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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK,
PAR VALUE $.10 PER SHARE AMERICAN STOCK EXCHANGE
Title of each class Name of exchange on which registered
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(Title of Class)
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
------ ------
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing price of such stock on March 22, 1995, was
$3,424,927. For the purposes of this computation, all officers, directors and
5% beneficial owners of the registrant are deemed to be affiliates. Such
determination should not be deemed an admission that such officer, directors and
beneficial owners are, in fact, affiliates of the registrant. As of March 22,
1995, 5,186,627 shares of Common Stock, $.10 par value per share, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated part or parts of this report.
(1) Definitive proxy statement filed pursuant to Regulation 14A in connection
with the Annual Meeting of Shareholders to be held on May 24, 1995 --
Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
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").
PHC owns the Sands Hotel and Casino in Atlantic City, New Jersey (the
"Sands"), from which a significant portion of PHC's revenues during 1994 were
derived. The Sands is not affiliated with the Sands Hotel and Casino in Las
Vegas, Nevada. PHC manages the operations of Hollywood - Aurora and provides
consulting services to Hollywood - Tunica, which are owned by HCC and from which
PHC earns management and consulting fees. PHC is also engaged to a lesser
extent in the casino gaming business in Puerto Rico and the management of hotels
in the United States.
PPI Corporation ("PPI") is a wholly owned subsidiary of PHC which owns
various entities related to PHC's Atlantic City gaming operations. Included
herein as wholly owned subsidiaries of PPI are: GB Property Funding Corp., the
issuer of $185 million of 10 7/8% First Mortgage Notes, due 2004 (the "10 7/8%
First Mortgage Notes"), PRT Funding Corp., the issuer of $85 million of 11 5/8%
senior notes, due 2004 (the "PRT Funding Notes"); BPHC Acquisition, Inc.
("BPHC"), the entity which had attempted to acquire and develop a casino/hotel
site on the central boardwalk in Atlantic City (see "Legal Proceedings"); New
Jersey Management, Inc. ("NJMI"), which manages the operations of the Sands;
Pratt Management, Ltd. ("PML"), which manages the operations of Hollywood -
Aurora; Pratt Casino Corporation ("PCC"), which earns consulting fees from
Hollywood - Tunica; and Greate Bay Hotel and Casino, Inc. ("GBHC"), which owns
the Sands.
The principal executive offices of PHC are located at Two Galleria Tower,
Suite 2200, 13455 Noel Road, Dallas, Texas 75240, telephone (214) 386-9777.
THE SANDS
In May 1981, PHC acquired a controlling interest in a casino/hotel in
Atlantic City and renamed it the "Sands Hotel and Casino." The facility had
experienced start-up and operational losses from its opening in August 1980.
PHC instituted management changes and implemented strategies designed both to
increase revenues and to control costs at the Sands and, during 1982, the Sands
experienced its first full year of profitable operations.
In addition to an ongoing capital improvements program designed to maintain
the appearance and attractiveness of the Sands facilities through periodic
remodelings and renovations, a number of significant projects were undertaken
between 1981 and 1993 to enhance the Sands' operations. Such projects included
a gradual expansion of gaming space from 32,000 square feet in 1981 to 50,000
square feet in
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1984; the construction in 1987 of an adjacent multi-level parking garage to
attract drive-in patrons; the completion in 1988 of an elevated, enclosed, one-
way moving sidewalk (the "People Mover") connecting the Sands to the Boardwalk;
and the 1990 renovation of an adjacent nine-story office building to be used as
offices for administrative personnel.
The Sands' Expansion Program. In the second quarter of 1993, GBHC began an
expansion program to increase the Sands' total permanent gaming space by
approximately 50% to 75,000 square feet at a cost of approximately $19 million.
Completion of the expansion in June 1994 enabled the Sands to add a total of
approximately 420 slot machines, 40 table games (including 19 poker tables) and
wagering on simulcast horse racing and keno facilities. Management believes
that the addition of wagering on simulcast horse racing and keno has the
potential to generate substantial customer traffic in the casino. As a result
of this expansion program, the Sands became the fifth largest casino in Atlantic
City.
The new gaming space, located on the second floor of the Sands, features a
large atrium extending over the main casino floor. Escalators allow patrons to
move easily between the gaming areas. Patrons using the walkway from the Sands'
parking garage enter primarily through the new gaming space. Related facilities
improvements include reconfiguring the Sands' food court to include a 250-seat
buffet and reconfiguring the main casino floor to improve utilization. The
Sands has and continues to upgrade its hotel suites in connection with an
ongoing capital improvements program. During the construction period, the Sands
operated a 10,000 square foot temporary gaming facility on the fourth floor that
included blackjack, poker and a simulcast horse race wagering facility.
Hollywood Theme. The Sands plans a phased introduction of the Hollywood
theme currently being used at other gaming facilities managed by subsidiaries of
PHC on behalf of HCC. The Hollywood theme incorporates designs inspired by
famous movies, displays of movie memorabilia and the use of movie themed
entertainment, including movie star look-a-likes throughout the property.
Management believes the timelessness and flexibility of the Hollywood theme will
have particular appeal to Atlantic City casino patrons who tend to visit
frequently. The Hollywood theme will be implemented over several years as part
of the ongoing capital improvements program and will begin in 1995 with the
planned opening of the "Hollywood Epic Buffet."
Business Strategy. The Sands' success in the highly competitive Atlantic
city market is attributable to its depth of experienced management, its
marketing strategy of seeking higher-value repeat patrons, an ongoing capital
improvements program, and its use of sophisticated casino information technology
to monitor and control certain casino operations and to target marketing efforts
toward frequent visitors while limiting costly mass promotions. Traditionally,
the Sands has been successful in its marketing efforts toward the high end,
frequent table game and slot patron through its offering of private, limited-
access facilities and related amenities to premium patrons. While the Sands is
continuing to maintain its position in this segment, the completion in 1994 of
the Sands' Expansion Program has allowed the Sands to broaden its appeal to the
mass drive-in patron for continued growth in this market segment.
Generally, the Sands has three types of patrons: high-end patrons, drive-in
patrons, and bus patrons. High-end patrons have gaming budgets of $5,000 or
more per visit, drive-in patrons typically live within a 200 mile radius of the
Sands and utilize the Sands' parking garage and bus patrons are generally day-
travelers who purchase "ticket coin packages" which include bus transportation
to and from the casino and a specified amount of coins to use in the casino.
The marketing strategy of the Sands is to attract higher-value, repeat
patrons who return frequently and typically have larger gaming budgets than
other patrons who do not gamble regularly. The Sands will continue its strategy
to attract these segments through its focus of capital dollars in its $1 slot
product
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and renovations to the Hollywood theme. The Sands' facilities and programs,
including the Plaza Club and the Island Club, have been designed to appeal
principally to these target patrons.
In implementing the Sands' marketing and operating strategy, the Sands uses
sophisticated casino information technology developed by Advanced Casino Systems
Corporation ("ACSC"), an affiliate of GBHC. ACSC's systems allow the Sands to
monitor and control the granting of gaming credit, promotional expenses and
other marketing costs, to compile data on patrons for marketing purposes, to
identify premium slot players and to provide automated follow-up customer
communication by direct mail. ACSC systems also allow interaction between the
Sands' slot machines and its customers. Enhancements to the system implemented
in 1993 include modification of slot machine bill changers to accept paper
currency so that the customer is not required to insert coins or tokens. During
March 1995, the Sands received approval from the New Jersey Casino Control
Commission (the "Casino Commission") to begin using, on a test basis, an
electronic transfer system which allows patrons to transfer slot play credits
previously earned directly to a slot machine for current slot play.
Competition. The Sands faces intense competition from the 11 other existing
Atlantic City casinos. According to reports of the Casino Commission, the
twelve Atlantic City Casinos currently offer over 925,000 square feet of gaming
space. It is possible that other entities could decide to build and operate
additional casino/hotels over the next few years or expand their existing
facilities. Although no specific plans have been announced, more than one
company have recently submitted applications seeking qualification in New Jersey
to hold casino licenses. Legislation enacted during 1993 requires the
allocation of $100 million of Casino Reinvestment Development Authority (
"CRDA") funds and credits to subsidize the construction of new hotel rooms by
casinos in Atlantic City. The CRDA is a governmental agency which administers
the statutorily mandated investments and reinvestments made by casino licensees.
Competitors of the Sands which have the financial resources and that can
currently access such funds and are capable of physically expanding their
facilities so as to take advantage of such subsidy may benefit
disproportionately from such recently enacted legislation. One such competitor
completed the addition of 284 rooms in November 1994; plans have been announced
by other casino operators to add in excess of 1,000 rooms within the next two
years.
New Jersey requires newly constructed casino/hotel facilities to have a
minimum of 500 hotel rooms. This requirement, along with the high initial
capital investment (estimated to exceed $400 million) required to develop and
open a new casino/hotel in Atlantic City, may prove a deterrent to new
competitors in the market. Growth in the number of casino/hotels or the
expansion of existing casino/hotels would intensify competition.
In this highly competitive environment, each property's relative success is
affected by a great many factors that relate to its location and facilities.
These include availability and number of parking facilities, hotel
accommodations, proximity to the Boardwalk, proximity to other casino/hotels,
and access to the main expressway entering into Atlantic City.
GBHC believes its operating strategy and facilities will continue to enable
it to compete effectively against most other Atlantic City casino/hotels, many
of which have greater sources of funding for capital improvements and financial
resources for marketing and promotional budgets than GBHC. Management expects
that many casinos will expand their gaming facilities as a result of recent
Atlantic City regulations which allow casinos to increase the number of slot
machines and which allow poker in conjunction with wagering on simulcast horse
racing and keno.
Casino gaming is currently permitted in a number of states, as well as on
Indian lands in certain states, such as the Foxwoods Casino in Connecticut and
the Turning Stone Casino in Oneida, New York near Syracuse. Currently,
management estimates that a significant amount of its revenues is derived from
patrons living within a 120 mile radius of Atlantic City, New Jersey,
particularly from southeastern
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Pennsylvania, northern New Jersey and metropolitan New York City. If casino
gaming were to be legalized in areas that are more convenient to those areas, it
could have a materially adverse effect on the Sands. Other jurisdictions may
legalize gaming in the future. Several jurisdictions have received proposals to
permit Indian tribes to designate land as Indian land for the purpose of
building gaming facilities. There are a number of significant legal and other
governmental uncertainties regarding the possibility of and regarding the
procedures for obtaining any such designation. New or expanded operations by
other persons can be expected to increase competition for the Sands and could
result in the saturation of gaming markets.
Industry Developments. A number of significant changes to the regulations
governing the casino industry have been initiated and approved by New Jersey
regulators since 1991, beginning with the implementation of 24-hour gaming on a
limited basis, the introduction of new types of games, greater flexibility in
the allocation of a facility's floor space and relief in employee licensing
requirements. During 1992, additional regulatory changes were adopted which
resulted in 24-hour gaming without limitation, increased the allowable number of
slot machines on the casino floor and approved new casino games including poker
in conjunction with wagering on simulcast horse racing and keno. As a result,
the Atlantic City casino gaming industry generated over $3.2 billion of casino
revenues during 1992, a 7.5% increase over the prior year. In response to these
developments, GBHC implemented the Sands' Expansion Program, as discussed above.
Additional deregulation of the industry occurred in early 1995 with the
enactment of legislation amending the New Jersey Casino Control Act (the "Casino
Act"). Among other things, the amendments allow an increase from 50,000 to
60,000 square feet of casino space for the minimum required 500 hotel rooms,
eliminate any licensing requirements for certain hotel employees, provide for
temporary licensing for all casino employees, increase the maximum renewal
period of casino licenses for up to four years, permit the square footage of
simulcast space to be considered in determining the permissible density of slot
machines, and eliminate business and experience requirements for employee
licensing. The legislation also removes the ownership limit of three casino
licenses per person.
The Atlantic City gaming industry has continued to grow since 1992, although
at a less dramatic rate. Revenues climbed to $3.3 billion in 1993 (an increase
from the previous year of 2.7%) and to $3.4 billion in 1994 (an increase from
the previous year of 3.7%). The 1994 increase results primarily from an overall
expansion of gaming space to approximately 925,000 square feet at the end of
1994 from approximately 850,000 square feet at the end of 1993, which enabled
the Atlantic City industry to overcome a 9.3% decline in revenues during the
first two months of 1994 due to inclement weather.
Casino/hotel operators have benefited in recent years from a trend toward
increased slot play as slot machines have increasingly become more popular than
table games with loyal and frequent patrons, as well as with recreational and
other casual visitors. Casino operators have also been catering increasingly to
slot patrons through new forms of promotions and incentives such as slot
machines which are linked between the various casinos to pay out a pooled
jackpot and more attractive gaming machines. Slot machines generally produce
higher margins and profitability than table games because they require less
labor and have lower operating costs. As a result, slot machine revenue growth
has significantly outpaced table game revenue growth in recent years to the
point where for 1994 slot win accounted for approximately 67.1% of total
Atlantic City gaming win. Table games remain important, however, in catering to
the higher-end segment of gaming patrons as well as in adding to the gaming
ambience and providing a varied gaming experience.
Casino Credit. Casino operations are conducted on both a credit and a cash
basis. Gaming debts arising in Atlantic City in accordance with applicable
regulations are enforceable under New Jersey law. For the three years ended
December 31, 1994, gaming credit extended to Sands' customers accounted for
approximately 30.8% of overall table game wagering, while table game wagering
accounted for
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approximately 27.9% of overall casino wagering during the period. At December
31, 1994 and 1993, gaming receivables amounted to $26.5 million and $26.2
million, respectively, before allowances for uncollectible gaming receivables
amounting to $15.2 million and $14.8 million, respectively. Management of the
Sands believes that the allowances for uncollectible gaming receivables are
adequate.
License Agreement. PHC entered into a 99-year license agreement (the "Sands
License Agreement") during 1987 to use the trade name "Sands" in Atlantic City,
New Jersey. GBHC pays an annual royalty of 3% of gross room charges, as defined
in the Sands License Agreement. During the years ended December 31, 1994, 1993
and 1992, such charges amounted to $288,000, $294,000, and $305,000,
respectively.
Employees and Labor Relations. In Atlantic City, all casino employees,
except certain hotel employees, must be licensed under the Casino Act. Due to
the seasonality of the operations of the Sands, the number of employees varies
during the course of the year. At December 31, 1994, there were approximately
3,500 employees at the Sands. The Sands has collective bargaining agreements
with two unions that represent approximately 900 hotel employees, substantially
all of whom are represented by the Hotel, Restaurant Employees and Bartenders
International Union, AFL-CIO, Local 54. The collective bargaining agreements
expire in September of 1999. Management considers its labor relations to be
good.
PRATT MANAGEMENT, LTD.
PML manages Hollywood - Aurora pursuant to the Hollywood Casino Management
Contract, which was executed in June 1991 and has an initial term of 99 years.
PML acts as the sole and exclusive agent in the supervision, direction and
control of the management of Hollywood - Aurora and any additions or expansions
thereof.
PML receives a quarterly base management fee generally equal to 5% of
operating revenues (as defined in the agreement). However, for so long as
certain indebtedness of HCC remains outstanding, payment of the base services
fee is (i) subject to a maximum of $5.5 million in any consecutive 12 month
period; (ii) subordinate to payment of interest on the HCC indebtedness and
certain other indebtedness; and (iii) conditioned upon compliance with
indentures governing such indebtedness.
PML also receives an incentive fee equal to 10% of gross operating profit (as
defined in the agreement). However, for as long as certain HCC indebtedness
remains outstanding, (i) the incentive fee may not be paid until Gross Operating
Cash Flow (as defined in the agreement) is at least $25 million for any
consecutive 12 month period and (ii) the approval of a majority of HCC's
independent directors is required for payment of all accrued but unpaid services
fees and incentive fees.
The Hollywood Casino Management Contract can be terminated by either party
upon 45 days prior written notice in the event of the other party's material
breach of the agreement, inability to pay debts generally as they become due,
bankruptcy or other similar proceedings, action to suspend normal business
operations, or imposition of any materially adverse levy or judgment.
Furthermore, PML has the right to terminate if the HCC subsidiary which owns
Hollywood - Aurora fails to furnish funds required for PML to manage Hollywood -
Aurora or fails to compensate or reimburse PML. In such case, PML is entitled
to liquidated damages in an amount equal to 10 times the aggregate base services
fee and incentive fee earned by PML in the preceding fiscal year.
HOLLYWOOD - AURORA
Hollywood - Aurora consists of two, four-level riverboats, City of Lights I
and II, having combined casino space of approximately 22,000 square feet
containing approximately 1,000 gaming positions. Each
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riverboat is 145 feet long and 45 feet wide. The facility also features the
Pavilion, a four-story 64,000 square foot dockside facility. Enclosed passenger
loading ramps connect the Pavilion to each riverboat on three levels.
The Pavilion features a glass-domed four-story atrium with two grand
staircases and includes amenities that appeal to its targeted market segments,
including Club Harlow, an upscale lounge, two gourmet restaurants, a snack bar
and a large buffet. In Club Harlow, Hollywood - Aurora offers selected patrons
amenities commonly associated with high-end casino operations, such as
complimentary food and personalized service. These patrons have direct access
from Club Harlow to a gaming area emphasizing higher-limit table games and slot
machines. Patrons of Hollywood - Aurora are offered valet parking or may self-
park in a conveniently located multi-level parking garage, which accommodates
840 cars and which also contains approximately 18,000 square feet of office
space for Hollywood - Aurora administrative offices and approximately 13,000
square feet of retail space.
Hollywood - Aurora, which commenced operations on June 17, 1993, is one of
only four casinos currently operating within 50 miles of downtown Chicago.
Approximately 7.1 million people live within a 40-mile radius and approximately
11.6 million people live within a 100-mile radius of Hollywood - Aurora. Aurora
is easily accessible from major highways, can be reached from downtown Chicago
in approximately 45 minutes by train with an average of 20 trips a day, and is
approximately 30 miles from O'Hare International Airport. Within 50 miles of
Chicago, three additional riverboats are operating under the Illinois Riverboat
Gambling Act and the rules and regulations promulgated thereunder (the
"Riverboat Act"). No additional casinos may be licensed for the Chicago area
under Illinois law absent additional state legislation. HCC estimates that the
four aforementioned operating Chicago-area casinos have approximately 122,000
square feet of combined gaming space. By comparison, Atlantic City's twelve
casinos have over 925,000 square feet of combined gaming space.
Business Strategy. Hollywood - Aurora employs a marketing strategy designed
to take advantage of its proximity to the affluent northern and western suburbs
of Chicago and the large population base of the Chicago metropolitan area. In
implementing its marketing strategy, Hollywood - Aurora uses the same casino
information technology used at the Sands and developed by ACSC. Such
information technology includes ACSC's table game and slot monitoring systems
that provide Hollywood - Aurora the ability to track and rate patron play
through the use of a casino players' card. These systems provide management
with the key characteristics of patron play as each slot machine and table game
pit is connected with its data base monitoring system. When patrons utilize the
casino players' card at slot machines and table games, the information is
immediately available to management and allows management to implement marketing
programs to recognize and reward patrons during their visits to the casino.
Such promotions and complimentaries include free food, admissions, retail
merchandise and sweepstakes giveaways. Management believes that its ability to
reward its higher value patrons on a "same-visit" basis is valuable in
implementing its strategy of developing a loyal patron base of premium rated
players. ACSC's systems allow Hollywood - Aurora to monitor, analyze and control
the granting of gaming credit, promotional expenses and other marketing costs.
Additionally, marketing efforts directed toward slot patrons include providing a
liberal slot hold which rewards the slot patron with higher payouts. ACSC also
has developed a system that Hollywood - Aurora utilizes to capture and maintain
patron information necessary in implementing its casino players' card and other
data base marketing programs.
Management uses the patron data base to focus its marketing efforts on
patrons who have been identified through the system as having the
characteristics of a higher value patron. Given the limited number of gaming
positions available on each daily casino excursion, management believes that its
process of identifying the premium Chicago area patron, encouraging
participation in its casino players' card program and tailoring promotions and
special events to cater to this market segment will enhance Hollywood - Aurora's
profitability.
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Hollywood - Aurora also markets to the "mass" casino patron market segment
through various forms of advertising media as well as through group and bus tour
packages. Once new patrons are introduced to the Company's gaming facility and
the casino players' card program, management uses its data based capabilities to
direct market to these patrons in an attempt to convert them into higher value
patrons.
Management believes that Hollywood - Aurora's facilities, in particular its
dockside Pavilion which employs a Hollywood theme and its close proximity to the
city-owned Paramount Theatre, a 1,900-seat 1930's style art deco theatre, are
appealing to both the premium and mass casino patron markets. The Hollywood
theme incorporates designs inspired by famous movies, displays of movie
memorabilia, the use of movie themed entertainment, including movie star look-a-
likes entertaining guests throughout the property. The Company features
headliner entertainment in the nearby Paramount Theatre. Entertainers who have
appeared include Frank Sinatra, Tom Jones, Ann-Margaret, the Temptations, Howie
Mandel, Willie Nelson and the Bolshoi Ballet.
Planned Expansion. The Illinois Gaming Board's clarification of its
definition of "gaming position" will allow Hollywood - Aurora to increase its
current capacity of approximately 1,000 gaming positions to 1,200 gaming
positions. Consequently, HCC recently announced plans to expand one of
Hollywood - Aurora's two existing riverboats by 10,000 square feet of gaming
space which will enable Hollywood - Aurora to offer an additional 243 slot
machines in more attractive, spacious surroundings.
The Company has also entered into negotiations with the City of Aurora and
the Aurora Civic Center Authority regarding construction of a valet parking
garage and banquet center immediately adjacent to the Pavilion, which would be
financed primarily by Aurora Civic Center Authority revenue bonds. The project
would provide an additional 400 parking spaces and 5,000 square feet of banquet
facilities and would be leased by Hollywood - Aurora for an initial 15 year term
with renewal provisions.
In connection with the City's master plan for development of downtown Aurora,
HCC has agreed to provide a minimum of $2 million in connection with the
construction of certain portions of the Aurora riverwalk and other related
improvements and amenities.
Competition. The gaming industry is highly fragmented and characterized by a
high degree of competition among a large number of participants, including
riverboat casinos, dockside casinos, land-based casinos, video lottery
terminals, Indian gaming and other forms of legalized gaming in the United
States. Within Hollywood - Aurora's primary market area, gaming is currently
permitted in a number of states, such as Iowa, Indiana and Missouri and in
Windsor, Ontario, Canada. Two riverboat casinos were recently licensed in East
Chicago under Indiana gaming regulations and the Company understands that one or
more native american indian tribes hope to open casino facilities in
northwestern Indiana and Michigan under the Indian Gaming Regulatory Act.
Other jurisdictions may legalize gaming in the future. Several states have
proposals to legalize gaming either introduced or being prepared for
introduction to the state legislatures. There are a number of significant legal
and other governmental uncertainties regarding the possibility of and regarding
the procedures for obtaining any such designation. New or expanded operations
by other persons can be expected to increase competition for Hollywood - Aurora.
Management believes that competition in the gaming industry, particularly the
riverboat and dockside gaming industry, is based on the quality and location of
gaming facilities, the effectiveness of marketing efforts and patron service and
satisfaction.
Unlike states that do not restrict the number of licenses, the Riverboat Act
authorizes only ten owner's licenses for riverboat gaming operations in Illinois
and permits a maximum of 1,200 gambling participants at any time for each of the
ten licensed sites. No more than ten riverboat casinos are permitted in
Illinois under the Riverboat Act, and no additional gaming positions can be
permitted for
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these sites without further state legislation. All authorized owner's licenses
have been granted. Of the other riverboat operations currently licensed within
50 miles of downtown Chicago, two riverboat sites are in Joliet, approximately
42 miles southwest of downtown Chicago, and the third is in Elgin, Illinois,
approximately 20 miles from Aurora, 45 miles from downtown Chicago and amid the
affluent northern and western suburbs. The riverboat casino in Elgin opened in
the fourth quarter of 1994. Currently, the next closest casino sites other than
the aforementioned casinos are in Milwaukee, Wisconsin, approximately 90 miles
from downtown Chicago, and in Peoria, and Rock Island, Illinois, approximately
160 miles from downtown Chicago. Additional gaming sites could eventually be
located in the Chicago area. The Company understands that a bill may be
introduced in the Illinois legislature during the current session which would
authorize the construction of up to five riverboat casinos permanently docked in
the Chicago River. Hollywood - Aurora anticipates increased competition from
riverboat operations expected in northwestern Indiana, which is proximate to
Chicago.
Casino Credit. Casino operations are conducted on both a credit and a cash
basis. Gaming debts arising in Aurora in accordance with applicable regulations
are enforceable under Illinois law. For the year ended December 31, 1994,
gaming credit extended to customers accounted for approximately 11.8% of overall
table game wagering, while table game wagering accounted for approximately 23.3%
of overall casino wagering during the period. At December 31, 1994, gaming
receivables amounted to $2 million before allowances for uncollectible gaming
receivables which amounted to $684,000. Management of Hollywood - Aurora
believes that the allowances for uncollectible gaming receivables are adequate.
Employees and Labor Relations. In Aurora, all casino employees must be
licensed by the Illinois Gaming Board. At December 31, 1994 there were
approximately 1,650 employees at Hollywood - Aurora, none of whom are
represented under collective bargaining agreements. Management considers its
labor relations to be good.
HOLLYWOOD - TUNICA CONSULTING AGREEMENT
PCC, through its ownership and management of the Sands and through its
management of Hollywood - Aurora, has certain casino management experience and
expertise which Hollywood - Tunica as a newly established business did not have.
In order to utilize PCC's experience and expertise, Hollywood - Tunica entered
into a consulting agreement with PCC as of January 1, 1994. The agreement has a
term of 10 years and provides, among other things, for PCC to advise and consult
Hollywood - Tunica on any matters relating to business and for monthly payments
of $100,000 to PCC for its performance thereunder. Hollywood - Tunica is also
obligated to reimburse PCC for its direct costs and expenses incurred under the
agreement.
CASINO REGULATION
NEW JERSEY
Casino gaming is strictly regulated in Atlantic City under the Casino Act and
the rules and regulations of the Casino Commission, which affect virtually all
aspects of the operations of the Sands. The laws, rules and regulations
affecting Atlantic City gaming operations concern primarily the financial
stability, integrity and character of casino operators, their employees, their
security holders and others financially interested in casino operations; the
nature of casino/hotel facilities; the operation methods (including rules of
games and credit granting procedures); and financial and accounting practices
used in connection with casino operations. A number of these regulations
require practices that are different from those in many casinos in Nevada and
elsewhere, and some of these regulations result in casino operating costs
greater than those in comparable facilities in Nevada and elsewhere.
9
<PAGE>
Casino Licenses. The Casino Act requires that all casino operations be
licensed by the Casino Commission and that all employees (except for certain job
positions within the hotel), major shareholders and other persons or entities
financially interested in the casino operation be either licensed or approved by
the Casino Commission. A license is not transferable and may be revoked or
suspended under certain circumstances by the Casino Commission. A plenary
license authorizes the operation of a casino with the games authorized in an
operation certificate issued by the Casino Commission, and the operation
certificate may be issued only on a finding that the casino conforms to the
requirements of the Casino Act and applicable regulations and that the casino is
prepared to entertain the public. Under such determination, GBHC and NJMI have
been issued plenary casino licenses, and PHC has been approved as a holding
company of a casino licensee.
The plenary license issued to GBHC to own and operate the Sands was renewed
by the Casino Commission in September 1994 and extended through September 30,
1996. Terms of the current license require GBHC to comply with periodic
financial reporting requirements and to obtain prior Casino Commission approval
of certain cash transfers to affiliates. Due to a corporate restructuring
completed in February 1994, the Casino Commission determined that NJMI was a new
entity. Accordingly, the term for the first two renewals of its casino license
is limited to one year and its current license expires September 30, 1995.
The Casino Act provides for a casino license fee of not less than $200,000
based upon the cost of the investigation and consideration of the license
application, and a renewal fee of not less than $100,000 or $200,000 for a one
year or four year renewal, respectively, based upon the cost of maintaining
control and regulatory activities. In addition, a licensee must pay annual
taxes of 8% of casino win (as defined in the Casino Act), net of a provision for
uncollectible accounts of up to 4% of casino win. During the years ended
December 31, 1994, 1993 and 1992, the taxes assessed by, and the license and
other fees paid by the Sands to the Casino Commission amounted to $24.5 million,
$23.3 million and $24.3 million, respectively.
The Casino Act also requires a casino licensee to make certain approved
investments (including CRDA bonds) in New Jersey, of at least 1.25% of its gross
casino revenues (as defined in the Casino Act) or pay an investment alternative
tax of 2.5% of its gross casino revenues.
Through 1994, GBHC has contributed certain amounts held in escrow to the
CRDA. In return, the CRDA has granted GBHC waivers of certain of its investment
obligations in future periods. The amount of these contributions during the
years ended December 31, 1994, 1993 and 1992, was $2.5 million, $5.7 million and
$1.6 million, respectively, resulting in waivers granted by the CRDA during 1993
and 1992 totaling $2.9 million and $797,000, respectively. No such waivers were
granted during 1994; however, the contribution is expected to directly benefit
the Sands facility.
The Casino Act also imposes certain restrictions upon the ownership of
securities issued by a corporation that holds a casino license or is a holding
company of a corporate licensee. Among other restrictions, the sale,
assignment, transfer, pledge or other disposition of any security issued by a
corporate licensee or holding company is subject to the regulation of the Casino
Commission. In the case of corporate holding companies whose stock is publicly
traded, the Casino Commission may require divestiture of the security held by a
disqualified holder such as an officer, director or controlling stockholder who
is required to be qualified under the Casino Act.
Note holders are also subject to the qualification provisions of the Casino
Act and may, in the sole discretion of the Casino Commission, be required to
make filings, submit to regulatory proceedings and qualify under the Casino Act.
If an investor is an "Institutional Investor" such as a retirement fund for
governmental employees, a registered investment company or adviser, a collective
investment trust, or an insurance company, then, in the absence of a prima facie
showing to the DGE that the "Institutional
10
<PAGE>
Investor" may be found unqualified, the Casino Commission shall grant a waiver
of this qualification requirement with respect to publicly traded debt or equity
securities if the investor will own (i) less than 10% of the common stock of the
company in question on a fully diluted basis, (ii) less than 20% of such
company's indebtedness or (iii) less than 50% of an outstanding issue of
indebtedness of such company; the Casino Commission, upon a showing of good
cause, may, in its sole discretion, grant a waiver of qualification to an
"Institutional Investor" not satisfying the above criteria. An Institutional
Investor must also purchase securities for investment and have no intent to
influence the management or operations of such company. The Casino Commission
may, in its sole discretion, grant a waiver of the qualification requirement to
investors not qualifying as "Institutional Investors" under the Casino Act if
such investor will own less than 5% of the publicly traded common stock of such
company on a fully diluted basis or less than 15% of the publicly traded
outstanding indebtedness of such company.
ILLINOIS
In 1990, the Riverboat Act was enacted by the State of Illinois. The
Riverboat Act authorizes riverboat gaming on navigable streams within or forming
a boundary of the State of Illinois except for Lake Michigan and any waterway in
Cook County, which includes Chicago. The Riverboat Act strictly regulates the
facilities, persons, associations and practices related to gaming operations
pursuant to the police powers of the State of Illinois, including comprehensive
law enforcement supervision. The Riverboat Act grants the Illinois Gaming Board
specific powers and duties, and all other powers necessary and proper to fully
and effectively execute the Riverboat Act for the purpose of administering,
regulating and enforcing the system of riverboat gaming. The Illinois Gaming
Board's jurisdiction extends to every person, association, corporation,
partnership and trust involved in riverboat gaming operations in the State of
Illinois.
Owner's Licenses. The Riverboat Act requires the owner of a riverboat gaming
operation to hold an owner's license issued by the Illinois Gaming Board. The
Illinois Gaming Board is authorized to issue ten owner's licenses statewide.
Each owner's license permits up to two boats as a part of the riverboat gaming
operation. No entity may be licensed as the owner of more than one riverboat
gaming operation in Illinois, although a licensed owner may hold up to 10% of a
second riverboat gaming operation in Illinois.
The Riverboat Act restricts the granting of certain of the ten owner's
licenses by location. Four were reserved for operators docking at sites on the
Mississippi River, one for an operator docking at a site on the Illinois River
south of Marshall County and one for an operator docking at a site on the Des
Plaines River in Will County. The remaining four owner's licenses were not
restricted as to location. In addition to the ten owner's licenses which may be
authorized under the Riverboat Act, the Illinois Gaming Board may issue special
event licenses allowing persons who are not otherwise licensed to conduct
riverboat gaming to conduct such gaming on a specified date or series of dates.
Riverboat gaming under such a license may take place on a riverboat not normally
used for riverboat gaming.
An owner's license is issued for an initial period of three years and must be
renewed annually thereafter. An owner's license is eligible for renewal upon
payment of the applicable fee and a determination by the Illinois Gaming Board
that the licensee continues to meet all of the requirements of the Riverboat
Act. The Illinois Gaming Board also requires that officers, directors and
employees of a gaming operation and suppliers of gaming equipment, devices and
supplies and certain other suppliers be licensed. Licenses issued by the
Illinois Gaming Board may not be transferred to another person or entity. All
licensees must maintain their suitability for licensure and have a continuing
duty to disclose any material changes in information provided to the Illinois
Gaming Board.
Applicants for and holders of an owner's license are required to obtain
formal approval from the Illinois Gaming Board for changes in the following
areas; (i) Key Persons, (ii) type of entity, (iii) equity
11
<PAGE>
and debt capitalization of the entity, (iv) investors and/or debt holders, (v)
source of funds, (vi) applicant's economic development plan, (vii) riverboat
capacity or significant design change, (viii) gaming positions, (ix) anticipated
economic impact, or (x) pro forma budgets and financial statements. A holder of
an owner's license is allowed to make distributions to its partners,
stockholders or itself only to the extent that such distribution would not
impair the financial viability of the gaming operation.
Regulation of Gaming Operations. The Riverboat Act does not limit the
maximum bet or per patron loss. Licensees, however, may set any maximum or
minimum limits on wagering under the Riverboat Act. No person under the age of
21 is permitted to wager.
Under the Riverboat Act, vessels must have the capacity to hold a minimum of
500 persons if operating on the Mississippi River or the Illinois River south of
Marshall County, and a minimum of 400 persons on any other waterway. The number
of gaming positions is limited to a maximum of 1,200 per license.
Gaming sessions are limited to a four hour duration. For the purpose of
orderly ingress of passengers to a riverboat, gaming is deemed to commence when
the first passenger boards a riverboat for an excursion and may continue while
other passengers are boarding for a period not to exceed thirty minutes, at
which time the gangplank or its equivalent must be pulled up and further
boarding is not permitted. A gaming excursion is deemed to have started upon
the commencement of gaming. For the purpose of orderly egress of passengers
from a riverboat at the end of an excursion, gaming may continue for a period
not to exceed thirty minutes after the gangplank or its equivalent is lowered.
During this thirty minute period of egress, new passengers may not board a
riverboat. These periods of time do not extend the four-hour maximum period
during which gaming may be conducted during a gaming excursion. Special event
extended cruises may be authorized by the Illinois Gaming Board.
If a riverboat captain reasonably determines that either it is unsafe to
transport passengers on the waterway due to inclement weather or the riverboat
has been rendered temporarily inoperable by mechanical or structural
difficulties or river icing, he shall either not leave the dock or immediately
return to it. If a riverboat captain reasonably determines for reason of safety
that although seaworthy, the riverboat should not leave the dock or should
return immediately thereto, due to either of the above conditions, a gaming
excursion may commence or continue while the gangplank or its equivalent is
raised and remains raised, in which event the riverboat is not considered
docked. If, due to either of the above conditions, a gaming excursion must
commence or continue with the gangplank or its equivalent raised, and the
riverboat does not leave the dock, ingress is prohibited until the completion of
the excursion.
An admission tax is imposed on the owner of a riverboat operation at a rate
of $2 per person admitted. Additionally, a tax is imposed on the adjusted gross
receipts, as defined in the Riverboat Act, of a riverboat operation at the rate
of 20%. The licensee is required to wire the gaming tax payment to the Illinois
Gaming Board on a daily basis. Such admission and gaming taxes for Hollywood -
Aurora amounted to $32.6 million for the year ended December 31, 1994.
The Illinois Gaming Board is authorized to conduct investigations into the
conduct of gaming as it may deem necessary and proper and into alleged
violations of the Riverboat Act. Employees and agents of the Illinois Gaming
Board have access to and may inspect any facilities relating to the riverboat
gaming operations at all times.
A holder of any license is subject to imposition of fines, suspension or
revocation of such license, or other action for any act or failure to act by
himself or his agents or employees, that is injurious to the public health,
safety, morals, good order and general welfare of the people of the State of
Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the State of Illinois. Any riverboat operation not conducted in
compliance with the Riverboat Act may constitute an illegal gaming place and
12
<PAGE>
consequently may be subject to criminal penalties, which penalties include
possible seizure, confiscation and destruction of illegal gaming devices and
seizure and sale of riverboats and dock facilities to pay any unsatisfied
judgment that may be recovered and any unsatisfied fine that may be levied. The
Illinois Gaming Board may revoke or suspend licenses, as the Board may see fit
and in compliance with applicable laws of the State regarding administrative
procedures and may suspend an owner's license, without notice or hearing, upon a
determination that the safety or health of patrons or employees is jeopardized
by continuing a riverboat's operation. The suspension may remain in effect
until the Illinois Gaming Board determines that the cause for suspension has
been abated and it may revoke the owner's license upon a determination that the
owner has not made satisfactory progress toward abating the hazard.
The Illinois Gaming Board may waive any licensing requirement or procedure
provided by rule if it determines that such waiver is in the best interests of
the public and the gaming industry.
OTHER OPERATIONS
The financial structure of PHC's San Juan, Puerto Rico hotel operations has
been reorganized, and PHC has disposed of most of its non-casino hotel
operations. Earnings (losses) before depreciation, interest, amortization and
taxes attributable to these operations have been reduced from a loss of
approximately $13.4 million in 1988 to earnings of $658,000 in 1994. PHC manages
and has an ownership interest (but no obligation to fund future losses) in the
San Juan, Puerto Rico hotel operations. PHC also currently manages two non-
casino hotels and has an ownership interest in one of the hotels. As of
December 31, 1994, PHC's non-casino hotel related indebtedness totaled $2.4
million. During February 1994, PHC purchased the underlying note on a hotel
facility it operates for an affiliate for $6.8 million. See Item 2 -
"Properties - Other Operations" below.
ITEM 2. PROPERTIES
THE SANDS
The Sands is located in Atlantic City, New Jersey on approximately 2.6 acres
of land one-half block from the boardwalk at Brighton Park between Indiana
Avenue and Dr. Martin Luther King, Jr. Boulevard. The Sands facility currently
consists of a casino and simulcasting facility with approximately 75,000 square
feet of gaming space containing approximately 2,020 slot machines and 130 table
games (including 19 poker tables), a hotel with 534 rooms (including 60 suites),
six restaurants including a buffet, a food court, a cocktail lounge, two private
lounges, an 800-seat cabaret theater, sports and health club facilities, an
executive office building with 77,000 square feet of office space and parking
for 1,800 vehicles. The People Mover connects the Sands to the Boardwalk. In
addition, a warehouse near Atlantic City and a building located in Atlantic City
that houses a print shop and auto shop, are used to support the operations of
the Sands.
In December 1988, the Sands purchased a nine-story building adjacent to its
existing parking facilities and, during 1990, completed the renovation of this
building into an office complex for its executive, financial and administrative
personnel. These personnel were previously located in two office buildings
leased by the Sands and in the Sands' hotel tower located at Indiana Avenue and
Brighton Park.
On February 17, 1994, a subsidiary of PHC issued $185 million of 10 7/8%
First Mortgage Notes 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 $2.5
million 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.
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<PAGE>
The indenture to 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.
The indenture also requires the maintenance of certain cash balances and,
commencing in 1994 and excluding costs of the Sands' Expansion Program, a
minimum of $7 million be expended for property and fixture renewals,
replacements and betterments, subject to increases of five percent each year
thereafter. The indenture also contains certain cross-default provisions with
the indenture to $85 million of unsecured senior notes (the "PRT Funding Notes")
issued simultaneously by another subsidiary of PHC.
On February 17, 1994, PRT Funding issued $85 million of 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 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 PCC
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 the indenture
to the 10 7/8% First Mortgage Notes described above.
HOLLYWOOD - AURORA
Although it has no ownership interest in Hollywood - Aurora, PHC, through its
subsidiaries, manages the facility under the Hollywood Casino Management
Contract. For a description of the facility, see "Business - Hollywood -
Aurora" above.
OTHER OPERATIONS
PHC has a 50% partnership interest with an unrelated third party in the
Sheraton Plaza, a 496-room hotel located in Orlando, Florida. PHC does not
guarantee the underlying mortgage indebtedness; however, it does have an ongoing
commitment to fund its proportionate share of operating cash deficits. No such
funding was required during 1994. PHC also agreed to contribute up to $3.9
million (including approximately $1 million during 1995) as an additional
investment in the Sheraton Plaza hotel partnership to refurbish the hotel
facility. PHC has contributed $785,000 toward such commitment through 1994.
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.
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 a portion of
such underlying indebtedness with a principal balance of $13.8 million from
third parties at a cost of $6.8 million ($1 million of which was paid during
1993), with funds borrowed from HCC, and subject to third party indebtedness
amounting to $2.7 million. Payments under the hotel operating agreement
amounted to $678,000, $1.4 million and $2.8 million, respectively, during the
years ended December 31, 1994, 1993 and 1992. Payments for 1994 are net of debt
service receipts since the February 1994 note acquisition date and payments for
1992 include a $1 million payment made to extend the maturity date and reduce
the applicable interest rate on the underlying indebtedness. PHC recorded the
note receivable from Metroplex at acquisition cost, which management believes
does not exceed the estimated realizable value of the underlying collateral.
Payments from Metroplex, including interest at the rate of 9 1/2% per annum, are
due monthly with the remaining principal balance of $13.5 million due May 31,
1996.
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<PAGE>
PHC also has a 46% interest in Southmark San Juan, Inc. ("Southmark San
Juan"), a subsidiary of Southmark Corporation ("Southmark") which owns the 420-
room Sands Hotel and Casino located in San Juan, Puerto Rico (the "Sands San
Juan"). A wholly owned subsidiary of PHC operates this facility under a
management agreement with Southmark San Juan and earned management fees of
$488,000, $481,000 and $565,000 during the years ended December 31, 1994, 1993
and 1992, respectively. Another wholly owned subsidiary of PHC which owns the
46% interest, incurred a loss of $3.6 million during the year ended December 31,
1990. No losses have been recognized since 1990 as the subsidiary's investment
had been eliminated through the recognition of prior years' losses. The
subsidiary has not funded any operating cash deficits since 1990 and has no
obligation or intention to fund future losses.
ITEM 3. LEGAL PROCEEDINGS
ATLANTIC CITY CASINO/HOTEL SITE
Certain subsidiaries of PHC have been engaged in certain 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
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 $13.1 million 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; an
appeal is pending.
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 the same basis. The appeal from the
state court judgment is pending but only with respect to Trump and Trump Plaza
Associates.
15
<PAGE>
PARTICIPATION OPTIONS
Hotel Aquarius, B.V. ("HABV"), a corporation organized under the laws of The
Netherlands, filed a lawsuit in the United States District Court for the
Southern District of New York on June 19, 1992 against a predecessor of HCC,
PHC, certain members of the Pratt Family and their affiliates (collectively, the
"Pratt Parties") and a subsidiary of PHC. HABV alleged, among other things,
that the Pratt Parties breached certain contracts (the "Participation Options")
entered into with HABV by failing to afford HABV the opportunity to participate
as an investor in certain Sands projects and in Hollywood - Aurora. HABV's
lawsuit sought an order requiring that the Pratt Parties perform under the
Participation Options, damages and attorneys' fees and a declaratory judgement
that the Participation Options remained in full force and effect. PHC and its
co-defendants filed counterclaims against HABV for, among other things,
fraudulent inducement, breach of contract and declaratory relief that the
Participation Options were terminated and of no effect.
On November 30, 1994, HCC and HABV jointly announced the settlement of this
litigation. All parties in the litigation executed full releases in favor of
the opposing parties and instructed their respective attorneys to immediately
file the necessary papers in court to dismiss the litigation with prejudice.
The terms of the settlement agreement are confidential and will not have a
material adverse impact on PHC's consolidated financial position or results of
operations.
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 on the consolidated financial position or results of
operations of PHC and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1994, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
PHC's common stock is traded on the American Stock Exchange under the symbol
PHC. The prices set forth in the following table represent actual transactions.
<TABLE>
<CAPTION>
Period High Low
------ ------ -----
<S> <C> <C>
1994
First Quarter $ 7.00 $4.13
Second Quarter 5.25 3.25
Third Quarter 6.13 3.88
Fourth Quarter 6.88 4.13
1993
First Quarter $ 9.13 $2.00
Second Quarter 15.63 7.13
Third Quarter 11.00 4.50
Fourth Quarter 8.75 4.00
</TABLE>
At March 22, 1995, there were approximately 4,200 holders of record of PHC's
common stock.
No dividends have been paid on PHC's common stock in the past and PHC has no
plans to pay dividends in the foreseeable future. See Note 4 of "Notes to
Consolidated Financial Statements" for a description of certain agreements that
impose certain restrictions upon the ability of certain subsidiaries to transfer
funds to PHC.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following tables present selected financial data for PHC and are
qualified in their entirety by the consolidated financial statements, including
the notes thereto, appearing elsewhere herein. The data as of December 31, 1994
and 1993, and for the years ended December 31, 1994, 1993 and 1992, have been
derived from the audited consolidated financial statements of PHC contained
elsewhere in Item 8.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA: YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net revenues................................................ $ 295,390 $ 276,738 $ 274,984 $268,589 $265,293
--------- --------- --------- -------- --------
Expenses:
Departmental............................................... 215,444 202,659 204,430 194,825 188,790
General and administrative................................. 28,224 26,542 34,739 33,950 38,995
Depreciation and amortization.............................. 19,547 20,837 19,437 21,342 23,496
Losses on properties held for disposition.................. - - 295 2,177 7,111
--------- --------- --------- -------- --------
Total expenses............................................ 263,215 250,038 258,901 252,294 258,392
--------- --------- --------- -------- --------
Income from operations...................................... 32,175 26,700 16,083 16,295 6,901
--------- --------- --------- -------- --------
Nonoperating income (expenses):
Interest income............................................ 3,101 1,450 2,814 3,388 2,134
Interest expense........................................... (38,692) (38,704) (37,559) (38,521) (36,828)
Write-off deferred pre-acquisition costs................... - - (13,086) - -
Gain on disposition of assets.............................. - - - 2,469 -
--------- --------- --------- -------- --------
Total nonoperating expenses, net.......................... (35,591) (37,254) (47,831) (32,664) (34,694)
--------- --------- --------- -------- --------
Loss before income taxes and extraordinary item............. (3,416) (10,554) (31,748) (16,369) (27,793)
Income tax provision........................................ (1,080) (754) (642) (1,216) (235)
--------- --------- --------- -------- --------
Loss before extraordinary item.............................. (4,496) (11,308) (32,390) (17,585) (28,028)
Extraordinary item:
Early extinguishment of debt, net of related tax benefits.. - (14,814) - - -
--------- --------- --------- -------- --------
Net loss.................................................. $ (4,496) $ (26,122) $ (32,390) $(17,585) $(28,028)
========= ========= ========= ======== ========
Per common share(1):
Loss before extraordinary item............................. $(.87) $(2.19) $(6.38) $(3.48) $(5.54)
Extraordinary item......................................... - (2.87) - - -
--------- --------- --------- -------- --------
Net loss.................................................. $(.87) $(5.06) $(6.38) $(3.48) $(5.54)
========= ========= ========= ======== ========
BALANCE SHEET DATA: DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- -------- --------
(IN THOUSANDS)
Total assets................................................ $ 250,744 $ 224,292 $ 222,061 $270,445 $287,569
Long-term debt.............................................. $ 327,889 $ 280,260 $ 275,357 $287,911 $294,873
Shareholders' deficit....................................... $(134,073) $(137,835) $(111,796) $(79,781) $(62,196)
</TABLE>
----------------------------------------
(1) Fully diluted per share data are not presented for any year because they are
antidilutive.
18
<PAGE>
ITEM 7. 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 10 7/8% First Mortgage Notes. Interest was not paid on August 17, 1994
or February 17, 1995 (see "Other" below).
Proceeds from the debt offerings were used, in part, to refinance
outstanding 11 3/4% First 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 reduced by approximately $6 million per year. 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, a management
contract with Hollywood - Aurora, a riverboat gaming facility in Aurora,
Illinois, and a consulting agreement with Hollywood - Tunica, a gaming facility
located in Tunica Mississippi. Both Hollywood - Aurora and Hollywood - Tunica
are owned by HCC. During 1994, PHC's net cash provided by operating activities
amounted to $18.4 million (after payment of approximately $10.5 million of costs
accrued during 1993 in connection with the PHC Recapitalization) compared with
$6.4 million provided by operations during 1993. PHC utilized a portion of its
operating cash flow and net borrowings during 1994 to fund capital additions
($20.1 million) and to purchase a mortgage note ($5.8 million) secured by a
hotel which PHC operates for an affiliate (see "Other" below).
Also during 1994, PHC repaid long-term indebtedness of approximately $248.3
million, including $240.1 million which was refinanced, and affiliate
indebtedness of $11.1 million. Scheduled maturities of long-term debt during
1995 are $511,000.
Since June 1993, a PHC subsidiary has earned 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. Base and incentive fees earned for the year ended December
31, 1994 amounted to $5.5 million and $4.5 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
thereafter. Total fees received during the year ended December 31, 1994
amounted to $11.6 million.
19
<PAGE>
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.
Capital expenditures at the Sands during 1994 amounted to approximately
$20.1 million. Approximately $14.3 million of such expenditures were in
connection with the addition of approximately 25,000 square feet of gaming
space. Construction activities on this space, which commenced in June 1993,
were completed at the end of the second quarter and operations in the expanded
and reconfigured gaming space commenced on July 1, 1994 (the "Grand Opening").
Funding for the expansion was provided by $15 million obtained from the PHC
Recapitalization (used, in part, to repay an $8 million interim construction
loan provided by HCC) and $4 million from a combination of equipment financing
and general corporate funds. Capital expenditures at the Sands during 1995 are
expected to be approximately $12.6 million; projects include completion of the
Hollywood Epic Buffet, relocation of the Sands' simulcast and poker facilities
and a reconfiguration of its slot machines, continued renovation of hotel rooms
and suites and other departmental expenditures.
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 December
31, 1994. Management does not anticipate borrowings on this line of credit
during 1995.
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. During 1993, the CRDA approved the
donation of certain of the Sands' funds previously deposited with the CRDA. As
a result, the Sands' cash deposit requirements for 1994 were reduced by
approximately $1.7 million. Deposit requirements for 1994 totaled $826,000 and
are anticipated to be approximately $3.3 million during 1995.
OTHER
In prior years PHC's hotel operations have required substantial infusion of
operating funds; however, the disposition of all but three of its hotel
properties has substantially 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.
PHC has agreed to contribute up to $3.9 million (including approximately $1
million during 1995) as an additional investment in an unconsolidated hotel
partnership to refurbish the hotel facility. PHC contributed $785,000 through
1994 toward such commitment. 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.
20
<PAGE>
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 eliminated 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
Substantially all of PHC's operating results prior to the opening of
Hollywood - Aurora in June 1993 were from the Sands. As a result of management
fees earned from Hollywood - Aurora and the recently completed expansion of
gaming space at the Sands, PHC's consolidated net revenues increased to $295.4
million for the year ended December 31, 1994 from $276.7 million for the year
ended December 31, 1993. PHC's income from operations increased to $32.2
million from $26.7 million during 1994 compared to 1993. During the three year
period ended December 31, 1994, PHC has reduced its losses from noncasino hotels
through the sale of certain owned properties and the termination of management
contracts on certain managed properties. Additionally, litigation costs
associated with the attempted acquisition of a casino/hotel site in Atlantic
City have been substantially eliminated.
PHC made interest payments of $27.3 million during 1994 compared to $38.6
million during 1993. This decrease is due, in part, to the payment of only four
and one-half months of accrued interest to holders of the retired PCPI Notes,
which amounted to $5.6 million during 1994, compared to annual interest payments
of $15.1 million during 1993. In addition, during 1993, the Sands' outstanding
first mortgage notes required monthly payments including interest; accordingly,
a full year of interest was paid. Replacement debt issued as part of the PHC
Recapitalization requires semiannual interest payments beginning in July 1994;
consequently, only five months of accrued interest was paid during 1994. These
reductions in interest paid were partially offset by the payment of $6.5 million
of interest on the newly issued PRT Funding Notes.
21
<PAGE>
Gaming Operations
The following table sets forth certain unaudited financial and operating
data relating to the Sands' operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
REVENUES:
Table games $ 96,485 $ 93,731 $ 102,588
Slot machines 155,381 148,844 144,346
Other (1) 4,341 2,367 -
---------- ---------- ----------
Total $ 256,207 $ 244,942 $ 246,934
========== ========== ==========
TABLE GAMES:
Gross Wagering
(Drop) (2) $ 605,854 $ 610,843 $ 647,876
========== ========== ==========
Hold Percentages: (3)
Sands 15.9% 15.3% 15.8%
Atlantic City Casino
Gaming Industry 15.8% 15.6% 15.6%
SLOT MACHINES:
Gross Wagering
(Handle) (2) $1,760,279 $1,631,012 $1,436,623
========== ========== ==========
Hold Percentage:(3)
Sands (4) 8.8% 9.1% 9.8%
</TABLE>
____________________________
(1) Consists of revenues from poker ($3 million and $1.7 million,
respectively, for the years ended December 31, 1994 and 1993) and
simulcast horse racing wagering ($1.3 million and $.7 million,
respectively, for the years ended 1994 and 1993).
(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").
(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. The 1994, 1993 and 1992 hold percentage
calculations for the Sands have been adjusted to exclude the
recognition of approximately $1 million, $340,000 and $2.9 million,
respectively, in slot machine revenues resulting from the reversal of
certain progressive jackpot liabilities (see "Revenues" below).
22
<PAGE>
Table games drop decreased $5 million (.8%) for the year ended December 31,
1994 compared with 1993 and $37 million (5.7%) for the year ended December 31,
1993 compared with 1992. These decreases compare with an increase of .3% and a
decrease of 3.1%, respectively, in table drop for the overall Atlantic City
industry during the same periods. Consequently, the Sands' table game market
share (expressed as a percentage of the Atlantic City industry aggregate table
game drop) declined slightly to 8.8% during 1994 from 8.9% during 1993. As a
result of the Grand Opening on July 1, 1994, the number of table games,
excluding poker, increased significantly and table games were made more
accessible to casino patrons. These changes resulted in table drop for the
final six months of 1994 exceeding table drop for the same period of 1993 by $25
million (8%) and enabled the Sands' table game market share to climb to 9.1%
from 8.7% in the second half of 1993. This improvement could not, however,
completely mitigate the $30 million decrease in table game drop experienced
prior to July 1. A number of factors adversely affected the 1994 first six
months' table games performance including: (i) the relocation of many blackjack
tables to a less accessible temporary gaming space during construction and the
periodic closing of selected tables on the main casino floor as construction
neared completion; (ii) 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; (iii) the overall trend in the
Atlantic City marketplace towards slot machine play and (iv) competitive
pressures, particularly in the high-end table patron segment.
Slot machine handle increased $129.3 million (7.9%) and $194.4 million
(13.5%) for the years ended December 31, 1994 and 1993, respectively, compared
with the previous years. The Sands' slot machine handle increases compare with
9.2% and 9.3% increases, respectively, in slot machine handle for the Atlantic
City industry during the same periods. The increase in the average number of
slot machines at the Sands during 1994 and 1993 compared with prior years was
13% and 10.1%, respectively, compared to Atlantic City industry increases of
8.4% and 7.4%, respectively. The Sands' 1994 slot handle increase lagged both
its own capacity increase and the average industry handle increases due to the
construction-related factors mentioned above as well as to a decrease in the
number of bus patrons during the first six months of 1994. Marketing efforts
implemented for the Grand Opening were continued through the remainder of 1994
and resulted in overall increases in bus patrons of 5.6% (versus a decline of
4.1% for the Atlantic City industry) and in cars parked of 21.9% for the year
1994 compared to 1993. The increase in slot handle during the last six months
of 1994 of 13.4% reflects both the expansion of gaming space and the
introduction of new slot machines operated at a higher payback percentage, which
encourages extended patron play. Marketing efforts and additional slot machines
similarly drove the 1993 slot handle increase, which was the second highest
handle growth rate for all Atlantic City casinos during that year.
REVENUES
Casino revenues at the Sands, including poker and simulcast horse racing
wagering revenues, increased by $11.3 million (4.6%) for the year ended December
31, 1994 compared with 1993. The 1994 revenue increases result from the
expansion of gaming space as demonstrated by the aforementioned increases in
slot machine and table games gross wagering during the second half of the year
of 13.4% and 8%, respectively. The impact on revenue of such volume increases
was enhanced by improved hold percentages on table games, but diminished by a
decline in slot machine hold percentages; such a decline is consistent with the
competitive trend in Atlantic City towards lower slot hold percentages. Table
games benefited from improved table hold percentages and other casino revenues
benefited from increases of $1.3 million in poker revenues during 1994 compared
to 1993 as a result of a full year of poker operations (poker commenced at the
Sands during June 1993), from improved simulcast revenues and from the
introduction in 1994 of keno. In addition, the removal of certain progressive
jackpots during 1994, 1993 and 1992 resulted in the recognition of casino
revenues amounting to approximately $1 million, $340,000 and $2.9 million,
respectively.
23
<PAGE>
During 1993, casino revenues at the Sands, including poker and simulcast
horse racing wagering revenues, decreased by $2 million (.8%) compared with
1992. Increases in slot machine volume at the Sands were offset by decreases in
table game volume and lower hold percentages. Adjusted to exclude the
recognition of revenue in connection with the removal of certain progressive
jackpots during 1993 and 1992, however, slot machines revenues increased $7.1
million during 1993.
Rooms revenues did not change significantly for the year ended December 31,
1994 compared with 1993 or for 1993 compared with 1992. Food and beverage
revenues increased by $3.1 million (11.1%) for the year ended December 31, 1994
compared with 1993 and decreased by $3.9 million (12.2%) for the year ended
December 31, 1993 compared with 1992. The 1994 increase results from the
opening of additional dining outlets and increases in casino patronage at the
Sands. The decrease for 1993 reflects the closing of a food outlet and the
closing of certain banquet facilities due to the casino expansion at the Sands.
Other revenues increased by $4.7 million (34.9%) and $6.3 million (86.9%) for
1994 compared with 1993 and for 1993 compared with 1992, respectively. These
increases for 1994 and 1993 reflect the inclusion of $10 million and $5.6
million, respectively, of fees earned from the management of Hollywood - Aurora,
and the 1993 receipt of a $1.5 million termination fee in connection with the
termination of a management agreement on a non-casino hotel.
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 varied from 57.5% in 1994, to 59% in 1993 and to 57% in 1992.
As a result of the Sands' expansion in 1994, table drop and slot machine handle
attributable to the mass market segment (which generally does not require the
same level of complimentaries) have increased at a greater rate than overall
wagering. In addition, the Sands reduced utilization of rooms, food and
beverage and entertainment complimentaries during the casino construction
period. The increase in 1993 reflects the increased utilization of rooms, food
and beverage and entertainment complimentaries to attract and retain high
frequency slot patrons prior to construction.
DEPARTMENTAL EXPENSES
Casino expenses at the Sands increased $12 million (6.7%) during 1994 and $2
million (1.1%) during 1993 compared with the prior years. The 1994 increase was
primarily due to higher operating costs during the second half of the year as a
result of increased casino patronage at the expanded Sands facility. In
addition, marketing costs preparatory to the Grand Opening, including the
implementation of an aggressive mass marketing strategy and direct costs of
approximately $1.1 million, contributed to the increase. The 1993 increase was
primarily due to increases in slot marketing costs and expenditures under coin
incentive programs to attract and retain high frequency slot patrons. Such
increases were partially offset by planned reductions in table games marketing
and patron transportation expenses.
Rooms expense increased $150,000 (3.7%) during 1994 compared with 1993
reflecting both improved occupancy at non-casino properties throughout the year
as well as increased operating costs at the Sands during the last six months of
1994. Costs associated with patronage increases subsequent to the Grand Opening
offset lower costs at the Sands earlier during the year which resulted primarily
from inclement weather during the first quarter of 1994. Rooms expense declined
$1.3 million (24%) during the year ended December 31, 1993 compared with 1992.
In addition to reduced patron volume as a result of inclement weather during the
first quarter of 1993 in Atlantic City, this decline was primarily due to a
shift in marketing personnel effort from hotel to casino promotions and to the
implementation of cost containment programs by management at the Sands.
Food and beverage expense increased only $142,000 (1.2%) during the year
ended December 31, 1994 compared with 1993 as a result of increased patronage at
the Sands, which is reflected in increased payroll and operating costs. Also,
increased promotional expenditures were incurred in 1994 with respect
24
<PAGE>
to the Ambassador buffet. Food and beverage expense decreased $408,000 (3.3%)
for 1993 compared with the prior year primarily due to decreases in patron
volume resulting from the aforementioned inclement weather coupled with the
closing of one food outlet and reductions in certain banquet facilities
resulting from the expansion of the Sands' casino gaming space.
Other expenses increased $455,000 (8%) for 1994 compared with 1993
principally because of higher payroll and production costs associated with
theater entertainment at the Sands. Other expenses decreased $2.1 million
(27.1%) during 1993 compared with 1992 primarily due to a $1 million payment
during 1992 in connection with a hotel joint operating agreement and reductions
in lease payments under such agreement as a result of the refinancing of the
hotel's underlying indebtedness (see Note 7 of Notes to Consolidated Financial
Statements). Additional decreases resulted from a decline in entertainment
costs associated with headliner entertainment at the Sands.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $1.7 million (6.3%) during
1994 compared to 1993 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.
General and administrative expenses decreased $8.2 million (23.6%) for the
year ended December 1993 compared with 1992. This decrease resulted primarily
from a substantial reduction in legal costs associated with the attempted
acquisition of a casino/hotel site in Atlantic City, the allocation to HCC of
certain costs incurred in connection with its development activities and initial
public offering, staff reductions and other cost containment efforts in non-
customer service areas.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense decreased $1.3 million (6.2%) for the
year ended December 31, 1994 compared to 1993 and increased $1.4 million (7.2%)
for the year ended December 31, 1993 compared to 1992. Increases in
depreciation during the second half of 1994 attributable to the expansion of
gaming space at the Sands were more than offset by reductions in the monthly
amortization of deferred financing costs resulting from the PHC
Recapitalization. The increased expense during 1993 was primarily due to the
amortization of deferred financing costs associated with certain short-term
credit facilities.
INTEREST
Interest income increased $1.7 million (113.9%), during the year ended
December 31, 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 7 of Notes to Consolidated Financial
Statements) together with the recognition of interest earned on funds escrowed
for the repayment of debt as part of the PHC Recapitalization. Interest income
decreased $1.4 million (48.5%) for the year ended December 31, 1993 compared
with 1992 primarily as the result of the collection of an arbitration award
during August 1992; interest on the award ceased at that time.
Interest expense did not change significantly during 1994 from 1993;
however, as explained previously, cash payments made for interest decreased
significantly. Interest expense increased $1.1 million (3%) during 1993
compared to the prior year due primarily to the issuance of certain short-term
credit facilities during 1993. The overall increase during 1993 was partially
offset by interest savings resulting from the paydown of other short-term
borrowings and the continued amortization of long-term debt.
25
<PAGE>
OTHER NON-OPERATING ITEMS
As a result of a ruling by the Superior Court of New Jersey which rejected
the claims of certain subsidiaries of PHC relating to the litigation associated
with the attempted acquisition of a casino/hotel site in Atlantic City, PHC
wrote off certain related capitalized costs amounting to $13.1 million during
1992 (see Note 10 of the Notes to Consolidated Financial Statements).
INCOME TAX PROVISION
PHC and its subsidiaries have tax net operating loss carryforwards ("NOL's")
totaling approximately $60 million (after reduction for approximately $24
million used by HCC), 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. In the first quarter of 1993, PHC adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The new standard 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 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 1994, 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. As a result, there was no cumulative financial statement effect of
adopting the standard as of January 1, 1993 and prior period financial
statements have not been restated to reflect the new accounting method.
NET OPERATING LOSS CARRYFORWARDS
Sales by existing stockholders of common stock, or securities convertible
into common stock, or purchases of shares of publicly-held common stock of PHC
by a five percent stockholder, 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 or its subsidiaries to
utilize these loss carryforwards in later tax periods. Should such a change of
control occur, the amount of loss carryforwards available for use in any one
year 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.
EXTRAORDINARY ITEM
During February 1994, PHC and its subsidiaries refinanced virtually all of
their casino-related indebtedness. As a result, costs and fees incurred in
connection with the early retirement of such indebtedness, including the
unamortized portion of transaction costs related to such indebtedness,
aggregating $14.8 million, net of the related state tax benefit of $888,000,
have been reflected as an extraordinary item in the results of operations for
the fourth quarter of 1993.
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.
26
<PAGE>
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.
27
<PAGE>
ITEM 8. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRATT HOTEL CORPORATION AND SUBSIDIARIES:
Report of Independent Public Accountants.............. 29
Consolidated Balance Sheets as of December 31, 1994
and 1993............................................. 30
Consolidated Statements of Operations for the Years
Ended December 31, 1994, 1993 and 1992............... 32
Consolidated Statements of Changes in Shareholders'
Deficit for the Three Years Ended December 31, 1994.. 33
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1993 and 1992............... 34
Notes to Consolidated Financial Statements............ 35
</TABLE>
28
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pratt Hotel Corporation:
We have audited the accompanying consolidated balance sheets of Pratt Hotel
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of operations, changes in
shareholders' deficit and cash flows for each of the three years in the period
ended December 31, 1994. 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 audits 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.
As discussed in Note 5 of the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Pratt Hotel Corporation and subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 17, 1995
29
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 29,302,000 $ 15,466,000
Accounts receivable, net of allowances
of $15,297,000 and $14,814,000,
respectively 13,982,000 14,179,000
Inventories 4,389,000 3,845,000
Due from affiliates 2,990,000 4,356,000
Deferred income taxes 3,242,000 2,904,000
Refundable deposits and other
current assets 3,889,000 5,415,000
------------- -------------
Total current assets 57,794,000 46,165,000
------------- -------------
Property and Equipment:
Land 37,807,000 37,554,000
Buildings and improvements 181,849,000 169,340,000
Operating equipment 83,373,000 74,256,000
Construction in progress 326,000 6,829,000
------------- -------------
303,355,000 287,979,000
Less - accumulated depreciation
and amortization (136,138,000) (124,877,000)
------------- -------------
Net property and equipment 167,217,000 163,102,000
------------- -------------
Other Assets:
Obligatory investments 4,027,000 4,497,000
Deferred financing costs 9,811,000 317,000
Notes receivable 9,325,000 7,860,000
Other assets 2,570,000 2,351,000
------------- -------------
Total other assets 25,733,000 15,025,000
------------- -------------
$ 250,744,000 $ 224,292,000
============= =============
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
30
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Current Liabilities:
Borrowings from affiliate $ 5,000,000 $ 16,133,000
Current maturities of long-term debt 511,000 7,862,000
Accounts payable 8,584,000 8,138,000
Accrued liabilities -
Salaries and wages 4,065,000 3,543,000
Progressive jackpot 186,000 1,327,000
Interest 11,385,000 6,437,000
Costs related to extinguishment of debt - 10,498,000
Other 9,406,000 8,276,000
Other current liabilities 3,645,000 5,614,000
------------- -------------
Total current liabilities 42,782,000 67,828,000
------------- -------------
Long-Term Debt 327,889,000 280,260,000
------------- -------------
Other Noncurrent Liabilities 14,146,000 14,039,000
------------- -------------
Commitments and Contingencies
Shareholders' Deficit:
Common stock, $.10 par value per
share; 10,000,000 shares authorized;
5,186,627 and 5,175,977 shares issued
and outstanding, respectively 519,000 518,000
Additional paid-in capital 23,838,000 15,581,000
Accumulated deficit (158,430,000) (153,934,000)
------------- -------------
Total shareholders' deficit (134,073,000) (137,835,000)
------------- -------------
$ 250,744,000 $ 224,292,000
============= =============
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
31
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1993 1992
------------ ------------- -------------
<S> <C> <C> <C>
Revenues:
Casino $256,207,000 $244,942,000 $246,934,000
Rooms 14,287,000 14,160,000 14,387,000
Food and beverage 31,518,000 28,374,000 32,300,000
Other 18,321,000 13,583,000 7,267,000
------------ ------------ ------------
320,333,000 301,059,000 300,888,000
Less - Promotional allowances (24,943,000) (24,321,000) (25,904,000)
------------ ------------ ------------
Net revenues 295,390,000 276,738,000 274,984,000
------------ ------------ ------------
Expenses:
Casino 192,970,000 180,932,000 178,923,000
Rooms 4,183,000 4,033,000 5,307,000
Food and beverage 12,179,000 12,037,000 12,445,000
Other 6,112,000 5,657,000 7,755,000
General and administrative 28,224,000 26,542,000 34,739,000
Depreciation and amortization 19,547,000 20,837,000 19,437,000
Losses on properties held for disposition - - 295,000
------------ ------------ ------------
Total expenses 263,215,000 250,038,000 258,901,000
------------ ------------ ------------
Income from operations 32,175,000 26,700,000 16,083,000
------------ ------------ ------------
Non-operating income (expense):
Interest income 3,101,000 1,450,000 2,814,000
Interest expense, net of capitalized interest
of $762,000 in 1994 (38,692,000) (38,704,000) (37,559,000)
Write-off deferred pre-acquisition costs - - (13,086,000)
------------ ------------ ------------
Total non-operating expense, net (35,591,000) (37,254,000) (47,831,000)
------------ ------------ ------------
Loss before income taxes and extraordinary
item (3,416,000) (10,554,000) (31,748,000)
Income tax provision (1,080,000) (754,000) (642,000)
------------ ------------ ------------
Loss before extraordinary item (4,496,000) (11,308,000) (32,390,000)
Extraordinary item:
Cost of early extinguishment of debt, net of
related tax benefit - (14,814,000) -
------------ ------------ ------------
Net loss $ (4,496,000) $(26,122,000) $(32,390,000)
============ ============ ============
Per common share:
Loss before extraordinary item $(.87) $(2.19) $(6.38)
Extraordinary item - (2.87) -
------------ ------------ ------------
Net loss per common share $(.87) $(5.06) $(6.38)
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
32
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED
------------------- PAID-IN
SHARES AMOUNT CAPITAL DEFICIT
--------- -------- ----------- --------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 5,059,707 $506,000 $15,135,000 $ (95,422,000)
Issuance of common stock 82,600 8,000 367,000 -
Net loss - - - (32,390,000)
--------- -------- ----------- -------------
BALANCE, DECEMBER 31, 1992 5,142,307 514,000 15,502,000 (127,812,000)
Issuance of common stock 33,670 4,000 79,000 -
Net loss - - - (26,122,000)
--------- -------- ----------- -------------
BALANCE, DECEMBER 31, 1993 5,175,977 518,000 15,581,000 (153,934,000)
Issuance of common stock 10,650 1,000 26,000 -
Capital contribution - - 8,231,000 -
Net loss - - - (4,496,000)
--------- -------- ----------- -------------
BALANCE, DECEMBER 31, 1994 5,186,627 $519,000 $23,838,000 $(158,430,000)
========= ======== =========== =============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
33
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992
-------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (4,496,000) $(26,122,000) $(32,390,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Extraordinary item - 14,814,000 -
Depreciation and amortization, including
accretion of debt discount 24,945,000 21,198,000 19,798,000
Provision for doubtful accounts 3,283,000 3,603,000 3,013,000
Write-off deferred pre-acquisition costs - - 13,086,000
Deferred income taxes 1,580,000 27,000 352,000
Decrease in arbitration award receivable - - 17,719,000
Increase in accounts receivable (3,086,000) (8,126,000) (1,860,000)
(Decrease) increase in accounts payable and
other accrued liabilities (2,010,000) 2,610,000 (3,261,000)
Decrease in progressive jackpot accrual (1,141,000) (301,000) (2,511,000)
Net change in other current assets and liabilities 20,000 (1,857,000) (428,000)
Net change in other noncurrent assets and liabilities (679,000) 571,000 480,000
------------- ------------ ------------
Net cash provided by operating activities 18,416,000 6,417,000 13,998,000
------------- ------------ ------------
INVESTING ACTIVITIES:
Net property and equipment additions (20,140,000) (11,595,000) (4,377,000)
Collections on notes receivable 7,614,000 - -
Proceeds from dispositions of assets - - 520,000
Obligatory investments (826,000) (1,549,000) (2,271,000)
Purchase of mortgage note (5,750,000) (1,000,000) -
Investments in and advances to unconsolidated affiliates (660,000) (325,000) (400,000)
------------- ------------ ------------
Net cash used in investing activities (19,762,000) (14,469,000) (6,528,000)
------------- ------------ ------------
FINANCING ACTIVITIES:
(Repayments) borrowings of short-term debt (21,000,000) 21,000,000 -
Issuance of long-term debt 285,000,000 83,000 -
Net repayments under credit facilities - - (8,000,000)
Net (repayments) borrowings from affiliate (11,133,000) 10,133,000 7,000,000
Deferred financing costs (10,458,000) (2,327,000) (233,000)
Deferred preopening costs - (227,000) -
Repayments of long-term debt (227,254,000) (18,686,000) (8,587,000)
Issuance of common stock 27,000 83,000 375,000
------------- ------------ ------------
Net cash provided by (used in) financing activities 15,182,000 10,059,000 (9,445,000)
------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 13,836,000 2,007,000 (1,975,000)
Cash and cash equivalents at beginning of year 15,466,000 13,459,000 15,434,000
------------- ------------ ------------
Cash and cash equivalents at end of year $ 29,302,000 $ 15,466,000 $ 13,459,000
============= ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
34
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 7). 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.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are discussed below.
PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements include the accounts of PHC and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. Investments in unconsolidated affiliates,
including joint ventures, that are 20% to 50% owned are accounted for by the
equity method.
CASINO REVENUES, PROMOTIONAL ALLOWANCES AND DEPARTMENTAL EXPENSES -
The Sands recognizes the net win from gaming activities (the difference
between gaming wins and losses) as casino revenues. Casino revenues are net of
accruals for anticipated payouts of progressive and certain other slot machine
jackpots. Such anticipated jackpot payouts are reflected as current liabilities
in the accompanying consolidated balance sheets. During the years ended
December 31, 1994, 1993 and 1992, the Sands removed certain progressive jackpots
from the gaming floor in accordance with regulations of the New Jersey Casino
Control Commission (the "Casino Commission") resulting in the reduction of
$1,035,000, $342,000 and $2,900,000 of progressive jackpot liabilities,
respectively, and the corresponding recognition of an equal amount of slot
machine revenues.
The estimated value of rooms, food and beverage and other items which were
provided to customers without charge has been included in revenues and a
corresponding amount has been deducted as promotional allowances. The costs of
such complimentaries have been included as casino expenses
35
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in the accompanying consolidated statements of operations. Costs of
complimentaries allocated from the rooms, food and beverage and other operating
departments to the casino department during the years ended December 31, 1994,
1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Rooms $ 6,080,000 $ 5,785,000 $ 5,083,000
Food and Beverage 24,611,000 20,138,000 20,149,000
Other 3,393,000 4,034,000 4,349,000
----------- ----------- -----------
$34,084,000 $29,957,000 $29,581,000
=========== =========== ===========
</TABLE>
CASH AND CASH EQUIVALENTS -
Cash and cash equivalents are generally comprised of cash and investments
with original maturities of three months or less, such as commercial paper,
certificates of deposit and fixed repurchase agreements.
ALLOWANCE FOR DOUBTFUL ACCOUNTS -
The allowance for doubtful accounts is maintained at a level considered
adequate to provide for possible future losses. Provisions for doubtful
accounts amounting to $3,283,000, $3,603,000 and $3,013,000 were made during the
years ended December 31, 1994, 1993 and 1992, respectively.
INVENTORIES -
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market.
PROPERTY AND EQUIPMENT -
Property and equipment has been recorded at cost and are being depreciated
utilizing the straight-line method over their estimated useful lives as follows:
Buildings and improvements 10-25 years
Operating equipment 3-15 years
Interest costs related to property and equipment acquisitions were
capitalized during the acquisition period and are being amortized over the
useful lives of the related assets.
DEFERRED FINANCING COSTS -
The costs of issuing long-term debt, including all underwriting, licensing,
legal and accounting fees, have been capitalized and are being amortized over
the term of the related debt issue. Amortization of such costs was $964,000,
$3,144,000 and $2,303,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
36
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INCOME TAXES -
Since May 1992, PHC has been 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.
Prior to 1993, PHC accounted for income taxes under the provisions of
Accounting Principles Board Opinion No. 11. Under this method, the provision
for taxes was based on income and expenses included in the accompanying
consolidated statements of operations. Differences between taxes so computed
and taxes payable under applicable statutes and regulations were classified as
deferred taxes arising from timing differences. In the first quarter of 1993,
PHC adopted the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"), which utilizes the liability
method and results in the determination of deferred taxes based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities. As a result of the valuation allowance recorded upon
the adoption of SFAS 109, there was no financial statement effect of adopting
SFAS 109 as of January 1, 1993 and prior period consolidated financial
statements have not been restated to reflect the new accounting method.
INTEREST EXPENSE -
Interest expense includes the accretion of debt discount amounting to
$5,398,000 during the year ended December 31, 1994 and $361,000 during each of
the years ended December 31, 1993 and 1992.
NET LOSS PER COMMON SHARE -
Net loss per common share is based on the weighted average number of shares
of common stock and common stock equivalents outstanding. The weighted average
number of common stock equivalents outstanding was 5,183,000, 5,164,000 and
5,077,000 during the years ended December 31, 1994, 1993 and 1992, respectively.
Shares issuable upon the exercise of stock options were not considered to be
common stock equivalents as the result would have been antidilutive.
RECLASSIFICATIONS -
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the 1994 consolidated financial statement
presentation.
(3) 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 4. 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
37
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
to the extent of $2,000,000 by another subsidiary of PHC. There are no
borrowings outstanding under the line of credit at December 31, 1994.
During 1993, a subsidiary of PHC issued $21,000,000 of Series A and Series B
13 1/2% Guaranteed First Mortgage Notes due in 1994 (the "Series Notes"). The
Series Notes were not registered under the Securities Act and since no such
registration became effective prior to August 18, 1993, the interest rate
increased to 14% per annum effective at that date with additional increases of
1/4% after each succeeding 90-day period. Refinancing of the Series Notes was
completed in February 1994 when a subsidiary of PHC issued $185,000,000 of
10 7/8% First Mortgage Notes due in 2004 (see Note 4).
As of December 31, 1994 and 1993, PHC and its subsidiaries had outstanding
affiliate borrowings of $6,000,000 and $10,050,000, respectively, from HCC. Of
the amounts borrowed, $1,000,000, which is not due until April 1, 1998, is
classified as noncurrent in the accompanying consolidated balance sheets at
December 31, 1994 and 1993. 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.
In addition, HCC agreed to loan up to $8,000,000 to a subsidiary of PHC, the
proceeds of which were loaned to and used by the Sands in connection with an
expansion of its gaming space. During 1993, HCC loaned $7,083,000 to the
subsidiary for such purpose. The loan accrued interest at the rate of 13 1/2%
per annum payable semiannually, and the outstanding balance of $8,000,000 was
repaid during February 1994 in connection with the refinancing of virtually all
of PHC's casino-related outstanding debt (see Note 4).
38
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) 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 PHC's 1994
refinancing contain certain cross-default provisions.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
10 7/8% first mortgage notes, due 2004 (a) $185,000,000 $ -
11 3/4% first mortgage notes,
refinanced in 1994, net of
discount of $45,000 (b) - 161,623,000
11 5/8% senior notes, due 2004 (c) 85,000,000 -
15 1/2% unsecured notes, refinanced in 1994 (d) - 97,143,000
14 5/8% junior subordinated notes, due 2005 (e) 8,683,000 -
14 7/8% secured promissory note, due 2006, net of
discount of $64,759,000 (f) 45,877,000 -
Second lien wrap-around mortgage note,
repaid in September 1994 (g) - 6,663,000
Series Notes, refinanced in 1994 (Note 3) - 21,000,000
Other 3,840,000 1,693,000
------------ ------------
Total indebtedness 328,400,000 288,122,000
Less - current maturities (511,000) (7,862,000)
------------ ------------
Total long-term debt $327,889,000 $280,260,000
============ ============
</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, subject to increases of five percent
39
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
per annum thereafter at the Sands. The indenture also contains certain
cross-default provisions with respect to the PRT Funding Notes described in
(c) below.
(b) On August 6, 1987, a subsidiary of PHC obtained $170,504,000 by issuing
first mortgage notes bearing interest at 11 3/4% per annum, payable
semiannually (the "11 3/4% First Mortgage Notes"), net of a $2,526,000
discount. The 11 3/4% First Mortgage Notes were refinanced in February
1994 with the proceeds of the 10 7/8% First Mortgage Notes.
(c) 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 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.
(d) On February 23, 1988, PCPI Funding Corp., a subsidiary of PHC, issued
$115,000,000 of unsecured notes due April 1, 1998 bearing interest at
15 1/2% per annum, payable semiannually (the "PCPI Notes"). On November 3,
1989, PCPI Funding Corp. redeemed $17,857,000 of the PCPI Notes pursuant to
a one-time redemption right exercised by the noteholders, and during 1990
HCC purchased $38,779,000 principal amount of the PCPI Notes. The
remaining principal balance of $58,364,000 was publicly held and was
redeemed during February 1994. The PCPI Notes held by HCC were exchanged
during February 1994 - see (f) below.
(e) 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 Notes 5 and 11). The Junior Subordinated Notes are due in
February 2005 and bear interest at the rate of 14 5/8% per annum which,
subject to meeting certain financial coverage and other payment restriction
tests required by the indenture for the 10 7/8% First Mortgage Notes, is
payable semiannually commencing August 17, 1994. Interest was not paid on
August 17, 1994 or February 17, 1995 (see Note 7).
(f) 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 the $38,779,000
principal amount of PCPI Notes held by HCC - see (d) above. 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 paid to all third parties holding PCPI Notes.
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
40
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
(g) The note was repaid during September 1994. Interest accrued at prime plus
two percentage points (subject to a minimum of 11 1/2%).
Scheduled payments of long-term debt as of December 31, 1994 are set forth
below:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 511,000
1996 555,000
1997 3,467,000
1998 5,440,000
1999 5,480,000
Thereafter 377,706,000
------------
Total $393,159,000
============
</TABLE>
Interest paid, net of amounts capitalized, amounted to $27,253,000,
$38,582,000, and $38,482,000, respectively, during the years ended December 31,
1994, 1993 and 1992.
(5) INCOME TAXES
Components of PHC's provisions for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
------------ ---------- ----------
<S> <C> <C> <C>
Federal income tax benefit $ - $ - $ 57,000
State income tax benefit (provision):
Current 500,000 (727,000) (347,000)
Deferred (1,580,000) (27,000) (352,000)
----------- --------- ---------
$(1,080,000) $(754,000) $(642,000)
=========== ========= =========
</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. In addition, HCC is 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 ("NOL's"). For the year ended December 31,
1994, such payment has been effected through the assignment of $6,317,000
principal amount of Junior Subordinated Notes together with $1,914,000 of
accrued interest thereon (see Note 11). Total state and federal income taxes
paid by PHC for the years ended December 31, 1994, 1993 and 1992 amounted to
$412,000, $1,735,000, and $1,145,000, respectively.
41
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation between the calculated tax benefit (provision) based on the
statutory rates in effect and the effective tax rates follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
------------ ------------ -------------
<S> <C> <C> <C>
Calculated income tax benefit
at 34% $ 1,161,000 $ 3,588,000 $ 10,794,000
Tax benefit of operating
losses not recognized (361,000) (2,805,000) (10,010,000)
Amortization of excess
purchase price (803,000) (803,000) (803,000)
Disallowance of travel and
entertainment (336,000) (209,000) (226,000)
State income taxes (713,000) (498,000) (461,000)
Other (28,000) (27,000) 64,000
----------- ----------- ------------
Tax provision as shown on consolidated
statements of operations $(1,080,000) $ (754,000) $ (642,000)
=========== =========== ============
</TABLE>
PHC and its subsidiaries have NOL's totaling approximately $60,000,000 (after
reduction for the $23,516,000 used by HCC), 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. In the first quarter of
1993, PHC adopted the provisions of SFAS 109. 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 1994, management was unable to determine that realization
of such asset was more likely than not and, thus, has provided valuation
allowances for the entire deferred tax asset for all periods presented. As a
result, there was no cumulative effect of adopting the standard as of January 1,
1993 and prior period financial statements have not been restated to reflect the
new accounting method.
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.
42
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 20,462,000 $ 18,181,000
Allowance for doubtful accounts 6,330,000 4,724,000
Investment and jobs tax credits 4,075,000 4,075,000
Write-off deferred pre-acquisition costs - 4,449,000
Early extinguishment of debt - 5,037,000
Equity losses of unconsolidated
subsidiaries and joint ventures 3,491,000 3,616,000
Other liabilities and accruals 1,942,000 1,890,000
Benefits accrual 1,514,000 1,298,000
Other 982,000 332,000
------------ ------------
Total deferred tax assets 38,796,000 43,602,000
------------ ------------
Deferred tax liabilities:
Depreciation and amortization (8,897,000) (7,018,000)
Other (933,000) (539,000)
------------ ------------
Total deferred tax liabilities (9,830,000) (7,557,000)
------------ ------------
Net deferred tax asset 28,966,000 36,045,000
Valuation allowance (28,966,000) (36,045,000)
------------ ------------
$ - $ -
============ ============
</TABLE>
Receivables and payables in connection with the aforementioned tax allocation
agreements were as follows:
December 31,
-------------------------
1994 1993
----------- -----------
Deferred income taxes - current $ 1,367,000 $ 2,016,000
Other noncurrent liabilities (1,367,000) (2,016,000)
43
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) STOCK OPTIONS AND COMPENSATION PLANS
INCENTIVE STOCK OPTION PLAN
During 1990, PHC adopted the 1990 Incentive Stock Option Plan (the "Plan").
The 1990 Plan provides for the granting of incentive stock options that are
intended to qualify for special tax treatment under the Internal Revenue Code,
as amended (the "Code"). The shares to be offered under the 1990 Plan consist
of shares of PHC common stock. Options for no more than 102,092 shares of
common stock may be granted under the 1990 Plan.
The 1990 Plan is administered by the Board of Directors of PHC through its
compensation committee. Options granted under the 1990 Plan are exercisable for
a term ending five years from the date of grant and are subject to limitations
on the quantity exercised in a calendar year and to certain repurchase
provisions. As of December 31, 1994, options to purchase 8,030 shares remain
outstanding and options to purchase 49,742 shares remain available for grant.
The following table lists the activity of the stock option plan during 1994 and
1993:
<TABLE>
<CAPTION>
1994 1993
------------------- -------------------
OPTION OPTION
PRICE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
OUTSTANDING OPTIONS AT
BEGINNING OF YEAR 18,880 $2.50 52,750 $2.50
Options exercised (10,650) 2.50 (33,670) 2.50
Options terminated (200) 2.50 (200) 2.50
------- -------
OUTSTANDING OPTIONS AT
END OF YEAR 8,030 2.50 18,880 2.50
======= =======
</TABLE>
COMPENSATION PLAN
PHC has agreements with certain of its principal shareholders and key
executive officers providing for (1) lifetime pension benefits upon the
expiration of existing employment contracts and subsequent consulting agreements
and (2) death benefits to be paid for a period of ten years. The obligations
under these agreements, which are not funded, are being charged to operations
over the remaining terms of the employment agreements. Amounts charged to
expense under the agreements for the years ended December 31, 1994, 1993 and
1992 were approximately $218,000, $38,000 and $1,057,000, respectively.
Obligations accrued under the agreements at December 31, 1994 and 1993 amounted
to $4,035,000 and $3,817,000, respectively, and are included in other noncurrent
liabilities on the accompanying consolidated balance sheets.
44
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) 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 ($1,000,000 of which was paid during 1993), with funds
borrowed from HCC, and subject to third party indebtedness amounting to
$2,706,000. Payments under the hotel operating agreement amounted to $678,000,
$1,396,000 and $2,779,000, respectively, during the years ended December 31,
1994, 1993 and 1992. Payments for 1994 are net of debt service receipts since
the February 1994 note acquisition date and payments for 1992 include a
$1,000,000 payment made to extend the maturity date and reduce the applicable
interest rate on the underlying indebtedness. 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.
PHC leased a hotel located in Garland, Texas from a partnership (the "Garland
Partnership") controlled by certain members of the Pratt Family. The Garland
Partnership was the obligor on the related underlying mortgage note which
matured in June 1993. PHC was obligated under the terms of its lease agreement
to make minimum rental payments equal to the Garland Partnership's debt service,
including all required principal and interest payments and any payment due at
maturity. For the years ended December 31, 1993 and 1992, PHC paid the Garland
Partnership $164,000, and $407,000, respectively. No such payments were made
during 1994. In 1990, the Garland Partnership sold the hotel and PHC sold its
interest in the hotel's furniture, fixtures and equipment. During June 1993,
PHC reacquired the hotel and immediately sold the property to a third party.
PHC did not recognize a gain or loss in connection with this reacquisition and
sale, and PHC has no further obligation with respect to this property. The
Pratt Family's guarantee of indebtedness with respect to this property and PHC's
related indemnification have been extinguished.
From time to time, certain members of the Pratt Family have advanced monies
to PHC for working capital requirements. At December 31, 1993, a loan in the
amount of $140,000 was outstanding. This loan, which accrued interest at the
prime lending rate, was repaid during 1994. Interest expense and guarantee fees
with respect to such advances amounted to $8,000 for each of the years ended
December 31, 1994 and 1993 and $101,000 for the year ended December 31, 1992.
Hollywood Casino - Aurora, Inc. ("HCA"), a wholly owned subsidiary of HCC was
organized for the purpose of developing and owning Hollywood - Aurora.
Hollywood - Aurora commenced operations on June 17, 1993 and a subsidiary of PHC
began earning, pursuant to a management agreement, a base management fee 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 $10,009,000 and
45
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$5,625,000, respectively, during the years ended December 31, 1994 and 1993.
Unpaid fees amounting to $2,341,000 and $3,931,000, respectively, are included
in due from affiliates in the accompanying consolidated balance sheets at
December 31, 1994 and 1993.
HWCC - Tunica, Inc. ("HCT"), a wholly owned subsidiary of HCC, completed
construction of Hollywood - Tunica which commenced operations in August 1994.
Pursuant to a ten-year consulting agreement with HCT, a subsidiary of PHC
receives monthly consulting fees of $100,000. Total fees earned for the year
ended December 31, 1994 amounted to $1,200,000.
HCC is obligated under the terms of an administrative services agreement to
pay PHC $50,000 per month during 1994 ($20,000 per month during 1993 and 1992).
In addition, during 1993, PHC and its subsidiaries began sharing certain general
and administrative costs with HCC. Net allocated costs and fees charged to HCC
by PHC amounted to $188,000, $2,225,000 and $152,000, respectively, during the
years ended December 31, 1994, 1993 and 1992. Receivables in the amount of
$52,000 and $363,000 in connection with such allocated costs and fees are
included in due from affiliates in the accompanying consolidated balance sheets
at December 31, 1994 and 1993.
Interest expense with respect to borrowings from HCC is set forth below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
PPI Funding Notes and PCPI
Notes held by HCC (Note 4) $6,121,000 $6,011,000 $6,011,000
Junior Subordinated Notes (Note 4) 1,913,000 - -
Short-term borrowings (Note 3) 1,246,000 1,191,000 610,000
</TABLE>
HCC acquired approximately $38,779,000 of the PCPI Notes (see Note 4) during
1990. As part of the PHC Recapitalization, a newly formed PHC subsidiary issued
$40,524,000 discounted principal amount of new deferred interest notes in
exchange for the $38,779,000 principal amount of PCPI Notes held by HCC. 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 paid to all third parties holding PCPI Notes. As a
result of this exchange, PHC's cash interest payments will be 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 December 31, 1994. Interest due to HCC on the PCPI
Funding Notes at December 31, 1993 amounted to $1,503,000 and is included in
interest payable on the accompanying consolidated balance sheet. Interest
accrued on short-term borrowings at December 31, 1994 and 1993, which amounted
to $23,000 and $193,000, respectively, is also included in interest payable on
the accompanying consolidated balance sheets.
46
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) NEW JERSEY REGULATIONS AND OBLIGATORY INVESTMENTS
PHC conducts, through certain of its wholly owned subsidiaries, gaming
operations in Atlantic City, New Jersey and operates a related hotel and several
restaurants, as well as related support facilities. The operation of an
Atlantic City casino/hotel is subject to significant regulatory control. Under
the New Jersey Casino Control Act (the "Casino Act"), such PHC subsidiaries were
required to obtain and are required to periodically renew their operating
licenses. A casino license is not transferable and, after the initial licensing
and two one-year renewal periods, is issued for a term of up to four years.
However, the Casino Commission still has the authority to reopen license
hearings at any time. During September 1994, the Casino Commission renewed
GBHC's license to operate the Sands and found PHC qualified as a holding company
of a casino license through September 30, 1996 and renewed NJMI's license to
manage the Sands through September 30, 1995. Terms of the current license
require the Sands to comply with periodic financial reporting requirements as
well as obtain prior Casino Commission approval of certain cash transfers and
borrowings to and from affiliates.
The Casino Act requires casino licensees to make certain approved investments
in New Jersey or to pay an investment alternative tax. Casino licensees may
obtain investment credits, which amount to 1.25% of casino revenues, by
purchasing bonds at below-market interest rates from the Casino Reinvestment
Development Authority (the "CRDA") or by making qualified investments approved
by the CRDA. This governmental agency administers the statutorily mandated
investments and reinvestments made by casino licensees and is required to expend
the monies received by it for eligible projects defined in the statute. The
investment alternative tax amounts to 2.5% of casino revenues. Payments of the
investment obligations must be made quarterly. The Sands has elected to comply
with the requirements by obtaining investment credits or by making qualified
investments.
As of December 31, 1994 and 1993, the Sands had purchased bonds totaling
$4,368,000 and $3,911,000, respectively. In addition, the Sands had remaining
funds on deposit and held in escrow by the CRDA at December 31, 1994 and 1993 of
$2,117,000 and $3,651,000, respectively. The bonds purchased and the amounts on
deposit and held in escrow are collectively referred to as "obligatory
investments" in the accompanying consolidated financial statements.
Obligatory investments at December 31, 1994 and 1993 are net of accumulated
valuation allowances of $2,458,000 and $3,065,000, respectively, based upon the
estimated realizable values of the investments. Provisions for valuation
allowances during the years ended December 31, 1994, 1993 and 1992 amounted to
$617,000, $340,000 and $618,000, respectively.
Through 1994, the Sands has contributed certain amounts held in escrow to the
CRDA. In consideration thereof, the CRDA granted the Sands waivers of certain
of its investment obligations in future periods. The amount of the obligatory
investments contributed during the years ended December 31, 1994, 1993 and 1992
was $2,500,000, $5,694,000 and $1,561,000, respectively, resulting in waivers
granted by the CRDA during 1993 and 1992 totaling $2,904,000 and $797,000,
respectively. No such waivers were granted during 1994; however, the
contribution is expected to directly benefit the Sands facility. Accordingly,
an intangible asset of $1,275,000 has been included in other assets on the
accompanying consolidated balance sheet at December 31, 1994 and will be
amortized over a period of
47
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ten years. Amortization of such waivers during 1994, 1993 and 1992 totaled
$1,727,000, $2,078,000 and $169,000, respectively. At December 31, 1994, all
waivers have been fully amortized.
(9) SUMMARIZED COMBINED FINANCIAL INFORMATION OF AND TRANSACTIONS WITH
UNCONSOLIDATED AFFILIATES
Certain summarized combined financial information of PHC's unconsolidated
affiliates, which include joint ventures, is presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues $ 38,897,000 $ 44,635,000 $ 40,446,000
Expenses (42,154,000) (52,457,000) (48,989,000)
------------ ------------ ------------
Net loss before
extraordinary item $ (3,257,000) $ (7,822,000) $ (8,543,000)
============ ============ ============
Net (loss) income $ (3,257,000) $ (7,822,000) $ 8,965,000
============ ============ ============
DECEMBER 31,
---------------------------
1994 1993
------------ ------------
Current assets $ 5,273,000 $ 7,020,000
============ ============
Noncurrent assets $ 58,648,000 $ 64,450,000
============ ============
Current liabilities $ 7,430,000 $ 7,722,000
============ ============
Noncurrent liabilities $ 77,217,000 $ 93,509,000
============ ============
</TABLE>
The net income in 1992 results from an extraordinary gain recognized by an
unconsolidated affiliate in connection with its restructuring of certain
obligations. Income and losses of PHC's unconsolidated affiliates have not been
reflected in the accompanying consolidated statements of operations for the
years ended December 31, 1994, 1993 or 1992 as PHC's investments in such
affiliates have previously been eliminated through the recognition of prior
years' losses.
At December 31, 1994, PHC had an ongoing commitment to fund its proportionate
share of operating cash deficits with respect to its 50% ownership interest in
the Sheraton Plaza located in Orlando, Florida; PHC was not required to make any
such payments during 1994 and paid $200,000 and $400,000 during 1993 and 1992,
respectively. PHC also agreed to contribute up to $3,900,000 (including
approximately $1,000,000 during 1995) as an additional investment in the
Sheraton Plaza hotel partnership to refurbish the hotel facility. PHC
contributed $660,000 and $125,000 during 1994 and 1993, respectively, toward
such commitment. Such contributions are in recognition of PHC's partner
48
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
having agreed to make $5,000,000 in principal reductions on the underlying
mortgage note on the facility; $3,500,000 of principal reductions were made
during 1994.
PHC earns management and project fees from unconsolidated affiliates for the
management and project supervision of certain hotel facilities. During the
years ended December 31, 1994, 1993 and 1992, such fees amounted to $977,000,
$930,000 and $995,000, respectively.
(10) 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
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; an
appeal is pending.
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
49
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
separate action are still pending against PHC subsidiaries by a former partner
of Penthouse, but discussions are underway on a settlement on the same basis.
The appeal from the state court judgement is pending but only with respect to
Trump and Trump Plaza Associates.
Participation Options
Hotel Aquarius, B.V. ("HABV"), a corporation organized under the laws of The
Netherlands, filed a lawsuit in the United States District Court for the
Southern District of New York on June 19, 1992 against a predecessor of HCC,
PHC, certain members of the Pratt Family and their affiliates (collectively, the
"Pratt Parties") and a subsidiary of PHC. HABV alleged, among other things,
that the Pratt Parties breached certain contracts (the "Participation Options")
entered into with HABV by failing to afford HABV the opportunity to participate
as an investor in certain Sands projects and in Hollywood - Aurora. HABV's
lawsuit sought an order requiring that the Pratt Parties perform under the
Participation Options, damages and attorneys' fees and a declaratory judgement
that the Participation Options remained in full force and effect. PHC and its
co-defendants filed counterclaims against HABV for, among other things,
fraudulent inducement, breach of contract and declaratory relief that the
Participation Options were terminated and of no effect.
On November 30, 1994, HCC and HABV jointly announced the settlement of this
litigation. All parties in the litigation executed full releases in favor of
the opposing parties and instructed their respective attorneys to immediately
file the necessary papers in court to dismiss the litigation with prejudice.
The terms of the settlement agreement are confidential and will not have a
material adverse impact upon the consolidated financial position or results of
operations of PHC and its subsidiaries.
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.
(11) SUPPLEMENTAL CASH FLOW INFORMATION
At December 31, 1994, HCC assigned to PHC $6,317,000 principal amount of the
Junior Subordinated Notes (see Note 4) together with $1,914,000 of accrued
interest thereon in recognition of the utilization by HCC of a portion of PHC's
available tax net operating losses to reduce HCC's separate tax liability. The
assignment resulted in the recording of $8,231,000 of additional paid-in capital
on the accompanying consolidated balance sheet at December 31, 1994.
During 1994, PHC acquired the underlying indebtedness of the DFW North
Holiday Inn subject to third party indebtedness totaling $2,706,000 (see Note
7).
50
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Hampton Inn located in Duncanville, Texas, a property which had been sold
during 1988, was repossessed by PHC during 1990 due to a payment default by the
purchaser. The property was reinstated at $3,248,000 (representing the
outstanding balance on the note at the date of repossession, net of associated
allowances and approximating net realizable value) and was classified in the
consolidated financial statements under properties held for disposition. The
property was sold in December 1992; in connection with the sale, the purchaser
assumed $2,700,000 of the underlying mortgage in addition to the payment of cash
in exchange for substantially all of the hotel's assets.
(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents
The carrying amounts approximate fair value because of the short maturity of
these instruments.
Obligatory investments
The carrying amount of obligatory investments approximates its fair value as
a result of an allowance reflecting the below market interest rate associated
with such investments.
Notes receivable
The fair value of notes receivable is estimated based on the discounting of
net cash flows at current market rates for notes of similar remaining maturities
and collateral.
Interest payable
The carrying amount of interest payable approximates fair value because of
the short maturity of the obligation.
Long-term debt
The fair value of PHC's long-term debt is estimated based on either the
quoted market prices of the issue or on the discounted cash flow of future
payments utilizing current rates available to PHC for debt of similar remaining
maturities. Debt obligations with a short remaining maturity are valued at the
carrying amount.
51
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The estimated carrying amounts and fair values of PHC's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------------- --------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 29,302,000 $ 29,302,000 $ 15,466,000 $ 15,466,000
Notes receivable 9,325,000 9,325,000 7,860,000 8,084,000
Obligatory investments 4,027,000 4,027,000 4,497,000 4,497,000
Financial Liabilities
Interest payable $ 11,385,000 $ 11,385,000 $ 6,437,000 $ 6,437,000
Borrowings from affiliates 6,000,000 6,000,000 17,133,000 17,133,000
10 7/8% First Mortgage Notes 185,000,000 150,775,000 - -
11 3/4% First Mortgage Notes - - 161,668,000 165,710,000
11 5/8% PRT Funding Notes 85,000,000 58,650,000 - -
15 1/2% PCPI Notes - - 97,143,000 102,000,000
14 7/8% PPI Funding Notes 45,877,000 45,877,000 - -
14 5/8% Junior Subordinated
Notes 8,683,000 8,683,000 - -
Series Notes - - 21,000,000 21,000,000
Second lien wrap-around
mortgage note - - 6,663,000 6,761,000
Other 3,840,000 3,670,000 1,693,000 1,693,000
</TABLE>
52
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(13) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1994 -
Net revenues $62,672,000 $70,368,000 $90,374,000 $71,976,000
=========== =========== =========== ===========
Net (loss) income $(4,609,000) $(3,060,000) $ 7,881,000 $(4,708,000)
=========== =========== =========== ===========
Net (loss) income per
common share $ (.89) $(.59) $1.52 $(.91)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------------
FIRST SECOND THIRD FOURTH
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1993 -
Net revenues $60,893,000 $69,523,000 $80,098,000 $ 66,224,000
=========== =========== =========== ============
Net (loss) income $(4,557,000) $(3,229,000) $ 1,459,000 $(19,795,000)
=========== =========== =========== ============
Net (loss) income per
common share $ (.89) $ (.62) $ .28 $ (3.83)
=========== =========== =========== ============
</TABLE>
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PHC had no disagreements with its independent accountants to report under
this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is incorporated herein by reference
from PHC's definitive proxy statement relating to its Annual Meeting of
Shareholders to be held on May 24, 1995 (the "Definitive Proxy Statement"),
filed with the Securities and Exchange Commission under the captions "Election
of Directors" and "Management."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by reference
from PHC's Definitive Proxy Statement, under the caption "Remuneration of
Directors and Executive Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by
reference from PHC's Definitive Proxy Statement, under the caption "Voting
Rights and Principal Stockholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by
reference from PHC's Definitive Proxy Statement, under the caption "Transactions
with Management."
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. FINANCIAL STATEMENTS
The financial statements filed as part of this report are listed on the
Index to Financial Statements on page 28.
2. FINANCIAL STATEMENT SCHEDULES
-- Report of Independent Public Accountants
-- Schedule I; Condensed Financial Information of Registrant, Pratt Hotel
Corporation (Parent Company):
-- Balance Sheets
-- Statements of Operations
-- Statements of Cash Flows
-- Notes to Parent Company Financial Statements
-- Schedule II; Valuation and Qualifying Accounts
54
<PAGE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted.
3. EXHIBITS
<TABLE>
<CAPTION>
<C> <S>
@3.1 - Certificate of Incorporation of PHC as amended. (Exhibit 3.1)
@3.2 - Amended Bylaws of PHC. (Exhibit 3.2)
++9.1 - Voting Trust Agreement dated as of May 31, 1990 by and
between Crystal A. Pratt and Jack E. Pratt.
(Exhibit 9.1)
++9.2 - Voting Interest Trust Agreement dated as of November 9,
1987 between the partners of J.E. Pratt Co. I
and William D. Pratt. (Exhibit 9.2)
+10.1 - Management Services Agreement dated August 19, 1987,
between Pratt Hotel Management, Inc. ("PHMI")
and GBH&C. (Exhibit 10.1)
+10.2 - Overhead Allocation Agreement, effective as of January 1,
1988, between PHC and PHMI. (Exhibit 10.2)
+10.3 - Amended License Agreement by and between Hughes
Properties, Inc. and PHC dated May 19, 1987.
(Exhibit 10.3)
+10.4 - Form of Indenture among PCPI Funding Corp., Pratt Casino
Properties and PHC and First Interstate Bank of
Dallas as Trustee (including form of
Security). (Exhibit 10.4)
+10.5 - First Supplemental Indenture, dated as of February 27,
1989, among PCPI Funding Corp., First Interstate Bank of Texas,
N.A., PHC and Pratt Casino Properties. (Exhibit 10.11)
*10.6 - Amendment and Restatement of Joint Venture Agreement
dated August 1, 1984, between PHC and DeBartolo Hotel
Associates. (Exhibit 10.13)
*10.7 - Second Amendment of Joint Venture Agreement of
Pratt/DeBartolo Associates of Orlando dated June 30, 1985
between PHC and DeBartolo Hotel Associates. (Exhibit 10.14)
+10.8 - Joint Operating Agreement dated as of May 31, 1992
between Metroplex Hotel Limited and PHC. (Exhibit
10.14)
+10.9 - Management Agreement between Pratt/DeBartolo Associates
of Orlando and PHC dated May 20, 1983, as amended.
(Exhibit 10.15)
+10.10 - Management Agreement by and between Southmark San Juan,
Inc., owner, and SJPR Inc., operator, dated September
15, 1987, as amended. (Exhibit 10.16)
+10.11 - Tax Allocation Agreement by and among PHC, PPI
Corporation, Greate Bay Hotel Corporation, Pratt Casino
Properties, Pacsa No. 2, Inc., Pacsa No. 3, Inc., Pratt Hotel
Funding, Inc. and Greate Bay Property Funding Corp., effective
as of January 1, 1987. (Exhibit 10.17)
+10.12 - Tax Allocation Agreement by and among Pratt Casino
Properties, BPHC Acquisition, Inc., PHMI, Greate Bay Casino
Corporation, PCPI Funding Corp. and GBHC effective as of January
1, 1987. (Exhibit 10.18)
+10.13 - Indemnification Agreement dated as of December 17, 1987,
by and between PHC and the Pratt Brothers.
@@10.14 - Employment Agreement dated September 21, 1989, between
PHC and Jack E. Pratt, as amended. (Exhibit 10.14)
@@10.15 - Employment Agreement dated September 21, 1989, between
PHC and Edward T. Pratt, Jr, as amended. (Exhibit
10.15)
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
@@10.16 - Employment Agreement dated September 21 1989, between PHC
and William D. Pratt, as amended. (Exhibit 10.16)
+++10.17 - Employment Agreement as amended, dated May 14, 1992,
between PHC and William P. Weidner. (Exhibit 10.28)
+++10.18 - Employment Agreement dated May 31, 1992, between GBHC
and Bradley H. Stone. (Exhibit 10.29)
+++10.19 - Employment Agreement dated May 31, 1992, between
GBHC and Lawrence C. Cole. (Exhibit 10.30)
- Management Services Agreement dated as of June 21, 1991,
between HCA and GBCC (the "Management Services
Agreement"). (Exhibit 10.34)
*10.21 - First Amendment to the Management Services Agreement
dated as of May 14, 1992. (Exhibit 10.35)
*10.22 - Tax Sharing Agreement dated May 13, 1992, by and among
HCC, HCA and PHC. (Exhibit 10.36)
*10.23 - Administrative Services Agreement dated as of May 14,
1992, between HCC and PHC. (Exhibit 10.41)
*10.24 - Technical Services Agreement dated February 21, 1992,
between HCA and PHC (the "Technical Services
Agreement"). (Exhibit 10.42)
*10.25 - First Amendment to the Technical Services Agreement dated
May 14, 1992. (Exhibit 10.43)
**10.26 - Indenture dated as of February 15, 1994 between GB
Property Funding Corp. as Issuer, GB Holdings, Inc. and GBHC as
Guarantors, and Shawmut Bank Connecticut, N.A. as Trustee.
(Exhibit 10.50)
**10.27 - Mortgage, Fixture Filing and Security Agreement dated
February 17, 1994, by GBHC in favor of Shawmut Bank Connecticut,
National Association, as Mortgagee. (Exhibit 10.51)
**10.28 - Security Agreement dated February 17, 1994 made by GB
Property Funding Corp., GBHC, GB Holdings, Inc., Advanced Casino
Systems International, Inc. Computerized Management Systems
International, Inc. and any Additional Collateral Grantor to
Shawmut Bank Connecticut, National Association, as Trustee.
(Exhibit 10.52)
**10.29 - Collateral Assignment of Leases dated as of
February 17, 1994, by GBHC, in favor of Shawmut Bank
Connecticut, National Association, as Assignee.
(Exhibit 10.53)
**10.30 - Indenture dated as of February 15, 1994 between
PRT Funding Corp. as Issuer, Pratt Casino Corporation
as Guarantor and Shawmut Bank, N.A. as Trustee.
(Exhibit 10.54)
**10.31 - Agreement of Limited Partnership of Pratt
Management, L.P. (Exhibit 10.55)
***10.32 - Consulting Agreement dated as of January 1, 1994
between PCC, as the Consultant, and HWCC -
Tunica, Inc.
***10.33 - Computer Services Agreement dated as of January
1, 1994 between Summit Tunica Partnership and
Advanced Casino Systems Corporation.
21.1 - Subsidiaries of PHC.
23.1 - Consent of Arthur Andersen LLP
27.1 - Financial Data Schedule
</TABLE>
56
<PAGE>
@ Incorporated by reference from the exhibit shown in parenthesis to
PHC's Annual Report on Form 10-K for the fiscal year ended December
31, 1992.
@@ Incorporated by reference from the exhibit shown in parenthesis to
Hollywood Casino Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
+ Incorporated by reference from the exhibit shown in parenthesis to Form S-
1 Registration Statement (Registration No. 33-58732) for Hollywood Casino
Corporation as filed with the SEC on May 27, 1993.
++ Incorporated by reference from the exhibit shown in parenthesis filed in
PHC's Annual Report on Form 10-K for the fiscal year ended December 31,
1990.
+++ Incorporated by reference from the exhibit shown in parenthesis filed in
HCC's Registration Statement on Form S-1 (Registration No. 33-48887) as
filed with the SEC on September 10, 1992.
* Incorporated by reference from the exhibit shown in parenthesis to that
Registration Statement on Form 10 filed with the SEC on May 28, 1992 by
PRT Corporation (now known as HCC).
** Incorporated by reference from the exhibit shown in parenthesis to Form S-
1 Registration Statement (Registration No. 33-77502) for Hollywood Casino
Corporation as filed with the SEC on April 8, 1994.
*** Incorporated by reference from the exhibit shown in parenthesis to Form S-
1 Registration Statement (Registration No. 33-82182) for HWCC- Tunica,
Inc. as filed with the SEC on September 29, 1994.
(B) REPORTS ON FORM 8-K.
PHC filed a Current Report on Form 8-K on November 30, 1994 with respect to
the settlement of litigation.
57
<PAGE>
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, in the City of Dallas,
State of Texas on March 23, 1995.
PRATT HOTEL CORPORATION
/s/ Jack E. Pratt
By:______________________________________
Jack E. Pratt
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------------------- ----------------------- --------------
<S> <C> <C> <C>
/s/ Jack E. Pratt Chairman of the Board, March 23, 1995
------------------------------ Chief Executive --------------
Jack E. Pratt Officer and Director
/s/ Edward T. Pratt, Jr. Vice Chairman of the March 23, 1995
------------------------------ Board, Treasurer and --------------
Edward T. Pratt, Jr. Director
/s/ William P. Weidner President and Chief March 23, 1995
------------------------------ Operating Officer --------------
William P. Weidner and Director
/s/ William D. Pratt Executive Vice March 23, 1995
------------------------------ President, General --------------
William D. Pratt Counsel, Secretary
and Director
/s/ Albert J. Cohen Executive Vice March 23, 1995
------------------------------ President and Principal --------------
Albert J. Cohen Financial Officer
Director
------------------------------ --------------
Bernard A. Capaldi, Jr.
/s/ James A. Colquitt Director March 23, 1995
------------------------------ --------------
James A. Colquitt
/s/ Edward D. Muir Director March 23, 1995
------------------------------ --------------
Edward D. Muir
/s/ John C. Hull Corporate Controller March 23, 1995
------------------------------ --------------
John C. Hull
</TABLE>
58
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
PRATT HOTEL CORPORATION AND SUBSIDIARIES
-- Report of Independent Public Accountants
-- Schedule I; Condensed Financial Information of Registrant:
-- Balance Sheets
-- Statements of Operations
-- Statements of Cash Flows
-- Notes to Parent Company Financial Statements
-- Schedule II; Valuation and Qualifying Accounts
<PAGE>
(LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pratt Hotel Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements, of Pratt Hotel Corporation and subsidiaries
included in this Form 10-K and have issued our report thereon dated February 17,
1995. Our report on the financial statements discloses that effective January
1, 1993 the Company changed its method of accounting for income taxes. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in the index to financial
statement schedules are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 17, 1995
<PAGE>
SCHEDULE I
PAGE 1
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PRATT HOTEL CORPORATION (PARENT COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 1,023,000 $ 244,000
Accounts receivable 108,000 77,000
Due from affiliates 561,000 -
Other current assets 13,000 22,000
------------- -------------
Total current assets 1,705,000 343,000
------------- -------------
Notes receivable 9,325,000 7,860,000
Due from affiliate 8,231,000 -
Other assets 87,000 1,079,000
------------- -------------
$ 19,348,000 $ 9,282,000
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current maturities of long-term debt $ 328,000 $ 6,803,000
Accounts payable and accrued liabilities 683,000 595,000
Due to affiliates 5,935,000 10,356,000
------------- -------------
Total current liabilities 6,946,000 17,754,000
------------- -------------
Long-term debt 36,809,000 45,430,000
------------- -------------
Other noncurrent liabilities 17,891,000 16,578,000
------------- -------------
Due to affiliates 10,839,000 37,086,000
------------- -------------
Investment in and advances to affiliates 80,936,000 30,269,000
------------- -------------
Shareholders' deficit:
Common stock, $.10 par value per share,
authorized 10,000,000 shares, issued and
outstanding 5,186,627 and 5,175,977
shares, respectively 519,000 518,000
Additional paid-in capital 23,838,000 15,581,000
Accumulated deficit (158,430,000) (153,934,000)
------------- -------------
(134,073,000) (137,835,000)
------------- -------------
$ 19,348,000 $ 9,282,000
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
SCHEDULE I
PAGE 2
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PRATT HOTEL CORPORATION (PARENT COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1993 1992
------------ ------------- -------------
<S> <C> <C> <C>
REVENUES
Overhead allocation fees $ 600,000 $ - $ 929,000
Other 424,000 - 56,000
----------- ------------ ------------
1,024,000 - 985,000
----------- ------------ ------------
EXPENSES
General and administrative
expense 300,000 228,000 523,000
Losses of properties held for
disposition - - 295,000
----------- ------------ ------------
300,000 228,000 818,000
----------- ------------ ------------
Income (loss) from operations 724,000 (228,000) 167,000
----------- ------------ ------------
Non-operating income (expense):
Interest income 1,786,000 1,288,000 1,787,000
Interest expense (7,584,000) (8,627,000) (8,760,000)
----------- ------------ ------------
Total non-operating expense,
net (5,798,000) (7,339,000) (6,973,000)
----------- ------------ ------------
Loss before income tax provision
and other item (5,074,000) (7,567,000) (6,806,000)
Income tax provision (1,080,000) (754,000) (642,000)
----------- ------------ ------------
Loss before other item (6,154,000) (8,321,000) (7,448,000)
Equity in earnings (losses) of
consolidated subsidiaries 1,658,000 (17,801,000) (24,942,000)
----------- ------------ ------------
Net loss $(4,496,000) $(26,122,000) $(32,390,000)
=========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
SCHEDULE I
PAGE 3
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PRATT HOTEL CORPORATION (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (4,496,000) $(26,122,000) $(32,390,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in (earnings) losses of consolidated subsidiaries (1,658,000) 17,801,000 24,942,000
Dividends received from consolidated subsidiaries 49,095,000 - -
Net change in accounts payable and accrued liabilities 142,000 (374,000) 12,394,000
Net change in other current assets and liabilities 448,000 1,046,000 187,000
Net change in other noncurrent assets and liabilities (31,389,000) 3,761,000 (4,361,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities 12,142,000 (3,888,000) 772,000
------------ ------------ ------------
INVESTING ACTIVITIES:
Collections on notes receivable 7,614,000 - -
Proceeds from disposition of assets - - 312,000
Purchase of mortgage note (5,750,000) (1,000,000) -
Investments in and advances to unconsolidated affiliates (660,000) (325,000) (400,000)
Net (advances to) repayments from consolidated affiliates (152,000) 6,117,000 142,000
------------ ------------ ------------
Net cash provided by investing activities 1,052,000 4,792,000 54,000
------------ ------------ ------------
FINANCING ACTIVITIES:
Net borrowings from affiliates 5,360,000 3,050,000 1,000,000
Repayments of long-term debt (17,802,000) (4,244,000) (2,273,000)
Issuance of common stock 27,000 83,000 375,000
------------ ------------ ------------
Net cash used in financing activities (12,415,000) (1,111,000) (898,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 779,000 (207,000) (72,000)
Cash and cash equivalents at beginning of year 244,000 451,000 523,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,023,000 $ 244,000 $ 451,000
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
SCHEDULE I
PAGE 4
PRATT HOTEL CORPORATION AND SUBSIDIARIES
PRATT HOTEL CORPORATION (PARENT COMPANY)
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
(1) Scheduled payments of long-term debt of the registrant as of December 31,
1994 are set forth below:
<TABLE>
<S> <C>
1995 $ 328,000
1996 358,000
1997 391,000
1998 35,109,000
1999 466,000
Thereafter 485,000
-----------
$37,137,000
===========
</TABLE>
(2) Certain reclassifications have been made to the prior years' condensed
financial information of the Registrant to conform such information to the
1994 presentation.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
SCHEDULE II
PRATT HOTEL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
AMOUNTS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- ---------- ---------------- -----------
<S> <C> <C> <C> <C>
DESCRIPTION
-----------
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful
accounts receivable $14,814,000 $3,283,000 $(2,800,000)(1) $15,297,000
Allowance for obligatory
investments 3,065,000 617,000 (1,224,000)(2) 2,458,000
----------- ---------- ----------- -----------
$17,879,000 $3,900,000 $(4,024,000) $17,755,000
=========== ========== ============ ===========
YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful
accounts receivable $13,746,000 $3,603,000 $(2,535,000)(1) $14,814,000
Allowance for obligatory
investments 5,420,000 340,000 (2,695,000)(2) 3,065,000
----------- ---------- ------------ -----------
$19,166,000 $3,943,000 $(5,230,000) $17,879,000
=========== ========== ============ ===========
YEAR ENDED DECEMBER 31, 1992:
Allowance for doubtful
accounts receivable $18,196,000 $3,013,000 $(7,463,000)(1) $13,746,000
Allowance for obligatory
investments 4,802,000 618,000 - 5,420,000
----------- ---------- ------------ -----------
$22,998,000 $3,631,000 $(7,463,000) $19,166,000
=========== ========== =========== ===========
</TABLE>
----------------
(1) Represents net write-offs of uncollectible accounts.
(2) Represents write-offs of obligatory investments in connection with the
contribution of certain obligatory investments to the Casino Reinvestment
Development Authority.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
------- ------------
<C> <S> <C>
@3.1 - Certificate of Incorporation of PHC as amended. (Exhibit 3.1)
@3.2 - Amended Bylaws of PHC. (Exhibit 3.2)
++9.1 - Voting Trust Agreement dated as of May 31, 1990 by and
between Crystal A. Pratt and Jack E. Pratt.
(Exhibit 9.1)
++9.2 - Voting Interest Trust Agreement dated as of November 9,
1987 between the partners of J.E. Pratt Co. I
and William D. Pratt. (Exhibit 9.2)
+10.1 - Management Services Agreement dated August 19, 1987,
between Pratt Hotel Management, Inc. ("PHMI")
and GBH&C. (Exhibit 10.1)
+10.2 - Overhead Allocation Agreement, effective as of January 1,
1988, between PHC and PHMI. (Exhibit 10.2)
+10.3 - Amended License Agreement by and between Hughes
Properties, Inc. and PHC dated May 19, 1987.
(Exhibit 10.3)
+10.4 - Form of Indenture among PCPI Funding Corp., Pratt Casino
Properties and PHC and First Interstate Bank of
Dallas as Trustee (including form of
Security). (Exhibit 10.4)
+10.5 - First Supplemental Indenture, dated as of February 27,
1989, among PCPI Funding Corp., First Interstate Bank of Texas,
N.A., PHC and Pratt Casino Properties. (Exhibit 10.11)
*10.6 - Amendment and Restatement of Joint Venture Agreement
dated August 1, 1984, between PHC and DeBartolo Hotel
Associates. (Exhibit 10.13)
*10.7 - Second Amendment of Joint Venture Agreement of
Pratt/DeBartolo Associates of Orlando dated June 30, 1985
between PHC and DeBartolo Hotel Associates. (Exhibit 10.14)
+10.8 - Joint Operating Agreement dated as of May 31, 1992
between Metroplex Hotel Limited and PHC. (Exhibit
10.14)
+10.9 - Management Agreement between Pratt/DeBartolo Associates
of Orlando and PHC dated May 20, 1983, as amended.
(Exhibit 10.15)
+10.10 - Management Agreement by and between Southmark San Juan,
Inc., owner, and SJPR Inc., operator, dated September
15, 1987, as amended. (Exhibit 10.16)
+10.11 - Tax Allocation Agreement by and among PHC, PPI
Corporation, Greate Bay Hotel Corporation, Pratt Casino
Properties, Pacsa No. 2, Inc., Pacsa No. 3, Inc., Pratt Hotel
Funding, Inc. and Greate Bay Property Funding Corp., effective
as of January 1, 1987. (Exhibit 10.17)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
------- ------------
<C> <S> <C>
+10.12 - Tax Allocation Agreement by and among Pratt Casino
Properties, BPHC Acquisition, Inc., PHMI, Greate Bay Casino
Corporation, PCPI Funding Corp. and GBHC effective as of January
1, 1987. (Exhibit 10.18)
+10.13 - Indemnification Agreement dated as of December 17, 1987,
by and between PHC and the Pratt Brothers.
@@10.14 - Employment Agreement dated September 21, 1989, between
PHC and Jack E. Pratt, as amended. (Exhibit 10.14)
@@10.15 - Employment Agreement dated September 21, 1989, between
PHC and Edward T. Pratt, Jr, as amended. (Exhibit
10.15)
@@10.16 - Employment Agreement dated September 21 1989, between PHC
and William D. Pratt, as amended. (Exhibit 10.16)
+++10.17 - Employment Agreement as amended, dated May 14, 1992,
between PHC and William P. Weidner. (Exhibit 10.28)
+++10.18 - Employment Agreement dated May 31, 1992, between GBHC
and Bradley H. Stone. (Exhibit 10.29)
+++10.19 - Employment Agreement dated May 31, 1992, between
GBHC and Lawrence C. Cole. (Exhibit 10.30)
*10.19 - Management Services Agreement dated as of June 21, 1991,
between HCA and GBCC (the "Management Services
Agreement"). (Exhibit 10.34)
*10.21 - First Amendment to the Management Services Agreement
dated as of May 14, 1992. (Exhibit 10.35)
*10.22 - Tax Sharing Agreement dated May 13, 1992, by and among
HCC, HCA and PHC. (Exhibit 10.36)
*10.23 - Administrative Services Agreement dated as of May 14,
1992, between HCC and PHC. (Exhibit 10.41)
*10.24 - Technical Services Agreement dated February 21, 1992,
between HCA and PHC (the "Technical Services
Agreement"). (Exhibit 10.42)
*10.25 - First Amendment to the Technical Services Agreement dated
May 14, 1992. (Exhibit 10.43)
**10.26 - Indenture dated as of February 15, 1994 between GB
Property Funding Corp. as Issuer, GB Holdings, Inc. and GBHC as
Guarantors, and Shawmut Bank Connecticut, N.A. as Trustee.
(Exhibit 10.50)
**10.27 - Mortgage, Fixture Filing and Security Agreement dated
February 17, 1994, by GBHC in favor of Shawmut Bank Connecticut,
National Association, as Mortgagee. (Exhibit 10.51)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
------- ------------
<C> <S> <C>
**10.28 - Security Agreement dated February 17, 1994 made by GB
Property Funding Corp., GBHC, GB Holdings, Inc., Advanced Casino
Systems International, Inc. Computerized Management Systems
International, Inc. and any Additional Collateral Grantor to
Shawmut Bank Connecticut, National Association, as Trustee.
(Exhibit 10.52)
**10.29 - Collateral Assignment of Leases dated as of
February 17, 1994, by GBHC, in favor of Shawmut Bank
Connecticut, National Association, as Assignee.
(Exhibit 10.53)
**10.30 - Indenture dated as of February 15, 1994 between
PRT Funding Corp. as Issuer, Pratt Casino Corporation
as Guarantor and Shawmut Bank, N.A. as Trustee.
(Exhibit 10.54)
**10.31 - Agreement of Limited Partnership of Pratt
Management, L.P. (Exhibit 10.55)
***10.32 - Consulting Agreement dated as of January 1, 1994
between PCC, as the Consultant, and HWCC -
Tunica, Inc.
***10.33 - Computer Services Agreement dated as of January
1, 1994 between Summit Tunica Partnership and
Advanced Casino Systems Corporation.
21.1 - Subsidiaries of PHC.
23.1 - Consent of Arthur Andersen LLP
27.1 - Financial Data Schedule
</TABLE>
_______________________
@ Incorporated by reference from the exhibit shown in parenthesis to
PHC's Annual Report on Form 10-K for the fiscal year ended December
31, 1992.
@@ Incorporated by reference from the exhibit shown in parenthesis to
Hollywood Casino Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
+ Incorporated by reference from the exhibit shown in
parenthesis to Form S-1 Statement (Registration No. 33-58732) for
Hollywood Casino Corporation as filed with the SEC on May 27, 1993.
++ Incorporated by reference from the exhibit shown in parenthesis
filed in PHC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
+++Incorporated by reference from the exhibit shown in parenthesis
filed in HCC's Registration Statement on Form
<PAGE>
S-1 (Registration No. 33-48887) as filed with the SEC on September
10, 1992.
* Incorporated by reference from the exhibit shown in parenthesis to
that Registration Statement on Form 10 filed with the SEC on May 28,
1992 by PRT Corporation (now known as HCC).
** Incorporated by reference from the exhibit shown in
parenthesis to Form S-1 Registration Statement (Registration No.
33-77502) for Hollywood Casino Corporation as filed with the SEC on
April 8, 1994.
***Incorporated by reference from the exhibit shown in parenthesis to
Form S-1 Registration Statement (Registration No. 33-82182) for HWCC
- Tunica, Inc. as filed with the SEC on September 29, 1994.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF PRATT HOTEL CORPORATION
STATE
NAME ADDRESS ORGANIZED
PPI Corporation 13455 Noel Road New Jersey
Suite 2200, LB48
Dallas, TX 75240
PPI Funding Corp. 13455 Noel Road Delaware
Suite 2200, LB48
Dallas, TX 75240
Pratt Casino Corporation 13455 Noel Road Delaware
Suite 2200, LB48
Dallas, TX 75240
PCPI Funding Corp. 13455 Noel Road Delaware
Suite 2200, LB48
Dallas, TX 75240
GB Holdings, Inc. 13455 Noel Road Delaware
Suite 2200, LB48
Dallas, TX 75240
Greate Bay Hotel and Casino, Inc. 136 S. Kentucky Avenue New Jersey
Atlantic City, NJ 08401
GB Property Funding Corp. 13455 Noel Road Delaware
Suite 2200, LB48
Dallas, TX 75240
Pratt-Hollywood, Inc. 13455 Noel Road Delaware
Suite 2200, LB48
Dallas, TX 75240
BPHC Acquisition, Inc. 136 S. Kentucky Avenue New Jersey
Atlantic City, NJ 08401
Advanced Casino Systems 13455 Noel Road Delaware
Corporation Suite 2200, LB48
Dallas, TX 75240
BPHC Parking Corp. 136 S. Kentucky Avenue New Jersey
Atlantic City, NJ 08401
Pratt Hotel Management 13455 Noel Road Texas
Corporation Suite 2200, LB48
Dallas, TX 75240
<PAGE>
SUBSIDIARIES OF PRATT HOTEL CORPORATION (CONTINUED)
STATE
NAME ADDRESS ORGANIZED
Pratt Hotel Funding, Inc. 13455 Noel Road Delaware
Suite 2200, LB48
Dallas, TX 75240
PCVI, Inc. 13455 Noel Road Texas
Suite 2200, LB48
Dallas, TX 75240
SJPR Management, Inc. 13455 Noel Road Texas
Suite 2200, LB48
Dallas, TX 75240
SJPR, Inc. 13455 Noel Road Texas
Suite 2200, LB48
Dallas, TX 75240
PRT Funding Corp. 13455 Noel Road Delaware
Suite 2200, LB48
Dallas, TX 75240
New Jersey Management, Inc. 13455 Noel Road New Jersey
Suite 2200, LB48
Dallas, TX 75240
<PAGE>
[LETERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pratt Hotel Corporation:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-59624.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 21, 1995
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