HTNZ=The Company!!
Hollywood Park is a diversified gaming, sports and entertainment company
engaged in the ownership and operation of casinos (including card club casinos)
and pari-mutuel racing facilities, and the development of other related
opportunities. For the year ended December 31, 1996, on a pro forma basis
(giving effect to the recent acquisition of Boomtown, the disposition of
Boomtown Las Vegas (as defined) and the issuance of the Notes (collectively,
the "Transactions") as if the Transactions were consummated as of January 1,
1996), Hollywood Park had total revenues of approximately $336.6 million,
EBITDA(/1/) of approximately $2.7 million, Adjusted EBITDA (as defined) of
approximately $52.0 million and (after giving effect to the one time, non-cash
$11.4 million write off of Hollywood Park's investment in Sunflower Racing,
Inc. and the $36.6 million loss on the sale of Boomtown Las Vegas) a net loss
of approximately $37.5 million and a deficiency of earnings to fixed charges of
approximately $34.8 million. As a result of its strategic combination with
Boomtown, Hollywood Park is a company with diversified revenues, improved cash
flow and significant real estate acreage available for future development. As
of September 30, 1997, the Company had total assets of approximately
$413.4 million and Net Debt (as defined) of approximately $114.2 million. See
"Unaudited Summary Pro Forma Financial Information."
Hollywood Park owns and operates land-based, dockside and riverboat gaming
operations in Verdi, Nevada ("Boomtown Reno"), Biloxi, Mississippi ("Boomtown
Biloxi") and Harvey, Louisiana ("Boomtown New Orleans"), respectively.
Hollywood Park's Boomtown properties offer gaming and other entertainment
amenities primarily to middle income, value-oriented customers. Hollywood Park
believes its Boomtown properties distinguish themselves from other casinos by
their emphasis on the "old west" theme and their casual, friendly atmosphere.
Hollywood Park also owns two card club casinos in California, both located in
the Los Angeles metropolitan area, the Hollywood Park-Casino card club casino
(the "Hollywood Park-Casino"), operated by the Company on the premises of the
Hollywood Park Race Track (described below), and the Radisson Crystal Park
Hotel & Casino ("Crystal Park"), in which Hollywood Park holds a majority
interest and which is leased to an unaffiliated operator. The Hollywood Park-
Casino and Crystal Park offer a variety of card games, including Poker, Pai Gow
and California Blackjack. The Company's gaming properties have an aggregate of
3,269 slot machines and 379 table games. Hollywood Park is the only company
that currently owns and operates both California card club casinos and
traditional casinos in Nevada and other states.
Hollywood Park owns and operates the Hollywood Park Race Track, a premier
thoroughbred racing facility (and the site of the prestigious 1997 Breeders'
Cup championship racing series) located within three miles of the Los Angeles
International Airport, and the Turf Paradise Race Track ("Turf Paradise"), a
thoroughbred racing facility located in Phoenix, Arizona.- --------
(1) EBITDA data, which is not a measure of financial performance under GAAP, is
presented because such data is used by certain investors to determine the
Company's ability to service or incur indebtedness. EBITDA and Adjusted
EBITDA are not calculated by the same means by all Companies and,
accordingly, are not necessarily appropriate measures for comparing
Companies' performance. Thus, neither EBITDA nor Adjusted EBITDA should be
considered in isolation from, or as a substitute for, net earnings (loss),
cash flows from operations or cash flow data prepared in accordance with
GAAP. 1<PAGE>
The following table provides certain information relating to the gaming,
hotel room, race track and undeveloped acreage data as of September 30, 1997 at
Hollywood Park's properties: <TABLE><CAPTION>
PERCENTAGE
HOLLYWOOD OF GROSS
BOOMTOWN BOOMTOWN BOOMTOWN HOLLYWOOD CRYSTAL PARK RACE TURF PARADISE REVENUES OF
RENO NEW ORLEANS BILOXI PARK-CASINO PARK TRACK RACE TRACK TOTAL COMPANY(B)
-------- ----------- -------- ----------- ------- --------- ------------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Casino Square Footage... 40,000 30,000 33,632 30,000 40,000 N/A N/A 173,632 62%(c)
Slot Machines........... 1,320 911 1,038 0 0 N/A N/A 3,269 37%
Table Games............. 44 55 35 145 60 N/A N/A 339 24%
Hotel Rooms............. 122 0 0 0 282 N/A N/A 404 0.3%
Live Race Days(a)....... 0 0 0 0 0 103 166 269 21%(d)
Undeveloped Acreage..... 503 22 0 0 0 150 100 775 --
</TABLE>- --------(a) Year ended December 31, 1996, actual live race days.
(b) Percentage of pro forma revenues for the year ended December 31, 1996.
(c) Includes all gaming related revenues.
(d) Includes all racing-related revenues. Gaming Properties
Boomtown Reno. Boomtown Reno has been operating for over 30 years (and has
been operated by current Boomtown management since 1987) on 569 acres in Verdi,
Nevada (seven miles west of Reno, Nevada and two miles from the California
border) on Interstate 80, the major highway connecting Northern California and
Reno. Boomtown Reno caters to middle-income customers and markets itself as a
gaming and entertainment property complete with amenities for the entire
family. Boomtown Reno offers its guests a 40,000-square foot casino, including
1,320 slot machines and 44 table games and two Keno games. Boomtown Reno also
offers a 122-room hotel, a 35,000-square foot entertainment center featuring a
theater, an indoor miniature golf course, a restaurant and a ferris wheel, a
16-acre truck stop with approximately 200 parking spaces, a 203-space full-
service recreational vehicle park, a service station, a mini-mart and other
related amenities. The Company currently plans a $25 million expansion at
Boomtown Reno to renovate existing gaming space and to add approximately
200 hotel rooms, 13,000 square feet of additional gaming space (including 200
slot machines), a restaurant, an entertainment lounge, 10,000 square feet of
meeting space, additional parking and other amenities.
Boomtown New Orleans. Boomtown New Orleans commenced operations in August
1994 on a 50-acre site in Harvey, Louisiana, approximately ten miles from the
French Quarter of New Orleans. Gaming operations are conducted from a 250-foot
replica of a paddle-wheel riverboat, offering 911 slot machines and 55 table
games in a 30,000 square foot casino. The land-based facility adjacent to the
riverboat dock is composed of a western-themed, 88,000-square foot facility.
The first floor of the building opened December 1994 and offers patrons a
restaurant, a 20,000 square foot family entertainment center and a western
saloon/dancehall. The Company currently plans a $10 million expansion of the
Boomtown New Orleans facility to refurbish the existing gaming area and to
build out the second floor by adding meeting space, additional food and
beverage and other entertainment amenities. Boomtown New Orleans caters to the
approximately 300,000 local residents of the West Bank of the Mississippi River
near New Orleans.
Boomtown Biloxi. Boomtown Biloxi commenced operations in July 1994 and
occupies nineteen acres on Biloxi, Mississippi's historic Back Bay, one-half
mile from Interstate 110, the main highway connecting Interstate 10 and the
Gulf of Mexico. Boomtown's "old west" theme is the first of its kind in the
Gulf Coast area, and management believes the casual atmosphere and western
theme distinguish Boomtown Biloxi from competing casinos. The dockside property
consists of a land-based facility which houses all non-gaming activities and a
33,632-square foot casino constructed on a 400 x 110 foot barge permanently
moored to the land-based building. The property offers 1,038 slot machines, 35
table games and various restaurants and other non-gaming amenities. Hollywood
Park is considering, subject to further market analysis and the acquisition of
additional land, a possible expansion of Boomtown Biloxi to add hotel rooms
and/or to expand the undeveloped portion of the barge. Boomtown Biloxi caters
to the over 250,000 local residents of the Biloxi area and to the employees of
other casinos in the area. 2<PAGE>
Hollywood Park-Casino. The Hollywood Park-Casino, a California card club
casino, opened in July 1994 on the same premises as the Hollywood Park Race
Track. The casino offers 145 gaming tables in 30,000-square feet of gaming
space. By law, California card club casinos may neither bank card games nor
offer certain of the familiar games permitted in Nevada and other traditional
gaming jurisdictions. Instead, the Hollywood Park-Casino offers only certain
forms of card games, including Poker, Pai Gow and California Blackjack. Patrons
of the Hollywood Park-Casino pay a fee for seats at gaming tables or for each
hand played. Players bet solely against each other, and the Hollywood Park-
Casino does not participate in the wagers made or in the outcome of any of the
games played.
Crystal Park Casino. The Crystal Park Casino, which is Southern California's
first major combined hotel and casino property, opened in late 1996 with 100
gaming tables and 282 hotel rooms. Games offered are similar to those offered
at the Hollywood Park-Casino. The hotel operates under a Radisson Hotels
International, Inc. flag. Hollywood Park has a 93.2% interest in Crystal Park
Hotel and Casino Development Company, LLC ("Crystal Park LLC"), the entity that
owns the facility, with unaffiliated minority investors owning the balance of
the facility. In order to comply with California law, which does not allow
publicly-traded companies to operate card club casinos (other than on the same
property as a race track, such as the Hollywood Park-Casino), the Crystal Park
Casino is operated by an unaffiliated operator.
Yakama Project. Through its wholly-owned subsidiaries HP Yakama, Inc. and HP
Yakama Consulting, Inc., Hollywood Park has entered into agreements under which
it will fund (up to $9,000,000) the construction and development of, provide
development services to, and receive a share of the net revenues of, an Indian
casino in the State of Washington. The casino, which is currently under
construction and is expected to open in the second quarter of 1998, will
feature a 600 seat bingo hall, certain table games including Blackjack, Poker,
Craps, Roulette, Mini-bac and Caribbean Stud, and will offer electronic pull
tabs and electronic bingo, but will not offer slot machines.
Kansas Project. HP Kansas, Inc., a wholly-owned subsidiary of Hollywood Park,
has entered into a partnership agreement with respect to the development of an
Indian gaming facility to be constructed on the grounds of The Woodlands
property in Kansas City, Kansas. The project is subject to regulatory approval,
as well as the approval of the plan of reorganization of Sunflower Racing, Inc.
("Sunflower") by the U.S. Bankruptcy Court, Sunflower's creditors and the
operator of racing at Sunflower. See "--Racing Properties" below.
Racing Properties
Hollywood Park Race Track. The Hollywood Park Race Track is situated on
378 acres in the Los Angeles metropolitan area. Since 1938, the Hollywood Park
Race Track has been ranked among the country's most distinguished thoroughbred
racing facilities and, in 1997, hosted the Breeders' Cup championship racing
series for the third time. Hollywood Park conducts two live on-track
thoroughbred horse race meets annually, totalling approximately 100 race days
per year, and in 1996 had one of the nation's largest combined live and
simulcast single-track gross handles (approximately $1.1 billion). Hollywood
Park simulcasts its live races, directly or indirectly through
re-transmissions, to 861 locations in 40 states and four countries. Hollywood
Park also accepts the simulcast signal from live races conducted at other race
tracks around the world.
Turf Paradise. Turf Paradise, which has operated for over 40 years, was
acquired by Hollywood Park in August 1994 and is situated on approximately 275
acres in the northwest section of Phoenix, Arizona. Turf Paradise conducts a
live thoroughbred meet that starts in September and runs through May and also
offers limited quarter horse and Arabian horse racing during certain periods of
the year. Turf Paradise simulcasts its live races to 34 off-track sites in
Arizona and 34 out-of-state hubs, from which the signal is further disseminated
to sites in New York, New Jersey, Pennsylvania, Nevada and Canada, amongothers.
Sunflower Racing. The Company also owns, through Sunflower, The Woodlands
Racetrack in Kansas City, Kansas. In 1996 Sunflower filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. A plan of
3<PAGE>
reorganization was recently filed with the Bankruptcy Court but remains subject
to approval of the court and the creditors. The plan of reorganization provides
for, subject to the approval of federal, state and tribal gaming authorities,
the sale of The Woodlands to the Wyandotte Tribe of Oklahoma and the
construction of a casino on the property. HP Kansas, Inc. and a non-affiliated
partner would make loans to fund (up to a currently estimated amount of
approximately $15 million to $20 million) the acquisition and development of,
provide consulting services to, and receive a share of the revenues of the
casino. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." Business Strategy
Hollywood Park's strategic plan is to grow its gaming, sports and
entertainment businesses by (i) expanding and increasing the utilization of its
existing properties, (ii) developing unimproved real estate at its existing
sites and developing projects at new sites, and (iii) making selected
acquisitions, principally in the gaming industry, to diversify its operations
and to achieve economies of scale.
. Expansion/Renovation of Existing Properties. The Company plans to expand and
renovate Boomtown Reno, Boomtown New Orleans and, possibly, Boomtown Biloxi,
by adding hotel rooms, gaming space, dining facilities, meeting space and
other amenities.
. Identified Development Opportunities. The Company is exploring the
development of some or all of the 150 undeveloped acres at the Hollywood
Park Race Track property and the 100 undeveloped acres at Turf Paradise
property through the addition of multi-use retail, entertainment and/or
sports venues. In addition, the Company is considering various alternative
development plans for some or all of the 503 undeveloped acres at its
Boomtown Reno site. The Company is also currently seeking a riverboat gaming
license for a hotel/casino on the Ohio River in Switzerland County, Indiana,
located approximately 35 miles south of Cincinnati, Ohio, as part of a joint
venture with a subsidiary of Hilton Gaming Corporation.
. Potential Strategic Acquisitions. Hollywood Park believes that significant
opportunities currently exist in the gaming industry as a result of
consolidation trends and the inability of certain gaming companies to expand
or maximize their opportunities due to capital constraints. Accordingly,
Hollywood Park seeks to capitalize on these opportunities to diversify its
operations geographically and achieve the benefits of economies of scale and
synergy. The Company is exploring acquisition opportunities in emerging
gaming markets (other than Las Vegas or Atlantic City) in which gaming has
already been legalized. RECENT DEVELOPMENTS
Hollywood Park-Boomtown Merger and Disposition of Boomtown Las Vegas
On June 30, 1997, pursuant to the Agreement and Plan of Merger dated as of
April 23, 1996 by and among the Company, HP Acquisition, Inc., a wholly-owned
subsidiary of the Company, and Boomtown, HP Acquisition, Inc. was merged with
and into Boomtown (the "Merger"). As a result of the Merger, Boomtown became a
wholly-owned subsidiary of the Company and each share of Boomtown common stock
was converted into the right to receive 0.625 of a share of Hollywood Park's
common stock. Approximately 5,363,000 shares of Hollywood Park's common stock
(excluding shares purchased from Edward P. Roski, Jr. as described below) were
issued in the Merger, representing approximately 22.5% of the total outstanding
shares of Hollywood Park's common stock, after giving effect to such issuance.
On July 1, 1997, Hollywood Park divested its entire interest in Boomtown's
hotel/casino property in Las Vegas, Nevada ("Boomtown Las Vegas"), to the
property's landowner and such landowner's affiliates (including Edward P.
Roski, Jr.) in exchange for cash, certain receivables, the termination of the
facility lease 4<PAGE>
and the assumption by the landowner of certain liabilities and operating leases
(collectively, the "Blue Diamond Swap"). Hollywood Park concurrently
repurchased from Mr. Roski 446,491 shares of Hollywood Park's common stock
received by him in the Merger. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--
Boomtown--Disposition of Boomtown Las Vegas." New Credit Facility
In connection with the Merger, the Company and a bank syndicate led by Bank
of America National Trust and Savings Association ("Bank of America NT&SA")
entered into a new bank credit facility (the "Bank Credit Facility") providing
for a reducing revolving line of credit of up to $225 million, maturing on June
30, 2002. However, the revolving line of credit commitment was permanently
reduced dollar-for-dollar by the $125 million aggregate principal amount of the
Old Notes issued by the Company. The Bank Credit Facility is secured by liens
on substantially all of the assets of the Company and its material
subsidiaries. As of September 30, 1997, no amounts were outstanding under the
Bank Credit Facility and, due to certain covenant limitations, approximately
$83.6 million of the $100 million Bank Credit Facility was available. See
"Description of Other Indebtedness--Bank Credit Facility."
Improvements to Boomtown's Financial Condition
Concurrently with the closing of the Merger and the Blue Diamond Swap, the
Company supplied the funds necessary to enable Boomtown to repurchase and
retire an aggregate of approximately 99% of the $103.5 million aggregate
principal amount of Boomtown's 11.5% First Mortgage Notes due 2003 (the
"Boomtown Notes") at a purchase price of $1,085 per $1,000 in principal amount
(together with accrued interest thereon) pursuant to an offer to purchase the
Boomtown Notes, leaving an aggregate of approximately $1 million in principal
amount of Boomtown Notes outstanding. Holders who tendered their Boomtown Notes
consented to the elimination or modification of certain covenants and other
changes to the indenture governing the Boomtown Notes, all to permit the
consummation of the Merger and the Blue Diamond Swap and to provide greater
operational flexibility to Hollywood Park. In addition, Boomtown made an offer
to redeem the remaining Boomtown Notes at 101% of principal amount (plus
accrued interest) pursuant to a change of control offer provision in the
indenture governing the Boomtown Notes and approximately $100,000 in aggregate
principal amount of the remaining Boomtown Notes were tendered in response to
such offer.
On August 8, 1997, Hollywood Park purchased the remaining 7.5% of Boomtown
New Orleans which it did not already hold for approximately $5.7 million. On
August 4, 1997, Hollywood Park executed an agreement to repurchase the Boomtown
Biloxi barge currently leased from National Gaming Mississippi, Inc., a
subsidiary of Chartwell Leisure Inc. ("National Gaming") for approximately
$5.25 million, and made a down payment of $1.5 million with the balance due in
three annual installments of $1.25 million. National Gaming's participation in
Boomtown Biloxi's adjusted EBITDA (as defined in the lease agreement) and other
related agreements terminated upon consummation of the barge repurchase. The
Company also has an option to purchase the remaining 15% of Boomtown Biloxi
which it does not already hold for a nominal amount, and it has delivered a
notice to the minority holder of Boomtown Biloxi exercising this option with
the exercise price to be determined pursuant to a formula. If consummated,
elimination of these third party interests would allow the Company to benefit
100% from operations, including any improvements, expansions or renovations at
these properties.
In addition, during 1996 and 1997, Boomtown restructured several operating
leases into capital leases through negotiated paydowns of the operating lease
residual balances, with a corresponding reduction in operating expenses.
Possible Restoration of Paired-Share/REIT Structure
In May 1997, the Company announced that it is exploring the possible
restoration of its former paired-share/REIT structure (the "Possible REIT
Restructuring"). The Company now expects to proceed with the
5<PAGE>
Possible REIT, Restructuring subject to, among other things, receipt of all
required stockholder, regulatory and other required approvals. However, the
Company has not yet solicited the necessary stockholder approval to implement
the Possible REIT Restructuring or received regulatory or other approvals, and
there can be no assurance that the Company will receive such approvals
necessary to effect the Possible REIT Restructuring or that, if implemented,
its expected benefits will be achieved. The Company has retained the investment
banking firm of Morgan Stanley & Co. Incorporated to advise it in connection
with matters pertaining to the Possible REIT Restructuring, including assisting
the Company's Board of Directors in evaluating a proposed business combination
with or investment by a potential strategic partner. See "Business--Possible
Restoration of REIT/Paired-Share Structure; Potential REIT Properties."
The Company has begun taking the steps necessary to reinstitute such a
structure over the next several months, with the objective of eventually
reorganizing its assets and operations into a REIT and an operating company.
Hollywood Park intends to proceed with the Possible REIT Restructuring without
obtaining advance rulings from the Internal Revenue Service as to the tax
consequences of the Possible REIT Restructuring. Noteholders should assume that
the Possible REIT Restructuring generally will be taxable to Hollywood Park and
its stockholders. See "Business--Possible Restoration of REIT/Paired-Share
Structure; Potential REIT Properties." There are a number of alternative
transaction structures for effectuating the Possible REIT Restructuring, and
the Company has not determined which alternative it would use to implement the
Possible REIT Restructuring. However, under any such alternative, if the
Company implements the paired-share/REIT structure, the Company would become
the REIT, Hollywood Park Operating Company ("HPOC") would become the operating
company, and the common stock of the Company and the common stock of HPOC would
be paired so that they would be transferable and tradeable only in combination
as units (with each unit consisting of one share of the Company's common stock
and one share of HPOC's common stock).
Redemption of Depositary Shares and Common Stock Repurchases
Effective August 28, 1997, the Company's 2,749,000 outstanding Depositary
Shares were converted into 2,291,492 shares of the Company's common stock,
thereby eliminating the annual preferred cash dividend payment of approximately
$1,925,000 for future periods. |
