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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, 1995
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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
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Commission file number 1-6339
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PRATT HOTEL CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 75-1295630
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(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
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(Address of principal executive (Zip Code)
offices)
(Registrant's telephone number,
including area code): (214) 386-9777
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Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK,
PAR VALUE $.10 PER SHARE AMERICAN STOCK EXCHANGE
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Title of each class Name of exchange on which
registered
Securities registered pursuant to Section 12(g) of the Act: NONE
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
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 25, 1996,
was $2,240,341. 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 25,
1996, 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.
None
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PART I
ITEM 1. BUSINESS
GENERAL
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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 and entertainment facility located in Aurora, Illinois (the
"Aurora Casino") and providing consulting services to a gaming and lodging
facility in Tunica County, Mississippi (the "Tunica Casino"). 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"). HCC also owns the Aurora Casino and the
Tunica Casino.
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"); New Jersey Management, Inc.
("NJMI"), which manages the operations of the Sands; Pratt Management, L.P.
("PML"), which manages the operations of the Aurora Casino; Pratt Casino
Corporation ("PCC"), which earns consulting fees from the Tunica Casino; and
Greate Bay Hotel and Casino, Inc. ("GBHC"), which owns the Sands Hotel and
Casino in Atlantic City, New Jersey (the "Sands"), which generates a substantial
majority of PHC's consolidated revenues. The Sands is not affiliated with the
Sands Hotel and Casino in Las Vegas, Nevada. 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.
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
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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 have been
undertaken to enhance the Sands' operations. Such projects have included the
expansion of gaming space from the original 32,000 square feet in 1981 to the
present 75,000 square feet; the construction of an adjacent multi-level parking
garage to attract drive-in patrons; the completion of an elevated, enclosed,
one-way moving sidewalk (the "People Mover") connecting the Sands to the
Boardwalk; and the renovation of an adjacent nine-story office building for use
as administrative offices.
The Sands has begun a phased introduction of a motion picture theme
(the "Hollywood Theme") currently used by other gaming facilities managed by
subsidiaries of PHC on behalf of HCC. The Hollywood Theme incorporates designs
inspired by famous movies, displays of motion picture memorabilia and movie
themed gaming, entertainment and dining areas. Management believes the
timelessness and flexibility of the Hollywood Theme will have particular appeal
to Atlantic City casino patrons who tend to visit frequently. Implementation of
the Hollywood Theme, which will be accomplished as part of the ongoing capital
improvements program, began with the 1995 openings of the "Epic Buffet," a
highly themed food and
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beverage facility, and the Hollywood Casino(R) Studio Store, a highly themed
retail complex. The conversion is expected to be completed in 1997.
Business Strategy. The Sands' success in the highly competitive
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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 of the
Sands' expansion in 1994 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 high-end
slot product and conversion 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 proprietary casino information technology developed by Advanced Casino
Systems Corporation ("ACSC"), an affiliate of GBHC. This technology includes
ACSC's table game and slot machine monitoring systems which enable the Sands to
track and rate patron play through the use of a casino player's card. These
systems provide management with the key characteristics of patron play as slot
machines and table games are connected with its data base monitoring system.
When patrons use the casino player's card at slot machines or 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 meals, hotel
accommodations, retail merchandise, parking and sweepstakes giveaways based on
slot machine patrons' gross wagering. Management believes that its ability to
reward its customers on a "same-visit" basis is valuable in developing a loyal
base of higher value patrons. ACSC's systems also allow the Sands to monitor,
analyze and control the granting of gaming credit, promotional expenses and
other marketing costs. ACSC also has developed a system that the Sands utilizes
to capture and maintain patron information necessary in implementing its casino
players' card and other data base marketing programs.
Management uses its data bases to focus its marketing efforts on
patrons who have been identified as higher value patrons. Management believes
that its process of identifying higher value patrons, encouraging participation
in its casino player's card program and tailoring promotions and special events
to cater to this market segment enhances the profitability of the Sands.
The Sands 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 Sands' gaming facilities and
the casino player's card program, management uses its data base capabilities to
direct market to these patrons in an attempt to convert them into higher value
patrons.
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Competition. The Sands faces intense competition from the 11 other
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existing Atlantic City casinos. According to reports of the New Jersey Casino
Control Commission (the "Casino Commission"), the twelve Atlantic City casinos
currently offer over 950,000 square feet of gaming space. Several companies
have recently announced plans to build and operate additional casino/hotels over
the next few years. For example, Mirage Resorts and Circus Circus have jointly
submitted a proposal to the city for an approximately $1 billion resort complex
consisting of two casinos, two 2,000 room hotels, several theaters and an
upscale shopping concourse. In addition, other individuals have submitted
applications and have been qualified 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 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. Plans
have been announced by other casino operators to complete in excess of 3,400
rooms within the required subsidy period. In addition, 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. The expansion of existing gaming facilities and the addition of new
casinos could significantly increase the competitiveness of the Atlantic City
market.
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 required to develop and open a new casino/hotel in Atlantic
City, may prove a deterrent to additional new competitors in the market.
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 have enabled 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 estimates that a significant amount of the Sands' revenues
is derived from patrons living within a 120 mile radius of Atlantic City, New
Jersey, particularly from southeastern Pennsylvania, northern New Jersey and
metropolitan New York City. If casino gaming were to be legalized in those
areas or in other venues that are more convenient to those areas, it could have
a material adverse effect on the Sands. Gaming is currently conducted on Indian
lands in nearby states, including the Foxwoods Casino in Connecticut and the
Turning Stone Casino in Oneida, New York near Syracuse.
Industry Developments. A number of significant changes to the
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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.
Additional deregulation of the industry occurred in 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
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business and experience requirements for employee licensing. The legislation
also removes the ownership limit of three casino licenses per person.
Partly as a result of such regulatory changes, the Atlantic City
gaming industry has continued to grow. Revenues have increased from $3.3 billion
in 1993 to $3.4 billion in 1994 (an increase from the previous year of 3.7%) and
to $3.7 billion in 1995 (an increase from the previous year of 9.5%). The 1995
increase resulted primarily from an overall expansion of gaming space to
approximately 950,000 square feet at the end of 1995 from approximately 925,000
square feet at the end of 1994, and a rebound in revenues from the first two
months of 1994 which were negatively impacted by severe weather.
Casino/hotel operators have also 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 1995 slot win accounted for approximately 68.7% 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
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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, 1995, gaming credit extended to Sands' customers accounted for
approximately 28.9% of overall table game wagering, while table game wagering
accounted for approximately 25.7% of overall casino wagering during the period.
At December 31, 1995 and 1994, gaming receivables amounted to $26.1 million and
$26.5 million, respectively, before allowances for uncollectible gaming
receivables amounting to $16.4 million and $15.2 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
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"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. Such charges amounted to $288,000
during each of the years ended December 31, 1995 and 1994 and $294,000 during
the year ended December 31, 1993.
Employees and Labor Relations. In Atlantic City, all casino
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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, 1995, there
were approximately 3,400 employees at the Sands. The Sands has collective
bargaining agreements with two unions that represent approximately 1,000 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 1999. Management considers its labor
relations to be good.
PRATT MANAGEMENT, L.P.
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PML manages the Aurora Casino pursuant to the Aurora 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 the Aurora Casino and any additions or expansions
thereof.
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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, 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.
The Aurora 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 the
Aurora Casino fails to furnish funds required for PML to manage the Aurora
Casino 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.
THE AURORA CASINO
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The Aurora Casino commenced operations on June 17, 1993 and is one of
only four casinos currently operating within 50 miles of downtown Chicago. The
Aurora Casino currently consists of two multi-level riverboat casinos containing
an aggregate of approximately 32,100 square feet of gaming space with
approximately 945 slot machines and approximately 60 table games. The Aurora
Casino also includes an approximately 64,000 square foot land-based Pavilion
through which patrons board the facility's two riverboat casinos via enclosed
passenger loading ramps. The highly themed Pavilion features a glass-domed,
four-story atrium with two grand staircases, two upscale lounges, two gourmet
restaurants, a large buffet and a snack bar. Patrons of the Aurora Casino are
offered valet parking or may self-park in either a multi-level parking garage
that accommodates approximately 840 cars or other available surface parking.
In order to enhance the operating performance of the Aurora Casino,
HCC recently completed a number of improvements to the Aurora facility. The
first phase of this project was completed on May 10, 1995 with the opening of a
10,000 square foot expansion of one of the Aurora Casino's riverboats.
Management believes that prior to the expansion, the Aurora Casino's gaming
facilities were capacity constrained during peak periods, which limited the
property's operating performance. The casino expansion increased the Aurora
Casino's gaming space by approximately 45% to the current 32,100 square feet,
allowed the facility to offer patrons the maximum number of gaming positions
permitted by Illinois gaming regulations in a spacious, highly-themed setting
and permitted the addition of over 235 slot machines. HCC also completed a
renovation of the Aurora Casino's second riverboat casino in September 1995.
This renovation included the installation of new interior decor more extensively
utilizing HCC's Hollywood Theme and the reconfiguration of the gaming area to
provide a more spacious and comfortable setting. In addition to expanding and
improving the Aurora Casino's gaming space, HCC recently completed an extensive
redesign of the Epic Buffet, a highly themed food and beverage facility.
HCC has also begun construction of a new five-story, approximately
500-space parking garage directly across the street from the Pavilion.
Management believes that this approximately 60% increase in covered parking
capacity will significantly enhance access to the Aurora Casino since a majority
of the facility's patrons arrive by car. The parking garage will contain
approximately 1,500 square feet of retail space and will be connected to the
Pavilion through a climate controlled tunnel. This retail space is planned as a
"Hollywood Casino(R) Studio Store," a highly themed store selling logo items
licensed from motion picture studios as well
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as first-run movies on videocassette. HCC has agreed with the City of Aurora
and the Aurora Metropolitan Exposition, Auditorium and Office Building Authority
("ACCA") to jointly construct the parking garage and to also renovate ACCA's
existing North Island Center banquet and meeting facilities. The renovation of
the banquet and meeting facilities will allow the Aurora Casino to cater to
groups of up to 450 people. Construction commenced in September 1995 and is
scheduled to be completed by July 1996.
Business Strategy. The Aurora facility's primary market is the
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affluent suburbs north and west of Chicago. Based on a sampling of its patrons,
management believes that the casino drew approximately 44% of its patrons from
such suburbs during 1995. Approximately 7.1 million people live within a 40-
mile radius and approximately 11.6 million people live within a 100-mile radius
of the Aurora Casino. The facility is easily accessible from major highways,
can be reached from downtown Chicago in approximately 50 minutes by train with
an average of 20 trips a day, and is approximately 30 miles from O'Hare
International Airport. The four operating Chicago-area casinos, including the
Aurora Casino, have approximately 132,000 square feet of combined gaming space.
No additional casinos may be licensed in Illinois without the passage of new
state legislation.
The Aurora Casino's riverboats currently depart from their landings
for between 13 and 14 cruises daily, commencing at various times from 8:30 a.m.
until 4:30 a.m. This schedule may be varied, based on experience and seasonal
factors. Once passengers board, they are permitted to game during the half hour
prior to the time the riverboat departs. After the excursion, passengers are
permitted to game for another half hour before new passengers board, for a total
of up to three hours of gaming per cruise. In addition, Illinois regulations
permit dockside gaming if the riverboat captain reasonably determines that it is
unsafe to cruise due to inclement weather, mechanical or structural problems or
river icing. During dockside gaming, the Aurora riverboats operate on their
normal schedules and passengers may leave the vessels at any time but may board
only during the half hour prior to the regularly scheduled start of the cruise.
The Aurora Casino 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.
Management uses the patron data base information developed through ACSC's
systems 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
patron, encouraging participation in its casino players' card program and
tailoring promotions and special events to cater to this market segment will
enhance the profitability.
The Aurora Casino 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 gaming facility and
the casino players' card program, management uses its data base capabilities to
direct market to these patrons in an attempt to convert them into higher value
patrons.
Management believes that the Aurora Casino's facilities, in particular
its highly themed dockside Pavilion and its close proximity to the city-owned
Paramount Theatre, a 1,900-seat art deco theatre in which HCC features headliner
entertainment, are appealing to both the premium and mass casino patron markets.
Entertainers who have appeared include Frank Sinatra, Tom Jones, Ann-Margaret,
the Temptations, Howie Mandel, Willie Nelson and the Bolshoi Ballet.
Competition. The gaming industry is highly fragmented and
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characterized by a high degree of competition among a large number of
participants, some of which have greater financial and other resources than HCC.
Competitive gaming activities include land-based casinos, dockside casinos,
riverboat casinos, video lottery terminals, Indian gaming and other forms of
legalized gaming in the United States and other jurisdictions. Casino gaming is
currently permitted in a number of states, including Colorado, Illinois,
Indiana, Iowa, Louisiana, Mississippi, Missouri, Montana, Nevada, New Jersey and
South Dakota, and in
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Windsor, Ontario, Canada, as well as on Native American Indian lands in certain
states. Other jurisdictions may legalize gaming in the near future. Several
states have proposals to legalize gaming either introduced or being prepared for
introduction to their state legislatures. In addition, established gaming
jurisdictions could award additional gaming licenses or permit the expansion of
existing gaming operations. New or expanded operations by other persons can be
expected to increase competition and could have a material adverse impact on the
Aurora Casino.
The Illinois Riverboat Gambling Act and the rules promulgated by the
Illinois Gaming Board thereunder (the "Riverboat Act") authorizes only ten
owner's licenses for riverboat gaming operations in Illinois and permits a
maximum of 1,200 gaming positions (as defined by the Illinois Gaming Board) at
any time for each of the ten licensed sites. All authorized owner's licenses
have been granted and no additional licenses or gaming positions can be
permitted without further state legislation. Four riverboat sites, including
the Aurora Casino, are currently licensed in Illinois within 50 miles of
downtown Chicago. Two of these riverboat sites are in Joliet, approximately 42
miles southwest of downtown Chicago, and a third is in Elgin, Illinois,
approximately 20 miles from Aurora, 45 miles from downtown Chicago and amid the
affluent northern and western suburbs. The next closest operating casinos 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. Management understands that
legislation may be introduced in the Illinois legislature to authorize one or
more land-based and/or riverboat casinos in downtown Chicago and/or the granting
of additional casino licenses elsewhere in Illinois including within the Aurora
Casino's principal market. The Management also anticipates increased
competition from up to five riverboat operations in northwestern Indiana, which
is within 25 miles of downtown Chicago, including the potential operations of
three operators who were recently awarded licenses to operate riverboat casinos
in northwestern Indiana under Indiana gaming regulations. Increased competition
from casinos in Indiana may result in greater competition for patrons from the
downtown Chicago market and from the suburban Chicago market. Native American
Indian tribes are seeking to open casino facilities in northwestern Indiana and
Michigan under the Indian Gaming Regulatory Act. The opening of additional
casinos proximate to Chicago could have a material adverse impact on the Aurora
Casino.
Casino Credit. Casino operations are conducted on both a credit and a
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cash basis. Gaming debts arising in Aurora in accordance with applicable
regulations are enforceable under Illinois law. For the year ended December 31,
1995, gaming credit extended to customers accounted for approximately 13% of
overall table game wagering, while table game wagering accounted for
approximately 57% of overall casino wagering during the period. At December 31,
1995, gaming receivables amounted to $2.3 million before allowances for
uncollectible gaming receivables which amounted to $603,000. Management of the
Aurora Casino believes that the allowances for uncollectible gaming receivables
are adequate.
Employees and Labor Relations. In Aurora, all casino employees must
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be licensed by the Illinois Gaming Board. At December 31, 1995 there were
approximately 1,740 employees at the Aurora Casino, none of whom are represented
under collective bargaining agreements. Management considers its labor
relations to be good.
THE TUNICA CASINO CONSULTING AGREEMENT
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PCC, through its ownership and management of the Sands and through its
management of the Aurora Casino, has certain casino management experience and
expertise which the Tunica Casino as a newly established business did not have.
In order to utilize PCC's experience and expertise, the Tunica Casino 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
the Tunica Casino on any matters relating to business and for monthly payments
of $100,000 to PCC for its performance thereunder. The Tunica Casino is also
obligated to reimburse PCC for its direct costs and expenses incurred under the
agreement.
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CASINO REGULATION
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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 debt and equity 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.
Casino Licenses. The Casino Act requires that all casino operations
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be licensed by the Casino Commission and that all employees (except for certain
non-casino job positions), 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, 1996.
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, 1995, 1994 and 1993, the taxes assessed by, and the
license and other fees paid by the Sands to the Casino Commission amounted to
$25 million, $24.5 million and $23.3 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.
GBHC has, from time to time, contributed certain amounts held in
escrow to the CRDA. In return, the CRDA granted GBHC waivers of certain of its
investment obligations in future periods. GBHC made such contributions during
the years ended December 31, 1995, 1994 and 1993 totaling $250,000, $2.5 million
and $5.7 million, respectively, resulting in waivers granted by the CRDA during
1995 and 1993 totaling $128,000 and $2.9 million, respectively. No such waivers
were granted during 1994; however, the contribution has been designated for a
project expected to benefit the community and the Sands facility.
9
<PAGE>
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 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
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.
Supplier's License. PML is required to maintain a supplier's license
------------------
with respect to the management services it provides to the Aurora Casino. PML's
initial supplier's license expired in December 1995 and was renewed by the
Illinois Gaming Board through December 1996. A supplier'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 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.
A holder of any license is subject to imposition of penalties and
fines, suspension or revocation of such license, or other action for any act or
failure to act by such holder or his or her 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. The Illinois
Gaming Board may revoke or suspend licenses, as the Board may see fit and in
compliance with applicable laws of Illinois regarding administrative procedures.
10
<PAGE>
Regulation of Gaming Operations. The Riverboat Act does not limit the
-------------------------------
maximum bet or per patron loss and licensees may set any maximum or minimum
limits on wagering. 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; however, special event extended
cruises may be authorized by the Illinois Gaming Board.
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 inclement weather, river icing, or mechanical or
structural difficulties, 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. Recently, the Illinois Gaming Board
proposed amendments to its rules that restrict the circumstances under which
dockside gaming will be permitted and require that imposition of a fine for
violations of the cruising requirements.
A $2 per person admission tax is imposed on the owner of a riverboat
operation. Additionally, a wagering 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 transfer all such gaming tax payments
to the Illinois Gaming Board.
The Illinois Gaming Board is authorized to conduct investigations into
the conduct of gaming and into alleged violations of the Riverboat Act and to
take such disciplinary and enforcement action as it may deem necessary and
proper. 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.
Any riverboat operation not conducted in compliance with the Riverboat
Act may constitute an illegal gaming place and 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 Riverboat Act also provides for civil
penalties, equal to the amount of gross receipts derived from wagering on the
gaming, whether unauthorized or authorized, conducted on the day of any
violation.
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. PHC continues to manage 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. For the year ended December 31, 1995, earnings before
interest, taxes, depreciation and amortization attributable to these operations
amounted to $1.3 million. As of December 31, 1995, PHC's non-casino hotel
related indebtedness totaled $2.2 million.
11
<PAGE>
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 2,000 slot machines and
approximately 125 table games, a hotel with 532 rooms (including 58 suites), six
restaurants, a cocktail lounge, two private lounges for invited guests (the
Plaza Club and the Island Club), an 800-seat cabaret theater, an adjacent nine-
story executive office building with 77,000 square feet of office space for its
executive, financial and administrative personnel, the "People Mover" and
parking for approximately 1,900 vehicles. 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.
On February 17, 1994, GB Property Funding issued the 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.
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. In addition, the indenture provides for the maintenance of
certain cash balances and, commencing in 1994, requires that 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
the senior notes issued simultaneously by PRT Funding as described below.
On February 17, 1994, PRT Funding issued 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 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.
THE AURORA CASINO
- -----------------
Although it has no ownership interest in the Aurora Casino, PHC,
through its subsidiaries, manages the facility under the Aurora Casino
Management Contract. For a description of the facility, see "Business - The
Aurora Casino" 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 1995. PHC also agreed to contribute up to $3.9
million (including approximately $1.7 million during 1995) as an additional
investment in the Sheraton Plaza hotel partnership to refurbish the
12
<PAGE>
hotel facility. PHC has contributed $2.5 million toward such commitment through
1995. 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 $4 million have been made through 1995.
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. During 1995, PHC made capital expenditures under the hotel operating
agreement totaling approximately $750,000 toward property improvements. PHC is
also 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 utilized funds borrowed
from HCC to purchase 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), and subject to third party indebtedness amounting to $2.7
million. The required minimum rental payments (net of debt service receipts
since the February 1994 note acquisition date) amounted to $530,000, $678,000
and $1.4 million, respectively, during the years ended December 31, 1995, 1994
and 1993. 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.
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
$513,000, $488,000 and $481,000 during the years ended December 31, 1995, 1994
and 1993, respectively. The wholly owned subsidiary of PHC which owns the 46%
interest has not recognized losses incurred 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 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.
13
<PAGE>
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.
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
brought against PHC subsidiaries by a former partner of Penthouse have been
settled on a "walk away" basis. The appeal from the state court judgment is
pending but only with respect to Trump and Trump Plaza Associates.
OTHER LITIGATION
- ----------------
PHC and its subsidiaries are also parties in various other legal
proceedings with respect to the conduct of casino and hotel operations.
Although a possible range of loss cannot be estimated, in the opinion of
management, based upon the advice of counsel, settlement or resolution of these
proceedings should not have a material adverse impact 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 1995, no matter was submitted to a vote
of security holders through the solicitation of proxies or otherwise.
14
<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>
1995
First Quarter $5.33 $3.63
Second Quarter 4.63 3.88
Third Quarter 4.94 3.81
Fourth Quarter 5.13 2.13
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
</TABLE>
At March 25, 1996, 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.
15
<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, 1995
and 1994, and for the years ended December 31, 1995, 1994 and 1993, 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,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net revenues................................................ $ 303,793 $ 295,390 $ 276,738 $ 274,984 $268,589
--------- --------- --------- --------- --------
Expenses:
Departmental............................................... 224,510 215,444 202,659 204,430 194,825
General and administrative................................. 27,139 28,224 26,542 34,739 33,950
Depreciation and amortization.............................. 20,553 19,547 20,837 19,437 21,342
Losses on properties held for disposition.................. - - - 295 2,177
--------- --------- --------- --------- --------
Total expenses 272,202 263,215 250,038 258,901 252,294
--------- --------- --------- --------- --------
Income from operations...................................... 31,591 32,175 26,700 16,083 16,295
--------- --------- --------- --------- --------
Nonoperating income (expenses):
Interest income............................................ 2,397 3,101 1,450 2,814 3,388
Interest expense........................................... (38,375) (38,692) (38,704) (37,559) (38,521)
Write-off deferred pre-acquisition costs................... - - - (13,086) -
Gain on disposition of assets.............................. - - - - 2,469
--------- --------- --------- --------- --------
Total nonoperating expenses, net (35,978) (35,591) (37,254) (47,831) (32,664)
--------- --------- --------- --------- --------
Loss before income taxes and extraordinary item............. (4,387) (3,416) (10,554) (31,748) (16,369)
Income tax benefit (provision).............................. 100 (1,080) (754) (642) (1,216)
--------- --------- --------- --------- --------
Loss before extraordinary item.............................. (4,287) (4,496) (11,308) (32,390) (17,585)
Extraordinary item:
Early extinguishment of debt, net of related tax benefits.. - - (14,814) - -
--------- --------- --------- --------- --------
Net loss $ (4,287) $ (4,496) $ (26,122) $ (32,390) $(17,585)
========= ========= ========= ========= ========
Per common share(1):
Loss before extraordinary item............................. $(.83) $(.87) $(2.19) $(6.38) $(3.48)
Extraordinary item......................................... - - (2.87) - -
--------- --------- --------- --------- --------
Net loss $(.83) $(.87) $(5.06) $(6.38) $(3.48)
========= ========= ========= ========= ========
BALANCE SHEET DATA: DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Total assets................................................ $ 250,283 $ 250,744 $ 224,292 $ 222,061 $270,445
Long-term debt.............................................. $ 329,123 $ 328,400 $ 288,122 $ 285,199 $296,125
Shareholders' deficit....................................... $(138,415) $(134,073) $(137,835) $(111,796) $(79,781)
</TABLE>
- ----------
(1) Fully diluted per share data are not presented for any year because the
inclusion of such securities would be antidilutive.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
PHC's consolidated net revenues increased to $303.8 million during
1995 from $295.4 million for 1994; however, PHC's income from operations
declined slightly to $31.6 million from $32.2 million during the same period due
primarily to higher operating costs at the Sands.
GAMING OPERATIONS
The following table sets forth certain unaudited financial and
operating data relating to the Sands' operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
REVENUES:
Table games $ 95,835 $ 96,485 $ 93,731
Slot machines 163,821 155,381 148,844
Other (1) 4,392 4,341 2,367
---------- ---------- ----------
Total $ 264,048 $ 256,207 $ 244,942
========== ========== ==========
TABLE GAMES:
Gross Wagering
(Drop) (2) $ 606,283 $ 605,854 $ 610,843
========== ========== ==========
Hold Percentages: (3)
Sands 15.8% 15.9% 15.3%
Atlantic City Casino
Gaming Industry 15.9% 15.8% 15.6%
SLOT MACHINES:
Gross Wagering
(Handle) (2) $1,892,159 $1,760,279 $1,631,012
========== ========== ==========
Hold Percentage:(3)
Sands (4) 8.7% 8.8% 9.1%
</TABLE>
__________
(1) Consists of revenues from poker ($3 million for each of the years ended
December 31, 1995 and 1994 and $1.7 million for the year ended December 31,
1993) and simulcast horse racing wagering ($1.4 million, $1.3 million and
$700,000, respectively, for the years ended December 31, 1995, 1994 and
1993).
17
<PAGE>
(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 and 1993 hold percentage
calculations for the Sands have been adjusted to exclude the
recognition of approximately $1 million and $340,000, respectively, in
slot machine revenues resulting from the reversal of certain
progressive jackpot liabilities (see "Revenues" below).
Table games drop at the Sands did not change significantly for the
year ended December 31, 1995 compared with 1994 and decreased $5 million (.8%)
for the year ended December 31, 1994 compared with 1993. The Sands' slight
decrease in drop during 1995 compares with an increase of 4.7% in table drop for
all other Atlantic City casinos during the same period. As a result, the Sands'
table game market share (expressed as a percentage of the Atlantic City industry
aggregate table game drop) decreased to 8.5% during 1995 from 8.8% in 1994. The
Sands' table game drop decrease is largely attributable to an increase in
competitive pressures in the rated table market segment, of which a significant
portion is in the "high end" and mid-market segments. Such decreases have been
partially offset by increases in the unrated table segment. The 1994 decrease in
table drop compares with an increase of .3% in table drop for the overall
Atlantic City industry during the same period. Consequently, the Sands' 1994
table game market share declined slightly to 8.8% 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%). 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 $132 million (7.5%) and $129.3 million
(7.9%) for the years ended December 31, 1995 and 1994, respectively, compared
with the previous years. The Sands' slot machine handle increases compare with
15.7% and 9.2% increases, respectively, in slot machine handle for all other
Atlantic City casinos during the same periods. Although the Sands' increase in
the average number of slot machines during 1995 was comparable to the overall
Atlantic City industry increase, the Sands' increase in slot machine handle
lagged the 15.7% increase in handle for all other Atlantic City casinos. During
the second quarter of 1995, the Sands discontinued certain marketing programs
and promotions (particularly slot promotions which included cash giveaways)
which management deemed to be only marginally profitable. This strategy worked
well during the 1995 second quarter; however, entering the peak summer season,
many of the Sands' competitors increased such spending programs and the Sands
lost market share in the highly profitable mass market segment. The increase in
the average number of slot machines at the Sands during 1994 compared with 1993
was 13%, compared to the Atlantic City industry increase of 8.4%. 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
18
<PAGE>
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.
The Sands' loss of market share in table game drop and slot machine
handle during 1995 is also a direct result of significantly increased
competition from a number of casinos in Atlantic City which completed
significant expansion projects and mounted aggressive marketing campaigns during
this period. Similarly, during 1994, the Sands' incurred significant marketing
and advertising expenditures associated with the opening of its expanded gaming
facility on July 1, 1994. Such expenditures primarily impacted slot machine
handle from the infrequent mass market customer and resulted in record levels of
gross wagering during the third quarter of 1994, which could not be sustained in
1995.
REVENUES
Casino revenues at the Sands, including poker and simulcast horse
racing wagering revenues, increased by $7.8 million (3.1%) for the year ended
December 31, 1995 compared with 1994. Casino revenues during the second quarter
of 1994 included the recognition of approximately $1 million resulting from the
reversal of certain progressive jackpot liabilities; the exclusion of such
amount from 1994 revenues results in a more comparable 1995 increase in casino
revenues of 3.5%. Casino revenues were also negatively impacted by decreases in
both the table games and slot machine hold percentages at the Sands during 1995
compared to 1994.
During 1994, casino revenues at the Sands increased by $11.3 million
(4.6%) 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 and 1993 resulted in the recognition of casino revenues
amounting to approximately $1 million and $340,000, respectively.
Rooms revenues did not change significantly for the year ended
December 31, 1995 compared with 1994 or for 1994 compared with 1993. Food and
beverage revenues increased by $3.3 million (10.6%) and by $3.1 million (11.1%),
respectively, for the years ended December 31, 1995 and 1994 compared with the
prior years. The 1995 increase was primarily the result of the opening of the
Epic Buffet during the third quarter of 1995. The 1994 increase results from the
opening of additional dining outlets and increases in casino patronage at the
Sands. Other revenues decreased $1.1 million (6.1%) during 1995 compared to 1994
primarily due to decreased revenues from PHC's computer services subsidiary.
Such revenues increased by $4.7 million (34.9%) for 1994 compared with 1993
reflecting the inclusion of $10 million of fees earned from the management of
the Aurora Casino in 1994 compared with $5.6 million for the partial year of
operations in 1993.
Promotional allowances represent the estimated value of goods and
services provided free of charge to casino customers under various marketing
programs. As a percentage of rooms, food and beverage and other revenues at the
Sands, these allowances have varied from 58.3% in 1995, to 57.5% in 1994 and to
59% in 1993. The 1995 increase is primarily attributable to promotional activity
associated with the 1995 opening of the Epic Buffet. 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
19
<PAGE>
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.
DEPARTMENTAL EXPENSES
Casino expenses at the Sands increased $10.9 million (5.6%) during
1995 and $12 million (6.7%) during 1994 compared with the prior years. Higher
operating costs during the first half of 1995 resulted primarily from increased
casino patronage at the expanded Sands facility. The increased costs were most
apparent during the first quarter of 1995, which saw a $7.7 million increase
(18.3%) compared to the first quarter of 1994. Higher operating costs were
substantially offset during the remainder of 1995 by decreases in marketing
programs as previously discussed and by other cost containment measures
implemented by management. 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.
Rooms expense increased $237,000 (5.7%) and $150,000 (3.7%) during
1995 and 1994 compared with the prior years reflecting both improved occupancy
at non-casino properties 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.
Food and beverage expense decreased $563,000 (4.6%) during 1995
compared with 1994 and increased slightly by $142,000 (1.2%) during 1994
compared with 1993. Increased costs associated with the 1995 third quarter
opening of the Epic Buffet were offset by increases in food and beverage
complimentaries allocated to the casino department. The 1994 increase was a
result of increased patronage at the Sands, which is reflected in increased
payroll and operating costs, and to increased promotional expenditures incurred
in 1994 with respect to the Ambassador buffet.
Other expenses decreased $1.5 million (24.7%) during 1995 compared
with 1994 primarily due to reductions in entertainment costs associated with
headliner entertainment at the Sands. 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.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased by $1.1 million (3.8%)
during 1995 compared to 1994 primarily due to reductions in legal and
professional fees. 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.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased $1 million (5.1%)
during 1995 compared to 1994 and decreased $1.3 million (6.2%) during 1994
compared to 1993. Increases in depreciation during 1995 and the second half of
1994 attributable to the expansion of gaming space at the Sands were partially
offset by reduced amortization of investment credits on obligatory investments
(see "Liquidity and Capital Resources - Capital Expenditures and Obligatory
Investments") and were more than offset in 1994 by reductions in the monthly
amortization of deferred financing costs resulting from the refinancing of PHC's
casino-related indebtedness in February 1994.
20
<PAGE>
INTEREST
Interest income decreased $704,000 (22.7%) during 1995 compared to 1994 and
increased $1.7 million (113.9%) during 1994 compared to 1993. The 1995 decrease
results from comparison to an unusually high level of interest income in 1994.
The 1994 increase was due primarily to the recognition of interest earned on
funds escrowed for the repayment of debt as part of GBHC's 1994 debt refinancing
(see "Liquidity and Capital Resources - Financing Activities"). In addition,
PHC earned interest income during 1994 on the underlying indebtedness of a
noncasino hotel which it had previously sold; such indebtedness was repaid
during the third quarter of 1994. Interest expense did not change significantly
during either 1995 or 1994 from prior years.
INCOME TAX BENEFIT (PROVISION)
PHC and its subsidiaries have tax net operating loss carryforwards ("NOL's")
totaling approximately $61 million (after reduction for approximately $23
million used by HCC in 1994), of which approximately $45 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 losses sustained for both financial and
tax reporting by PHC and its subsidiaries through 1995, management was unable to
determine that realization of that asset was more likely than not and, thus,
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.
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
increasing competition within the gaming industry for qualified and experienced
personnel, will continue to cause increases in operating expenses, particularly
labor and employee benefits costs.
SEASONALITY
Historically, the Sands' operations have been highly seasonal in nature, with
the peak activity occurring from May to September. Consequently, the results of
PHC's operations for the first and fourth quarters are traditionally less
profitable than the other quarters of the fiscal year. Furthermore, the Aurora
Casino 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 the Aurora Casino's operations may
fluctuate significantly due to a number of factors, including chance. Such
seasonality and fluctuations may materially affect PHC's casino revenues and
profitability.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
PHC's principal assets and sources of revenues are the Sands and management
and consulting contracts with the Aurora Casino and the Tunica Casino. During
1995, PHC's net cash provided by operating activities (after net interest
expense and income taxes) amounted to $29.2 million. A PHC subsidiary receives
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 the Aurora Casino. Management fees
received during 1995 amounted to $9.6 million. During 1994, a subsidiary of PHC
entered into a consulting agreement with HCT with respect to the Tunica Casino
which provides for the payment of $1.2 million annually by the Tunica Casino to
the subsidiary for consulting services and for reimbursement of direct costs and
expenses incurred.
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. Historically, the Sands has
also utilized short-term borrowings to fund seasonal cash needs and for certain
capital projects.
PHC utilized its operating cash flow together with existing cash during 1995
to fund capital additions ($19.9 million), prepay long-term indebtedness to HCC
($5.5 million), make obligatory investments at the Sands ($3 million) and
provide funding to an unconsolidated partnership for the refurbishment of a
Florida hotel property ($1.7 million).
In prior years PHC's hotel operations required substantial infusions of
operating funds; however, the disposition of all but three of its hotel
properties has greatly reduced the cash required to fund hotel operations. In
connection with a certain hotel property which PHC operates pursuant to an
operating agreement with an affiliate, PHC is obligated to make minimum rental
payments equal to the principal and interest payments on the underlying
indebtedness attributable to the property. During February 1994, PHC purchased
such underlying indebtedness with a principal balance of $13.8 million from
third parties at a cost of $6.8 million, with funds borrowed from HCC, and
subject to third party indebtedness amounting to $2.7 million.
Tax allocation payments and the repayment of intercompany loans from the Sands
have historically been the primary source of liquidity for PHC's other
operations and activities, including the substantial litigation costs associated
with the attempted acquisition of a casino/hotel site in Atlantic City, as well
as PHC's debt service obligations; such payments from the Sands to PHC are
subject to the prior approval of the New Jersey Casino Control Commission. In
addition, certain loan indenture covenants restrict payments to PHC. PHC's
other past sources of liquidity and capital resources have been primarily
limited to proceeds from asset sales. PHC has substantially reduced its losses
from non-casino hotel operations over the past several years through the sale of
certain hotel properties and the termination of management contracts on certain
managed hotel properties. Additionally, PHC's litigation costs have been
substantially eliminated as all material litigation has been resolved. The
combination of reduced costs and the introduction of management and consulting
fees earned on non-owned gaming facilities have substantially reduced PHC's
reliance on intercompany payments as a source of liquidity.
Effective December 31, 1994, HCC began compensating PHC for the use of PHC's
available tax net operating loss carryforwards. For the year ended December 31,
1994, such payment was 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. No
such compensation was required during 1995 as a result of losses sustained by
HCC with respect to the refinancing of its outstanding indebtedness.
22
<PAGE>
FINANCING ACTIVITIES
During February 1994, PHC completed the refinancing of virtually all of its
casino-related outstanding debt. 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. Proceeds from the debt offerings were used,
in part, to refinance outstanding mortgage notes on the Sands and other
indebtedness scheduled to mature in 1994, to repay $58.4 million of publicly
held PCPI Notes and to provide partial funding for an expansion of gaming space
at the Sands. During 1995, PHC repaid long-term indebtedness of $6 million,
including the payment of $5.5 million to HCC in connection with a deferred
interest note issued by HCC as part of the refinancing. Scheduled maturities of
long-term debt during 1996 are $553,000.
During June 1994, GBHC entered into an agreement for a $5 million bank line of
credit, which was renewed in April 1995, and all of which was available for
working capital purposes at December 31, 1995. GBHC borrowed $3 million on the
line of credit during the first quarter of 1996.
CAPITAL EXPENDITURES AND OTHER INVESTMENTS
Property and equipment additions during 1995 totaled $19.9 million, of which
capital expenditures at the Sands amounted to approximately $19.2 million.
Projects completed during 1995 include the Epic Buffet, the relocation of the
Sands' simulcast and poker facilities and reconfiguration of its slot machines.
Additional capital expenditures by PHC during 1995 included approximately
$750,000 of property improvements at a non-casino hotel property it operates
under an agreement with Metroplex Hotel Limited (see Note 7 of Notes to
Consolidated Financial Statements). Management anticipates capital expenditures
during 1996 will be approximately $14.5 million at the Sands. Projects
currently planned during 1996 include substantial upgrades and improvements to
all rooms at the Sands, including its higher-end suite product, refurbishment of
public areas, additional refinements to the Epic Buffet and the Sands' retail
outlet and enhancements to management information systems.
The Sands is required by the New Jersey Casino Control Act to make certain
investments with the CRDA, a governmental agency which administers the
statutorily mandated investments made by casino licensees. Deposit requirements
for 1995 totaled $3 million and are anticipated to be approximately $3.4 million
during 1996.
PHC has also agreed to contribute up to $3.9 million, approximately $2.5
million of which has been paid as of December 31, 1995 (including $1.7 million
in 1995), as an additional investment in an unconsolidated hotel partnership to
refurbish the hotel facility in Orlando, Florida. Anticipated contributions
during 1996 toward such commitment are approximately $1.2 million. Such
contributions are in recognition of PHC's partner having agreed to make $5
million in principal reductions on the underlying mortgage note on the facility
of which $4 million have been made through 1995.
SUMMARY
Management anticipates that PHC's 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 the Aurora Casino, (iv) consulting fees
from the Tunica Casino and (v) management fees from remaining hotel operations.
23
<PAGE>
ITEM 8. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRATT HOTEL CORPORATION AND SUBSIDIARIES:
Report of Independent Public Accountants............. 25
Consolidated Balance Sheets as of December 31, 1995
and 1994........................................... 26
Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993............. 28
Consolidated Statements of Changes in Shareholders'
Deficit for the Three Years Ended December 31, 1995 29
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993............. 30
Notes to Consolidated Financial Statements........... 31
</TABLE>
24
<PAGE>
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, 1995
and 1994, 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, 1995. 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.
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, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 15, 1996
25
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 28,067,000 $ 29,302,000
Accounts receivable, net of allowances
of $16,496,000 and $15,297,000,
respectively 12,293,000 13,982,000
Inventories 4,462,000 4,389,000
Due from affiliates 2,435,000 2,990,000
Deferred income taxes 4,055,000 3,242,000
Refundable deposits and other
current assets 2,764,000 3,889,000
------------- -------------
Total current assets 54,076,000 57,794,000
------------- -------------
Property and Equipment:
Land 37,807,000 37,807,000
Buildings and improvements 185,077,000 181,849,000
Operating equipment 92,474,000 83,373,000
Construction in progress 2,450,000 326,000
------------- -------------
317,808,000 303,355,000
Less - accumulated depreciation
and amortization (148,531,000) (136,138,000)
------------- -------------
Net property and equipment 169,277,000 167,217,000
------------- -------------
Other Assets:
Obligatory investments 5,521,000 4,027,000
Deferred financing costs 8,730,000 9,811,000
Notes receivable 9,222,000 9,325,000
Other assets 3,457,000 2,570,000
------------- -------------
Total other assets 26,930,000 25,733,000
------------- -------------
$ 250,283,000 $ 250,744,000
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
26
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Current Liabilities:
Borrowings from affiliate $ 5,000,000 $ 250,000
Current maturities of long-term debt 553,000 511,000
Accounts payable 9,503,000 8,584,000
Accrued liabilities -
Salaries and wages 4,349,000 4,065,000
Interest 11,856,000 11,385,000
Insurance 2,339,000 1,850,000
Other 8,770,000 7,742,000
Other current liabilities 3,728,000 3,645,000
------------- -------------
Total current liabilities 46,098,000 38,032,000
------------- -------------
Long-Term Debt 328,570,000 327,889,000
------------- -------------
Other Noncurrent Liabilities 8,747,000 13,146,000
------------- -------------
Due to Affiliate 5,283,000 5,750,000
------------- -------------
Commitments and Contingencies
Shareholders' Deficit:
Common stock, $.10 par value per
share; 10,000,000 shares authorized;
5,186,627 shares issued and outstanding 519,000 519,000
Additional paid-in capital 23,783,000 23,838,000
Accumulated deficit (162,717,000) (158,430,000)
------------- -------------
Total shareholders' deficit (138,415,000) (134,073,000)
------------- -------------
$ 250,283,000 $ 250,744,000
============= =============
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
27
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Casino $264,048,000 $256,207,000 $244,942,000
Rooms 14,763,000 14,287,000 14,160,000
Food and beverage 34,856,000 31,518,000 28,374,000
Other 17,209,000 18,321,000 13,583,000
------------ ------------ ------------
330,876,000 320,333,000 301,059,000
Less - Promotional allowances (27,083,000) (24,943,000) (24,321,000)
------------ ------------ ------------
Net revenues 303,793,000 295,390,000 276,738,000
------------ ------------ ------------
Expenses:
Casino 203,869,000 192,970,000 180,932,000
Rooms 4,420,000 4,183,000 4,033,000
Food and beverage 11,616,000 12,179,000 12,037,000
Other 4,605,000 6,112,000 5,657,000
General and administrative 27,139,000 28,224,000 26,542,000
Depreciation and amortization 20,553,000 19,547,000 20,837,000
------------ ------------ ------------
Total expenses 272,202,000 263,215,000 250,038,000
------------ ------------ ------------
Income from operations 31,591,000 32,175,000 26,700,000
------------ ------------ ------------
Non-operating income (expense):
Interest income 2,397,000 3,101,000 1,450,000
Interest expense, net of capitalized interest
of $762,000 in 1994 (38,375,000) (38,692,000) (38,704,000)
------------ ------------ ------------
Total non-operating expense, net (35,978,000) (35,591,000) (37,254,000)
------------ ------------ ------------
Loss before income taxes and extraordinary
item (4,387,000) (3,416,000) (10,554,000)
Income tax benefit (provision) 100,000 (1,080,000) (754,000)
------------ ------------ ------------
Loss before extraordinary item (4,287,000) (4,496,000) (11,308,000)
Extraordinary item:
Early extinguishment of debt, net of
related tax benefit - - (14,814,000)
------------ ------------ ------------
Net loss $ (4,287,000) $ (4,496,000) $(26,122,000)
============ ============ ============
Per common share:
Loss before extraordinary item $(.83) $(.87) $(2.19)
Extraordinary item - - (2.87)
------------ ------------ ------------
Net loss per common share $(.83) $(.87) $(5.06)
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
28
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
--------- -------- ---------- -------------
<S>
<C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 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)
Adjustment to prior year capital
contribution - - (55,000) -
Net loss - - - (4,287,000)
--------- -------- ----------- -------------
BALANCE, DECEMBER 31, 1995 5,186,627 $519,000 $23,783,000 $(162,717,000)
========= ======== =========== =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
29
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
------------- -------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (4,287,000) $ (4,496,000) $(26,122,000)
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 27,219,000 24,945,000 21,198,000
Provision for doubtful accounts 2,988,000 3,283,000 3,603,000
Deferred income tax (benefit) provision (480,000) 1,580,000 27,000
Increase in accounts receivable (744,000) (3,086,000) (8,126,000)
Increase (decrease) in accounts payable and
other accrued liabilities 3,517,000 (3,151,000) 2,309,000
Net change in other current assets and liabilities 1,500,000 20,000 (1,857,000)
Net change in other noncurrent assets and liabilities (468,000) (679,000) 571,000
------------ ------------- ------------
Net cash provided by operating activities 29,245,000 18,416,000 6,417,000
------------ ------------- ------------
INVESTING ACTIVITIES:
Net property and equipment additions (19,911,000) (20,140,000) (11,595,000)
Collections on notes receivable 103,000 7,614,000 -
Obligatory investments (2,967,000) (826,000) (1,549,000)
Purchase of mortgage note - (5,750,000) (1,000,000)
Investments in and advances to unconsolidated affiliates (1,675,000) (660,000) (325,000)
------------ ------------- ------------
Net cash used in investing activities (24,450,000) (19,762,000) (14,469,000)
------------ ------------- ------------
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) borrowings from affiliate - (11,133,000) 10,133,000
Deferred financing costs (32,000) (10,458,000) (2,327,000)
Deferred preopening costs - - (227,000)
Repayments of long-term debt (5,998,000) (227,254,000) (18,686,000)
Issuance of common stock - 27,000 83,000
------------ ------------- ------------
Net cash (used in) provided by financing activities (6,030,000) 15,182,000 10,059,000
------------ ------------- ------------
Net (decrease) increase in cash and cash equivalents (1,235,000) 13,836,000 2,007,000
Cash and cash equivalents at beginning of year 29,302,000 15,466,000 13,459,000
------------ ------------- ------------
Cash and cash equivalents at end of year $ 28,067,000 $ 29,302,000 $ 15,466,000
============ ============= ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
30
<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 (the "Aurora Casino") and
Tunica, Mississippi (the "Tunica Casino") (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.
PHC estimates that a significant amount of the Sands' revenues are derived
from patrons living in southeastern Pennsylvania, northern New Jersey and
metropolitan New York City. Competition in the Atlantic City gaming market is
intense and management believes that this competition will continue in the
future.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are discussed below. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 and certain progressive table game payouts. Such anticipated jackpots
and payouts are reflected as current liabilities in the accompanying
consolidated balance sheets. During the years ended December 31, 1994 and 1993,
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 and $342,000 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 in the accompanying
31
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Rooms $ 6,023,000 $ 6,080,000 $ 5,785,000
Food and beverage 28,259,000 24,611,000 20,138,000
Other 3,631,000 3,393,000 4,034,000
----------- ----------- -----------
$37,913,000 $34,084,000 $29,957,000
=========== =========== ===========
</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 $2,988,000, $3,283,000 and $3,603,000 were made during the years
ended December 31, 1995, 1994 and 1993, 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 have 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 $1,113,000,
$964,000 and $3,144,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
32
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LONG-LIVED ASSETS
During 1995, PHC adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets" ("SFAS 121"). SFAS 121 requires, among other things, that an entity
review its long-lived assets and certain related intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable. As a result of its review, PHC does not believe
that any material impairment currently exists related to its long-lived assets.
ACCRUED INSURANCE -
PHC is self insured for a portion of its general liability, certain
health care and other liability exposures. Accrued insurance includes estimates
of such accrued liabilities based on an evaluation of the merits of individual
claims and historical claims experience; accordingly, PHC's ultimate liability
may differ from the amounts accrued.
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.
On January 1, 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.
INTEREST EXPENSE -
Interest expense includes the accretion of debt discount amounting to
$6,666,000, $5,398,000 and $361,000, respectively, during the years ended
December 31, 1995, 1994 and 1993.
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 5,187,000, 5,183,000 and
5,164,000 during the years ended December 31, 1995, 1994 and 1993, respectively.
Shares issuable upon the exercise of stock options were not considered in the
computation of net loss per common share as the result would have been
antidilutive.
RECLASSIFICATIONS -
Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the 1995 consolidated financial
statement presentation.
33
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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, which was
renewed in April 1995, 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 to the extent of $2,000,000 by another
subsidiary of PHC. There were no borrowings outstanding under the line of
credit at December 31, 1995 or 1994; however, $3,000,000 was borrowed during the
first quarter of 1996.
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).
PHC and its subsidiaries had outstanding affiliate borrowings from HCC
of $6,000,000 as of both December 31, 1995 and 1994. 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, 1995 and 1994. In
addition, $4,750,000 is due in May 1996 and is secured by a pledge of certain
notes receivable from a partnership owned by certain numbers of the Pratt Family
(see Note 7). The remaining balance of $250,000 is due on demand, or if no
demand is made, on April 1, 1998. All 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).
34
<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 the
February 1994 refinancing of substantially all of PHC's casino related
outstanding debt contain certain cross-default provisions.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
10 7/8% first mortgage notes, due 2004 (a) $185,000,000 $185,000,000
11 5/8% senior notes, due 2004 (b) 85,000,000 85,000,000
14 5/8% junior subordinated notes, due 2005 (c) 8,738,000 8,683,000
14 7/8% secured promissory note, due 2006, net of
discount of $51,033,000 and $64,759,000, respectively (d) 47,043,000 45,877,000
Other 3,342,000 3,840,000
------------ ------------
Total indebtedness 329,123,000 328,400,000
Less - current maturities (553,000) (511,000)
------------ ------------
Total long-term debt $328,570,000 $327,889,000
============ ============
</TABLE>
- --------------------
(a) On February 17, 1994, a subsidiary of PHC issued $185,000,000 of non-
recourse first mortgage notes due January 15, 2004 (the "10 7/8% First
Mortgage Notes") and collateralized by a first mortgage on the Sands.
Interest on the notes accrues at the rate of 10 7/8% per annum, payable
semiannually commencing July 15, 1994. Interest only is payable during the
first three years. Commencing on July 15, 1997, semiannual principal
payments of $2,500,000 will become due on each interest payment date. The
10 7/8% First Mortgage Notes are redeemable at the option of the issuer, in
whole or in part, on or after January 15, 1999 at stated redemption prices
ranging up to 104.08% of par plus accrued interest.
The indenture for the 10 7/8% First Mortgage Notes contains various
provisions which, among other things, restrict the ability of certain
subsidiaries of PHC to pay dividends to PHC, to merge, consolidate or sell
substantially all of their assets or to incur additional indebtedness
beyond certain limitations. In addition, the indenture requires the
maintenance of certain cash balances and, commencing in 1994, requires that
a minimum of $7,000,000 be expended for property and fixture renewals,
replacements and betterments at the Sands, subject to increases of five
percent per annum thereafter. The indenture also contains certain cross-
default provisions with respect to the PRT Funding Notes described in (b)
below.
(b) On February 17, 1994, a subsidiary of PHC issued $85,000,000 of unsecured
senior notes due April 15, 2004 (the "PRT Funding Notes"). Interest on the
PRT Funding Notes accrues at the rate of 11 5/8% per annum, payable
semiannually commencing October 15, 1994. The PRT Funding 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
35
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRT Funding Notes contains various provisions which, among other things,
restrict the ability of certain subsidiaries of PHC to pay dividends to
PHC, to merge, consolidate or sell substantially all of their assets or to
incur additional indebtedness beyond certain limitations. The indenture
also contains certain cross default provisions with respect to the 10 7/8%
First Mortgage Notes described in (a) above.
(c) On February 17, 1994, PRT Funding Corp., a subsidiary of PHC, issued
$15,000,000 of junior subordinated notes (the "Junior Subordinated Notes")
to HCC. At December 31, 1994, $6,317,000 principal amount of the Junior
Subordinated Notes (subsequently adjusted to $6,262,000 during 1995)
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
12). The Junior Subordinated Notes are due in February 2005 and bear
interest at the rate of 14 5/8% per annum which, subject to a PHC
subsidiary meeting certain financial coverage and other payment restriction
tests required by the indenture for the PRT Funding Notes, is payable
semiannually commencing August 17, 1994. Because the PHC subsidiary had not
met the financial coverage tests, interest was not paid on August 17, 1994
and February 17, 1995. However, based on the PHC subsidiary subsequently
meeting such tests, all interest due through the August 17, 1995 interest
payment dates has been paid (see Note 7).
(d) On February 17, 1994, PPI Funding Corp., a newly formed subsidiary of PHC,
issued $40,524,000 discounted principal amount of new deferred interest
notes (the "PPI Funding Notes") to HCC in exchange for the $38,779,000
principal amount of 15 1/2% unsecured notes held by HCC and issued by PCPI
Funding Corp., a subsidiary of PHC (the "PCPI Notes"). The increased
principal amount of the new notes included 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 party holders of $58,364,000
principal amount of PCPI Notes concurrently redeemed. The PPI Funding
Notes were discounted to yield interest at the rate of 14 7/8% per annum
and have a face value of $110,636,000. During the second and third quarters
of 1995, PPI Funding Corp. repaid $5,500,000 of principal on the PPI
Funding Notes, reducing the maturity value of the notes to $98,076,000.
Payment of interest is deferred through February 17, 2001 at which time
interest will become payable semiannually, with the unpaid principal
balance due on February 17, 2006. The PPI Funding Notes are collateralized
by a pledge of all of the common stock of a subsidiary of PHC.
Scheduled payments of long-term debt as of December 31, 1995 are set forth
below:
<TABLE>
<S> <C>
1996 $ 553,000
1997 3,468,000
1998 5,439,000
1999 5,479,000
2000 5,515,000
Thereafter 359,702,000
------------
Total $380,156,000
============
</TABLE>
36
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Interest paid, net of amounts capitalized, amounted to $32,058,000,
$27,253,000 and $38,582,000, respectively, during the years ended December 31,
1995, 1994 and 1993.
(5) INCOME TAXES
Components of PHC's benefit (provision) for income taxes consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- ------------ ----------
<S> <C> <C> <C>
Federal income tax benefit $ - $ - $ -
State income tax benefit (provision):
Current (380,000) 500,000 (727,000)
Deferred 480,000 (1,580,000) (27,000)
--------- ----------- ---------
$ 100,000 $(1,080,000) $(754,000)
========= =========== =========
</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 compensates 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"). There was no such utilization of
PHC's NOL's for the year ended December 31, 1995 or 1993; for the year ended
December 31, 1994, such payment was effected through the assignment of principal
and interest on the Junior Subordinated Notes (see Note 12). Total state income
taxes paid by PHC for the years ended December 31, 1995, 1994 and 1993 amounted
to $171,000, $412,000 and $1,735,000, respectively.
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,
---------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Calculated income tax benefit
at 34% $1,492,000 $ 1,161,000 $ 3,588,000
Tax benefit of operating
losses not recognized (297,000) (361,000) (2,805,000)
Amortization of excess
purchase price (803,000) (803,000) (803,000)
Disallowance of meals and
entertainment (354,000) (336,000) (209,000)
State income taxes 66,000 (713,000) (498,000)
Other (4,000) (28,000) (27,000)
---------- ----------- -----------
Tax benefit (provision) as shown on
consolidated statements of operations $ 100,000 $(1,080,000) $ (754,000)
========== =========== ===========
</TABLE>
37
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PHC and its subsidiaries have NOL's totaling approximately $61,000,000
(after reduction for the approximately $23,000,000 used by HCC in 1994), of
which approximately $45,000,000 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 losses sustained for both
financial and tax reporting by PHC and its subsidiaries through 1995, 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.
Sales or purchases of PHC or HCC common stock by certain five percent
stockholders, as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), can cause a "change of control", as defined in Section 382 of the Code,
which would limit the ability of PHC to utilize these loss carryforwards in
later tax periods. Should such a change of control occur, the amount of annual
loss carryforwards available for use would most likely be substantially reduced.
Future treasury regulations, administrative rulings or court decisions may also
effect PHC's future utilization of its loss carryforwards.
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 20,668,000 $ 20,462,000
Allowance for doubtful accounts 6,830,000 6,330,000
Investment and jobs tax credits 4,417,000 4,075,000
Equity losses of unconsolidated
subsidiaries and joint ventures 3,165,000 3,491,000
Other liabilities and accruals 2,455,000 1,942,000
Other 1,377,000 2,496,000
------------ ------------
Total deferred tax assets 38,912,000 38,796,000
------------ ------------
Deferred tax liabilities:
Depreciation and amortization (8,555,000) (8,897,000)
Other (695,000) (933,000)
------------ ------------
Total deferred tax liabilities (9,250,000) (9,830,000)
------------ ------------
Net deferred tax asset 29,662,000 28,966,000
Valuation allowance (29,662,000) (28,966,000)
------------ ------------
$ - $ -
============ ============
</TABLE>
38
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Receivables and payables in connection with the aforementioned tax
allocation agreements were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Deferred income taxes - current $1,950,000 $1,367,000
Other noncurrent liabilities (1,950,000) (1,367,000)
</TABLE>
(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 intended to
qualify for special tax treatment under the Internal Revenue Code, as amended
(the "Code"). The shares 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, 1995, no options to purchase shares are
outstanding; options to purchase 57,772 shares are available for grant.
The following table lists the activity of the stock option plan during 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
OPTION OPTION
PRICE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
OUTSTANDING OPTIONS AT
BEGINNING OF YEAR 8,030 $2.50 18,880 $2.50
Options exercised - 2.50 (10,650) 2.50
Options terminated (8,030) 2.50 (200) 2.50
------ -------
OUTSTANDING OPTIONS AT
END OF YEAR - - 8,030 2.50
====== =======
</TABLE>
COMPENSATION PLAN
- -----------------
During October 1995, HCC assumed the outstanding unfunded obligations of
PHC under existing agreements with certain of PHC's principal shareholders and
key executive officers providing for (1) lifetime
39
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 obligation assumed by HCC was based on the net present value
of the obligation at that date of $4,283,000. PHC issued a non-interest bearing
note payable to HCC for a like amount in exchange for the assumption, which is
included in noncurrent due to affiliate on the accompanying consolidated balance
sheet at December 31, 1995. The obligation accrued under the agreements at
December 31, 1994 amounted to $4,035,000 and was included in other noncurrent
liabilities in the accompanying consolidated balance sheet. Amounts charged to
expense by PHC under the agreements for the years ended December 31, 1995, 1994
and 1993 were approximately $158,000, $109,000 and $15,000, respectively.
(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. During 1995, PHC made capital expenditures under the hotel operating
agreement totaling approximately $750,000 toward property improvements. PHC is
also 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 utilized funds borrowed
from HCC to purchase 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) and subject to third party indebtedness amounting to
$2,706,000. The required minimum rental payments (net of debt service receipts
since the February 1994 note acquisition date) amounted to $530,000, $678,000
and $1,396,000, respectively, during the years ended December 31, 1995, 1994 and
1993. 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 in 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 year ended December 31, 1993, PHC paid the
Garland Partnership $164,000. No such payments were made during 1995 and 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.
40
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pratt Management, L.P. ("PML"), a limited partnership wholly owned by
PHC, earns, pursuant to a management agreement, a base management fee from
Hollywood Casino - Aurora, Inc. ("HCA"), an HCC subsidiary, equal to 5% of the
Aurora Casino'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 $9,432,000, $10,009,000 and $5,625,000, respectively,
during the years ended December 31, 1995, 1994 and 1993. Unpaid fees amounting
to $2,177,000, and $2,341,000, respectively, are included in due from affiliates
in the accompanying consolidated balance sheets at December 31, 1995 and 1994.
Pursuant to a ten-year consulting agreement with Hollywood Casino -
Tunica, Inc. ("HCT"), the HCC subsidiary which owns and operates the Tunica
Casino, a subsidiary of PHC receives monthly consulting fees of $100,000. Total
fees earned for each of the years ended December 31, 1995 and 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 1995 and 1994 ($20,000 per month
during 1993). In addition, PHC and its subsidiaries share certain general and
administrative costs with HCC. Net allocated costs and fees charged to HCC by
PHC amounted to $153,000, $315,000 and $2,225,000, respectively, during the
years ended December 31, 1995, 1994 and 1993. In connection with such allocated
costs and fees, a payable in the amount of $53,000 and a receivable in the
amount of $77,000 are included in due to affiliates and due from affiliates,
respectively, in the accompanying consolidated balance sheets at December 31,
1995 and 1994.
HCT and Advanced Casino Systems Corporation ("ACSC"), a PHC
subsidiary, entered into a Computer Services Agreement dated as of January 1,
1994. The agreement has a term of three years and provides, among other things,
that ACSC will sell HCT computer hardware and information systems equipment and
will license or sublicense to HCT computer software necessary to operate HCT's
casino, hotel and related facilities and business operations. HCT pays ACSC for
such equipment and licenses such software at amounts and on terms and conditions
that ACSC provides to unrelated third parties as well as a fixed license fee of
$30,000 a month payable in arrears on the first day of each month commencing
September 1, 1994. HCT also reimburses ACSC for its direct costs and expenses
incurred under this agreement. Total charges incurred under such agreement
amounted to $532,000 and $763,000, respectively, for the years ended December
31, 1995 and 1994. HCA also receives certain computer-related services from PHC
subsidiaries including hardware, software, and operator support. HCA reimburses
PHC for its direct costs and any expenses incurred. Such costs totaled $602,000,
$288,000 and $2,280,000, respectively, during the years ended December 31, 1995,
1994 and 1993.
Greate Bay Hotel and Casino, Inc. ("GBHC"), the PHC subsidiary which
owns and operates the Sands, performs certain administrative and marketing
services on behalf of HCT and HCA. During the years ended December 31, 1995,
1994 and 1993, fees charged by GBHC for such services totaled $729,000, $211,000
and $272,000, respectively.
41
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HCT and HCA are charged for certain legal, accounting, and other
expenses incurred by PHC that relate to their business. For the years ended
December 31, 1995, 1994 and 1993, such charges amounted to $423,000, $257,000
and $349,000, respectively.
Interest expense with respect to borrowings from HCC is set forth
below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
PPI Funding Notes and PCPI
Notes held by HCC (Note 4) $6,666,000 $6,121,000 $6,011,000
Junior Subordinated Notes (Note 4) 1,278,000 1,914,000 -
Short-term borrowings (Note 3) 853,000 1,246,000 1,191,000
</TABLE>
During 1994, a newly formed PHC subsidiary issued $40,524,000
discounted principal amount of PPI Funding Notes in exchange for the PCPI Notes
held by HCC (see Note 4). Accretion of interest on the PPI Funding Notes is
included in the outstanding note payable balance at December 31, 1995 and 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 both December 31, 1995
and 1994, which amounted to $23,000 is also included in interest payable on the
accompanying consolidated balance sheets together with interest on the Junior
Subordinated Notes amounting to $476,000 at December 31, 1995. Outstanding
interest on the Junior Subordinated Notes at December 31, 1994 was assigned to
PHC by HCC in recognition of tax net operating losses of PHC used by HCC (see
Note 4).
(8) NEW JERSEY REGULATIONS AND OBLIGATORY INVESTMENTS
Certain of PHC's wholly owned subsidiaries conduct gaming operations
in Atlantic City, New Jersey and operate a related hotel, several restaurants,
and 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, during 1995, renewed NJMI's license to manage
the Sands through September 30, 1996. Management will file for renewal of
GBHC's license to operate and NJMI's license to manage the Sands during 1996.
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. If it were
determined that gaming laws were violated by a licensee, the gaming license held
by each licensee could be conditioned, suspended or revoked. In addition, the
licensees and other persons involved could be subject to substantial fines.
42
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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, 1995 and 1994, the Sands had purchased bonds
totaling $4,631,000 and $4,368,000, respectively. In addition, the Sands had
remaining funds on deposit and held in escrow by the CRDA at December 31, 1995
and 1994 of $4,683,000 and $2,117,000, 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, 1995 and 1994 are net of
accumulated valuation allowances of $3,792,000 and $2,458,000, respectively,
based upon the estimated realizable values of the investments. Provisions for
valuation allowances during the years ended December 31, 1995, 1994 and 1993
amounted to $1,457,000, $617,000 and $340,000, respectively.
Through 1995, the Sands has, from time to time, 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, 1995, 1994 and 1993 was $250,000, $2,500,000 and $5,694,000,
respectively, resulting in waivers granted by the CRDA during 1995 and 1993
totaling $128,000 and $2,904,000, respectively. No such waivers were granted
during 1994; however, the contribution has been designated for a project
expected to benefit the community and the Sands facility. Accordingly,
intangible assets of $1,275,000 have been included in other assets on the
accompanying consolidated balance sheets at both December 31, 1995 and 1994 and
will be amortized over a period of ten years effective with the completion of
the project. Amortization of waivers granted totaled $128,000, $1,727,000 and
$2,078,000, respectively, during the years ended December 31, 1995, 1994 and
1993. At December 31, 1995, all waivers were fully amortized.
(9) ILLINOIS REGULATORY MATTERS
Riverboat gaming operations in Illinois are subject to regulatory
control by the Illinois Gaming Board. Under the provisions of the Illinois
gaming regulations, PML is required to maintain its supplier's license, which
was most recently renewed in 1995 and expires in December 1996. Management
intends to file for renewal of PML's supplier's license and anticipates that
such renewal will be approved by the Illinois Gaming Board during 1996. If it
were determined that gaming laws were violated by a licensee, the license held
could be limited, conditioned, suspended or revoked. In addition, the licensee
and other persons involved could be subject to substantial fines.
43
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) 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,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues $ 40,005,000 $ 38,897,000 $ 44,635,000
Expenses (43,144,000) (42,154,000) (52,457,000)
------------ ------------ ------------
Net (loss) income $ (3,139,000) $ (3,257,000) $ (7,822,000)
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Current assets $ 5,410,000 $ 5,273,000
============ ============
Noncurrent assets $ 58,011,000 $ 58,648,000
============ ============
Current liabilities $ 7,398,000 $ 7,430,000
============ ============
Noncurrent liabilities $ 77,877,000 $ 77,217,000
============ ============
</TABLE>
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, 1995, 1994 or 1993 as PHC's investments in such
affiliates have previously been eliminated through the recognition of prior
years' losses.
At December 31, 1995, 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 1995 and 1994 and paid $200,000 during 1993.
PHC also agreed to contribute up to $3,900,000 (including approximately
$1,200,000 during 1996) as an additional investment in the Sheraton Plaza hotel
partnership to refurbish the hotel facility. PHC contributed $1,675,000,
$660,000 and $125,000 during 1995, 1994 and 1993, respectively, toward such
commitment. Such contributions are in recognition of PHC's partner having
agreed to make $5,000,000 in principal reductions on the underlying mortgage
note on the facility.
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, 1995, 1994 and 1993, such fees amounted to
$1,139,000, $977,000 and $930,000, respectively.
44
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) 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.
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
brought against PHC subsidiaries by a former partner of Penthouse have been
settled on a "walk away" basis. The appeal from the state court judgement is
pending but only with respect to Trump and Trump Plaza Associates.
45
<PAGE>
PRATT HOTEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
(12) 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. This amount was adjusted by a charge to paid-in capital in the amount of
$55,000 during 1995 upon filing the 1994 HCC consolidated federal income tax
return.
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).
(13) 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.
46
<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, 1995 DECEMBER 31, 1994
-------------------------- ------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 28,067,000 $ 28,067,000 $ 29,302,000 $ 29,302,000
Notes receivable 9,222,000 9,222,000 9,325,000 9,325,000
Obligatory investments 5,521,000 5,521,000 4,027,000 4,027,000
Financial Liabilities
Interest payable $ 11,856,000 $ 11,856,000 $ 11,385,000 $ 11,385,000
Borrowings from affiliates 6,000,000 6,000,000 6,000,000 6,000,000
10 7/8% First Mortgage Notes 185,000,000 160,950,000 185,000,000 150,775,000
11 5/8% PRT Funding Notes 85,000,000 62,900,000 85,000,000 58,650,000
14 7/8% PPI Funding Notes 47,043,000 47,043,000 45,877,000 45,877,000
14 5/8% Junior Subordinated
Notes 8,738,000 8,738,000 8,683,000 8,683,000
Other 3,342,000 3,194,000 3,840,000 3,670,000
</TABLE>
(14) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1995 -
Net revenues $73,221,000 $74,757,000 $83,344,000 $72,471,000
=========== =========== =========== ===========
Net (loss) income $(2,990,000) $ 318,000 $ 2,343,000 $(3,958,000)
=========== =========== =========== ===========
Net (loss) income per
common share $ (.58) $ .06 $ .45 $ (.76)
=========== =========== =========== ===========
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>
47
<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
Certain information is set forth below concerning the executive officers,
directors and certain key employees of Pratt Hotel Corporation (the "Company").
Name Age Position
---- --- --------
Jack E. Pratt............................. 68 Chairman of the Board, Chief
Executive Officer and Director
Edward T. Pratt, Jr....................... 72 Vice Chairman of the Board,
Treasurer and Director
William D. Pratt.......................... 67 Executive Vice President,
Acting General Counsel,
Secretary and Director
Edward T. Pratt III....................... 40 President
Albert J. Cohen........................... 56 Executive Vice President and
Principal Financial Officer
Lawrence C. Cole.......................... 49 Vice President of Management
Information Systems
Charles F. LaFrano III.................... 40 Vice President
Arthur Lewis.............................. 66 Vice President of Corporate
Security and Governmental
Relations
Leonard M. DeAngelo....................... 44 President of Greate Bay Hotel
and Casino, Inc. ("GBHC"), a
wholly owned subsidiary of
of the Company
Bernard A. Capaldi, CPA................... 53 Director
Edward D. Muir............................ 85 Director
48
<PAGE>
BUSINESS EXPERIENCE FOR PAST FIVE YEARS
Mr. Jack E. Pratt has served as Chairman of the Board, a director and
Chief Executive Officer of the Company for more than five years. Mr. Pratt has
also served as a director of Hollywood Casino Corporation ("HCC"), which owns
approximately 80% of the Company's outstanding common stock, since its inception
in 1990.
Mr. Edward T. Pratt, Jr. has served as Vice Chairman of the Board and
a director and executive officer of the Company for more than five years. Mr.
Pratt has also served as a director of HCC since its inception in 1990.
Mr. William D. Pratt has served as Executive Vice President, Secretary
and a director of the Company for more than five years. He also currently
serves as Acting General Counsel and, prior to May 1995, served as General
Counsel of the Company for more than five years. Mr. Pratt has also served as a
director of HCC since its inception in 1990. Mr. Pratt also served as Vice
President and Secretary of Southmark San Juan, Inc. ("SSJ"), 46.3% of the stock
of which is owned by a subsidiary of the Company, at the time of the filing by
SSJ on August 20, 1992 of a voluntary petition for reorganization under Chapter
11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division. In November 1992, the
reorganization plan was confirmed by the Bankruptcy Court.
Mr. Edward T. Pratt III was elected President and Chief Operating
Officer of the Company in November 1995. From May 1987 until November 1995, he
served the Company as Executive Vice President -- Development and Corporate
Affairs. Mr. Pratt has served as a director of HCC since 1992. Mr. Pratt also
served as co-chairman and co-chief executive officer of SSJ at the time of the
filing of its voluntary petition for reorganization under Chapter 11 of the
Federal Bankruptcy Code (see previous paragraph).
Mr. Albert J. Cohen, a certified public accountant, was elected
Executive Vice President and Principal Financial Officer of the Company in May
1987.
Mr. Lawrence C. Cole has served as Vice President of Management
Information Systems of the Company since December 1987 and of GBHC since January
1983. Mr. Cole also serves as Chief Executive Officer and President of Advanced
Casino Systems Corporation ("ACSC"), a subsidiary of the Company, which licenses
software for automated casino accounting and control systems.
Mr. Charles F. LaFrano III is a certified public accountant and has
served as Vice President of the Company since September 1988. He also served as
Corporate Controller (Principal Accounting Officer) of the Company from
September 1988 until November 1994.
Mr. Arthur Lewis has served as Vice President of Corporate Security
and Governmental Relations of the Company since December 1987 and of GBHC since
November 1982.
Mr. Leonard M. DeAngelo was named President of GBHC in November 1995.
He previously served as Senior Vice President of GBHC from March 1995 to
November 1995 and as Vice President of Casino Operations of GBHC from February
1988 to March 1995.
Mr. Bernard A. Capaldi is a certified public accountant and is a
principal of Capaldi, Reynolds & Associates, P.A., C.P.A.'s in New Jersey, and
has held such position since 1965. He is also the Chairman of the Board of
Shore Memorial Hospital's parent holding company.
Mr. Edward D. Muir is currently retired. He is a former Senior Vice
President of Rauscher Pierce Refsnes of San Antonio, Texas, an investment
banking firm, and was associated with Rauscher Pierce Refsnes in numerous
executive capacities for more than five years.
49
<PAGE>
FAMILY RELATIONSHIPS
Messrs. Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt are
brothers (the "Pratt Brothers"). Mr. Edward T. Pratt III, President of the
Company, is the son of Mr. Edward T. Pratt, Jr. There is no other family
relationship between any of the directors and any executive officers of the
Company or its subsidiaries or affiliates.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company, its subsidiaries and affiliates to
or on behalf of (i) the Company's Chief Executive Officer; (ii) each of the four
other most highly compensated executive officers of the Company (determined as
of the end of the last fiscal year; and (iii) additional individuals who would
have qualified as among the four other most highly compensated executive
officers of the Company but for the fact that the individual was not serving as
an executive officer of the Company at the end of the last fiscal year
(hereafter referred to as the named executive officers) for the fiscal years
ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------ COMPENSATION
OTHER ANNUAL AWARDS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS COMPENSATION (2)
--------------------------- ----- --------- -------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Jack E. Pratt (3) 1995 $111,068 $ 71,750 $14,000 - $105,886
Chief Executive Officer and 1994 87,934 124,615 13,000 - 52,024
Chairman of the Board of the 1993 150,075 - 16,500 - 14,288
Company
Edward T. Pratt, Jr. (3) 1995 81,060 31,000 18,500 - 21,698
Treasurer and Vice Chairman 1994 69,775 49,846 18,000 - 19,683
of the Board of the Company 1993 111,742 - 20,625 - 1,376
Leonard M. DeAngelo 1995 284,772 75,000 - - 1,980
President of GBHC 1994 223,920 - - - 2,100
1993 207,853 - - - 2,956
Lawrence C. Cole 1995 270,085 - - - 1,980
Vice President of Management 1994 250,139 - - - 2,250
Information Systems of the Company 1993 251,885 10,000 - - 3,000
Arthur Lewis 1995 127,590 - - - 1,412
Vice President of Security 1994 124,407 - - - 2,250
of the Company 1993 113,561 - - - 3,000
William P. Weidner 1995 814,180 - - - 1,980
Formerly President and Chief 1994 727,698 - - - 2,250
Operating Officer of the Company 1993 690,075 - - - 3,000
Bradley H. Stone 1995 506,313 - - - 1,980
Formerly Executive Vice President 1994 479,231 - - - 2,250
of the Company 1993 457,983 - - - 3,000
</TABLE>
50
<PAGE>
__________
(1) Represents directors' fees for service as a director to a subsidiary
of the Company.
(2) Includes matching contributions by the Company to The Hollywood Casino
Corporation and Subsidiaries Retirement Savings Plan on behalf of the
named executive officer. See also "Employee Retirement Savings Plan"
below. Amounts set forth for Jack E. Pratt and Edward T. Pratt, Jr.
also include pension benefit accruals on their behalf. See also
"Employment Contracts" below.
(3) Amounts shown for Jack E. Pratt and Edward T. Pratt, Jr. represent
payments by the Company and its subsidiaries for services on their
behalf. Messrs. Jack Pratt and Edward T. Pratt, Jr. concurrently hold
positions as officers of HCC, which reimburses the Company for
services provided to HCC pursuant to intercompany allocation
agreements ratified by the respective Boards of Directors of the
Company and HCC. Additional compensation amounts earned by the Messrs.
Pratt for their services provided to HCC and paid by HCC are set forth
in the following tabulation:
<TABLE>
<CAPTION>
All Other
Salary Bonus Compensation
-------- -------- ------------
<S> <C> <C> <C>
Jack E. Pratt
1995 $454,930 $133,250 $105,886
1994 442,263 25,385 53,528
1993 294,173 - 28,007
Edward T. Pratt, Jr.
1995 $202,941 $ 31,000 $ 21,698
1994 207,677 10,154 20,802
1993 131,906 - -
</TABLE>
No grants of stock options under the Pratt Hotel Corporation 1990
Incentive Stock Option Plan (the "Plan") were made to the named executive
officers during the most recent fiscal year.
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the named
executive officers, concerning options granted under the Plan during the last
fiscal year and unexercised options held as of the end of the fiscal year:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
FY-END (MARKET PRICE OF
VALUE REALIZED NUMBER OF UNEXERCISED SHARES AT FY-END ($2.25)
SHARES (MARKET PRICE AT OPTIONS AT FY-END LESS EXERCISE PRICE)
ACQUIRED EXERCISE LESS ---------------------------- ------------------------------
NAME ON EXERCISE EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack E. Pratt.............. - - - - - -
Edward T. Pratt, Jr........ - - - - - -
Leonard M. DeAngelo........ - - - - - -
Lawrence C. Cole........... - - - - - -
Arthur Lewis............... - - - - - -
William P. Weidner......... - - - - - -
Bradley H. Stone........... - - - - - -
</TABLE>
51
<PAGE>
EMPLOYMENT CONTRACTS
Jack E. Pratt, Chairman of the Board and Chief Executive Officer of
the Company, Edward T. Pratt, Jr., Vice Chairman of the Board and Treasurer of
the Company, and William D. Pratt, Executive Vice President, Secretary and
Acting General Counsel of the Company, have been under employment contracts with
the Company and have provided services to HCC pursuant to intercompany
allocation agreements ratified by the respective Boards of Directors of the
Company and HCC. Their employment contracts were executed during October 1989
and originally expired on December 31, 1994, but were extended by amendment
through December 31, 1996. Effective as of January 1, 1996, HCC has assumed the
obligations and extended the terms of the contracts to December 31, 1998 with
respect to Jack E. Pratt and to December 31, 1997 with respect to Edward T.
Pratt, Jr. and William D. Pratt. Services to the Company will continue to be
provided pursuant to intercompany allocation agreements. The terms of the
contracts may be extended again by mutual agreement of the parties and the
extended term, or any further extension thereof, will be followed immediately by
a four-year period as consultants to HCC. Upon expirations the consulting term,
each of the Pratt Brothers will be entitled to receive a lifetime pension
benefit and his designated beneficiary is entitled to receive a death benefit,
throughout the term of the employment, consulting and pension benefit periods.
The terms of the employment contracts provide for an annual base
salary in the first year for Jack E. Pratt, Edward T. Pratt, Jr. and William D.
Pratt of $350,000, $223,000 and $191,000, respectively, subject to annual review
and increase by the Compensation Committee of the Board of Directors.
Compensation under the consulting and pension benefit provisions of the
employment contracts of each of the Pratt Brothers will be 75% of the average of
his three highest annual salaries during the employment term of the contract.
The death benefit is derived by multiplying a Pratt Brother's highest annual
salary during his employment term by 50% and such benefit will be paid annually
to his designated beneficiary for a period of ten years after his death. The
estimated annual pension benefit payable to Jack E. Pratt, Edward T. Pratt, Jr.
and William D. Pratt is currently $425,000, $220,000 and $192,000, respectively.
Leonard M. DeAngelo, President of GBHC, serves under an employment
contract, as amended on November 17, 1995, in such capacity continuing through
November 16, 1998, unless sooner terminated by one of the respective parties.
The terms of Mr. DeAngelo's amended contract provides for a minimum annual base
salary of $450,000, subject to annual increases of five percent.
Lawrence C. Cole, Vice President of Management Information Systems of
the Company serves under an employment contract, as amended on January 1, 1996,
with a wholly owned subsidiary of the Company in such capacity continuing
through December 31, 1998 unless sooner terminated by one of the respective
parties. The terms of Mr. Cole's amended contract provides for a minimum annual
base salary of $275,000 subject to annual increases based on changes in the
Consumer Price Index, as defined in the employment contract, together with
incentive bonuses based on operating results. Obligations of the subsidiary
under the employment contract are guaranteed by GBHC.
William P. Weidner, formerly President and Chief Operating Officer of
the Company, and Bradley H. Stone, formerly Executive Vice President of the
Company and President of GBHC, were under employment contracts in such
respective capacities continuing through December 31, 1995; both contracts were
terminated in November 1995. The terms of Mr. Weidner's and Mr. Stone's
contracts provided for minimum annual base salaries of $677,000 and $422,000,
respectively, subject to annual increases based on changes in the Consumer Price
Index, as defined in the employment contracts.
INCENTIVE STOCK OPTION PLAN
The 1990 Incentive Stock Option Plan. On March 22, 1990, the Company
------------------------------------
adopted the Pratt Hotel Corporation 1990 Incentive Stock Option Plan (the "PHC
Plan"). The PHC Plan provides for the granting of incentive stock options that
are intended to qualify for special tax treatment under the Internal Revenue
Code
52
<PAGE>
(the "Code"). The shares to be offered under the PHC Plan consist of shares
(whether authorized and unissued or issued and reacquired) of the Common Stock.
Options for no more than 102,092 shares of the Common Stock may be granted under
the PHC Plan.
The PHC Plan is administered by the Compensation Committee of the
Board of Directors (the "Board") of the Company. Subject to the terms of the PHC
Plan, the Compensation Committee may from time to time determine those key
employees who shall be granted stock options under the PHC Plan, the number of
shares to be subject to such options and interpret and establish and amend rules
and regulations relating to the PHC Plan. Only key employees of the Company or
any of its subsidiaries are eligible to participate in the PHC Plan. Incentive
stock options granted under the PHC Plan are exercisable for a term ending five
years from the date of grant.
The exercise of options is subject to a $100,000 calendar-year limit
for each option holder based on the fair market value of the Common Stock at the
time the option was granted. Options not exercised in earlier periods shall be
accumulated and available for exercise in later periods. Options may be
exercised only as to full shares of Common Stock. Upon termination of an
optionee's employment with the Company for any reason, including death or
disability, his or her options will immediately expire.
The Compensation Committee may provide for the exercise of options
immediately or in installments, and upon such other terms, conditions and
restrictions as it may determine, including granting the Company the right to
repurchase shares issued upon the exercise of options. The PHC Plan provides
that if any person or group (other than Pratt Brothers) becomes the beneficial
owner of more than 51% of the Common Stock (other than by merger, consolidation
or purchase from the Company), the Company's right to repurchase a former
employee's shares shall terminate.
EMPLOYEE RETIREMENT SAVINGS PLAN
On January 1, 1989, the Company adopted GBHC's qualified defined
contribution plan for the benefit of all of the Company's employees who satisfy
certain eligibility requirements. GBHC had adopted this plan for the benefit of
its eligible employees in November 1984. Upon adoption by the Company, the
former plan changed its name to The Hollywood Casino Corporation and
Subsidiaries Retirement Savings Plan (the "Savings Plan"). The Savings Plan is
qualified under the requirements of section 401(k) of the Code allowing
participating employees to benefit from the tax deferral opportunities provided
therein. All employees of the Company who have completed one year of service, as
defined, and who have attained the age of 21, are eligible to participate in the
Savings Plan.
The Savings Plan provides for a matching contribution by the Company
based upon certain criteria, including levels of participation by the Company's
employees. The Company accrued matching contributions totaling approximately
$535,000 for the year ended December 31, 1995.
COMPENSATION OF DIRECTORS
Nonemployee directors of the Company received an annual fee of $25,000
for service on the Board of Directors and $1,000 for each Board meeting attended
during 1995. The Board of Directors of the Company held four regularly scheduled
meetings during the year ended December 31, 1995. The Board of Directors of the
Company has Audit, Executive and Compensation Committees, but does not have a
standing nominating committee. Nonemployee members of the Audit Committee
receive an annual fee of $2,500 for service on the committee and $500 for each
committee meeting attended. No additional compensation or fees are paid to
directors for attending Executive and Compensation Committee meetings.
53
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company is
comprised of Messrs. Edward D. Muir, Jack E. Pratt and William D. Pratt and,
prior to his resignation in November 1995, included Mr. James A. Colquitt.
Messrs. Muir and Colquitt are neither former nor current officers or employees
of the Company or any of its subsidiaries. Jack E. Pratt and William D. Pratt
serve as executive officers and directors of the Company and HCC. They also
serve on the Compensation Committee of HCC.
54
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
As members of the Compensation Committee, it is our duty to administer
the Company's various incentive plans, including its incentive stock option plan
and to review compensation levels of members of management, to evaluate the
performance of management and to consider management succession and related
matters. The Compensation Committee reviews with the Board in detail all aspects
of compensation for all executive officers.
The compensation policy of the Company, which is endorsed by the
Compensation Committee, is that the annual compensation of each officer has been
established to reward long-term strategic management and the enhancement of
shareholder value, as well as to attract and retain key executives critical to
the long-term success of the Company. Such compensation relates to and must be
contingent upon the contributions, responsibilities and relative position in the
Company of each individual officer, as well as the relative performance of the
Company. The Compensation Committee has also taken into consideration
competition within the rapidly expanding gaming industry for experienced
personnel as well as other subjective considerations in its deliberations
regarding executive compensation.
In 1995 Mr. Jack E. Pratt, Chairman of the Board and Chief Executive
Officer of the Company, served the Company under an employment agreement with
the Company dated as of September 21, 1989, as amended (the "Employment
Agreement"), described in the Company's Form 10K for the fiscal year ended
December 31, 1995. In addition, Mr. Pratt provided services to HCC through an
intercompany overhead allocation arrangement (the "Overhead Allocation
Arrangement") previously approved by the Boards of Directors of the Company and
HCC. In light of previous decisions of the Board of Directors of the Company and
its Compensation Committee, the minimum annual base salary of Mr. Pratt under
the Employment Agreement has been set at $566,000 effective as of July 1, 1994.
There were no adjustments to the annual base salary of Mr. Pratt in the fiscal
year 1995.
Effective as of January 1, 1996, HCC assumed the obligations of the
Company under the Employment Agreement and extended the term of such Employment
Agreement to December 31, 1998. Mr. Pratt continues to provide services to the
Company and HCC which allocate the cost of such services pursuant to the
Overhead Allocation Arrangement. In January 1996, the Compensation Committee of
the Board of Directors of HCC approved (i) an increase in the annual base salary
of Mr. Pratt from $566,000 to $645,000 effective as of January 1, 1996 and (ii)
the award of a bonus to Mr. Pratt in the amount of $205,000 for fiscal year 1995
(of which $71,750 has been allocated to the Company based on the Overhead
Allocation Arrangement), in recognition of profitable operations at a riverboat
gaming facility owned by a subsidiary of HCC and managed by a subsidiary of the
Company, profitable operations at a dockside gaming facility owned by a
subsidiary of HCC and for which a subsidiary of the Company provides consulting
services and the successful refinancing of substantially all of HCC's gaming
related debt obligations at more favorable terms.
During 1995, the Compensation Committee also considered stock option
grants to each of the senior officers and key employees of the Company. No such
grants were issued during 1995.
This report and the accompanying stock price performance graph are
provided for general informational purposes only pursuant to regulations under
the Securities Exchange Act of 1934. No information contained in this report or
the accompanying graph shall be deemed to be filed in whole or in part for
purposes under the Securities Act of 1933 or the Securities Exchange Act of
1934, or incorporated by reference into any filing made thereunder.
Compensation Committee
Jack E. Pratt
William D. Pratt
Edward D. Muir
55
<PAGE>
STOCK PRICE PERFORMANCE
The graph set forth below compares the stock price performance of the
Company with those of the Dow Jones Equity Market Index and the Dow Jones Index
for the Casino Industry for the previous five years. The Company has not paid
dividends over such period of time; however, the comparative equity market and
industry data assumes reinvestment of dividends. The stock price performance
shown below may not be indicative of future stock price performance. (Table
substituted for graph).
Pratt Hotel Corporation
Stock Price Performance
(January 1, 1991 = 100)
<TABLE>
<CAPTION>
Equity Casino Pratt Hotel
Date Index Index Corporation
------------------ ------ ------ -----------
<S> <C> <C> <C>
January 1, 1991 100.0 100.0 100.0
March 28, 1991 115.6 131.2 175.0
June 28, 1991 115.1 141.4 275.0
September 30, 1991 121.8 157.2 175.0
December 31, 1991 132.4 153.4 100.0
March 31, 1992 129.6 181.9 175.0
June 30, 1992 131.6 162.4 175.0
September 30, 1992 136.1 202.7 150.0
December 31, 1992 143.8 236.9 80.0
March 31, 1993 150.4 251.4 295.0
June 30, 1993 151.0 306.2 435.0
September 30, 1993 155.2 398.1 185.0
December 31, 1993 158.1 361.6 235.0
March 31, 1994 152.2 313.5 170.0
June 30, 1994 152.4 239.8 160.0
September 30, 1994 159.7 269.2 245.0
December 30, 1994 159.4 277.6 165.0
March 31, 1995 174.9 359.1 165.0
June 30, 1995 191.8 401.6 165.0
September 29, 1995 207.9 387.1 190.0
December 29, 1995 220.5 368.2 90.0
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Based on filings with the Securities and Exchange Commission, the only
person known to the Company, other than certain directors of the Company, which
beneficially owned more than 5% of the outstanding Common Stock is described
below:
<TABLE>
<CAPTION>
Shares of Percentage of
Common Stock Outstanding
Name and Address of Beneficially Common
Beneficial Owner Owned Stock
----------------------------- ------------ -------------
<S> <C> <C>
Hollywood Casino Corporation
13455 Noel Road, LB48
Dallas, TX 75240 4,156,013 80.1%
</TABLE>
56
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following information pertains to the Common Stock beneficially
owned by each director, nominee for director, each executive officer and former
executive officer named under Item 11 - "Executive Compensation" and by all
current directors and officers of the Company as a group as of March 26, 1996:
<TABLE>
<CAPTION>
Shares of Percentage of
Common Stock Outstanding
Beneficially Common
Beneficial Owner Owned (a) Stock
- ------------------------------- ------------ -------------
<S> <C> <C>
Jack E. Pratt.................. 4,156,013(b) 80.1%
Edward T. Pratt, Jr............ 4,156,013(c) 80.1%
William D. Pratt............... 4,156,013(d) 80.1%
Edward T. Pratt III............ 4,156,013(e) 80.1%
William P. Weidner (f)......... 46,239(g) *
Bradley H. Stone (f)........... 7,500(h) *
Edward D. Muir................. 29,677(i) *
Bernard A. Capaldi, CPA........ -- --
Lawrence C. Cole............... 2,390(j) *
Leonard M. DeAngelo............ 1,840(k) *
Arthur Lewis................... 1,000 *
All directors and officers as
a group (9 individuals)...... 4,189,080(l) 80.8%
</TABLE>
__________
* Less than 1%
(a) Except as otherwise described, each individual has the sole power to vote
and dispose of the Common Stock beneficially owned by him.
(b) By virtue of the following, Jack E. Pratt may be deemed to share beneficial
ownership of all of the Common Stock held by HCC: (i) C. A. Pratt
Partners, Ltd., a Texas limited partnership of which Mr. Pratt is the
General Partner, owns 1,282,123 shares (5.2%) of the outstanding stock of
HCC; such shares are subject to a voting agreement giving Mr. Pratt sole
voting power on all matters to come before the stockholders of the Company,
(ii) J. E. Pratt Co. I, a Texas general partnership of which Mr. Pratt is
the Managing General Partner, owns 1,799,387 shares (7.3%) of the
outstanding stock of HCC, (iii) the W.D. Pratt Family Trust, for which Mr.
Pratt is the managing trustee, owns 1,003,867 shares (4.1%) of the
outstanding stock of HCC and (iv) Mr. Pratt is a director of HCC.
(c) By virtue of the following, Edward T. Pratt, Jr. may be deemed to share
beneficial ownership of all of the Common Stock held by HCC: (i) E.T.
Pratt Co. I, a Texas general partnership of which Mr. Pratt is the Managing
General Partner, owns 926,748 shares (3.7%) of the outstanding stock of HCC
and (ii) Mr. Pratt is a director of HCC.
(d) By virtue of the following, William D. Pratt may be deemed to share
beneficial ownership of all the Common Stock held by HCC: (i) W.D. Pratt
Co. I, a Texas general partnership of which Mr. Pratt is the Managing
General Partner, owns 290,830 shares (1.2%) of the outstanding stock of
HCC, (ii) the J.E. Pratt Family Trust, for which Mr. Pratt is the managing
trustee, owns 4,588,867 shares (18.5%) of the outstanding stock of HCC and
(iii) Mr. Pratt is a director of HCC.
57
<PAGE>
(e) By virtue of the following, Edward T. Pratt III may be deemed to share
beneficial ownership of all the Common Stock held by HCC: (i) E. Pratt
Family Trust, of which Mr. Pratt is the Managing Trustee, owns 2,076,013
(8.4%) of the outstanding stock of HCC; (ii) direct ownership of 332,500
(1.3%) of the outstanding stock of HCC; and (iii) Mr. Pratt is a director
of HCC. Mr. Pratt also holds options to purchase 130,008 shares of common
stock of HCC exercisable within 60 days, which represents less than one
percent of the outstanding shares of HCC.
(f) Former officer or director of the Company. Resigned effective November
1995.
(g) Mr. Weidner also owns 339,981 shares of HCC Common Stock, which represents
1.4% of the outstanding shares of HCC Common Stock.
(h) Mr. Stone also owns 191,990 shares of HCC Common Stock, which represents
less than one percent of the outstanding shares of HCC Common Stock.
(i) Includes 10,780 shares held of record by the Betty Fay Muir Survivors Trust
of which Mr. Edward D. Muir is the Trustee.
(j) Mr. Cole also owns 65,004 shares of HCC Common Stock, which represents less
than one percent of the outstanding shares of HCC.
(k) Mr. DeAngelo also owns 65,004 shares of HCC Common Stock, which represents
less than one percent of the outstanding shares of HCC.
(l) Current officers and directors of the Company as a group also beneficially
own 12,516,947 shares of HCC Common Stock (50.1% of the HCC shares
outstanding) and hold options to purchase 130,008 shares of HCC Common
Stock exercisable within 60 days. Such shares subject to options represent
less than one percent of the outstanding shares of HCC Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HOLLYWOOD CASINO CORPORATION. During 1990, HCC, a corporation then wholly
owned by the Pratt Family, acquired approximately $38.8 million of unsecured
notes (the "PCPI Notes") issued by PCPI Funding Corp., a subsidiary of the
Company. As part of a refinancing in February 1994 of virtually all of the
Company's casino-related outstanding debt, a newly formed subsidiary of the
Company issued approximately $40.5 million discounted principal amount of new
deferred interest notes (the "PPI Funding Notes") in exchange for the $38.8
million principal amount of PCPI Notes held by HCC. The increased principal
amount of the new notes includes a call premium on the exchange ($1.7 million)
equal to 4 1/2% of the principal amount of PCPI Notes exchanged; such premium
was paid to all third parties holding PCPI Notes. Interest expense accreted
with respect to the PPI Funding Notes for the year ended December 31, 1995
amounted to $6.6 million. During 1995, the PHC subsidiary repaid $5.5 million
of principal on the PPI Funding Notes.
Since May 1992, the Company and its subsidiaries have borrowed funds from a
liquidity fund established by HCC for such purpose. As of December 31, 1995,
the outstanding balance on such borrowings was $6 million and, under certain
conditions, the Company and its subsidiaries may obtain additional loans from
HCC under similar terms. Of the amounts borrowed, $1 million, which is not due
until April 1, 1998, is classified as noncurrent. Borrowings of $4.8 million
are due on May 31, 1996 and are secured by a pledge of certain notes receivable
acquired by the Company during 1994 (see "DFW North" below). The remaining
$250,000 is 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.
58
<PAGE>
In connection with the February 1994 refinancing of virtually all of the
Company's casino-related indebtedness, a newly formed subsidiary of the Company
borrowed $15 million from HCC to be used in connection with an expansion of the
Sands Hotel and Casino. The debt accrues interest at the rate of 14 5/8% per
annum and is due in February 2005. At December 31, 1994, $6.3 million principal
amount of such notes together with $1.9 million of accrued interest were
assigned to the Company by HCC in recognition of tax net operating losses of the
Company used by HCC.
Interest expense on borrowings from HCC as described in the preceding two
paragraphs amounted to $2.1 million for the year ended December 31, 1995.
Interest payable to HCC in connection with such borrowings amounted to $499,000
at December 31, 1995.
Hollywood Casino - Aurora, Inc. ("HCA"), a wholly owned subsidiary of HCC,
was organized for the purpose of developing and owning a riverboat gaming
facility in Aurora, Illinois, (the "Aurora Casino") which commenced operations
on June 17, 1993. A wholly owned subsidiary of the Company receives, pursuant to
a services agreement, a base services fee equal to 5% of 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
$9.6 million during 1995 of which unpaid base services and incentive fees of
$2.2 million were owed to the PHC subsidiary at December 31, 1995.
HWCC - Tunica, Inc. ("HCT"), a wholly owned subsidiary of HCC, completed
construction of a dockside gaming facility in Tunica County, Mississippi (the
"Tunica Casino") which commenced operations in August 1994. Pursuant to a ten-
year consulting agreement with HCT, a subsidiary of the Company receives monthly
consulting fees of $100,000.
HCC is obligated under the terms of an administrative services agreement to
pay the Company $50,000 per month in connection with certain shared
administrative costs. In addition, the Company and its subsidiaries share
certain general and administrative costs with HCC. Net allocated costs and fees
charged to HCC by the Company amounted to $153,000 during the year ended
December 31, 1995. A payable in the amount of $53,000 in connection with such
allocated costs and fees was due to HCC at December 31, 1995.
Various subsidiaries of the Company provide legal, accounting, marketing
and other administrative services to casino facilities owned by HCC. The HCC
facilities are billed for such services at either the direct or allocated cost
of providing the services. Such charges amounted to approximately $1.2 million
for the year ended December 31, 1995.
A subsidiary of the Company also provides computer-related services to the
HCC-owned casino facilities. The subsidiary has an agreement with one casino
facility which expires on December 31, 1996 and provides for the sale of
computer hardware and information systems equipment and the licensing of
software necessary to operate the facility. The casino pays prices and fees in
amounts and on terms and conditions that the subsidiary provides to unrelated
third parties as well as a fixed license and consulting fee of $30,000 per
month. The subsidiary is also reimbursed for its direct costs and expenses
incurred under this agreement. Total charges under the agreement amounted to
$532,000 for the year ended December 31, 1995. The PHC subsidiary also provides
similar services and hardware to another HCC-owned casino facility which it
charges for direct costs and expenses. Such charges amounted to $602,000 for
the year ended December 31, 1995.
On October 16, 1995, HCC assumed the employment contracts of each of the
Pratt Brothers, including the outstanding obligations of the Company for the
pension and death benefit payments to be made to the Pratt Brothers. As
consideration for the assumption, the Company has incurred a non-interest
bearing payable to HCC in the amount of approximately $4.3 million, representing
the net present value of the outstanding obligations as of such date.
59
<PAGE>
DFW NORTH. The Company operates the Holiday Inn located at the north
entrance of the Dallas/Fort Worth International Airport ("DFW North") which is
owned by Metroplex Hotel Limited ("Metroplex"), a limited partnership owned at
December 31, 1995 by Jack E. Pratt and Edward T. Pratt, Jr., each as 30% general
and limited partners, William D. Pratt as a 10% general and limited partner and
Crystal A. Pratt, the former wife of Jack E. Pratt, as a 30% limited partner.
During the year ended December 31, 1995, the Company made capital expenditures
under the hotel operating agreement totaling approximately $750,000 toward
property improvements. The Company is also obligated by the operating agreement,
which expires in 2002, to make minimum payments equal to principal and interest
payments on the indebtedness incurred by Metroplex to purchase DFW North.
During February 1994, the Company purchased such underlying
indebtedness with a principal balance of approximately $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, net of debt
service receipts, amounted to $530,000 during the year ended December 31, 1995.
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.
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 24.
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
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
@3.1 -- Certificate of Incorporation of PHC as amended.
(Exhibit 3.1)
@3.2 -- Amended Bylaws of PHC. (Exhibit 3.2)
+4.1 -- 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)
+4.2 -- 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)
60
<PAGE>
**4.3 -- 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)
**4.4 -- 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)
**4.5 -- 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)
**4.6 -- 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)
**4.7 -- 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)
++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
GBHC. (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 -- Amendment and Restatement of Joint Venture Agreement
dated August 1, 1984, between PHC and DeBartolo
Hotel Associates. (Exhibit 10.13)
*10.5 -- 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)
+10.6 -- Joint Operating Agreement dated as of May 31, 1992
between Metroplex Hotel Limited and PHC. (Exhibit
10.14)
+10.7 -- Management Agreement between Pratt/DeBartolo
Associates of Orlando and PHC dated May 20, 1983, as
amended. (Exhibit 10.15)
+10.8 -- Management Agreement by and between Southmark San
Juan, Inc., owner, and SJPR Inc., operator, dated
September 15, 1987, as amended. (Exhibit 10.16)
+10.9 -- 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)
+10.10 -- 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)
+10.11 -- Indemnification Agreement dated as of December 17,
1987, by and between PHC and the Pratt Brothers.
(Exhibit 10.19)
@@10.12 -- Fourth Amendment to Employment Agreement dated
January 1, 1996, between HCC and Jack E. Pratt.
(Exhibit 10.12)
@@10.13 -- Fourth Amendment to Employment Agreement dated
January 1, 1996, between HCC and Edward T. Pratt,
Jr. (Exhibit 10.13)
61
<PAGE>
@@10.14 -- Fourth Amendment to Employment Agreement dated
January 1, 1996, between HCC and William D. Pratt.
(Exhibit 10.14)
+++10.15 -- Employment Agreement as amended, dated May 14, 1992,
between PHC and William P. Weidner. (Exhibit 10.28)
+++10.16 -- Employment Agreement dated May 31, 1992, between
GBHC and Bradley H. Stone. (Exhibit 10.29)
@@10.17 -- Employment Agreement, as amended, dated November 17,
1995 between GBHC and Leonard M. DeAngelo. (Exhibit
10.15)
@@10.18 -- Employment Agreement dated January 1, 1996, between
ACSC and Lawrence C. Cole. (Exhibit 10.16)
*10.19 -- Management Services Agreement dated as of June 21,
1991, between HCA and GBCC (the "Management Services
Agreement"). (Exhibit 10.34)
*10.20 -- First Amendment to the Management Services Agreement
dated as of May 14, 1992. (Exhibit 10.35)
*10.21 -- Tax Sharing Agreement dated May 13, 1992, by and
among HCC, HCA and PHC. (Exhibit 10.36)
*10.22 -- Administrative Services Agreement dated as of May
14, 1992, between HCC and PHC. (Exhibit 10.41)
*10.23 -- Technical Services Agreement dated February 21,
1992, between HCA and PHC (the "Technical Services
Agreement"). (Exhibit 10.42)
*10.24 -- First Amendment to the Technical Services Agreement
dated May 14, 1992. (Exhibit 10.43)
**10.25 -- Agreement of Limited Partnership of Pratt
Management, L.P. (Exhibit 10.55)
***10.26 -- Consulting Agreement dated as of January 1, 1994
between PCC, as the Consultant, and HWCC - Tunica,
Inc.
***10.27 -- 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
__________
@ 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, 1995.
+ 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.
62
<PAGE>
* 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 did not file any reports on Form 8-K during the quarter
ended December 31, 1995.
63
<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 28, 1996.
PRATT HOTEL CORPORATION
By: /s/ Jack E. Pratt
-----------------------------
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:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jack E. Pratt Chairman of the Board, March 28, 1996
- ------------------------- Chief Executive
Jack E. Pratt Officer and Director
/s/ Edward T. Pratt, Jr. Vice Chairman of the March 28, 1996
- ------------------------- Board, Treasurer and
Edward T. Pratt, Jr. Director
/s/ Edward T. Pratt III President and Chief March 28, 1996
- ------------------------- Operating Officer
Edward T. Pratt III
/s/ William D. Pratt Executive Vice March 28, 1996
- ------------------------- President, Acting General
William D. Pratt Counsel, Secretary
and Director
/s/ Albert J. Cohen Executive Vice March 28, 1996
- ------------------------- President and Principal
Albert J. Cohen Financial Officer
/s/ John C. Hull Corporate Controller March 28, 1996
- -------------------------
John C. Hull
/s/ Bernard A. Capaldi Director March 28, 1996
- -------------------------
Bernard A. Capaldi
/s/ Edward D. Muir Director March 28, 1996
- -------------------------
Edward D. Muir
64
<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>
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 15,
1996. 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 15, 1996
<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,
-----------------------------
1995 1994
------------ -------------
<S> <C> <C>
Cash and cash equivalents $ 319,000 $ 1,023,000
Accounts receivable 108,000 108,000
Due from affiliates 1,169,000 561,000
Other current assets 13,000 13,000
------------ -------------
Total current assets 1,609,000 1,705,000
------------ -------------
Notes receivable 9,222,000 9,325,000
Due from affiliate 6,262,000 8,231,000
Other assets - 87,000
------------ -------------
$ 17,093,000 $ 19,348,000
============ =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current maturities of long-term debt $ 358,000 $ 328,000
Accounts payable and accrued liabilities 445,000 683,000
Due to affiliates 6,530,000 -
------------ -------------
Total current liabilities 7,333,000 1,011,000
------------ -------------
Long-term debt 36,150,000 36,809,000
------------ -------------
Other noncurrent liabilities 3,820,000 7,148,000
------------ -------------
Due to affiliates 8,773,000 10,839,000
------------ -------------
Investment in and advances to affiliates 99,432,000 97,614,000
------------ -------------
Shareholders' deficit:
Common stock, $.10 par value per share,
10,000,000 shares authorized, 5,186,627
shares issued and outstanding 519,000 519,000
Additional paid-in capital 23,783,000 23,838,000
Accumulated deficit (162,717,000) (158,430,000)
------------ -------------
(138,415,000) (134,073,000)
------------ -------------
$ 17,093,000 $ 19,348,000
============ =============
</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,
-----------------------------------------
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
REVENUES
Overhead allocation fees $ 600,000 $ 600,000 $ -
Other - 424,000 -
----------- ----------- ------------
600,000 1,024,000 -
----------- ----------- ------------
EXPENSES
General and administrative
expense 291,000 300,000 228,000
----------- ----------- ------------
Income (loss) from operations 309,000 724,000 (228,000)
----------- ----------- ------------
Non-operating income (expense):
Interest income 2,239,000 1,786,000 1,288,000
Interest expense (6,621,000) (7,584,000) (8,627,000)
----------- ----------- ------------
Total non-operating expense, net (4,382,000) (5,798,000) (7,339,000)
----------- ----------- ------------
Loss before income tax benefit
and other item (4,073,000) (5,074,000) (7,567,000)
Income tax benefit - - -
----------- ----------- ------------
Loss before other item (4,073,000) (5,074,000) (7,567,000)
Equity in (losses) earnings of
consolidated subsidiaries (214,000) 578,000 (18,555,000)
----------- ----------- ------------
Net loss $(4,287,000) $(4,496,000) $(26,122,000)
=========== =========== ============
</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,
------------------------------------------
1995 1994 1993
------------ ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(4,287,000) $ (4,496,000) $(26,122,000)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Equity in losses (earnings) of consolidated subsidiaries 214,000 (578,000) 18,555,000
Dividends received from consolidated subsidiaries - 49,095,000 -
Net change in accounts payable and accrued liabilities (238,000) 142,000 (374,000)
Net change in other current assets and liabilities 1,668,000 (632,000) 1,046,000
Net change in other noncurrent assets and liabilities 620,000 (31,389,000) 2,449,000
----------- ------------ ------------
Net cash (used in) provided by operating activities (2,023,000) 12,142,000 (4,446,000)
----------- ------------ ------------
INVESTING ACTIVITIES:
Collections on notes receivable 103,000 7,614,000 -
Purchase of mortgage note - (5,750,000) (1,000,000)
Investments in and advances to unconsolidated affiliates (1,675,000) (660,000) (325,000)
Net repayments (advances to) from consolidated affiliates 1,158,000 (152,000) 6,675,000
----------- ------------ ------------
Net cash (used in) provided by investing activities (414,000) 1,052,000 5,350,000
----------- ------------ ------------
FINANCING ACTIVITIES:
Net borrowings from affiliates 2,050,000 5,360,000 3,050,000
Repayments of long-term debt (317,000) (17,802,000) (4,244,000)
Issuance of common stock - 27,000 83,000
----------- ------------ ------------
Net cash provided by (used in) financing activities 1,733,000 (12,415,000) (1,111,000)
----------- ------------ ------------
Net (decrease) increase in cash and cash equivalents (704,000) 779,000 (207,000)
Cash and cash equivalents at beginning of year 1,023,000 244,000 451,000
----------- ------------ ------------
Cash and cash equivalents at end of year $ 319,000 $ 1,023,000 $ 244,000
=========== ============ ============
</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
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PRATT HOTEL CORPORATION (PARENT COMPANY)
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
(1) SCHEDULED PAYMENTS OF LONG-TERM DEBT
Scheduled payments of long-term debt of the Registrant as of December 31,
1995 are set forth below:
<TABLE>
<S> <C>
1996 $ 358,000
1997 391,000
1998 34,795,000
1999 466,000
2000 498,000
-----------
$36,508,000
===========
</TABLE>
Pratt Hotel Corporation paid interest of $6,635,000, $39,255,000 and
$3,702,000, respectively, during the years ended December 31, 1995, 1994
and 1993.
(2) RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' condensed
financial information of the Registrant to conform such information to the
1995 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, 1995:
Allowance for doubtful
accounts receivable $15,297,000 $2,988,000 $(1,789,000) (1) $16,496,000
Allowance for obligatory
investments 2,458,000 1,457,000 (123,000) (2) 3,792,000
----------- ---------- ----------- -----------
$17,755,000 $4,445,000 $(1,912,000) $20,288,000
=========== ========== =========== ===========
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
=========== ========== =========== ===========
</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
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------- -------------
@3.1 -- Certificate of Incorporation of PHC as amended.
(Exhibit 3.1)
@3.2 -- Amended Bylaws of PHC. (Exhibit 3.2)
+4.1 -- 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)
+4.2 -- 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)
**4.3 -- 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)
**4.4 -- 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)
**4.5 -- 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)
**4.6 -- 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)
**4.7 -- 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)
++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
GBHC. (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)
<PAGE>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------- -------------
*10.4 -- Amendment and Restatement of Joint Venture Agreement
dated August 1, 1984, between PHC and DeBartolo
Hotel Associates. (Exhibit 10.13)
*10.5 -- 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)
+10.6 -- Joint Operating Agreement dated as of May 31,
1992 between Metroplex Hotel Limited and PHC.
(Exhibit 10.14)
+10.7 -- Management Agreement between Pratt/DeBartolo
Associates of Orlando and PHC dated May 20,
1983, as amended. (Exhibit 10.15)
+10.8 -- Management Agreement by and between Southmark San
Juan, Inc., owner, and SJPR Inc., operator, dated
September 15, 1987, as amended. (Exhibit 10.16)
+10.9 -- 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)
+10.10 -- 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)
+10.11 -- Indemnification Agreement dated as of December 17,
1987, by and between PHC and the Pratt Brothers.
(Exhibit 10.19)
@@10.12 -- Fourth Amendment to Employment Agreement dated
January 1, 1996, between HCC and Jack E. Pratt.
(Exhibit 10.12)
@@10.13 -- Fourth Amendment to Employment Agreement dated
January 1, 1996, between HCC and Edward T. Pratt,
Jr. (Exhibit 10.13)
@@10.14 -- Fourth Amendment to Employment Agreement dated
January 1, 1996, between HCC and William D. Pratt.
(Exhibit 10.14)
+++10.15 -- Employment Agreement as amended, dated May 14,
1992, between PHC and William P. Weidner.
(Exhibit 10.28)
+++10.16 -- Employment Agreement dated May 31, 1992, between
GBHC and Bradley H. Stone. (Exhibit 10.29)
@@10.17 -- Employment Agreement, as amended, dated
November 17, 1995 between GBHC and Leonard M.
DeAngelo. (Exhibit 10.15)
@@10.18 -- Employment Agreement dated January 1, 1996, between
ACSC and Lawrence C. Cole. (Exhibit 10.16)
<PAGE>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------- -------------
*10.19-- Management Services Agreement dated as of June 21,
1991, between HCA and GBCC (the "Management
Services Agreement"). (Exhibit 10.34)
*10.20-- First Amendment to the Management Services
Agreement dated as of May 14, 1992. (Exhibit
10.35)
*10.21-- Tax Sharing Agreement dated May 13, 1992, by and
among HCC, HCA and PHC. (Exhibit 10.36)
*10.22-- Administrative Services Agreement dated as of May
14, 1992, between HCC and PHC. (Exhibit 10.41)
*10.23-- Technical Services Agreement dated February 21, 1992,
between HCA and PHC (the "Technical Services
Agreement"). (Exhibit 10.42)
*10.24-- First Amendment to the Technical Services Agreement
dated May 14, 1992. (Exhibit 10.43)
**10.25-- Agreement of Limited Partnership of Pratt Management,
L.P. (Exhibit 10.55)
***10.26-- Consulting Agreement dated as of January 1, 1994
between PCC, as the Consultant, and HWCC - Tunica,
Inc.
***10.27-- 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
_______________________
@ 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, 1995.
+ 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.
<PAGE>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------- -------------
* 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>
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 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 28,067 29,302
<SECURITIES> 0 0
<RECEIVABLES> 28,789 29,279
<ALLOWANCES> 16,496 15,297
<INVENTORY> 4,462 4,389
<CURRENT-ASSETS> 54,076 57,794
<PP&E> 317,808 303,355
<DEPRECIATION> 148,531 136,138
<TOTAL-ASSETS> 250,283 250,744
<CURRENT-LIABILITIES> 46,098 38,032
<BONDS> 328,570 327,889
0 0
0 0
<COMMON> 519 519
<OTHER-SE> (138,934) (134,592)
<TOTAL-LIABILITY-AND-EQUITY> 250,283 250,744
<SALES> 0 0
<TOTAL-REVENUES> 303,793 295,390
<CGS> 0 0
<TOTAL-COSTS> 221,522 212,161
<OTHER-EXPENSES> 47,692 47,771
<LOSS-PROVISION> 2,988 3,283
<INTEREST-EXPENSE> 35,978 35,591
<INCOME-PRETAX> (4,387) (3,416)
<INCOME-TAX> (100) 1,080
<INCOME-CONTINUING> (4,287) (4,496)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,287) (4,496)
<EPS-PRIMARY> (.83) (.87)
<EPS-DILUTED> 0 0
</TABLE>
