<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM-10Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE COMMISSION ACT OF 1934
For the transition period from to
Commission file number 1-6339
PRATT HOTEL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-1295630
- ------------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO GALLERIA TOWER, SUITE 2200
13455 NOEL ROAD, LB 48
DALLAS, TEXAS 75240
- ------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (214) 386-9777
----------------------------
(NOT APPLICABLE)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO______
------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 10, 1995
- ---------------------------------- ---------------------------
COMMON STOCK, $.10 PAR VALUE 5,186,627 SHARES
1
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
INTRODUCTORY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pratt Hotel Corporation, a Delaware corporation, and its subsidiaries ("PHC")
are engaged primarily in the ownership, operation and management of
casino/hotels and hotels in the United States and Puerto Rico; the management of
a riverboat gaming facility located in Aurora, Illinois ("Hollywood - Aurora")
and providing consulting services to a gaming facility in Tunica County,
Mississippi ("Hollywood - Tunica"). Approximately 20% of PHC's outstanding
common shares are listed and traded on the American Stock Exchange under the
symbol PHC. The remaining 80% of the common shares of PHC are owned by
Hollywood Casino Corporation ("HCC"), a Delaware corporation with approximately
47% of its outstanding common shares listed and traded on the NASDAQ under the
symbol HWCC. The remaining outstanding HCC common shares are owned by certain
general partnerships and trusts controlled by Jack E. Pratt, Edward T. Pratt,
Jr. and William D. Pratt and by other family members (collectively, the "Pratt
Family").
A significant portion of PHC's assets relate to its wholly owned subsidiary,
Greate Bay Hotel and Casino, Inc. ("GBHC"), which owns the Sands Hotel and
Casino located in Atlantic City, New Jersey (the "Sands"). Historically, the
Sands' gaming operations have been highly seasonal in nature, with the peak
activity occurring from May to September; consequently, the results of
operations for the three month period ended March 31, 1995 are not necessarily
indicative of the operating results for the full year.
The consolidated financial statements as of March 31, 1995 and for the three
month periods ended March 31, 1995 and 1994 have been prepared by PHC without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, these consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the consolidated financial position of
PHC as of March 31, 1995, and the results of its operations and cash flows for
the three month periods ended March 31, 1995 and 1994.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in PHC's 1994 Annual Report on Form 10-K.
2
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
-------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 27,225,000 $ 29,302,000
Accounts receivable, net of allowances
of $15,710,000 and $15,297,000,
respectively 13,194,000 13,982,000
Inventories 4,423,000 4,389,000
Due from affiliates 2,270,000 2,990,000
Deferred income taxes 3,541,000 3,242,000
Refundable deposits and other
current assets 3,199,000 3,889,000
------------- -------------
Total current assets 53,852,000 57,794,000
------------- -------------
Property and Equipment:
Land 37,807,000 37,807,000
Buildings and improvements 181,849,000 181,849,000
Operating equipment 84,981,000 83,373,000
Construction in progress 2,067,000 326,000
------------- -------------
306,704,000 303,355,000
Less - accumulated depreciation
and amortization (140,547,000) (136,138,000)
------------- -------------
Net property and equipment 166,157,000 167,217,000
------------- -------------
Other Assets:
Obligatory investments 4,238,000 4,027,000
Deferred financing costs 9,526,000 9,811,000
Notes receivable 9,291,000 9,325,000
Other assets 2,457,000 2,570,000
------------- -------------
Total other assets 25,512,000 25,733,000
------------- -------------
$ 245,521,000 $ 250,744,000
============= =============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
3
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
-------------- --------------
<S> <C> <C>
Current Liabilities:
Borrowings from affiliate $ 250,000 $ 250,000
Current maturities of long-term debt 521,000 511,000
Accounts payable 7,028,000 8,584,000
Accrued liabilities -
Salaries and wages 3,762,000 4,065,000
Interest 9,351,000 11,385,000
Other 10,639,000 9,592,000
Other current liabilities 3,015,000 3,645,000
------------- -------------
Total current liabilities 34,566,000 38,032,000
------------- -------------
Long-Term Debt 329,446,000 327,889,000
------------- -------------
Other Noncurrent Liabilities 12,822,000 13,146,000
------------- -------------
Due to Affiliate 5,750,000 5,750,000
------------- -------------
Commitments and Contingencies
Shareholders' Deficit:
Common stock, $.10 par value per
share; 10,000,000 shares authorized;
5,186,627 shares issued and outstanding 519,000 519,000
Additional paid-in capital 23,838,000 23,838,000
Accumulated deficit (161,420,000) (158,430,000)
------------- -------------
Total shareholders' deficit (137,063,000) (134,073,000)
------------- -------------
$ 245,521,000 $ 250,744,000
============= =============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
4
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Revenues:
Casino $63,876,000 $54,136,000
Rooms 3,390,000 3,208,000
Food and beverage 7,868,000 6,527,000
Other 4,217,000 4,247,000
----------- -----------
79,351,000 68,118,000
Less - Promotional allowances (6,130,000) (5,446,000)
----------- -----------
Net revenues 73,221,000 62,672,000
----------- -----------
Expenses:
Casino 49,738,000 42,058,000
Rooms 1,084,000 965,000
Food and beverage 2,590,000 2,938,000
Other 1,211,000 986,000
General and administrative 7,468,000 6,682,000
Depreciation and amortization 5,129,000 4,414,000
----------- -----------
Total expenses 67,220,000 58,043,000
----------- -----------
Income from operations 6,001,000 4,629,000
----------- -----------
Non-operating income (expense):
Interest income 551,000 443,000
Interest expense (9,616,000) (9,854,000)
----------- -----------
Total non-operating expense, net (9,065,000) (9,411,000)
----------- -----------
Loss before income taxes (3,064,000) (4,782,000)
Income tax benefit 74,000 173,000
----------- -----------
Net loss $(2,990,000) $(4,609,000)
=========== ===========
Net loss per common share $ (.58) $ (.89)
=========== ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
5
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1995 1994
------------ --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,990,000) $ (4,609,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization, including
accretion of debt discount 6,821,000 5,146,000
Provision for doubtful accounts 805,000 644,000
Deferred income taxes (127,000) 251,000
Decrease (increase) in receivables 703,000 (1,890,000)
Decrease in accounts payable and accrued expenses (2,792,000) (8,226,000)
Net change in other current assets and liabilities 22,000 (1,360,000)
Net change in other noncurrent assets and liabilities 132,000 (455,000)
----------- -------------
Net cash provided by (used in) operating activities 2,574,000 (10,499,000)
----------- -------------
INVESTING ACTIVITIES:
Net property and equipment additions (3,349,000) (3,384,000)
Collections on notes receivable 25,000 7,000
Obligatory investments (652,000) (55,000)
Purchase of mortgage note - (5,750,000)
Investments in and advances to unconsolidated
affiliates (550,000) -
----------- -------------
Net cash used in investing activities (4,526,000) (9,182,000)
----------- -------------
FINANCING ACTIVITIES:
Repayment of short-term debt - (21,000,000)
Net repayments to affiliate - (7,133,000)
Deferred financing costs - (10,465,000)
Issuance of long-term debt - 285,000,000
Repayments of long-term debt (125,000) (220,216,000)
Issuance of common stock - 2,000
----------- -------------
Net cash (used in) provided by financing activities (125,000) 26,188,000
----------- -------------
Net (decrease) increase in cash and cash equivalents (2,077,000) 6,507,000
Cash and cash equivalents at beginning of period 29,302,000 15,466,000
----------- -------------
Cash and cash equivalents at end of period $27,225,000 $ 21,973,000
=========== =============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
6
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
Pratt Hotel Corporation, a Delaware corporation, and its subsidiaries
("PHC"), are engaged in the operation or management of casino and hotel
properties. PHC's principal assets are the Sands Hotel and Casino located in
Atlantic City, New Jersey (the "Sands") and management and consulting contracts
with gaming facilities located in Aurora, Illinois ("Hollywood - Aurora") and
Tunica, Mississippi ("Hollywood - Tunica") (see Note 5). PHC's other operations
in the United States and the Caribbean, including various ventures in which PHC
has an interest, are managed by PHC or its subsidiaries. Hollywood Casino
Corporation ("HCC"), a Delaware corporation which is approximately 53% owned by
certain general partnerships and trusts controlled by Jack E. Pratt, Edward T.
Pratt, Jr. and William D. Pratt and by other family members (collectively, the
"Pratt Family") owns approximately 80% of the common stock of PHC.
The consolidated financial statements as of March 31, 1995 and for the three
month periods ended March 31, 1995 and 1994 have been prepared by PHC without
audit. In the opinion of management, these consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the consolidated financial position of PHC as of
March 31, 1995, and the results of its operations and cash flows for the three
month periods ended March 31, 1995 and 1994.
(2) SHORT-TERM CREDIT FACILITIES AND BORROWINGS FROM AFFILIATES
During June 1994, a subsidiary of PHC entered into an agreement for a bank
line of credit in the amount of $5,000,000. The agreement provides for interest
on borrowings at the bank's prime lending rate plus 3/4% per annum. In addition
to the maintenance of certain financial ratios, the line of credit agreement
contains numerous restrictive covenants, all of which are also covenants under
other debt as described in Note 3. The bank line of credit agreement also
contains certain cross-default provisions with other outstanding debt of PHC and
its subsidiaries. Borrowings under the line of credit are guaranteed to the
extent of $2,000,000 by another subsidiary of PHC. There were no borrowings
outstanding under the line of credit at March 31, 1995 or December 31, 1994.
As of March 31, 1995 and December 31, 1994, PHC and its subsidiaries had
outstanding affiliate borrowings of $6,000,000 from HCC. Of the amounts
borrowed, $1,000,000, which is not due until April 1, 1998, and $4,750,000,
which is not due until May 31, 1996 and is secured by a pledge of certain notes
receivable acquired by PHC during 1994 (see Note 5), are included in noncurrent
due to affiliate in the accompanying consolidated balance sheets at March 31,
1995 and December 31, 1994. The remaining amounts are due on demand, or if no
demand is made, on April 1, 1998. Such borrowings from HCC bear interest at the
rate of 14% per annum, payable semiannually. Under certain conditions, PHC and
its subsidiaries may obtain additional loans from HCC under similar terms.
7
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
(3) LONG-TERM DEBT AND PLEDGE OF ASSETS
Substantially all of PHC's assets are pledged in connection with PHC's long-
term indebtedness. Additionally, the indentures with respect to the February
1994 refinancing of substantially all of PHC's casino-related outstanding debt
contain certain cross-default provisions.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------- -------------
<S> <C> <C>
10 7/8% first mortgage notes, due 2004 (a) $185,000,000 $185,000,000
11 5/8% senior notes, due 2004 (b) 85,000,000 85,000,000
14 5/8% junior subordinated notes, due 2005 (c) 8,683,000 8,683,000
14 7/8% secured promissory note, due 2006, net of
discount of $63,067,000 and $64,759,000 (d) 47,569,000 45,877,000
Other 3,715,000 3,840,000
------------ ------------
Total indebtedness 329,967,000 328,400,000
Less - current maturities (521,000) (511,000)
------------ ------------
Total long-term debt $329,446,000 $327,889,000
============ ============
</TABLE>
- ----------------------------
(a) On February 17, 1994, a subsidiary of PHC issued $185,000,000 of non-
recourse first mortgage notes due January 15, 2004 (the "10 7/8% First
Mortgage Notes") and collateralized by a first mortgage on the Sands.
Interest on the notes accrues at the rate of 10 7/8% per annum, payable
semiannually commencing July 15, 1994. Interest only is payable during the
first three years. Commencing on July 15, 1997, semiannual principal
payments of $2,500,000 will become due on each interest payment date. The
10 7/8% First Mortgage Notes are redeemable at the option of the issuer, in
whole or in part, on or after January 15, 1999 at stated redemption prices
ranging up to 104.08% of par plus accrued interest.
The indenture for the 10 7/8% First Mortgage Notes contains various
provisions which, among other things, restrict the ability of certain
subsidiaries of PHC to pay dividends to PHC, to merge, consolidate or sell
substantially all of their assets or to incur additional indebtedness
beyond certain limitations. In addition, the indenture requires the
maintenance of certain cash balances and, commencing in 1994, requires that
a minimum of $7,000,000 be expended for property and fixture renewals,
replacements and betterments at the Sands, subject to increases of five
percent per annum thereafter. The indenture also contains certain cross-
default provisions with respect to the PRT Funding Notes described in (b)
below.
(b) On February 17, 1994, a subsidiary of PHC issued $85,000,000 of unsecured
senior notes due April 15, 2004 (the "PRT Funding Notes"). Interest on the
PRT Funding Notes accrues at the rate of 11 5/8% per annum, payable
semiannually commencing October 15, 1994. The PRT Funding
8
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Notes are redeemable at the option of the issuer, in whole or in part, on
or after April 15, 1999 at stated redemption prices ranging up to 104.36%
of par plus accrued interest. The indenture for the PRT Funding Notes
contains various provisions which, among other things, restrict the ability
of certain subsidiaries of PHC to pay dividends to PHC, to merge,
consolidate or sell substantially all of their assets or to incur
additional indebtedness beyond certain limitations. The indenture also
contains certain cross default provisions with respect to the 10 7/8% First
Mortgage Notes described in (a) above.
(c) On February 17, 1994, PRT Funding Corp., a subsidiary of PHC, issued
$15,000,000 of junior subordinated notes (the "Junior Subordinated Notes")
to HCC. At December 31, 1994, $6,317,000 principal amount of the Junior
Subordinated Notes together with $1,914,000 of accrued interest were
assigned to PHC by HCC in recognition of tax net operating losses of PHC
used by HCC (see Note 4). The Junior Subordinated Notes are due in
February 2005 and bear interest at the rate of 14 5/8% per annum which,
subject to a PHC subsidiary meeting certain financial coverage and other
payment restriction tests required by the indenture for the PRT Funding
Notes, is payable semiannually commencing August 17, 1994. Because the PHC
subsidiary had not met the financial coverage tests, interest was not paid
on the August 17, 1994 or February 17, 1995 payment dates (see Note 5).
(d) On February 17, 1994, PPI Funding Corp., a newly formed subsidiary of PHC,
issued $40,524,000 discounted principal amount of new deferred interest
notes (the "PPI Funding Notes") to HCC in exchange for $38,779,000
principal amount of 15 1/2% unsecured notes held by HCC and issued by PCPI
Funding Corp., a subsidiary of PHC (the "PCPI Notes"). The increased
principal amount of the new notes includes a call premium on the exchange
($1,745,000) equal to 4 1/2% of the principal amount of PCPI Notes
exchanged; such premium was also paid to third party holders of $58,364,000
principal amount of PCPI Notes concurrently redeemed. The PPI Funding
Notes are discounted to yield interest at the rate of 14 7/8% per annum and
have a face value of $110,636,000. Payment of interest is deferred through
February 17, 2001 at which time interest will become payable semiannually,
with the unpaid principal balance due on February 17, 2006. The PPI
Funding Notes are collateralized by a pledge of all of the common stock of
a subsidiary of PHC.
Scheduled payments of long-term debt as of March 31, 1995 are set forth
below:
<TABLE>
<S> <C>
1995 (9 months) $ 386,000
1996 555,000
1997 3,467,000
1998 5,440,000
1999 5,480,000
Thereafter 377,706,000
------------
Total $393,034,000
============
</TABLE>
9
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Interest paid, net of amounts capitalized, amounted to $10,165,000 and
$11,454,000, respectively, during the three month periods ended March 31, 1995
and 1994.
(4) INCOME TAXES
Components of PHC's income tax benefits consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Federal income tax benefit $ - $ -
State income tax benefit (provision):
Current (53,000) 424,000
Deferred 127,000 (251,000)
-------- ---------
$ 74,000 $ 173,000
======== =========
</TABLE>
PHC is included in HCC's consolidated federal income tax return. Pursuant to
agreements between HCC and PHC, PHC's provision for federal income taxes is
based on the amount of tax which would be provided if a separate federal income
tax return were filed. HCC has compensated PHC for the use by HCC and its
subsidiaries (exclusive of PHC and its subsidiaries) of PHC's available tax net
operating loss carryforwards ("NOL's"). Such payment was effected at December
31, 1994 through the assignment of $6,317,000 principal amount of Junior
Subordinated Notes together with $1,914,000 of accrued interest thereon. PHC
paid no state or federal income taxes for the three month periods ended March
31, 1995 or 1994.
Both federal and state income tax provisions or benefits are based upon
estimates of the results of operations for the current annual period and reflect
the nondeductibility for income tax purposes of certain items, including certain
amortization, travel and entertainment and other expenses.
Deferred income taxes result primarily from the use of the allowance method
rather than the direct write-off method for doubtful accounts, the use of
accelerated methods of depreciation for federal and state income tax purposes
and differences in the timing of deductions taken between tax and financial
reporting purposes for contributions of and adjustments to the carrying value of
certain investment obligations and for vacation and other accruals.
PHC and its subsidiaries have tax net operating loss carryforwards ("NOL's")
totaling approximately $61,000,000 (after reduction for the $23,516,000 used by
HCC through 1994), of which approximately $43,000,000 do not begin to expire
until the year 2003. Additionally, PHC and its subsidiaries have various tax
credits available totaling approximately $4,000,000, most of which expire by the
year 2002. Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109") requires that the tax benefit of such NOL's and
credit carryforwards be recorded as an asset and, to the extent that management
can not assess that the utilization of all or a portion of such NOL's is more
likely than not, a valuation allowance should be recorded. Due to the financial
reporting and tax losses of PHC and its subsidiaries through the first quarter
of 1995, management was unable to determine that realization
10
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
of such asset was more likely than not and, thus, has provided valuation
allowances for the entire deferred tax asset for all periods presented.
Sales or purchases of PHC or HCC common stock by certain five percent
stockholders, as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), can cause a "change of control", as defined in Section 382 of the Code,
which would limit the ability of PHC to utilize these loss carryforwards in
later tax periods. Should such a change of control occur, the amount of annual
loss carryforwards available for use would most likely be substantially reduced.
Future treasury regulations, administrative rulings or court decisions may also
effect PHC's future utilization of its loss carryforwards.
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 20,924,000 $ 20,462,000
Allowance for doubtful accounts 6,506,000 6,330,000
Investment and jobs tax credits 4,075,000 4,075,000
Equity losses of unconsolidated
subsidiaries and joint ventures 3,484,000 3,491,000
Other liabilities and accruals 2,143,000 1,942,000
Benefits accrual 1,540,000 1,514,000
Other 1,005,000 982,000
------------ ------------
Total deferred tax assets 39,677,000 38,796,000
------------ ------------
Deferred tax liabilities:
Depreciation and amortization (8,762,000) (8,897,000)
Other (1,279,000) (933,000)
------------ ------------
Total deferred tax liabilities (10,041,000) (9,830,000)
------------ ------------
Net deferred tax asset 29,636,000 28,966,000
Valuation allowance (29,636,000) (28,966,000)
------------ ------------
$ - $ -
============ ============
</TABLE>
11
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Receivables and payables in connection with the aforementioned tax allocation
agreements were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ -------------
<S> <C> <C>
Deferred income taxes - current $ 1,559,000 $ 1,367,000
Other noncurrent liabilities (1,559,000) (1,367,000)
</TABLE>
(5) TRANSACTIONS WITH RELATED PARTIES
PHC operates the Holiday Inn located at the north entrance of the Dallas/Fort
Worth Airport ("DFW North") which is owned by Metroplex Hotel Limited
("Metroplex"), a partnership controlled by certain members of the Pratt Family.
PHC is obligated by the hotel operating agreement to make minimum rental
payments equal to Metroplex's principal and interest payments on the underlying
indebtedness of this hotel. During February 1994, PHC purchased such underlying
indebtedness with a principal balance of $13,756,000 from third parties at a
cost of $6,750,000, with funds borrowed from HCC, and subject to third party
indebtedness amounting to $2,706,000. Payments under the hotel operating
agreement (net of debt service receipts since the February 1994 note acquisition
date) amounted to $134,000 and $277,000, respectively, during the three month
periods ended March 31, 1995 and 1994. PHC recorded the note receivable from
Metroplex at acquisition cost, which management believes does not exceed the
estimated realizable value of the underlying collateral. The note is included
in notes receivable on the accompanying consolidated balance sheets. Payments
from Metroplex, including interest at the rate of 9 1/2% per annum, are due
monthly with the remaining principal balance of $13,533,000 due May 31, 1996.
A subsidiary of PHC earns, pursuant to a management agreement, a base
management fee from an HCC subsidiary equal to 5% of Hollywood - Aurora's
operating revenues (as defined in the agreement) subject to a maximum of $5.5
million annually, and an incentive fee equal to 10% of gross operating profit
(as defined in the agreement to generally include all revenues, less expenses
other than depreciation, interest, amortization and taxes). Such fees totaled
approximately $2,629,000 and $2,685,000, respectively, during the three month
periods ended March 31, 1995 and 1994. Unpaid fees amounting to $2,022,000 and
$2,341,000, respectively, are included in due from affiliates in the
accompanying consolidated balance sheets at March 31, 1995 and December 31,
1994.
Pursuant to a ten-year consulting agreement with the HCC subsidiary which
owns and operates Hollywood - Tunica, a subsidiary of PHC receives monthly
consulting fees of $100,000. The PHC subsidiary earned total fees of $300,000
during each of the three month periods ended March 31, 1995 and 1994.
HCC is obligated under the terms of an administrative services agreement to
pay PHC $50,000 per month. In addition, PHC and its subsidiaries share certain
general and administrative costs with HCC. Net allocated costs and fees charged
to HCC by PHC amounted to $64,000 and $69,000, respectively, during the three
month periods ended March 31, 1995 and 1994. At March 31, 1995, a payable in
the amount of $1,000 in connection with such allocated costs and fees is
included in due to affiliates in the
12
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
accompanying consolidated balance sheet. A receivable for such items in the
amount of $77,000 is included in due from affiliates in the accompanying
consolidated balance sheet at December 31, 1994.
Interest expense with respect to borrowings from HCC is set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
PPI Funding Notes and PCPI
Notes held by HCC (Note 3) $1,692,000 $1,454,000
Junior Subordinated Notes (Note 3) 317,000 268,000
Short-term borrowings (Note 2) 210,000 476,000
</TABLE>
During the three month period ended March 31, 1994, a newly formed PHC
subsidiary issued $40,524,000 discounted principal amount of PPI Funding Notes
in exchange for the PCPI Notes held by HCC (see Note 3). As a result of this
exchange, PHC's cash interest payments were reduced by approximately $6,000,000
per year. Accretion of interest on the PPI Funding Notes is included in the
outstanding note payable balance at March 31, 1995 and December 31, 1994.
Interest accrued on short-term borrowings at March 31, 1995 and December 31,
1994, which amounted to $233,000 and $23,000, respectively, is included in
interest payable on the accompanying consolidated balance sheets together with
interest on the Junior Subordinated Notes amounting to $317,000 at March 31,
1995. Outstanding interest on the Junior Subordinated Notes at December 31,
1994 was assigned to PHC by HCC in recognition of tax net operating losses of
PHC used by HCC (see Note 3).
(6) LITIGATION
Atlantic City Casino/Hotel Site
Certain subsidiaries of PHC have been engaged in litigation arising out of an
agreement entered into with a subsidiary of Penthouse International, Ltd.
("Penthouse") by a subsidiary of PHC to acquire and complete a casino/hotel site
in Atlantic City, New Jersey and the purchase on March 19, 1989, by Donald J.
Trump ("Trump") of the site from the Penthouse subsidiary.
On March 20, 1989, Penthouse and its subsidiary filed suit in the Superior
Court of New Jersey in Atlantic City, New Jersey against PHC and certain of its
subsidiaries. PHC and certain of its subsidiaries subsequently filed a
counterclaim against Penthouse and its subsidiary, and a third-party complaint
against Robert C. Guccione, Trump and Trump Plaza Associates. PHC and its
subsidiaries sought a determination that the contract for the casino/hotel site
was valid and unlawfully breached, compensatory damages, treble damages,
punitive damages and other forms of injunctive relief.
A bifurcated trial on liability issues in the litigation has been completed.
On March 25, 1993, the Court rejected the claims pressed by PHC and held in
favor of some of Penthouse's claims. However, the Court refused to pierce the
corporate veil so as to permit any recovery against PHC, or its subsidiary which
13
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
owns the Sands. The PHC subsidiaries which pressed these claims and which may
be adversely affected by the Court's ruling are the special purpose subsidiaries
which were formed to acquire, develop and operate the proposed casino/hotel
project and ancillary parking facilities.
Because the Court's action only affects two separate subsidiaries of PHC,
there are no adverse effects to the operations of, or will there be damages
assessed against, PHC under the Court's ruling. However, as a result of the
Court ruling, certain assets which had been capitalized in connection with the
attempted acquisition of the casino/hotel site amounting to $13,086,000 were
written off during 1992.
In January 1991, the PHC subsidiaries began a separate legal proceeding in
the United States District Court for the District of New Jersey alleging
essentially the same claims against Penthouse and Trump in the various state
court actions, and adding claims under the Sherman and Clayton Antitrust Acts
not asserted in state court. Penthouse has filed a counterclaim and third-party
complaint against the PHC subsidiaries asserting virtually all of the same
claims in the state court actions. As a result of the determination reached in
the parallel state court proceedings, this action was similarly dismissed.
PHC and its subsidiaries recently concluded a settlement with Penthouse and
its subsidiary in which a PHC subsidiary assigned its interest in a partnership
to the Penthouse subsidiary. Related claims in a separate action are still
pending against PHC subsidiaries by a former partner of Penthouse, but
discussions are underway on a settlement on a "walk away" basis. The appeal
from the state court judgement is pending but only with respect to Trump and
Trump Plaza Associates.
Other Litigation
PHC and its subsidiaries are also parties in various other legal proceedings
with respect to the conduct of casino and hotel operations. Although a possible
range of loss cannot be estimated, in the opinion of management, based upon the
advice of counsel, settlement or resolution of these proceedings should not have
a material adverse impact upon the consolidated financial position or results of
operations of PHC and its subsidiaries.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of the uncertainties described
above.
(7) SUPPLEMENTAL CASH FLOW INFORMATION
During the first quarter of 1994, PHC acquired the underlying indebtedness of
the DFW North Holiday Inn subject to third party indebtedness totaling
$2,706,000 (see Note 5).
(8) RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 consolidated financial
statements to conform to the 1995 consolidated financial statement presentation.
14
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
PHC RECAPITALIZATION
During February 1994, PHC completed the refinancing of virtually all of its
casino-related outstanding debt (the "PHC Recapitalization"). The refinancing
was completed through a public offering of $270 million of debt securities
consisting of $185 million of 10 7/8% First Mortgage Notes due January 15, 2004
and $85 million of 11 5/8% PRT Funding Notes due April 15, 2004.
As part of the PHC Recapitalization, PHC also issued $15 million of 14 5/8%
junior subordinated notes due in 2005 to HCC; interest on such debt is payable
semiannually commencing August 17, 1994, with payment subject to meeting certain
financial coverage and other payment restriction tests required by the indenture
for the 11 5/8% PRT Funding Notes. Interest was not paid on the August 17, 1994
or February 17, 1995 payment dates (see "Other" below).
Proceeds from the debt offerings were used, in part, to refinance
outstanding mortgage notes on the Sands and other debt maturing in 1994, to
repay $58.4 million of publicly held 15 1/2% unsecured notes issued by a
subsidiary of PHC (the "PCPI Notes") and to provide additional funding for
capital expenditures in connection with an expansion of gaming space at the
Sands. The remaining $38.8 million of PCPI Notes, which were held by HCC, were
exchanged for $40.5 million discounted principal amount of new notes with
deferred interest payments. As a result of this exchange, PHC's cash interest
payments have been substantially reduced. Neither HCC nor HCC's other
subsidiaries are obligated for the indebtedness of PHC and its subsidiaries.
GENERAL
PHC's principal assets and sources of revenues are the Sands and management
and consulting contracts with Hollywood - Aurora and Hollywood - Tunica. During
the first quarter of 1995, PHC's net cash provided by operating activities
amounted to $2.6 million compared with $10.5 million used in operations during
the first quarter of 1994. The 1995 first quarter improvement results primarily
from the payment during the first quarter of 1994 of transaction costs of
approximately $10.5 million in connection with the PHC Recapitalization. PHC
utilized its operating cash flow together with existing cash during the first
quarter of 1995 to fund capital additions ($3.3 million), make obligatory
investments at the Sands ($652,000) and provide funding to an unconsolidated
partnership for the refurbishment of a hotel property ($550,000).
Also during the first quarter of 1995, PHC repaid long-term indebtedness of
approximately $125,000. Scheduled maturities of long-term debt during the
remainder of 1995 are $386,000.
A PHC subsidiary earns a base management fee equal to 5% of operating
revenues (as defined in the management agreement) subject to a maximum of $5.5
million annually, and an incentive fee equal to 10% of gross operating profit
(as defined in the management agreement) from the operation of Hollywood -
Aurora. Combined base and incentive fees earned for the three month periods
ended March 31, 1995 and 1994 amounted to $2.6 million and $2.7 million,
respectively. The base fee is payable quarterly subject to the approval by the
board of directors of HCC. Initial payment of the incentive fee, which was
subject to certain cumulative earnings requirements, was made during April 1994
and has been made monthly
15
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
thereafter. Total fees received during the three month periods ended March 31,
1995 and 1994 amounted to $2.9 million and $1.9 million, respectively.
During 1994, a subsidiary of PHC entered into a ten-year agreement with
Hollywood - Tunica which provides for monthly payments of $100,000 to the PHC
subsidiary for consulting services. The agreement also provides for
reimbursement of direct costs and expenses incurred.
THE SANDS
The Sands' earnings before depreciation, interest, amortization, taxes and
intercompany management fees of more than $42 million during each of the last
five years have been sufficient to meet its debt service obligations (other than
certain maturities of principal that have been refinanced) and to fund a
substantial portion of its capital expenditures. The Sands has also utilized
short-term borrowings to fund seasonal cash needs and has used long-term
borrowings for certain capital projects.
During June 1994, GBHC entered into an agreement for a $5 million bank line
of credit, all of which was available for working capital purposes at March 31,
1995. Management does not anticipate borrowings on this line of credit during
the remainder of 1995.
Capital expenditures at the Sands during the first quarter of 1995 amounted
to approximately $3.3 million and management anticipates capital expenditures
during the remainder of 1995 will be approximately $9.3 million as the Sands
begins its conversion to the Hollywood theme used by affiliated HCC facilities.
The entire Hollywood conversion is expected to take 18 to 24 months at a cost in
excess of $25 million; such funds are anticipated to be provided by cash flow
from operations. Projects currently planned during the remainder of 1995
include completion of the Hollywood Epic Buffet, relocation of the Sands'
simulcast and poker facilities and a reconfiguration of its slot machines and
continued renovation of hotel rooms and suites.
The Sands is required by the New Jersey Casino Control Act to make certain
investments with the Casino Reinvestment Development Authority ("CRDA"), a
governmental agency which administers the statutorily mandated investments and
reinvestments made by casino licensees. Deposit requirements for the first
quarter of 1995 totaled $652,000 and are anticipated to be approximately $2.5
million during the remainder of 1995.
OTHER
In prior years PHC's hotel operations required substantial infusions of
operating funds; however, the disposition of all but three of its hotel
properties has greatly reduced the cash required to fund hotel operations. In
connection with a certain hotel property which PHC operates pursuant to an
operating agreement with an affiliate, PHC is obligated to make minimum rental
payments equal to the principal and interest payments on the underlying
indebtedness attributable to the property. During February 1994, PHC purchased
such underlying indebtedness with a principal balance of $13.8 million from
third parties at a cost of $6.8 million, with funds borrowed from HCC, and
subject to third party indebtedness amounting to $2.7 million.
16
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
PHC has also agreed to contribute up to $3.9 million, approximately $1.3
million of which has been paid as of March 31, 1995 (including $550,000 in the
first quarter of 1995), as an additional investment in an unconsolidated hotel
partnership to refurbish the hotel facility. Anticipated contributions during
the remainder of 1995 toward such commitment are approximately $1 million. Such
contributions are in recognition of PHC's partner having agreed to make $5
million in principal reductions on the underlying mortgage note on the facility
of which $3.5 million were made during 1994.
Tax allocation payments and the repayment of intercompany loans from the
Sands have historically been the primary source of liquidity for PHC's other
operations and activities, including the substantial litigation costs associated
with the attempted acquisition of a casino/hotel site in Atlantic City, as well
as PHC's debt service obligations; such payments from the Sands to PHC are
subject to the prior approval of the New Jersey Casino Control Commission. In
addition, certain loan indenture covenants restrict payments to PHC. PHC's
other past sources of liquidity and capital resources have been primarily
limited to proceeds from asset sales. PHC has substantially reduced its losses
from non-casino hotel operations over the past several years through the sale of
certain hotel properties and the termination of management contracts on certain
managed hotel properties. Additionally, PHC's litigation costs have been
substantially eliminated as all material litigation has been resolved. The
combination of reduced costs and the introduction of management and consulting
fees earned on non-owned gaming facilities have substantially reduced PHC's
reliance on intercompany payments as a source of liquidity.
Effective December 31, 1994, HCC began compensating PHC for the use by HCC
and its subsidiaries (exclusive of PHC and its subsidiaries) of PHC's available
tax net operating loss carryforwards. For the year ended December 31, 1994,
such payment has been effected through the assignment to PHC of $6.3 million
principal amount of the 14 5/8% junior subordinated notes issued by HCC to a
subsidiary of PHC together with $1.9 million of accrued interest thereon.
Management anticipates that PHC and its subsidiaries' (including the Sands')
funding requirements for the next twelve months will be satisfied by (i)
existing cash, (ii) cash generated by the Sands' operations, (iii) management
fees from Hollywood - Aurora, (iv) consulting fees from Hollywood - Tunica and
(v) management fees from remaining hotel operations.
RESULTS OF OPERATIONS
GENERAL
Management fees earned from Hollywood - Aurora and the recently completed
expansion of gaming space at the Sands have enabled PHC to increase its
consolidated net revenues to $73.2 million for the three month period ended
March 31, 1995 from $62.7 million for the three month period ended March 31,
1994. PHC's income from operations has improved to $6 million during the first
quarter of 1995 from $4.6 million during the same period of 1994.
17
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
GAMING OPERATIONS
The following table sets forth certain unaudited financial and operating
data relating to the Sands' operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1994
-----------------------------------
1995 1994
----------------- ----------------
(in thousands, except percentages)
<S> <C> <C>
REVENUES:
Table games $ 22,961 $ 22,164
Slot machines 39,737 31,128
Other (1) 1,178 844
-------- --------
Total $ 63,876 $ 54,136
======== ========
TABLE GAMES:
Gross Wagering
(Drop) (2) $142,588 $122,129
======== ========
Hold Percentages: (3)
Sands 16.1% 18.1%
Atlantic City Casino
Gaming Industry 15.9% 16.1%
SLOT MACHINES:
Gross Wagering
(Handle) (2) $469,817 $351,975
======== ========
Hold Percentage:(3)
Sands (4) 8.5% 8.8%
</TABLE>
____________________________
(1) Consists of revenues from poker ($841,000 and $610,000, respectively, for
the three month periods ended March 31, 1995 and 1994) and simulcast horse
racing wagering ($337,000 and $234,000, respectively, for the three month
periods ended March 31, 1995 and 1994).
(2) Gross wagering consists of the total value of chips purchased for table
games (excluding poker) and keno wagering (collectively, the "drop") and
coins wagered in slot machines ("handle").
18
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(3) Casino revenues consist of the portion of gross wagering that a casino
retains and, as a percentage of gross wagering, is referred to as the "hold
percentage".
(4) The Sands' hold percentage with respect to slot machines is reflected on an
accrual basis. Comparable data for the Atlantic City gaming industry is not
available.
Table games drop increased $20.5 million (16.8%) for the three month period
ended March 31, 1995 compared with the same period of 1994. This change
compares with an increase of 5.1% in table drop for all other Atlantic City
casinos during the same period. Consequently, the Sands' table game market
share (expressed as a percentage of the Atlantic City industry aggregate table
game drop) increased to 9% during the first quarter of 1995 from 8.1% during the
same period of 1994. The Sands' table game drop increase is largely attributable
to the completion in June 1994 of a 25,000 square foot expansion of gaming
space, which resulted in both a significant increase in the number of table
games, excluding poker, as well as improved accessibility of table games to
casino patrons. A number of factors also adversely affected the first quarter
of 1994 including the relocation of many blackjack tables to a less accessible
temporary gaming space during construction and the severe winter weather during
the first quarter, particularly on weekend periods which generally affect the
Sands to a greater degree than its competitors since the Sands caters to premium
table players who concentrate their visits over weekend periods.
Slot machine handle increased $117.8 million (33.5%) during the first
quarter of 1995 compared with the same period of 1994. The Sands' slot machine
handle increase during 1995 also exceeded the increase of 25% in slot machine
handle for all other Atlantic City casinos during the same period. The Sands
increased its average number of slot machines during the 1995 period by 22%
compared to the Atlantic City industry increase of 12.8%. The Sands' 1995 slot
handle increase exceeded both its own capacity increase and the average industry
handle increase as a result of the expansion of gaming space and the
introduction of new slot machines operated at a higher payback percentage, which
encourages extended patron play. In addition, marketing efforts implemented in
connection with the opening of the expanded Sands facility, particularly coin
incentive programs, have been continued into 1995 and have contributed to
significant increases in the important mass market segment which the Sands could
not effectively compete for previously due to capacity constraints.
REVENUES
Casino revenues at the Sands, including poker and simulcast horse racing
wagering revenues, increased by $9.7 million (18%) for the three months ended
March 31, 1995 compared with the same period of 1994. The 1995 revenue
increases result from the expansion of gaming space and marketing efforts as
demonstrated by the aforementioned increases in slot machine and table games
gross wagering of 33.5% and 16.8%, respectively. The impact on revenue of such
volume increases was partially offset by a decline in the slot machine hold
percentage; such a decline is consistent with the competitive trend in Atlantic
City towards lower hold percentages. Decreases in the table games hold
percentage also reduced the impact of the wagering volume increases.
Rooms revenues increased $182,000 (5.7%) for the three months ended March
31, 1995 compared with the same period of 1994. The increase reflects increased
hotel occupancy at the Sands primarily as
19
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
a result of a mild winter during 1995 compared to the inclement weather
experienced during 1994. Food and beverage revenues increased $1.3 million
(20.5%) for the three months ended March 31, 1995 compared with the prior year
as a result of the expansion of an existing dining outlet at the Sands and
increases in casino patronage. Other revenues did not change significantly
during the 1995 first quarter compared to the same period in 1994.
Promotional allowances represent the estimated value of goods and services
provided free of charge to casino customers under various marketing programs.
These allowances, as a percentage of rooms, food and beverage and other revenues
at the Sands, have decreased to 60.8% during the first quarter of 1995 from
63.5% during the corresponding period of 1994. As a result of the Sands'
expansion, wagering attributable to the mass market segment (which generally
does not require the same level of complimentaries) has increased at a greater
rate than overall wagering.
DEPARTMENTAL EXPENSES
Casino expenses at the Sands increased $7.7 million (18.3%) during the first
quarter of 1995 compared with 1994. This increase was primarily due to higher
operating costs during the first quarter of 1995 as a result of increased casino
patronage at the expanded Sands facility.
Rooms expense increased $119,000 (12.3%) during the first quarter of 1995
compared with the first quarter of 1994 primarily as the result of the increased
operating costs due to higher occupancy rates described above together with
increased payroll costs at the Sands. Food and beverage expense decreased
$348,000 (11.8%) during the three month period ended March 31, 1995 compared
with 1994 as a result of increased food and beverage complimentaries allocated
to the Sands' casino department partially offset by increased payroll and
operating costs associated with the expansion of gaming space at the Sands and
increased operating costs at other hotel facilities. Other expenses increased
$225,000 (22.8%) for 1995 compared with 1994 principally because of higher
payroll and production costs associated with theater entertainment at the Sands.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $786,000 (11.8%) during the
first quarter of 1995 compared to the same period in 1994 primarily due to
increases in payroll and general corporate overhead consistent with the
additional management and consulting services being provided by PHC to HCC-owned
facilities.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased $715,000 (16.2%) for the
quarter ended March 31, 1995 compared to the 1994 first quarter as a result of
increases in depreciation attributable to the expansion of gaming space at the
Sands offset by reductions in the monthly amortization of deferred financing
costs resulting from the PHC Recapitalization.
20
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
INTEREST
Interest income increased $108,000 (24.4%), during first quarter of 1995
compared to the same period in 1994. This increase was primarily as a result of
interest earned on the underlying indebtedness of a noncasino hotel operated by
PHC which was purchased during February 1994 (see Note 5 of Notes to
Consolidated Financial Statements).
Interest expense decreased $238,000 (2.4%) during the 1995 first quarter due
to the overall reduction in interest rates resulting from the PHC
Recapitalization completed in February 1994.
INCOME TAX PROVISION
PHC and its subsidiaries have tax net operating loss carryforwards ("NOL's")
totaling approximately $61 million (after reduction for approximately $24
million used by HCC through 1994), of which approximately $43 million do not
begin to expire until the year 2003. Additionally, PHC and its subsidiaries
have various tax credits available totaling approximately $4 million, many of
which expire by the year 2002. The provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" require that the
tax benefit of such NOL's and credit carryforwards be recorded as an asset and,
to the extent that management can not assess that utilization of such NOL's is
more likely than not, a valuation allowance should be recorded. Due to the
financial reporting and tax losses of PHC and its subsidiaries through the first
quarter of 1995, management was unable to determine that realization of that
asset was more likely than not and thus has provided valuation allowances for
the entire deferred tax asset for all periods presented.
INFLATION
Management believes that in the near term, modest inflation, together with
continued competition within the gaming industry for qualified and experienced
personnel, will continue to cause increases in operating expenses, particularly
labor and employee benefits costs.
SEASONALITY
Historically, the Sands' operations have been highly seasonal in nature,
with the peak activity occurring from May to September. Consequently, the
results of PHC's operations for the first and fourth quarters are traditionally
less profitable than the other quarters of the fiscal year. Furthermore,
Hollywood - Aurora has also experienced seasonality, but to a lesser degree than
the Sands, and, as a result, the management fees earned have fluctuated with
such seasonality. In addition, the Sands' and Hollywood - Aurora's operations
may fluctuate significantly due to a number of factors, including chance. Such
seasonality and fluctuations may materially affect PHC's casino revenues and
profitability.
21
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as a part of this report:
27 - Financial Data Schedule for the Three Month Period Ended March 31,
1995 and Restated Financial Data Schedule for the Year Ended
December 31, 1994.
(b) The registrant did not file any reports on Form 8-K during the quarter
ended March 31, 1995. The registrant filed its Form 10-K for the year
ended December 31, 1994 with the Securities and Exchange Commission on
March 24, 1995.
SIGNATURES
Pursuant to the requirements 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.
PRATT HOTEL CORPORATION
---------------------------
Registrant
Date: May 12, 1995 By:/s/ John C. Hull
------------------------ -----------------------------
John C. Hull
Corporate Controller
22
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
27 Financial Data Schedule for the Three Month Period Ended March 31, 1995
and Restated Financial Data Schedule for the Year Ended December 31,
1994
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> MAR-31-1995 DEC-31-1994
<CASH> 27,225 29,302
<SECURITIES> 0 0
<RECEIVABLES> 28,904 29,279
<ALLOWANCES> 15,710 15,297
<INVENTORY> 4,423 4,389
<CURRENT-ASSETS> 53,852 57,794
<PP&E> 306,704 303,355
<DEPRECIATION> 140,547 136,138
<TOTAL-ASSETS> 245,521 250,744
<CURRENT-LIABILITIES> 34,566 38,032
<BONDS> 329,446 327,889
<COMMON> 519 519
0 0
0 0
<OTHER-SE> (137,582) (134,592)
<TOTAL-LIABILITY-AND-EQUITY> 245,521 250,744
<SALES> 0 0
<TOTAL-REVENUES> 73,221 295,390
<CGS> 0 0
<TOTAL-COSTS> 53,818 212,161
<OTHER-EXPENSES> 12,597 47,771
<LOSS-PROVISION> 805 3,283
<INTEREST-EXPENSE> 9,065 35,591
<INCOME-PRETAX> (3,064) (3,416)
<INCOME-TAX> 74 1,080
<INCOME-CONTINUING> (2,990) (4,496)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,990) (4,496)
<EPS-PRIMARY> (.58) (.87)
<EPS-DILUTED> 0 0
</TABLE>
