Stock Option
Plan, which are exercisable within 60 days of March 26, 1997.
(m) Includes 39,000 shares of Common Stock which Mr. Sterbens has the right to
acquire pursuant to options granted under Hollywood Park's 1993 Stock Option
Plan, which are exercisable within 60 days of March 26, 1997.
(n) Includes 876,054 shares of Common Stock of which the Directors and Executive
Officers may be deemed to have beneficial ownership following (i) conversion of
852,500 Depositary Shares and (ii) the exercise of options to purchase 165,666
shares of Common Stock, which are exercisable within 60 days of March 26, 1997.
Excluding such shares, the Directors and Executive Officers of the Company have
beneficial ownership of 3,144,416 shares of Common Stock, which represents 17.1%
of the shares of Common Stock outstanding as of March 26, 1997.
29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Since November 1993, the Company has had an aircraft time sharing agreement with
R.D. Hubbard Enterprises, Inc. ("Hubbard Enterprises") which is wholly owned by
Mr. Hubbard. The agreement automatically renews each month unless written
notice of termination is given by either party at least two weeks before a
renewal date. The Company reimburses Hubbard Enterprises for expenses incurred
as a result of the Company's use of the aircraft, which totaled approximately
$120,000 in 1996, $126,000 in 1995, and $139,000 in 1994.
On March 23, 1994, the Company acquired Sunflower, a greyhound and thoroughbred
race track located in Kansas City, Kansas, in which Mr. Hubbard owned a 60%
interest. The acquisition price was $15,000,000 paid for with 591,715 shares of
Hollywood Park common stock. Immediately following the acquisition the Company
contributed $5,000,000 in cash to Sunflower to repay a portion of the
subordinated debt Sunflower owed to Mr. Hubbard, in return for more favorable
terms on the balance of the subordinated debt. The agreement of merger also
provided that under certain circumstances the former Sunflower shareholders were
entitled to receive additional shares of Hollywood Park common stock. As of
March 23, 1995, the former Sunflower shareholders transferred their right to
such additional consideration to Hollywood Park for nominal consideration and
have no further entitlements to additional consideration.
Based solely upon a review of reports received by the Company during or with
respect to the year ended December 31, 1996 pursuant to Rule 16a-3(e) of the
Exchange Act, all required reports on Form 3 and Form 4 were timely filed by the
Company's directors, officers, and 10% shareholders. Annual Reports on Form 5
for each of the Company's directors and executive officers were filed at various
dates in March 1997, rather than on or before February 15, 1997. Such Annual
Reports disclosed no transaction in Hollywood Park common stock or preferred
stock, but disclosed the receipt of and/or repricing of stock options as
described elsewhere herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
(a) Documents filed as a part of this report.
1. The consolidated financial statements are set forth in the index to
Consolidated Financial Statements and appear on pages 38 through 41.
2. Exhibits
Exhibit
Number Description of Exhibit
- -------- ----------------------
2.1 Agreement and Plan of Reorganization, by and among Hollywood Park,
Inc., and Pacific Casino Management, Inc., dated November 17, 1995,
is hereby incorporated by reference to the Company's Current Report
on Form 8-K, filed November 30, 1995, and to the Company's Current
Report on Form 8-K/A, filed January 25, 1996.
2.2 Agreement and Plan of Merger, by and among Hollywood Park, Inc., HP
Acquisition, Inc., and Boomtown, Inc., dated April 23, 1996, is
hereby incorporated by reference to the Company's Current Report on
Form 8-K, filed May 3, 1996.
3.1 Certificate of Incorporation of Hollywood Park, Inc., is hereby
incorporated by reference to the Company's Registration Statement on
Form S-1 dated January 29, 1993.
3.2 Amended By-laws of Hollywood Park, Inc. are hereby incorporated by
reference to the Company's Registration Statement on Form S-1 dated
January 29, 1993.
4.5 Convertible Preferred Stock Depositary Stock Agreement between
Hollywood Park, Inc. and Chase Mellon Shareholder Services, dated
February 9, 1993, is hereby incorporated by reference to the
Company's Registration Statement on Form S-1 dated January 29, 1993.
30
4.8 Hollywood Park 1993 Stock Option Plan is hereby incorporated by
reference to Appendix A to the Notice of Annual Meeting to
Shareholders and Proxy Statement relating to the Annual Meeting of
Stockholders of Hollywood Park, Inc. held on May 17, 1993.
4.7 Hollywood Park 1996 Stock Option Plan is hereby incorporated by
reference to Appendix D to the Notice of Annual Meeting to
Shareholders and Proxy Statement, dated September 20, 1996, relating
to the Annual Meeting of Stockholders of Hollywood Park, Inc. held on
October 30, 1996.
10.1 Directors Deferred Compensation Plan for Hollywood Park, Inc. is
hereby incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991.
10.2 Lease Agreement dated as of January 1, 1989, by and between Hollywood
Park Realty Enterprises, Inc. and Hollywood Park Operating Company,
as amended, is hereby incorporated by reference to the Joint Annual
Report on Form 10-K for the fiscal year ended December 31, 1989, of
Hollywood Park Operating Company and Hollywood Park Realty
Enterprises, Inc.
10.3 Aircraft rental agreement dated November 1, 1993, by and between
Hollywood Park, Inc. and R.D. Hubbard Enterprises, Inc. is hereby
incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
10.4 Amended and Restated Credit Agreement dated March 23, 1994, by and
between Sunflower Racing, Inc. and First Union National Bank of North
Carolina, Bank One Lexington, Texas Commerce Bank, Home State Bank of
Kansas City and Intrust Bank, N.A. is hereby incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.
10.5 Pledge Agreement dated March 23, 1994, by and between Hollywood Park,
Inc., First Union National Bank of North Carolina, (as agent for the
ratable benefit of itself and the Banks named in the Amended and
Restated Credit Agreement included as Exhibit 10.4) is hereby
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994.
10.6 Agreement Respecting Pyramid Casino dated December 3, 1994, by and
between Hollywood Park, Inc. and Compton Entertainment, Inc., is
hereby incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.7 Amendment of Oil and Gas Lease dated January 10, 1995, by and between
Hollywood Park, Inc. and Casex Co., Nunn Ltd., and Vortex Energy &
Minerals is hereby incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.8 Business Loan Agreement dated April 14, 1995, by and between
Hollywood Park, Inc., and Bank of America National Trust and Savings
Association, is hereby incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
10.9 Amendment No. One, dated April 30, 1996, by and between Hollywood
Park, Inc. and Bank of America National Trust and Savings
Association, to the Business Loan Agreement dated April 14, 1995, is
hereby incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
10.10 Amendment No. Two, dated July 1, 1996, by and between Hollywood Park,
Inc., and Bank of America National Trust and Savings Association, to
the Business Loan Agreement dated April 14, 1995, is hereby
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.
10.11 Amendment No. Three, dated August 30, 1996, by and between Hollywood
Park, Inc., and Bank of America National Trust and Savings
Association, to the Business Loan Agreement dated April 14, 1995, is
hereby incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
10.12 Amendment No. Four, dated October 1, 1996, by and between Hollywood
Park, Inc., and Bank of America National Trust and Savings
Association, to the Business Loan Agreement dated April 14, 1995, is
hereby incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
10.13* Amendment No. Five, dated November 14, 1996, by and between Hollywood
Park, Inc., and Bank of America National Trust and Savings
Association, to the Business Loan Agreement dated April 14, 1995.
10.14 Amendment to Agreement Respecting Pyramid Casino dated April 14,
1995, by and between Hollywood Park, Inc., and Compton Entertainment,
Inc., is hereby incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995.
31
10.15 Amended and Restated Agreement Respecting Pyramid Casino dated July
14, 1995, by and between Hollywood Park, Inc., and Compton
Entertainment, Inc., is hereby incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
10.16 Amended and Restated Disposition and Development Agreement of
Purchase and Sale, and Lease with Option to Purchase, dated August 2,
1995, by and between The Community Redevelopment Agency of the City
of Compton and Compton Entertainment, Inc., is hereby incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995.
10.17 Guaranty, dated July 31, 1995, by Hollywood Park, Inc., in favor of
the Community Redevelopment Agency of the City of Compton, is hereby
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
10.18 Lease by and between HP/Compton, Inc. and Compton Entertainment,
Inc., dated August 3, 1995, is hereby incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
10.19 First Amendment to Lease by and between HP/Compton, Inc., and Compton
Entertainment, Inc., dated March 12, 1996, is here by incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
10.20 Second Amendment to Lease by and between Crystal Park Hotel and
Casino Development Company LLC, and Compton Entertainment, Inc.,
dated September 13, 1996, is hereby incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
10.21 Assignment, Assumption and Consent Agreement, by and among
HP/Compton, Inc., and Crystal Park Hotel and Casino Development
Company LLC, Hollywood Park, Inc. and The Community Redevelopment
Agency of the City of Compton, dated July 18, 1996, is hereby
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
10.22 Consent of Compton Entertainment, Inc., and Rouben Kandilian, by and
between Hollywood Park, Inc., and Compton Entertainment, Inc., dated
August 29, 1996, is hereby incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
10.23 License Agreement, dated June 27, 1996, by and between HP/Compton,
Inc., and Radisson Hotels International, Inc. is hereby incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
10.24 Operating Agreement for Crystal Park Hotel and Casino Development
Company LLC a California Limited Liability Company, dated July 18,
1996, effective August 28, 1996, is hereby incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
10.22 Blue Diamond Swap Agreement by and among Boomtown, Inc., Blue Diamond
Hotel & Casino, Inc., Hollywood Park, Inc., Edward P. Roski, Jr.,
IVAC and Majestic Realty Co., dated August 12, 1996, is hereby
incorporated by reference to the Company's Registration Statement on
Form S-4 filed September 18, 1996.
10.23 Stock Purchase Agreement, by and between Hollywood Park, Inc. and
Edward P. Roski, jr., dated August 12, 1996, is hereby incorporated
by reference to the Company's Registration Statement on Form S-4
dated September 18, 1996.
21.1 Subsidiaries of Hollywood Park, Inc.: HP/Compton, Inc., a California
corporation, (which is an 88% partner in the Crystal Park Hotel and
Casino Development Company LLC, a California Limited Liability
Company), HP Casino, Inc., a California corporation; Hollywood Park
Operating Company, a Delaware corporation (and its subsidiaries:
Hollywood Park Fall Operating Company, a Delaware corporation and
Hollywood Park Food Services, Inc., a Delaware corporation);
Sunflower Racing, Inc., a Kansas corporation (and its subsidiary SR
Food and Beverage, Inc., a Kansas corporation); and Turf Paradise,
Inc. an Arizona corporation.
27.1 Financial Data Schedule
_____
* Filed herewith
32
(b) Reports on Form 8-K
None
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HOLLYWOOD PARK, INC.
(Registrant)
By: /s/ R.D. Hubbard Dated: March 27, 1997
------------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan Dated: March 27, 1997
------------------------------------
G. Michael Finnigan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
34
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
HOLLYWOOD PARK, INC.
/s/ R.D. Hubbard Dated: March 27, 1997
- ------------------------------------
R.D. Hubbard - Director
/s/ Harry Ornest Dated: March 27, 1997
- ------------------------------------
Harry Ornest - Director
/s/ J.R. Johnson Dated: March 27, 1997
- ------------------------------------
J.R. Johnson - Director
/s/ Robert T. Manfuso Dated: March 27, 1997
- ------------------------------------
Robert T. Manfuso - Director
/s/ Lynn P. Reitnouer Dated: March 27, 1997
- ------------------------------------
Lynn P. Reitnouer - Director
/s/ Herman Sarkowsky Dated: March 27, 1997
- ------------------------------------
Herman Sarkowsky - Director
/s/ Warren B. Williamson Dated: March 27, 1997
- ------------------------------------
Warren B. Williamson - Director
35
Hollywood Park, Inc.
Index to Consolidated Financial Statements
as of the dates and for the periods indicated below
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995... 38
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994...................... 39
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994........ 40
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994...................... 41
Notes to Financial Statements.................................. 42
Schedules not included herewith have been omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Hollywood Park, Inc.:
We have audited the accompanying consolidated balance sheets of Hollywood Park,
Inc. (a Delaware corporation) and subsidiaries (the "Company") as of December
31, 1996, and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hollywood Park, Inc. and
subsidiaries as of December 31, 1996, and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 18, 1997
37
Hollywood Park, Inc.
Consolidated Balance Sheets
As of December 31,
---------------------------------
1996 1995
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $11,922,000 $22,406,000
Restricted cash 4,486,000 3,126,000
Short term investments 4,766,000 6,447,000
Other receivables, net of allowance for doubtful accounts
of $1,089,000 in 1996 and $1,841,000 in 1995 7,110,000 8,147,000
Prepaid expenses and other assets 6,215,000 3,888,000
Deferred tax assets 6,422,000 4,888,000
Current portion of notes receivable 38,000 34,000
------------ ------------
Total current assets 40,959,000 48,936,000
Notes receivable 819,000 857,000
Property, plant and equipment, net 130,835,000 174,717,000
Lease with TRAK East, net 0 1,195,000
Goodwill, net 20,370,000 26,829,000
Long term gaming assets 0 19,063,000
Other assets 12,903,000 11,706,000
------------ ------------
$205,886,000 $283,303,000
============ ============
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $10,043,000 $12,518,000
Accrued lawsuit settlement 2,750,000 5,232,000
Accrued liabilities 10,584,000 13,607,000
Accrued workers' compensation 1,967,000 2,277,000
Accrued slip and fall claims 1,718,000 1,543,000
Gaming liabilities 2,499,000 3,998,000
Amounts due to horsemen for purses, stakes and awards 4,354,000 709,000
Outstanding pari-mutuel tickets 1,414,000 2,757,000
Current portion of notes payable 35,000 32,310,000
------------ ------------
Total current liabilities 35,364,000 74,951,000
Notes payable 282,000 15,629,000
Gaming liabilities 0 16,894,000
Deferred tax liabilities 9,065,000 10,083,000
------------ ------------
Total liabilities 44,711,000 117,557,000
Minority interests 3,015,000 0
Stockholders' Equity:
Capital stock --
Preferred - $1.00 par value, authorized 250,000 shares;
27,499 issued and outstanding 28,000 28,000
Common - $.10 par value, authorized 40,000,000 shares;
18,332,016 issued and outstanding in 1996 and 18,504,798
in 1995 1,833,000 1,850,000
Capital in excess of par value 167,074,000 168,479,000
Accumulated deficit (10,775,000) (4,611,000)
------------ ------------
Total stockholders' equity 158,160,000 165,746,000
------------ ------------
$205,886,000 $283,303,000
============ ============
See accompanying notes to consolidated financial statements.
Hollywood Park, Inc.
Consolidated Statements of Operations
For the years ended December 31,
------------------------------------------
1996 1995 1994
----------- ----------- -----------
REVENUES:
Pari-mutuel commissions $53,846,000 $53,259,000 $51,732,000
Lease and management fee - Sunflower 1,071,000 5,408,000 7,860,000
Gaming - Casino 50,272,000 6,032,000 0
Lease - Casino 445,000 20,624,000 11,745,000
Admissions, programs, and other racing income 16,391,000 18,369,000 19,127,000
Concession sales 13,947,000 19,783,000 20,540,000
Other income 7,253,000 7,097,000 6,320,000
----------- ----------- -----------
143,225,000 130,572,000 117,324,000
----------- ----------- -----------
EXPENSES:
Salaries, wages and employee benefits 56,205,000 43,124,000 37,250,000
Operations of facilities 8,950,000 10,865,000 10,095,000
Cost of concession sales 20,824,000 25,162,000 21,852,000
Professional services 8,305,000 7,860,000 7,647,000
Rent 1,274,000 1,306,000 1,823,000
Utilities 4,198,000 4,854,000 4,639,000
Marketing 7,711,000 5,546,000 6,062,000
Administrative 13,484,000 10,930,000 7,028,000
----------- ----------- -----------
120,951,000 109,647,000 96,396,000
----------- ----------- -----------
Income before interest, income taxes, depreciation,
amortization and other non-recurring expenses 22,274,000 20,925,000 20,928,000
Write off of investment in Sunflower 11,412,000 0 0
Lawsuit settlement 0 6,088,000 0
Casino pre-opening and training expenses 0 0 2,337,000
Turf Paradise acquisition costs 0 0 627,000
Depreciation and amortization 10,695,000 11,384,000 9,563,000
Interest expense 942,000 3,922,000 3,061,000
----------- ----------- -----------
Income (loss) before minority interest and income taxes (775,000) (469,000) 5,340,000
Minority interest 15,000 0 0
Income tax expense 3,459,000 693,000 1,568,000
----------- ----------- -----------
Net income (loss) ($4,249,000) ($1,162,000) $3,772,000
=========== =========== ===========
================================================================================================================
Dividend requirements on convertible preferred stock $1,925,000 $1,925,000 $1,925,000
Net income (loss) available to (allocated to) common shareholders ($6,174,000) ($3,087,000) $1,847,000
Per common share:
Net income (loss) - primary ($0.33) ($0.17) $0.10
Net income (loss) - fully diluted ($0.33) ($0.17) $0.10
Cash dividend per common share $0.00 $0.00 $0.00
Number of shares - primary 18,505,378 18,399,040 18,224,216
Number of shares - fully diluted 20,796,870 20,690,532 20,515,708
- ------------
See accompanying notes to consolidated financial statements.
39
Hollywood Park, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 1996, 1995 and 1994
Capital in Total
Preferred Common Excess of Accumulated Stockholders'
Stock Stock Par Value Deficit Equity
----------- ----------- ------------- ------------- -------------
Balance at year end 1993 $28,000 $1,772,000 $155,725,000 ($3,325,000) $154,200,000
Net income 0 0 0 3,772,000 3,772,000
Net income - Turf Paradise six months
ended December 31, 1993 0 0 0 198,000 198,000
Issuance of common stock to acquire -
Sunflower Racing, Inc. 0 59,000 11,099,000 0 11,158,000
Issuance of contingent shares related to
Sunflower Racing, Inc. acquisition 0 6,000 (6,000) 0 0
Net changes related to Turf Paradise equity 0 0 74,000 (222,000) (148,000)
Preferred stock dividends - $70.00 per share 0 0 0 (1,925,000) (1,925,000)
------ --------- ----------- --------- -----------
Balance at year end 1994 28,000 1,837,000 166,892,000 (1,502,000) 167,255,000
Net loss 0 0 0 (1,162,000) (1,162,000)
Issuance of common stock to acquire -
Pacific Casino Management, Inc. 0 13,000 1,587,000 0 1,600,000
Investment in bonds - unrealized holding loss 0 0 0 (22,000) (22,000)
Preferred stock dividends - $70.00 per share 0 0 0 (1,925,000) (1,925,000)
------- ---------- ------------ ------------- ------------
Balance at year end 1995 28,000 1,850,000 168,479,000 (4,611,000) 165,746,000
Net loss 0 0 0 (4,249,000) (4,249,000)
Issuance of common stock to acquire -
Pacific Casino Management, Inc. 0 5,000 535,000 0 540,000
Repurchase and retirement of common stock 0 (22,000) (1,940,000) 0 (1,962,000)
Investment in bonds - unrealized holding gain 0 0 0 10,000 10,000
Preferred stock dividends - $70.00 per share 0 0 0 (1,925,000) (1,925,000)
------- ---------- ------------ ------------- ------------
Balance at year end 1996 $28,000 $1,833,000 $167,074,000 ($10,775,000) $158,160,000
======= ========== ============ ============= ============
See accompanying notes to consolidated financial statements.
Hollywood Park, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31,
------------ ------------ ------------
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($4,249,000) ($1,162,000) $3,772,000
Adjustment to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 10,027,000 10,857,000 10,064,000
Minority interests 15,000 0 0
Changes in accounts due to deconsolidation of subsidiary
in bankruptcy:
Property, plant and equipment 58,380,000 0 0
Secured notes payable (28,918,000) 0 0
Unsecured notes payable (15,323,000) 0 0
Goodwill and lease with TRAK East 6,908,000 0 0
(Gain) loss on sale or disposal of property, plant and equipment (2,000) 64,000 55,000
Unrealized gain on short term bond investing 10,000 0 0
Changes in assets and liabilities, net of the effects of the
purchase of a business:
Increase in restricted cash (1,360,000) (2,427,000) (490,000)
Increase in casino lease and related interest receivable, net 0 (9,204,000) (11,745,000)
Decrease (increase) in other receivables, net 1,037,000 77,000 (5,022,000)
Increase in prepaid expenses and other assets (3,524,000) (304,000) (5,488,000)
Increase in deferred tax assets (1,534,000) (349,000) (3,207,000)
(Decrease) increase in accounts payable (2,475,000) 5,685,000 (1,596,000)
(Decrease) increase in accrued lawsuit settlement (2,482,000) 5,232,000 0
(Decrease) increase in accrued gaming liabilities (1,499,000) 3,998,000 0
(Decrease) increase in accrued liabilities (3,023,000) 5,246,000 2,382,000
(Decrease) increase in accrued workers' compensation (310,000) 160,000 505,000
Increase in slip and fall claims 175,000 270,000 284,000
Increase in amounts due to horsemen for purses, stakes
and awards 3,645,000 193,000 261,000
(Decrease) increase in outstanding pari-mutuel tickets (1,343,000) 1,211,000 765,000
(Decrease) increase in deferred tax liabilities (1,018,000) 744,000 2,173,000
------------ ------------ ------------
Net cash provided by (used in) operating activities 13,137,000 20,291,000 (7,287,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (23,786,000) (25,150,000) (27,584,000)
Receipts from sale of property, plant and equipment 9,000 98,000 75,000
Principal collected on notes receivable 34,000 31,000 31,000
Purchase of short term investments (16,888,000) (35,875,000) (96,822,000)
Proceeds from short term investments 18,569,000 29,428,000 116,625,000
Long term gaming assets 2,169,000 (2,169,000) 0
Cash acquired in the purchase of a business, net of
transaction and other costs 0 2,315,000 344,000
------------ ------------ ------------
Net cash used in investing activities (19,893,000) (31,322,000) (7,331,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from unsecured notes payable 0 1,681,000 1,850,000
Proceeds from secured notes payable 0 3,358,000 2,300,000
Payment of unsecured notes payable (23,000) (3,813,000) (5,019,000)
Payment of secured notes payable (3,358,000) (1,333,000) (5,998,000)
Payments under capital lease obligations 0 (53,000) (135,000)
Payments from minority interest partners 3,000,000 0 0
Common stock repurchase and retirement (1,962,000) 0 0
Turf Paradise equity transactions 0 0 50,000
Shares issued for Pacific Casino Management, Inc. 540,000 (1,600,000) 0
Dividends paid to preferred stockholders (1,925,000) (1,925,000) (1,925,000)
------------ ------------ ------------
Net cash used for financing activities (3,728,000) (3,685,000) (8,877,000)
------------ ------------ ------------
Decrease in cash and cash equivalents (10,484,000) (14,716,000) (23,495,000)
Cash and cash equivalents at the beginning of the period 22,406,000 37,122,000 60,617,000
------------ ------------ ------------
Cash and cash equivalents at the end of the period $ 11,922,000 $ 22,406,000 $ 37,122,000
============ ============ ============
See accompanying notes to consolidated financial statements.
Hollywood Park, Inc.
Notes to Consolidated Financial Statements
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION The consolidated financial statements for the year ended December
31, 1996, included the accounts of Hollywood Park, Inc. (the "Company" or
"Hollywood Park") and its wholly owned subsidiaries: Hollywood Park Operating
Company (which has two wholly owned subsidiaries, Hollywood Park Food Services,
Inc. and Hollywood Park Fall Operating Company), Sunflower Racing, Inc.
("Sunflower") (which has one wholly owned subsidiary, SR Food and
Beverage, Inc.), Turf Paradise, Inc. ("Turf Paradise"), and HP/Compton, Inc.,
which owns 88% of Crystal Park Hotel and Casino Development Company LLC,
("Crystal Park LLC"), which built and presently leases the Crystal Park Hotel
and Casino ("Crystal Park"), to an unaffiliated third party. Sunflower was
acquired on March 23, 1994, and was accounted for under the purchase method of
accounting. Turf Paradise was acquired on August 11, 1994, and was accounted
for under the pooling of interests method of accounting. Crystal Park began
operations on October 25, 1996. The Hollywood Park-Casino is a division of
Hollywood Park, Inc.
On May 2, 1996, the Kansas Legislature adjourned without passing legislation
that would have allowed additional gaming at Sunflower, thereby permitting
Sunflower to more effectively compete with Missouri riverboat gaming. As a
result of the outcome of the Kansas Legislative session, Hollywood Park wrote
off its approximately $11,412,000 investment in Sunflower. There was no cash
involved with the write off of this investment. On May 17, 1996, Sunflower
filed for reorganization under Chapter 11 of the Bankruptcy Code. Sunflower is
operating during the reorganization, but Sunflower's operating results from
April 1, 1996, forward were not consolidated with Hollywood Park's operating
results.
ACQUISITION OF PACIFIC CASINO MANAGEMENT, INC. The Hollywood Park-Casino was
opened in July 1994 under a third party leasing arrangement with Pacific Casino
Management, Inc. ("PCM"). 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 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.
Pursuant to the authority provided by SB 100, on November 17, 1995, Hollywood
Park acquired substantially all of 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.
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.
42
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.
ACQUISITION OF SUNFLOWER On May 17, 1996, Sunflower filed for reorganization
under Chapter 11 of the Bankruptcy Code, due to the Kansas Legislature's failure
to pass legislation that would have allowed additional forms of gaming at
Sunflower, and thereby allowing Sunflower to more effectively compete with
Missouri riverboat gaming. On March 31, 1996, Hollywood Park wrote off its
approximately $11,412,000 investment in Sunflower. There was no cash involved
with the write off of this investment.
On March 23, 1994, the Company finalized the transaction to acquire Sunflower, a
greyhound and thoroughbred racing facility located in Kansas City, Kansas.
Sunflower, operating as the Woodlands, became a wholly owned subsidiary of
Hollywood Park, with the transaction accounted for under the purchase method of
accounting. The acquisition price was $15,000,000 paid for with 591,715 shares
of Hollywood Park common stock, with a then market price of $25.35 per share.
For financial reporting purposes, the transaction was valued at $19.00 per
Hollywood Park common share, based on the size of the block of shares issued in
the acquisition relative to the then current trading volume. Immediately
following the acquisition, the Company contributed $5,000,000 in cash to
Sunflower to repay a portion of the subordinated debt Sunflower owed to Mr.
Hubbard, in return for more favorable terms on the balance of the subordinated
debt. Of the approximately $6,625,000 of restated excess acquisition cost over
recorded value of the net assets acquired, $1,153,000 was allocated to the
racing facility lease and management agreement Sunflower has with The Racing
Association of Kansas East ("TRAK East") and was to be amortized over the
remaining lease period of 20 years, with the balance of $5,472,000 allocated to
goodwill, to be amortized over 40 years. The amortization of the goodwill was
not deductible for income tax purposes.
An additional 55,574 shares of Hollywood Park common stock were issued to Mr.
Richard Boushka, a former Sunflower shareholder, as required by the agreement of
merger, because the market price of Hollywood Park common stock 180 days after
closing was more than 10% less than the market price on the closing date of the
acquisition. The agreement of merger provided that under certain circumstances
the former Sunflower shareholders were entitled to receive additional shares of
Hollywood Park common stock. As of March 23, 1995, the former Sunflower
shareholders transferred their rights to such additional consideration to
Hollywood Park for nominal consideration and have no further entitlements to
additional consideration.
ACQUISITION OF TURF PARADISE On August 11, 1994, the shareholders of Turf
Paradise approved the Agreement of Merger, entered into on March 30, 1994, by
Hollywood Park and Turf Paradise and as amended on May 27, 1994, pursuant to
which Turf Paradise became a wholly owned subsidiary of Hollywood Park. Turf
Paradise owns and operates a thoroughbred race track in Phoenix, Arizona. The
transaction was accounted for under the pooling of interests method of
accounting, with approximately $627,000 of merger related costs incurred in
total and expensed by both the Company and Turf Paradise. In connection with
the merger, the Company issued a total of 1,498,016 shares of Hollywood Park
common stock, valued as of the date of issuance at approximately $33,800,000.
Each share of Turf Paradise common stock was valued at $13.00 and was converted
to approximately 0.577 shares of Hollywood Park common stock, which had a then
fair market value of $22.53 based on the weighted average of all trades on the
NASDAQ National Market System for the twenty trading days up to and including
August 10, 1994.
As required under the pooling of interests method of accounting, the
consolidated financial statements for the periods prior to the acquisition have
been restated to include the accounts and results of operations of Turf
Paradise. The consolidated financial statements for the year 1994 include the
results of operations for the twelve months ended December 31, 1994, for both
Hollywood Park and Turf Paradise.
43
Separate results of the combined entities are as follows:
Year ended December 31, 1994
--------------------------------------------
Hollywood Turf
Park Paradise Combined
------------- ------------ -------------
Total revenues $100,010,000 $17,313,000 $117,323,000
Total expenses 97,563,000 15,988,000 113,551,000
------------- ----------- ------------
Net income $ 2,447,000 $ 1,325,000 $ 3,772,000
============================================
PRO FORMA RESULTS OF OPERATIONS The following pro forma results of operations
were prepared under the assumption that the acquisition of PCM and Sunflower had
occurred at the beginning of each period shown. The historical results of
operations for PCM, Sunflower and Turf Paradise were combined with the Company's
results and pro forma adjustments related to the PCM acquisition were made for
the following: lease rent revenue due to Hollywood Park from PCM and concession
sales made to PCM; lease rent expense recorded by PCM; other operating expenses
including consulting fees, legal and audit services and other miscellaneous
duplicate expenses; amortization of the excess purchase price allocated to
goodwill; interest expense on the unpaid lease rent; and income taxes.
Adjustments related to the Sunflower acquisition were made for the following:
amortization of the excess purchase price allocated to the lease with TRAK East
and to goodwill; interest expense reduction related to the reduction in both the
principal and interest on Sunflower's subordinated debt; the termination of the
management agreement Sunflower had with a former shareholder and the wages and
payroll taxes paid to a former Sunflower shareholder; director's fees and income
taxes.
The pro forma earnings per share reflect the 218,099 common shares actually
issued to the former PCM shareholders, as of February 10, 1997. The pro forma
earnings per share also reflect the 647,289 shares issued to the former
Sunflower shareholders.
Year ended December 31,
------------------------------
1995 1994
------------ ------------
(unaudited)
Revenues $149,892,000 $128,651,000
Operating income 15,841,000 18,662,000
Income before interest, income taxes, depreciation and amortization 9,346,000 12,698,000
Net income (loss) $ (1,866,000) $ 196,000
============ ============
Dividend requirements on convertible preferred stock $ 1,925,000 $ 1,925,000
Net loss allocated to common shareholders $ (3,791,000) $ (1,729,000)
Per common share:
Net loss - primary $ (0.20) $ (0.09)
Net loss - fully diluted $ (0.20) $ (0.09)
RESTRICTED CASH Restricted cash as of December 31, 1996, was for amounts due
to horsemen for purses, stakes and awards. Restricted cash as of December 31,
1995, included approximately $2,482,000 related to the Class Actions lawsuit
settlement (see Note 18 Commitments and Contingencies) and approximately
$644,000 related to amounts due to horsemen for purses, stakes and awards.
GAMING-CASINO REVENUE AND PROMOTIONAL ALLOWANCES Gaming-Casino gaming revenues
consisted of fees collected from patrons on a per seat or per hand basis.
Revenues in the accompanying statements of operations exclude the retail value
of food and beverage provided to card players on a complimentary basis. The
estimated cost of providing these promotional allowances during the year ended
December 31, 1996, was $1,316,000. There were no comparable costs for the year
ended December 31, 1995.
ALLOWANCE FOR DOUBTFUL ACCOUNTS With the November 17, 1995, acquisition of PCM
the Company assumed the gaming accounts receivable, and associated allowance for
doubtful account balances that were on PCM's balance sheet.
44
ESTIMATES Financial statements prepared in accordance with generally accepted
accounting principles require the use of management estimates, including
estimates used to evaluate the recoverability of property, plant and equipment,
to determine the fair value of financial instruments, to account for the
valuation allowance for deferred tax assets, and to determine litigation related
obligations.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are depreciated on
the straight line method over their estimated useful lives as follows:
Years
-------
Land improvements 3 to 25
Buildings 5 to 40
Equipment 3 to 10
Maintenance and repairs were charged to operations of facilities; betterments
were capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation were eliminated from both the property and accumulated
depreciation accounts with any gain or loss recorded in the expense accounts.
Property, plant and equipment is carried on the Company's balance sheets at
depreciated cost. Whenever there are recognized events or changes in
circumstances that affect the carrying amount of the property, plant and
equipment, management reviews the assets for possible impairment. In accordance
with current accounting standards, management uses estimated expected future net
cash flows to measure the recoverability of property, plant and equipment. The
estimation of expected future net cash flows is inherently uncertain and relies
to a considerable extent on assumptions regarding current and future economic
and market conditions, and the availability of capital. If, in future periods,
there are changes in the estimates or assumptions incorporated into the
impairment review analysis, the changes could result in an adjustment to the
carrying amount of the property, plant and equipment.
INCOME TAXES The Company accounts for income taxes under Statement of
Financial Accounting Standards ("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. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that included the enactment date.
PRE-OPENING EXPENSES The Company expensed pre-opening costs associated with the
Hollywood Park-Casino, which opened on July 1, 1994, as incurred. These costs
included, project salaries, hiring costs and other pre-opening services.
POOLING OF INTERESTS EXPENSES Hollywood Park's costs of $414,000 incurred in
connection with the acquisition of Turf Paradise, and Turf Paradise's
acquisition costs of $213,000, were expensed as incurred.
EARNINGS PER SHARE Primary earnings per share were computed by dividing income
(loss) attributable to (allocated to) common shareholders (net income (loss)
less preferred stock dividend requirements) by the weighted average number of
common shares outstanding during the period. Fully diluted per share amounts
were similarly computed, but include the effect, when dilutive, of the
conversion of the convertible preferred shares and the exercise of stock
options.
CASH FLOWS Cash and cash equivalents consisted of certificates of deposit and
short term investments with remaining maturities of 90 days or less.
STOCK REPURCHASE On July 22, 1996, the Company announced its intention to
repurchase, and to retire up to 2,000,0000 shares of its common stock on the
open market or in negotiated transactions. As of December
45
31, 1996, the Company had repurchased and retired (with the last purchase being
made on November 13, 1996) 222,300 common shares, at a cost of approximately
$1,962,000.
RECLASSIFICATIONS Certain reclassifications have been made to the 1995 and 1994
balances to be consistent with the 1996 financial statement presentation.
NOTE 2 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the years ended December 31,
------------------------------------
1996 1995 1994
--------- ---------- ----------
Cash paid during the year for:
Interest $299,000 $2,098,000 $1,513,000
Income taxes 40,000 143,000 2,524,000
------------------------------------
$339,000 $2,241,000 $4,037,000
====================================
NOTE 3 -- SHORT TERM INVESTMENTS
Short term investments as of December 31, 1996 and 1995, consisted of the
following:
For the years ended December 31,
-------------------------------
1996 1995
---------- ----------
Corporate bonds $4,766,000 $4,504,000
Flexible deposit program 0 1,000,000
U.S. agency securities 0 906,000
Accrued interest 0 37,000
---------- ----------
Total $4,766,000 $6,447,000
========== ==========
As of December 31, 1996, short term investments consisted of corporate bonds
valued at $4,766,000, with Moody's ratings of Ba2 to B3, and Standard and Poors
rating 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.
For the year ended December 31, 1996, proceeds from the sale or redemption of
corporate bond investments were approximately $8,429,000, all of which was
reinvested, and gross realized gains and gross realized losses were $28,000 and
$39,000, respectively. For the year ended December 31, 1995, proceeds from the
sale or redemption of corporate bond investments were approximately $7,806,000,
all of which was reinvested, and gross realized gains and gross realized losses
were $34,000 and $3,000, respectively. The net unrealized holding gains
(losses), were $10,000 and ($22,000), for the year ended December 31, 1996, and
1995, respectively.
The Flexible deposit program was a discretionary investment plan with Bankers
Trust that provided capital preservation when held to maturity, plus income at a
targeted rate; therefore, this investment was held to maturity. The Flexible
deposit program investment was not rated.
The investments in U.S. agency securities included U.S. Treasury Bills with each
U.S. agency security rated AAA by both Moodys and Standard and Poors.
The Company classified the Flexible deposit program and the U.S. agency
securities as held to maturity, and as such, the investments were recorded in
the accompanying financial statements at amortized costs, which, based on the
short term nature of the investments and their relative liquidity, approximates
fair value.
46
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held at December 31, 1996, and 1995 consisted of
the following:
December 31,
---------------------------
1996 1995
------------ ------------
Land and land improvements $ 32,215,000 $ 42,490,000
Buildings 150,935,000 175,960,000
Equipment 31,531,000 36,003,000
Construction in progress 128,000 8,394,000
------------ ------------
214,809,000 262,847,000
Less accumulated depreciation 83,974,000 88,130,000
------------ ------------
$130,835,000 $174,717,000
============ ============
NOTE 5 -- SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of December 31, 1996, and 1995 consisted of the following:
December 31,
--------------------------
1996 1995
--------------------------
Secured notes payable (a) $ 0 $28,667,000
Unsecured notes payable (a) 0 15,574,000
Secured note payable - Texaco 0 3,358,000
Unsecured note payable - Gold Cup 317,000 340,000
---------------------------
317,000 47,939,000
Less current maturities 35,000 32,310,000
$282,000 $15,629,000
==========================
_____
(a) These notes relate to Sunflower and are non-recourse to
Hollywood Park.
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.
47
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 31, 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.
Texaco Secured Note Payable On September 3, 1996, Hollywood Park paid the
- ---------------------------
secured non-interest bearing promissory note of $3,358,000, related to the
October 27, 1995, purchase of 37.33 acres of land adjacent to the Inglewood
property.
Gold Cup Contest The Company's Gold Cup note payable resulted from the
- ----------------
$1,000,000 Gold Cup Contest on July 20, 1986. The prize money is payable to the
winner in 20 annual installments of $50,000, beginning August 1, 1986. The
remaining liability of $317,000 is net of unamortized discount at 8.5%.
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.
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.
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 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.
As discussed above, Sunflower filed for reorganization under Chapter 11 of the
Bankruptcy Code on May 17, 1996. As of March 31, 1996, Hollywood Park wrote off
its investment in Sunflower (see Note 1) and though Sunflower is operating
during the reorganization, as of April 1, 1996, Hollywood Park is no longer
consolidating Sunflower's operating results. The balances of Sunflower's
secured and unsecured notes payable are reflected in the December 31, 1995,
balance sheet.
As of December 31, 1996, Sunflower's unsecured notes payable totaled
$15,574,000. The unsecured notes payable included $13,060,000, payable to Mr.
Hubbard on January 1, 2003. As a condition of the merger between the Company
and Sunflower, Hollywood Park contributed $5,000,000 in cash to Sunflower to pay
accrued interest, and a portion of the note payable to Mr. Hubbard in exchange
for a reduction in the interest rate on this debt to 9.0% from 14.0%. The
remaining $2,514,000 relates to a Special Assessment note payable to Wyandotte
County, Kansas for the cost of construction of various streets and sewers
serving
48
Sunflower. The Special Assessment note was entered into in 1990, and is a 15
year note, with a fixed interest rate of 6.59%.
ANNUAL MATURITIES As of December 31, 1996, annual maturities of total notes and
loans payable are as follows:
Year ending:
---------------
December 31, 1997 $ 50,000
December 31, 1998 50,000
December 31, 1999 50,000
December 31, 2000 50,000
December 31, 2001 50,000
Thereafter 200,000
The fair values of the Company's various debt instruments discussed above
approximate their carrying amounts based on the fact that borrowings bear
interest at variable market based rates.
NOTE 6 -- LONG TERM GAMING ASSETS
Long term gaming assets related to the capital lease between the Company and the
city of Compton covering the hotel, surrounding parking and an expansion parcel
at Crystal Park. With the completion of the construction of Crystal Park, as of
December 31, 1996, the long term gaming assets were reclassed to property, plant
and equipment.
The capital lease was entered into on August 3, 1995, and has a term of up to 50
years. The annual rent payments start at $600,000 and increase every fifth year
until year 46, when they stabilize at $2,850,000. Hollywood Park received a
rent payment credit equal to the costs incurred to renovate Crystal Park, and no
cash rent payments are expected to be made until the nineteenth year of the
lease, or 2014.
NOTE 7 -- LONG TERM GAMING LIABILITIES
Long term gaming liabilities consist of the Company's capital lease obligation
associated with the lease of the hotel, surrounding parking and the expansion
parcel from the city of Compton for the Crystal Park Hotel and Casino. This
liability was reduced as the construction disbursements were made.
NOTE 8 -- ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED
ASSETS TO BE DISPOSED OF
In 1995, Statement of Financial Accounting Standards No. 121 ("SFAS") 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, was issued which established accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets. SFAS 121, which became effective for Hollywood Park in
the quarter ended March 31, 1996, addresses when impairment losses should be
recognized and how impairment losses should be measured. Whenever there are
recognized events or changes in circumstances that indicate the carrying amount
of an asset may not be recoverable, management reviews the asset for possible
impairment. In accordance with current accounting standards, management uses
estimated expected future net cash flows (undiscounted and excluding interest
costs, and grouped at the lowest level for which there are identifiable cash
flows that are as independent as possible of other asset groups) to measure the
recoverability of the asset. If the expected future net cash flows are less
than the carrying amount of the asset an impairment loss would be recognized.
An impairment loss would be measured as the amount by which the carrying amount
of the asset exceeded the fair value of the asset, with fair value measured as
the amount at which the asset could be bought or sold in a current transaction
between willing parties, other than in a forced liquidation sale. The
estimation of expected future net cash flows is inherently uncertain and relies
to a considerable extent on assumptions regarding current and future net cash
flows, market conditions, and the availability of capital. If, in future
periods, there are changes in the estimates or assumptions incorporated into the
impairment review analysis the changes could result in an adjustment to the
carrying amount of the asset, but at no time would previously recognized
impairment losses be restored.
49
NOTE 9 -- DEVELOPMENT EXPENSES
Included in Administrative expenses were development costs of approximately
$1,092,000, $2,716,000, and $1,275,000 for the years ended December 31, 1996,
1995, and 1994, respectively. The expenses in 1996 consisted primarily of costs
related to the Inglewood site master plan and card clubs in California. The
expenses in 1995 consisted primarily of costs related to the following projects:
the environmental impact study for the proposed stadium at Hollywood Park, card
clubs under consideration in the cities of Stockton, Pomona and South San
Francisco, and the retail center project (since abandoned). The costs incurred
in 1994 were primarily generated by the initial financial and economic analysis
of the proposed stadium, numerous card clubs, and the music dome.
NOTE 10 -- ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 ("SFAS") 123 Accounting for
Stock-Based Compensation, requires that the Company disclose additional
information about employee stock-based compensation plans. The objective of
SFAS 123 is to estimate the fair value, based on the stock price at the grant
date, of the Company's stock options to which employees become entitled when
they have rendered the requisite service and satisfied any other conditions
necessary to earn the right to benefit from the stock options. The fair market
value of a stock option is to be estimated using an option-pricing model that
takes into account, as of the grant date, the exercise price and expected life
of the option, the current price of the underlying stock and its expected
volatility, expected dividends on the stock, and the risk-free interest rate for
the expected term of the options.
The Company has calculated the pro forma financial results as required under
SFAS 123, and noted that the impact on the net loss for the year ended December
31, 1996, was immaterial.
NOTE 11 -- RACING OPERATIONS
The Company conducts thoroughbred racing at its Hollywood Park, Sunflower, and
Turf Paradise race tracks, located in California, Kansas and Arizona,
respectively. Sunflower is primarily a greyhound racing facility. On May 17,
1996, due to competition from Missouri riverboat gaming, Sunflower filed for
reorganization under Chapter 11 of the Bankruptcy Code, and as of April 1, 1996,
Sunflower's operating results were no longer consolidated with Hollywood Park's;
therefore, Sunflower's 1996 racing results and statistics have been excluded
from this note. Sunflower is operating during the reorganization. Under Kansas
racing law, 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 management 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.
LIVE ON-TRACK RACE DAYS 1996 1995 1994
------ ------ ------
Hollywood Park race track 103 97 102
Turf Paradise race track 166 171 185
Sunflower - Horses -- 49 62
Sunflower - Greyhounds -- 294 213
A summary of the pari-mutuel handle and deductions, by racing facility for the
year ended December 31, are as follows:
50
HOLLYWOOD PARK - LIVE HORSE RACING 1996 1995 1994
------------ ------------- ------------
Total pari-mutuel handle $677,827,000 $643,246,000 $699,748,000
Less patrons' winning tickets 547,775,000 520,291,000 565,685,000
------------ ------------ ------------
130,052,000 122,955,000 134,063,000
Less:
State pari-mutuel tax 19,263,000 20,691,000 26,260,000
City of Inglewood pari-mutuel tax 1,287,000 1,384,000 1,711,000
Racing purses and awards 26,300,000 26,888,000 31,183,000
Satellite wagering fees 12,784,000 13,545,000 16,732,000
Interstate location fees 44,815,000 34,170,000 27,570,000
Other fees 390,000 419,000 519,000
------------ ------------ ------------
Pari-mutuel commissions 25,213,000 25,858,000 30,088,000
Add off-track independent handle commissions 2,280,000 2,251,000 1,797,000
------------ ------------ ------------
Total pari-mutuel commissions including charity days 27,493,000 28,109,000 31,885,000
Less charity day pari-mutuel commissions 0 0 739,000
------------ ------------ ------------
Total pari-mutuel commissions net of charity days $ 27,493,000 $ 28,109,000 $ 31,146,000
============ ============ ============
Turf Paradise races live five days a week, and on three of these days Turf
Paradise concurrently operates as a simulcast site.
TURF PARADISE - LIVE HORSE RACING 1996 1995 1994
------------ ------------ ------------
Total pari-mutuel handle $147,748,000 $111,509,000 $ 96,493,000
Less patrons' winning tickets 114,585,000 86,460,000 74,918,000
------------ ------------ ------------
33,163,000 25,049,000 21,575,000
Less:
State pari-mutuel tax 18,000 345,000 669,000
Racing purses and awards 4,501,000 4,757,000 5,399,000
State sales tax 302,000 415,000 537,000
Off-track commissions 115,000 117,000 137,000
Interstate location fees 20,034,000 10,943,000 6,006,000
------------ ------------ ------------
Pari-mutuel commissions 8,193,000 8,472,000 8,827,000
Add off-track independent handle
commissions 166,000 699,000 297,000
------------ ------------ ------------
Total pari-mutuel commissions
including charity days 8,359,000 9,171,000 9,124,000
Less charity day pari-mutuel
commissions 17,000 0 29,000
------------ ------------ ------------
Total pari-mutuel commissions net of
charity days $ 8,342,000 $ 9,171,000 $ 9,095,000
============ ============ ============
The acquisition of Sunflower was accounted for under the purchase method of
accounting and as such results of operations prior to the March 23, 1994
acquisition date are not presented.
TRAK EAST AT SUNFLOWER - LIVE RACING Greyhounds Horses
1995 1995
----------- -----------
Total pari-mutuel handle $47,406,000 $ 2,844,000
Less patrons' winning tickets 37,379,000 2,273,000
----------- -----------
10,027,000 571,000
Less: State pari-mutuel tax 1,721,000 104,000
Racing purses and awards 2,230,000 190,000
----------- -----------
Total pari-mutuel commissions $ 6,076,000 $ 277,000
=========== ===========
Greyhounds Horses
1994 1994
----------- ----------
Total pari-mutuel handle $74,941,000 $6,274,000
Less patrons' winning tickets 59,778,000 5,012,000
----------- ----------
15,163,000 1,262,000
Less: State pari-mutuel tax 2,527,000 210,000
Racing purses and awards 3,372,000 421,000
----------- ----------
Total pari-mutuel commissions $ 9,264,000 $ 631,000
=========== ==========
51
As a stipulation to the granting of race dates, the California Horse Racing
Board ("CHRB") requires that Hollywood Park designate three days from both the
live Spring/Summer Meet and the Autumn Meeting as charity days. 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 pari-
mutuel handle for the respective race meet. Charity day payments must be made to
a distributing agent approved by the CHRB. The following table summarizes the
revenues and expenses that were excluded from the statements of operations for
the period prior to the 1994 Autumn Meeting and the total charity day liability
for the past three years:
1996 1995 1994
-------- -------- --------
Racing revenues $ 0 $ 0 $961,000
Less: Salaries, wages and employee 0 0 285,000
benefits
Other expenses 0 0 298,000
-------- -------- --------
Net proceeds (old charity day law) 0 0 378,000
Add: 2/10 of 1% of live on track pari-mutuel handle as
of the Autumn Meeting 1994 (revised
charity day law) 338,000 370,000 117,000
-------- -------- --------
Total charity day payable $338,000 $370,000 $495,000
======== ======== ========
Arizona racing law requires that 1.0% of the total in-state pari-mutuel handle
(on-track live pari-mutuel handle and off-track within the state pari-mutuel
handle) of three charity days be paid to a distributing agent approved by the
Arizona Racing Commission. The Arizona Department of Racing did not assign any
charity days in 1995, therefore no payments were required. Turf Paradise paid
$17,000 to the distributing agent in 1996, and paid $29,000 in 1994.
Hollywood Park conducts simulcast meets of live races held at local southern
California race tracks. As of 1993, the Company began to simulcast races from
northern California concurrently with live on-track racing. In July 1994,
Assembly Bill 1418 was enacted allowing for unrestricted simulcasting between
northern and southern California. Previous legislation, enacted in September
1993, limited such simulcasting to races with purses of at least $20,000. A
summary of simulcast pari-mutuel handle and commissions for the years ended
December 31, are as follows:
HOLLYWOOD PARK - SIMULCAST RACING 1996 1995 1994
------------ ------------ ------------
Pari-mutuel handle:
Thoroughbred meets $375,910,000 $379,263,000 $291,526,000
Quarter Horse meets 23,067,000 22,793,000 18,754,000
Harness meets 6,165,000 4,391,000 3,948,000
------------ ------------ ------------
$405,142,000 $406,447,000 $314,228,000
============ ============ ============
Pari-mutuel commissions:
Thoroughbred meets $ 12,669,000 $ 11,527,000 $ 7,624,000
Quarter Horse meets 454,000 457,000 377,000
Harness meets 120,000 86,000 79,000
------------ ------------ ------------
$ 13,243,000 $ 12,070,000 $ 8,080,000
============ ============ ============
TRAK East at Sunflower operates year round simulcasting of both greyhounds and
horses. Pari-mutuel handle and commissions earned by TRAK East for the year
ended December 31, 1995 and March 23, 1994 (the date Sunflower was acquired)
through December 31, 1994, are as follows:
52
TRAK EAST AT SUNFLOWER - SIMULCAST 1996 1995 1994
RACING
--------- ------------ -------------
Pari-mutuel handle:
Greyhounds $ -- $10,871,000 $ 7,162,000
Horses -- 29,600,000 24,010,000
-------- ----------- -----------
$ -- $40,471,000 $31,172,000
======== =========== ===========
Pari-mutuel commission:
Greyhounds $ -- $ 2,342,000 $ 1,361,000
Horses -- 5,742,000 4,690,000
-------- ----------- -----------
$ -- $ 8,084,000 $ 6,051,000
========= =========== ===========
Turf Paradise accepts simulcasts of live races from other tracks concurrently
with live on-track racing as well as operating as a simulcast site for Prescott
Downs between live meets. Turf Paradise also accepts simulcast signals on the
two dark days (days without live racing) a week during the live on-track meet.
TURF PARADISE - SIMULCAST RACING 1996 1995 1994
---------------------------------------------
Pari-mutuel handle all meets $55,814,000 $55,093,000 $46,549,000
Pari-mutuel commissions all meets 4,768,000 3,909,000 3,410,000
NOTE 12 -- INCOME TAXES
As discussed in Note 1, the Company accounts for income taxes under SFAS 109. On
November 17, 1995, the Company acquired PCM and accounted for the acquisition
under the purchase method of accounting. Before the acquisition, PCM was an S-
corporation for income tax purposes and under the terms of the merger was
dissolved into Hollywood Park. On March 23, 1994, the Company acquired Sunflower
and accounted for the acquisition under the purchase method of accounting.
Before the acquisition, Sunflower was an S-corporation and under the terms of
the merger became a C-corporation for income tax purposes. Turf Paradise was
acquired on August 11, 1994, and was accounted for under the pooling of
interests method of accounting.
The composition of the Company's income tax expense for the years ended December
31, 1996, 1995 and 1994 is as follows:
Current Deferred Total
----------- ----------- -----------
YEAR ENDED DECEMBER 31, 1996:
U.S. Federal $ 4,341,000 ($1,681,000) $ 2,660,000
State (3,293,000) 4,092,000 799,000
----------- ----------- -----------
$ 1,048,000 $ 2,411,000 $ 3,459,000
=========== =========== ===========
YEAR ENDED DECEMBER 31, 1995:
U.S. Federal $ 0 $ 473,000 $ 473,000
State 42,000 178,000 220,000
----------- ----------- -----------
$ 42,000 $ 651,000 $ 693,000
=========== =========== ===========
YEAR ENDED DECEMBER 31, 1994:
U.S. Federal $ 1,094,000 $ 656,000 $ 1,750,000
State (1,155,000) 973,000 (182,000)
----------- ----------- -----------
($61,000) $ 1,629,000 $ 1,568,000
=========== =========== ===========
The following table reconciles the Company's income tax expense (based on its
effective tax rate) to the federal statutory tax rate of 34%:
53
1996 1995 1994
----------- ----------- -----------
Income (loss) before income tax expense,
at the statutory rate ($ 269,000) ($ 159,000) $ 1,816,000
Pooling costs 0 0 213,000
Goodwill amortization 195,000 72,000 0
Political and lobbying costs 291,000 353,000 179,000
State income taxes, net of federal tax
benefits 800,000 145,000 (120,000)
Valuation allowance 0 0 (465,000)
Non-deductible expenses 105,000 260,000 0
Additional provisions 2,337,000 22,000 (55,000)
----------- ----------- -----------
Income tax expense $ 3,459,000 $ 693,000 $ 1,568,000
=========== =========== ===========
For the years ended December 31, 1996, and 1995, the tax effects of temporary
differences that gave rise to significant portions of the deferred tax assets
and deferred tax liabilities are presented below, along with a summary of
activity in the valuation allowance.
1996 1995
---------------- ----------------
CURRENT DEFERRED TAX ASSETS:
Workers' compensation insurance
reserve $ 790,000 $ 905,000
General liability insurance reserve 690,000 619,000
Legal accrual 58,000 76,000
Write off of investment in Sunflower 3,111,000 0
Development costs 0 268,000
Lawsuit settlement 1,104,000 2,087,000
Vacation and sick pay accrual 270,000 377,000
Bad debt allowance 437,000 739,000
Los Angeles revitalization zone credit 0 0
Other 435,000 177,000
------------ ------------
Current deferred tax assets 6,895,000 5,248,000
Less valuation allowance (120,000) (109,000)
------------ ------------
Current deferred tax assets 6,775,000 5,139,000
CURRENT DEFERRED TAX LIABILITIES:
Business insurance and other (353,000) (251,000)
------------ ------------
Net current deferred tax assets $ 6,422,000 $ 4,888,000
============ ============
NON-CURRENT DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 0 $ 931,000
General business tax credits 36,000 468,000
Los Angeles revitalization zone tax
credits 9,299,000 6,406,000
Other 42,000 156,000
Alternative minimum tax credit 1,244,000 412,000
------------ ------------
Non-current deferred tax assets 10,621,000 8,373,000
Less valuation allowance (5,511,000) (5,221,000)
------------ ------------
Non-current deferred tax assets 5,110,000 3,152,000
------------ ------------
NON-CURRENT DEFERRED TAX LIABILITIES:
Expansion plans (400,000) (400,000)
Los Angeles revitalization zone (461,000) (560,000)
accelerated write-off
Depreciation and amortization (10,580,000) (11,862,000)
Other (2,734,000) (413,000)
------------ ------------
Non-current deferred tax liabilities (14,175,000) (13,235,000)
------------ ------------
Net non-current deferred tax liabilities ($ 9,065,000) ($10,083,000)
============ ============
The Company is located in the Los Angeles revitalization tax zone and is
entitled to special state of California income tax credits related to sales tax
paid on operating materials and supplies, on construction assets and wages paid
to staff who reside within the zone. With the construction of the Hollywood
Park-Casino and Crystal Park, the Company earned substantial tax credits related
to sales tax paid on the assets acquired and on wages paid to construction
employees.
54
December 31,
-----------------------
1996 1995
---------- ----------
Valuation allowance at beginning of
period $5,330,000 $2,986,000
Valuation allowance utilized during the
year 0 0
Valuation allowance established for
California state 0 0
Los Angeles revitalization zone tax
credit 302,000 2,344,000
---------- ----------
Valuation allowance at end of period $5,632,000 $5,330,000
========== ==========
As of December 31, 1995, the Company had a federal regular net tax 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 tax 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 tax credits and alternative minimum tax credit carryforwards.
NOTE 13 -- STOCKHOLDERS' EQUITY
During 1996 the Company announced its intention to repurchase and retire up to
2,000,000 shares of its common stock on the open market or in negotiated
transactions. As of December 31, 1996, the Company had repurchased and retired
(with the last purchase in 1996 made on November 13, 1996) 222,300 common shares
at a cost of approximately $1,962,000.
On November 17, 1995, the Company acquired PCM's net assets for 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 were issued on November 17, 1995, (ii)
shares of Hollywood Park common stock, having a value of $540,000, or 48,674
common shares, were issued on November 19, 1996, and (iii) shares of Hollywood
Park common stock, having a value of $500,000, or 33,417 common shares were
issued on February 10, 1997.
On March 23, 1994, the Company issued 591,715 shares of Hollywood Park common
stock to acquire Sunflower. An additional 55,574 shares of Hollywood Park common
stock were subsequently issued to Mr. Richard Boushka, a former Sunflower
shareholder, as required by the agreement of merger. The acquisition of
Sunflower was accounted for under the purchase method of accounting.
On August 11, 1994, the Company issued 1,498,016 shares of Hollywood Park common
stock to acquire Turf Paradise. The acquisition of Turf Paradise was accounted
for under the pooling of interests method of accounting and the historical per
common share earnings of the Company have been restated as if the acquisition
had occurred at the beginning of each period presented.
NOTE 14 -- LEASE OBLIGATIONS
The Company leases certain equipment primarily for use in racing operations
(pari-mutuel wagering equipment) and general office equipment. Minimum lease
payments required under operating leases that have initial terms in excess of
one year as of December 31, 1996 are approximately $1,354,000 in 1997 and
annually thereafter. Total rent expense for these long term lease obligations
for the years ended December 31, 1996, 1995 and 1994 was $1,378,000, $1,318,000
and $1,437,000, respectively.
55
NOTE 15 -- RETIREMENT PLANS
The Hollywood Park Pension Plan (the "Pension Plan") was a non-contributory,
defined benefit plan covering employees of Hollywood Park, Inc. who met the
Pension Plan's service requirements, and all employees of Hollywood Park
Operating Company not eligible for participation in a multi-employer defined
benefit plan, who met the Pension Plan's service requirements.
Hollywood Park elected to terminate the Pension Plan as of January 31, 1997.
Accrued Pension Plan benefits were frozen as of September 1, 1996, for all
Pension Plan participants, except retained participants (participants who,
because of legal requirements, including the provisions of the National Labor
Relations Act, are represented by a collective bargaining agent), whose accrued
benefits were frozen as of December 31, 1996. As of the date the Pension Plan
benefits were frozen, participants became 100% vested in their accrued benefits,
regardless of the number of years of service. The funds accumulated under the
Pension Plan will be used to provide the retirement benefits accrued by the
participants. Pension Plan participants will receive their fully accrued
benefits only if the Pension Plan's assets are sufficient to cover such accrued
benefits, but in no event can the Pension Plan assets be paid to the Company
prior to the satisfaction of all accrued Pension Plan benefits to the
participants. Management presently believes that the accumulated Pension Plan
assets are sufficient to provide for the participant's accumulated Pension Plan
benefits.
The Company's Pension Plan funding policy was to contribute amounts to the
Pension Plan fund in an amount, at least equal to the minimum funding
requirements of the Employee Retirement Income Security Act of 1974, though not
in excess of the maximum deductible limit. The Pension Plan was subject to full
funding limitation in 1996; therefore, no contributions were made in 1996. The
Company contributed approximately $22,000 to the Pension Plan in 1995.
RETIREMENT PLANS FUNDED STATUS
December 31,
--------------------------
1996 1995
----------- -----------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $2,627,000 and $4,078,000 at
December 31, 1996 and 1995, respectively $ 2,627,000 $ 4,190,000
=========== ===========
Projected benefit obligation for service rendered
to date $ 2,627,000 $ 5,080,000
Less Pension Plan assets at fair value 4,436,000 5,754,000
Less Pension Plan contribution 0 22,000
----------- -----------
Pension Plan assets in excess of projected benefit
obligation 1,809,000 696,000
Unrecognized net gain from past experience
different from that assumed and effects
of changes in assumptions (1,052,000) (323,000)
Unrecognized net asset being recognized over 15
years (452,000) (539,000)
----------- -----------
Pension Plan asset (liability) $ 305,000 ($ 166,000)
=========== ===========
Net pension expense - Service cost $ 698,000 $ 314,000
Net pension expense - Interest cost 325,000 354,000
Actual return on assets (784,000) (753,000)
Net amortization and deferral 255,000 247,000
----------- -----------
Net periodic pension cost $ 494,000 $ 162,000
=========== ===========
The December 31, 1996, reserve liabilities and related asset values for the
annuity contract are not included in the table above, because the Company
executed an agreement with the insurance company holding the annuity contracts
to no longer participate in the annual adjustments to the contract values. The
December 31, 1995, Pension Plan liabilities and assets included in the table
above are annuity contract reserve liabilities and the related assets for the
current Pension Plan retirees.
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligations were 7.5% and 5.0%, respectively, at December 31, 1996, and 8.0% and
5.0%, respectively, at December 31, 1995. The expected long term rate of return
on assets was 8.0% at December 31, 1996 and 1995.
56
The Company also contributed to several collectively-bargained multi-employer
pension and retirement plans (covering full and part-time employees) which are
administered by unions, and to a pension plan covering non-union employees which
is administered by an association of race track owners. Amounts charged to
pension cost and contributed to these plans for the years ended December 31,
1996, 1995 and 1994 totaled $1,872,000, $1,781,000 and $1,846,000, respectively.
Contributions to the collectively-bargained plans are determined in accordance
with the provisions of negotiated labor contracts and generally are based on the
number of employee hours or days worked. Contributions to the non-union plans
are based on the covered employees' compensation.
Information from the plans administrators is not available to permit the Company
to determine its share of unfunded vested benefits or prior service liability.
It is the opinion of management that no material liability exists.
There is no defined benefit pension plan for Turf Paradise.
Effective January 31, 1997, in conjunction with the termination of the Pension
Plan, Hollywood Park elected to terminate its non-qualified Supplementary
Employment Retirement Plan ("SERP"). The SERP was an unfunded plan, established
primarily for the purpose of restoring the retirement benefits for highly
compensated employees that were eliminated by the Internal Revenue Service in
1994, when the maximum annual earnings allowed for qualified pension plans was
reduced to $150,000 from $235,850. Messers, Hubbard, Finnigan and Robbins
participated in the SERP prior to its termination.
NOTE 16 -- RELATED PARTY TRANSACTIONS
Since November 1993, the Company has had an aircraft time sharing agreement with
R.D. Hubbard Enterprises, Inc., ("Hubbard Enterprises") which is wholly owned by
Mr. Hubbard. The agreement automatically renews each month unless written notice
of termination is given by either party at least two weeks before a renewal
date. The Company reimburses Hubbard Enterprises for expenses incurred
as a result of the Company's use of the aircraft, which totaled approximately
$120,000 in 1996, $126,000 in 1995, and $139,000 in 1994.
On March 23, 1994, the Company acquired Sunflower, a greyhound and thoroughbred
race track located in Kansas City, Kansas, in which Mr. Hubbard owned a 60%
interest. The agreement of merger also provided that under certain circumstances
the former Sunflower shareholders were entitled to receive additional shares of
Hollywood Park common stock. As of March 23, 1995, the former Sunflower
shareholders transferred their right to such additional consideration to
Hollywood Park for nominal consideration and have no further entitlements to
additional consideration.
On May 2, 1996, the Kansas Legislature adjourned without passing legislation
that would have allowed additional gaming at Sunflower, thereby permitting
Sunflower to more effectively compete with Missouri riverboat gaming. As a
result of the outcome of the Kansas Legislative session, Hollywood Park wrote
off its approximately $11,412,000 investment in Sunflower. There was no cash
involved in the write off of this investment. On May 17, 1996, Sunflower filed
for reorganization under Chapter 11 of the Bankruptcy Code. Sunflower is
operating during the reorganization.
NOTE 17 -- STOCK OPTION PLAN
In 1996, the shareholders of the Company adopted the 1996 Stock Option Plan (the
"1996 Plan"), which provides for the issuance of up to 900,000 shares. Except
for the provisions governing the number of shares issuable under the 1996 Plan
and except for provisions which reflect changes in tax and securities laws, the
provisions of the 1996 Plan are substantially similar to the provision of the
prior plan adopted in 1993. The 1996 Plan is administered and terms of option
grants are established by the Board of Directors' Compensation Committee. Under
the terms of the 1996 Plan, options alone or coupled with stock appreciation
rights may be granted to selected key employees, directors, consultants and
advisors of the Company. Options become exercisable ratably over a vesting
period as determined by the Compensation Committee and expire over terms not
exceeding ten years from the date of grant, one month after
57
termination of employment, or six months after the death or permanent disability
of the optionee. The purchase price for all shares granted under the 1996 Plan
shall be determined by the Compensation Committee, but in the case of incentive
stock options, the price will not be less than the fair market value of the
common stock at the date of grant. On April 26, 1996, the Company amended the
non-qualified stock option agreements issued through this date, to lower the per
share price of the outstanding options to $10.00. On May 19, 1995, the Company
amended the non-qualified stock option agreements issued through this date, to
reflect the substantial decline in the fair market value of the common stock,
lowering the per share price of the outstanding options to $13.00. In 1994, Turf
Paradise had approximately 23,000 stock options outstanding, all of which were
fully exercised prior to the acquisition.
The following table summarizes information related to shares under option and
shares available for grant under the Plan.
1996 1995 1994
------------------------------------
Options outstanding at beginning of year 249,000 235,000 150,000
Options granted during the year 433,500 15,000 85,000
Options expired during the year (40,000 ) (1,000) 0
------------------------------------
Options outstanding at end of year 642,500 249,000 235,000
====================================
Total shares available for issuance under the
plan 900,000 625,000 625,000
Per share price of outstanding options issued
in prior year $ 10.00 $ 13.00 $ 25.50
Per share price of outstanding options issued
in current year $ 10.00 $ 13.25 $ 22.00
Per share price of outstanding options issued
in current year $ 11.50 -- --
Number of shares subject to exercisable
option at end of year 188,332 128,000 50,000
NOTE 18 -- COMMITMENTS AND CONTINGENCIES
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. (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
58
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.
Sunflower entered into a two year consulting agreement with Mr. Richard Boushka,
a former Sunflower shareholder, as of March 24, 1994. Consulting services
include assisting Sunflower in obtaining all approvals, licenses and permits
necessary for Sunflower to conduct casino gaming and to operate video lottery
terminals at or next to Sunflower's property. Under the terms of the agreement
Mr. Boushka will receive monthly payments totaling $100,000 per year. As of May
1995, given Sunflower's financial results, all payments to Mr. Boushka were
suspended, though Mr. Boushka did continue to provide services per the
agreement.
NOTE 19 -- UNAUDITED QUARTERLY INFORMATION
The following is a summary of unaudited quarterly financial data for the years
ended December 31, 1996 and 1995:
1996
---------------------------------------------
Dec. 31, Sept. 30, June 30, Mar. 31,
-------- --------- -------- --------
(in thousands, except per share data)
Revenues $38,698 $30,247 $46,427 $ 27,853
======= ======= ======= ========
Net income (loss) $ 3,277 $ 603 $ 5,249 $(13,378)
======= ======= ======= ========
Net income (loss) available to
(allocated to) common shareholders $ 2,795 $ 122 $ 4,768 $(13,859)
======= ======= ======= ========
Per common share:
Net income (loss) - primary $ 0.15 $ 0.01 $ 0.26 $ (0.74)
======= ======= ======= ========
Net income (loss) - fully diluted $ 0.15 $ 0.01 $ 0.25 $ (0.74)
======= ======= ======= ========
Cash dividends $ 0.00 $ 0.00 $ 0.00 $ 0.00
======= ======= ======= ========
1995
---------------------------------------------
Dec. 31, Sept. 30, June 30, Mar. 31,
-------- --------- -------- --------
(in thousands, except per share data)
Revenues $36,693 $26,595 $42,828 $ 24,456
======= ======= ======= ========
Net income (loss) $ 212 $(5,637) $ 4,857 $ (594)
======= ======= ======= ========
Net income (loss) available to
(allocated to) common shareholders $ (270) $(6,118) $ 4,376 $ (1,075)
======= ======= ======= ========
Per common share:
Net income (loss) - primary $ (0.01) $ (0.33) $ 0.24 $ (0.06)
======= ======= ======= ========
Net income (loss) - fully diluted $ (0.01) $ (0.33) $ 0.24 $ (0.06)
======= ======= ======= ========
Cash dividends $ 0.00 $ 0.00 $ 0.00 $ 0.00
======= ======= ======= ========
59
Hollywood Park, Inc.
Calculation of Earnings Per Share
For the three months ended December 31,
----------------------------------------------------------------------------------
Primary Assuming full Dilution (a)
--------------------------------------- ----------------------------------------
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
Average number of common shares outstanding 18,365,349 18,486,300 18,369,634 18,365,349 18,486,300 18,369,634
Average common shares due to assumed conversion
of convertible preferred shares 0 0 0 2,291,492 2,291,492 2,291,492
----------- ----------- ----------- ----------- ----------- -----------
Total shares 18,365,349 18,486,300 18,369,634 20,656,841 20,777,792 20,661,126
=========== =========== =========== =========== =========== ============
Net income $ 3,277,000 $ 212,000 $ 2,736,000 $ 3,277,000 $ 212,000 $ 2,736,000
Less dividend requirements on convertible
preferred shares 482,000 482,000 481,000 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) available to (allocated to) $ 2,795,000 ($270,000) $ 2,255,000 $ 3,277,000 $ 212,000 $ 2,736,000
common shareholders =========== =========== =========== =========== =========== ============
Net income (loss) per share $0.15 ($0.01) $0.12 $0.16 $0.01 $0.13
=========== =========== =========== =========== =========== ============
For the three years ended December 31,
----------------------------------------------------------------------------------
Primary Assuming full Dilution (a)
---------------------------------------- ----------------------------------------
1996 1995 1994 1996 1995 1994
------------ ------------ ------------ ------------ ----------- ------------
Average number of common shares outstanding 18,505,378 18,399,040 18,224,216 18,505,378 18,399,040 18,224,216
Average common shares due to assumed conversion
of convertible preferred shares 0 0 0 2,291,492 2,291,492 2,291,492
----------- ----------- ----------- ----------- ----------- -----------
Total shares 18,505,378 18,399,040 18,224,216 20,796,870 20,690,532 20,515,708
=========== =========== =========== =========== =========== ===========
Net income (loss) ($4,249,000) ($1,162,000) $3,772,000 ($4,249,000) ($1,506,000) $3,772,000
Less dividend requirements on convertible
preferred shares 1,925,000 1,925,000 1,925,000 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) available to (allocated to) ($6,174,000) ($3,087,000) $1,847,000 ($4,249,000) ($1,506,000) $3,772,000
common shareholders =========== =========== =========== =========== =========== ===========
Net income (loss) per share ($0.33) ($0.17) $0.10 ($0.20) ($0.07) $0.18
=========== =========== =========== =========== =========== ===========
- -------------
(a) The computed values assuming full dilution are anti-dilutive; therefore,
the primary share values are presented on the face of the Consolidated
Statements of Operations.
60
Hollywood Park, Inc.
Pari-mutuel Wagering Data
For the years ended December 31,
-------------- -------------- --------------
1996 1995 1994
-------------- -------------- --------------
HOLLYWOOD PARK (unaudited)
- -----------------------------------
Pari-mutuel handle:
On-track $168,793,000 $185,218,000 $229,667,000
Off-track - shared handle wagering 509,034,000 457,241,000 490,537,000
Simulcast 405,142,000 406,447,000 296,019,000
-------------- -------------- --------------
Total $1,082,969,000 $1,048,906,000 $1,016,223,000
=============== ============== ==============
Pari-mutuel commissions:
On-track $10,814,000 $11,777,000 $13,855,000
Off-track - shared handle wagering 14,399,000 14,081,000 16,371,000
Off-track - independent handle 2,280,000 2,251,000 1,749,000
Simulcast 13,243,000 12,070,000 7,251,000
-------------- -------------- --------------
Total $40,736,000 $40,179,000 $39,226,000
=============== ============== ==============
TURF PARADISE
- -----------------------------------
Pari-mutuel handle:
On-track $26,239,000 $28,524,000 $35,046,000
Off-track - shared handle wagering 121,509,000 82,983,000 61,448,000
Simulcast 55,814,000 55,093,000 46,549,000
-------------- -------------- --------------
Total $203,562,000 $166,600,000 $143,043,000
=============== ============== ==============
Pari-mutuel commissions:
On-track $3,151,000 $3,753,000 $4,289,000
Off-track - shared handle wagering 5,025,000 4,719,000 4,509,000
Off-track - independent handle 166,000 699,000 297,000
Simulcast 4,768,000 3,909,000 3,410,000
-------------- -------------- --------------
Total $13,110,000 $13,080,000 $12,505,000
=============== ============== ==============
COMBINED
- -----------------------------------
Pari-mutuel handle:
On-track $195,032,000 $213,742,000 $264,713,000
Off-track - shared handle wagering 630,543,000 540,224,000 551,985,000
Simulcast 460,956,000 461,540,000 342,568,000
-------------- -------------- --------------
Total $1,286,531,000 $1,215,506,000 $1,159,266,000
=============== ============== ==============
Pari-mutuel commissions:
On-track $13,965,000 $15,530,000 $18,144,000
Off-track - shared handle wagering 19,424,000 18,800,000 20,880,000
Off-track - independent handle 2,446,000 2,950,000 2,046,000
Simulcast 18,011,000 15,979,000 10,661,000
-------------- -------------- --------------
Total $53,846,000 $53,259,000 $51,731,000
=============== ============== ==============
Hollywood Park, Inc.
Selected Financial Data by Operational Location
Three months ended (unaudited)
--------------------------------------------------------- Year ended
December 31, September 30, June 30, March 31, December 31,
1996 1996 1996 1996 1996
----------- ----------- ----------- ------------- -----------
REVENUES:
Hollywood Park, Inc. and Race Track $17,894,000 $13,496,000 $28,035,000 $5,701,000 $65,126,000
Sunflower Racing, Inc. 0 0 0 1,782,000 1,782,000
Turf Paradise, Inc. 5,828,000 1,546,000 3,219,000 6,597,000 17,190,000
Hollywood Park, Inc. - Casino Division 14,531,000 15,205,000 15,173,000 13,773,000 58,682,000
HP/Compton, Inc. - Crystal Park Hotel and Casino 445,000 0 0 0 445,000
----------- ----------- ----------- ------------- -----------
38,698,000 30,247,000 46,427,000 27,853,000 143,225,000
----------- ----------- ----------- ------------- -----------
EXPENSES:
Hollywood Park, Inc. and Race Track 15,131,000 11,856,000 19,522,000 9,335,000 55,844,000
Sunflower Racing, Inc. 0 0 0 1,703,000 1,703,000
Turf Paradise, Inc. 4,134,000 2,013,000 2,700,000 4,122,000 12,969,000
Hollywood Park, Inc. - Casino Division 12,885,000 12,676,000 12,576,000 12,297,000 50,434,000
HP/Compton, Inc. - Crystal Park Hotel and Casino 1,000 0 0 0 1,000
----------- ----------- ----------- ------------- -----------
32,151,000 26,545,000 34,798,000 27,457,000 120,951,000
----------- ----------- ----------- ------------- -----------
INCOME (LOSS) BEFORE INTEREST, INCOME TAXES,
DEPRECIATION, OTHER NON-RECURRING EXPENSES
AND MINORITY INTEREST:
Hollywood Park, Inc. and Race Track 2,763,000 1,640,000 8,513,000 (3,634,000) 9,282,000
Sunflower Racing, Inc. 0 0 0 79,000 79,000
Turf Paradise, Inc. 1,694,000 (467,000) 519,000 2,475,000 4,221,000
Hollywood Park, Inc. - Casino Division 1,646,000 2,529,000 2,597,000 1,476,000 8,248,000
HP/Compton, Inc. - Crystal Park Hotel and Casino 444,000 0 0 0 444,000
----------- ----------- ----------- ------------- -----------
6,547,000 3,702,000 11,629,000 396,000 22,274,000
----------- ----------- ----------- ------------- -----------
NON-RECURRING EXPENSES:
Write off of investment in Sunflower Racing, Inc. 0 0 66,000 11,346,000 11,412,000
DEPRECIATION AND AMORTIZATION:
Hollywood Park, Inc. and Race Track 1,433,000 1,457,000 1,450,000 1,393,000 5,733,000
Sunflower Racing, Inc. 0 0 0 536,000 536,000
Turf Paradise, Inc. 294,000 301,000 301,000 309,000 1,205,000
Hollywood Park, Inc. - Casino Division 751,000 740,000 736,000 675,000 2,902,000
HP/Compton, Inc. - Crystal Park Hotel and Casino 319,000 0 0 0 319,000
----------- ----------- ----------- ------------- -----------
2,797,000 2,498,000 2,487,000 2,913,000 10,695,000
----------- ----------- ----------- ------------- -----------
INTEREST EXPENSE:
Hollywood Park, Inc. and Race Track 24,000 20,000 54,000 63,000 161,000
Sunflower Racing, Inc. 0 0 0 781,000 781,000
----------- ----------- ----------- ------------- -----------
24,000 20,000 54,000 844,000 942,000
----------- ----------- ----------- ------------- -----------
MINORITY INTEREST:
HP/Compton, Inc. - Crystal Park Hotel and Casino 15,000 0 0 0 15,000
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT):
Hollywood Park, Inc. and Race Track 1,306,000 163,000 7,009,000 (5,090,000) 3,388,000
Sunflower Racing, Inc. 0 0 0 (1,238,000) (1,238,000)
Turf Paradise, Inc. 1,400,000 (768,000) 218,000 2,166,000 3,016,000
Hollywood Park, Inc. - Casino Division 895,000 1,789,000 1,861,000 801,000 5,346,000
HP/Compton, Inc. - Crystal Park Hotel and Casino 110,000 0 0 0 110,000
Write off of investment in Sunflower Racing, Inc. 0 0 (66,000) (11,346,000) (11,412,000)
----------- ----------- ----------- ------------- -----------
3,711,000 1,184,000 9,022,000 (14,707,000) (790,000)
Income tax expense (benefit) 434,000 581,000 3,773,000 (1,329,000) 3,459,000
----------- ----------- ----------- ------------- -----------
Net income (loss) $3,277,000 $603,000 $5,249,000 ($13,378,000) ($4,249,000)
=========== =========== ============ ============= ===========
Dividend requirements on convertible preferred stock $482,000 $481,000 $481,000 $481,000 $1,925,000
----------- ----------- ----------- ------------- -----------
Net income (loss) available to (allocated to) common
shareholders $2,795,000 $122,000 $4,768,000 ($13,859,000) ($6,174,000)
=========== =========== ============ ============= ===========
Per common share:
Net income (loss) - primary $0.15 $0.01 $0.26 ($0.74) ($0.33)
Net income (loss) - fully diluted $0.15 $0.01 $0.25 ($0.74) ($0.33)
Number of shares - primary 18,365,349 18,534,592 18,612,850 18,610,114 18,505,378
Number of shares - fully diluted 20,656,841 20,826,084 20,904,342 20,901,606 20,796,870
HOLLYWOOD PARK, INC.
EXHIBIT INDEX
Exhibit
No. Description Page
- ------- --------------------------------------------------------------------- ----
10.13 Amendment No. Five, dated November 14, 1996, by and between Hollywood
Park, Inc., and Bank of America National Trust and Savings
Association, to the Business Loan Agreement dated April 14, 1995. 1-3
27.1 Financial Data Schedule 4