<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM-10Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 33-48887
--------------------
HOLLYWOOD CASINO CORPORATION
HWCC-TUNICA, INC.
- --------------------------------------------------------------------------------
(Exact name of each Registrant as specified in its charter)
Delaware 75-2352412
Texas 75-2513808
- ---------------------------------------------- -------------------------------
(States or other jurisdictions of (I.R.S. Employer
incorporation or organization) Identification No.'s)
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
- ---------------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
(Registrants' telephone number, including area code) (972) 392-7777
--------------------------
(Not Applicable)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether each of the Registrants (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 each
of the Registrants was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Registrant Class Outstanding at May 11, 2000
- ------------------------------ ------------------------------ ---------------------------
<S> <C> <C>
Hollywood Casino Corporation Common Stock, $.0001 par value 24,953,476 Shares
HWCC-Tunica, Inc. Common Stock, $.01 par value 1,000 Shares
</TABLE>
1
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
Part I: Financial Information
- ------------------------------
Introductory Notes to Consolidated Financial Statements
- -------------------------------------------------------
Hollywood Casino Corporation ("HCC" or the "Company") develops, owns and
operates distinctively themed casino entertainment facilities under the service
mark Hollywood Casino(R). Through its subsidiaries, HCC currently owns and
operates a riverboat casino and entertainment facility in Aurora, Illinois
approximately 35 miles west of Chicago (the "Aurora Casino") and a casino, hotel
and entertainment complex in Tunica County, Mississippi approximately 30 miles
southwest of Memphis, Tennessee (the "Tunica Casino"). In addition, the Company
has a license to own and operate and is currently constructing a destination
gaming resort in Shreveport, Louisiana approximately 180 east of Dallas, Texas
(the "Shreveport Casino"). Approximately 46% of HCC's outstanding common shares
are listed and traded on the American Stock Exchange under the symbol "HWD".
The remaining outstanding HCC common shares are owned by Jack E. Pratt, Edward
T. Pratt, Jr. and William D. Pratt and by certain general partnerships and
trusts controlled by the Pratts and by other family members (collectively, the
"Pratt Family").
HCC owns all of the outstanding common stock of Hollywood Casino - Aurora,
Inc. ("HCA"), HWCC - Tunica, Inc. ("HCT"), HWCC - Louisiana, Inc. ("HCL") and
HWCC - Shreveport, Inc. ("Shreveport Management"). HCA is an Illinois
corporation which owns and operates the Aurora Casino. HCT is a Texas
corporation which owns and operates the Tunica Casino. HCL is a Louisiana
corporation formed to pursue gaming opportunities in Louisiana. HCL owns the
partnership (the "Shreveport Partnership") which owns and is currently
constructing the Shreveport Casino. Shreveport Management is a Louisiana
corporation formed by HCC in 1997 which holds the management contract for the
Shreveport Casino.
Prior to December 31, 1996, GBCC was an approximately 80% owned subsidiary of
HCC. On December 31, 1996, HCC distributed the GBCC common stock it owned to
its shareholders and GBCC ceased to be an HCC subsidiary.
In October 1999, HCC acquired all of the capital stock of Pratt Casino
Corporation ("PCC") from Greate Bay Casino Corporation ("GBCC"). PCC owned the
limited partnership interest in Pratt Management, L.P. ("PML"), which held a
management contract for the Aurora Casino, and also held a consulting agreement
with the Tunica Casino.
HCC's acquisition of PCC was part of a pre-negotiated plan of reorganization
approved by the United States Bankruptcy Court for the District of Delaware in
October 1999. When acquired by HCC, PCC's assets consisted of its management
contract for the Aurora Casino and its consulting agreement with the Tunica
Casino and its liabilities consisted of a new $40.3 million obligation payable
in satisfaction of the PRT Funding Corp. notes in default. The payment of the
$40.3 million obligation by HCC in October 1999 resulted in the termination of
the management contract and consulting agreement and was reflected at that time
as a charge to expense by the affected entities.
As further discussed in the Notes to Consolidated Financial Statements, HCC
issued $310,000,000 of 11.25% Senior Secured Notes due May 1, 2007 and
$50,000,000 of floating rate Senior Secured Notes due May 1, 2006 (collectively,
the "Senior Secured Notes"). The Senior Secured Notes are unconditionally
guaranteed on a senior secured basis by HCT, Shreveport Management and by
certain future subsidiaries of HCC. The Senior Secured Notes are secured by,
among other things, (1) substantially all of the assets of HCT, (2) a limited
lien on substantially all of the assets of HCA and (3) a pledge of the capital
stock of certain subsidiaries of HCC including HCA, HCT and HCL. Accordingly,
the financial statements of HCA and HCT are also included herein. Shreveport
Management currently has no operations or significant assets; accordingly,
separate financial statements are not included herein. HCL has been designated
an "Unrestricted Subsidiary" of HCC and the operations of the Shreveport Casino,
other than management fees paid to Shreveport Management, will not provide
credit support for the Senior Secured Notes.
2
<PAGE>
Proceeds of the debt offering were used to refinance previously outstanding
debt, to fund a portion of HCC's equity investment in the Shreveport Casino and,
during October 1999, to purchase and terminate the management and consulting
agreements on the Aurora Casino and Tunica Casino. The remaining proceeds are
planned to be used for, among other things, a proposed expansion of the Aurora
Casino's operating facilities.
During August 1999, the Shreveport Partnership issued $150,000,000 of 13%
First Mortgage Notes, with contingent interest, which are non-recourse to HCC.
Because the partnership is effectively owned and controlled by HCL, the
financial statements of the partnership, including its debt obligations, are
included in the accompanying consolidated financial statements of HCC.
The consolidated financial statements and financial statements as of March
31, 2000 and for the three month periods ended March 31, 2000 and 1999 have
been prepared by HCC, HCA and HCT without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, these consolidated financial statements and financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the consolidated financial position of HCC and HCT
and the financial position of HCA as of March 31, 2000, and the results of their
operations and cash flows for the three month periods ended March 31, 2000 and
1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in HCC and
HCT's 1999 Annual Report on Form 10-K.
Historically, the Aurora Casino and Tunica Casino have experienced some
degree of seasonality. Consequently, the results of operations for the three
month period ended March 31, 2000 are not necessarily indicative of the
operating results to be reported for the full year.
3
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Hollywood Casino Corporation
Dallas, Texas
We have reviewed the accompanying condensed consolidated balance sheet of
Hollywood Casino Corporation and subsidiaries as of March 31, 2000, and the
related condensed consolidated statements of operations and cash flows for the
three month periods ended March 31, 2000 and 1999. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Hollywood Casino Corporation and subsidiaries as of December 31, 1999, and the
related consolidated statements of operations, shareholders' deficit and cash
flows for the year then ended (not presented herein); and in our report dated
February 25, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1999 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
May 1, 2000
4
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31,
2000 December 31,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $118,463,000 $115,351,000
Accounts receivable, net of allowances of
$2,058,000 and $1,826,000, respectively 4,390,000 4,010,000
Inventories 1,595,000 1,714,000
Deferred income taxes 1,863,000 1,776,000
Refundable deposits and other
current assets 3,788,000 4,096,000
Due from affiliates, net of valuation allowances 7,617,000 7,705,000
------------ ------------
Total current assets 137,716,000 134,652,000
------------ ------------
Investment in unconsolidated affiliates 1,935,000 1,957,000
------------ ------------
Property and Equipment:
Land 7,948,000 7,948,000
Buildings and improvements 122,185,000 122,122,000
Riverboats and barges 40,367,000 40,367,000
Operating equipment 86,430,000 85,728,000
Construction in progress 73,624,000 44,331,000
------------ ------------
330,554,000 300,496,000
Less - accumulated depreciation
and amortization (96,174,000) (92,958,000)
------------ ------------
Net property and equipment 234,380,000 207,538,000
------------ ------------
Cash restricted for construction projects 133,159,000 147,310,000
------------ ------------
Other Assets:
Deferred financing costs 16,132,000 15,256,000
Land rights 6,996,000 7,047,000
Land held for sale, net of valuation allowances 2,216,000 2,216,000
Other assets 9,827,000 9,841,000
------------ ------------
Total other assets 35,171,000 34,360,000
------------ ------------
$542,361,000 $525,817,000
============ ============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
5
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
------------- -------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 5,178,000 $ 4,538,000
Accounts payable 19,880,000 15,293,000
Accrued liabilities -
Salaries and wages 4,109,000 6,019,000
Interest 22,998,000 16,784,000
Gaming and other taxes 8,234,000 2,586,000
Insurance 2,730,000 2,890,000
Other 4,171,000 4,330,000
Federal income tax payable 3,199,000 3,234,000
Other current liabilities 3,087,000 2,749,000
------------- -------------
Total current liabilities 73,586,000 58,423,000
------------- -------------
Long-Term Debt 513,665,000 514,959,000
------------- -------------
Capital Lease Obligations 18,802,000 18,961,000
------------- -------------
Other Noncurrent Liabilities 5,649,000 5,631,000
------------- -------------
Commitments and Contingencies
Minority Interest in Limited Partnership 2,000,000 2,000,000
------------- -------------
Shareholders' Deficit:
Common Stock -
Class A common stock, $.0001 par value per share;
50,000,000 shares authorized; 24,953,000 and 24,950,000
shares issued and outstanding, respectively 2,000 2,000
Class B, non-voting, $.01 par value per share;
10,000,000 shares authorized; no shares issued - -
Additional paid-in capital 216,932,000 216,928,000
Accumulated deficit (288,275,000) (291,087,000)
------------- -------------
Total shareholders' deficit (71,341,000) (74,157,000)
------------- -------------
$ 542,361,000 $ 525,817,000
============= =============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
6
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
------------ -----------
<S> <C> <C>
Revenues:
Casino $ 80,465,000 $66,345,000
Rooms 2,457,000 2,394,000
Food and beverage 7,938,000 6,984,000
Other 1,099,000 970,000
------------ -----------
91,959,000 76,693,000
Less - promotional allowances (7,944,000) (6,920,000)
------------ -----------
Net revenues 84,015,000 69,773,000
------------ -----------
Expenses:
Casino 56,476,000 48,134,000
Rooms 170,000 269,000
Food and beverage 2,361,000 2,187,000
Other 368,000 495,000
General and administrative 5,454,000 4,885,000
Depreciation and amortization 3,268,000 3,765,000
Preopening 396,000 -
Development 230,000 215,000
------------ -----------
Total expenses 68,723,000 59,950,000
------------ -----------
Income from operations 15,292,000 9,823,000
------------ -----------
Non-operating income (expense):
Interest income 3,169,000 359,000
Interest expense, net of capitalized interest of
$1,400,000 in 2000 (15,080,000) (7,624,000)
Gain (loss) on disposal of assets 1,000 (1,000)
------------ -----------
Total non-operating expense, net (11,910,000) (7,266,000)
------------ -----------
Income before income taxes and other item 3,382,000 2,557,000
Income tax provision (570,000) (205,000)
------------ -----------
Income before other item 2,812,000 2,352,000
Minority interest in earnings of Limited Partnership (Note 1) - (2,022,000)
------------ -----------
Net income $ 2,812,000 $ 330,000
============ ===========
Basic and diluted net income per common share $ .11 $ .01
============ ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
7
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 1999
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,812,000 $ 330,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, including accretion
of debt discount 3,843,000 4,274,000
(Gain) loss on disposal of assets (1,000) 1,000
Minority interest in earnings of Limited Partnership - 2,022,000
Equity losses from affiliates 22,000 -
Provision for doubtful accounts 292,000 124,000
Deferred income taxes 37,000 2,000
Increase in accounts receivable (672,000) (588,000)
Increase in accounts payable and accrued expenses 14,185,000 8,907,000
Net change in other current assets and liabilities 824,000 82,000
Net change in other noncurrent assets and liabilities (74,000) 399,000
------------ -----------
Net cash provided by operating activities 21,268,000 15,553,000
------------ -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (30,029,000) (3,698,000)
Short-term investments - 2,927,000
Decrease in cash restricted for construction purposes 14,151,000 -
Proceeds from disposal of assets 1,000 37,000
Investments in unconsolidated affiliates - (66,000)
------------ -----------
Net cash used in investing activities (15,877,000) (800,000)
------------ -----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 104,000 1,876,000
Deferred financing costs (1,426,000) (25,000)
Repayments of long-term debt (814,000) (3,086,000)
Payments on capital lease obligations (147,000) (138,000)
Issuance of common stock 4,000 -
Limited partnership distributions - (2,017,000)
------------ -----------
Net cash used in financing activities (2,279,000) (3,390,000)
------------ -----------
Net increase in cash and cash equivalents 3,112,000 11,363,000
Cash and cash equivalents at beginning of period 115,351,000 42,118,000
------------ -----------
Cash and cash equivalents at end of period $118,463,000 $53,481,000
============ ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
8
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization, Business and Basis of Presentation
Hollywood Casino Corporation ("HCC" or the "Company"), is a Delaware
corporation which was organized and incorporated on November 5, 1990.
Approximately 54% of the issued and outstanding stock of HCC is owned by Jack E.
Pratt, Edward T. Pratt, Jr. and William D. Pratt and by certain general
partnerships and trusts controlled by the Pratts and by other family members
(collectively, the "Pratt Family").
HCC owns all of the outstanding common stock of Hollywood Casino - Aurora,
Inc. ("HCA"), HWCC - Tunica, Inc. ("HCT"), HWCC-Louisiana, Inc. ("HCL") and
HWCC-Shreveport, Inc. ("Shreveport Management"). HCA is an Illinois corporation
organized during 1990 which owns and operates a riverboat gaming operation with
approximately 30,000 square feet of gaming space together with docking and other
entertainment facilities under the service mark Hollywood Casino(R) in Aurora,
Illinois approximately 35 miles west of Chicago (the "Aurora Casino"). HCT is a
Texas corporation formed by HCC during 1993 which owns and operates a 54,000
square foot gaming facility, adjacent support facilities and a 506-room hotel
complex under the service mark Hollywood Casino(R) in northern Tunica County,
Mississippi approximately 30 miles southwest of Memphis, Tennessee (the "Tunica
Casino"). The Aurora Casino and the Tunica Casino commenced operations in June
1993 and August 1994, respectively. HCL is a Louisiana corporation formed by
HCC in 1993 to pursue gaming opportunities in Louisiana. HCC owns the
partnership (the "Shreveport Partnership") which owns and is currently
constructing a destination gaming resort including a dockside casino, all suite
hotel and other entertainment facilities located in Shreveport, Louisiana
approximately 180 miles east of Dallas, Texas (the "Shreveport Casino").
Shreveport Management is a Louisiana corporation formed by HCC in 1997 which
holds the management contract for the Shreveport Casino.
The Company believes that its two currently operating gaming facilities
derive a significant amount of their gaming revenues from patrons living in the
surrounding areas. Competition within the Company's gaming markets is intense
and management believes that this competition will continue or intensify in the
future.
Prior to December 31, 1996, HCC also owned approximately 80% of the common
stock of Greate Bay Casino Corporation ("GBCC"), also a Delaware corporation.
On December 31, 1996, HCC distributed to its shareholders the common stock of
GBCC owned by HCC. As a result of the dividend, GBCC is no longer a subsidiary
of HCC. While owned by HCC, GBCC's principal asset was the Sands Hotel and
Casino in Atlantic City, New Jersey (the "Sands").
Prior to October 14, 1999, HCC was the general partner in Pratt Management
L.P. ("PML"), having acquired such interest in April 1997 from PPI Corporation,
a wholly owned subsidiary of GBCC. PML held a management contract on and earned
management fees from the Aurora Casino and incurred operating and other expenses
with respect to its management thereof. The remaining limited partnership
interest was held by Pratt Casino Corporation ("PCC"), which until its
acquisition by HCC in October 1999, was a wholly owned subsidiary of GBCC. For
those periods that PCC was owned by GBCC, the limited partnership interest was
reflected on the accompanying consolidated financial statements as a minority
interest. PCC also held a consulting contract with the Tunica Casino.
9
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In October 1999, HCC acquired all of the capital stock of PCC from GBCC. In
May 1999, PCC and its wholly owned subsidiary, PRT Funding Corp., filed for
protection under Chapter 11 of the United States Bankruptcy Code as a result of
a default on PRT Funding Corp.'s outstanding issue of $85 million of unsecured
senior notes which were guaranteed by PCC.
HCC's acquisition of PCC was part of a pre-negotiated plan of reorganization
approved by the United States Bankruptcy Court for the District of Delaware in
October 1999. When acquired by HCC, PCC's assets consisted of its management
contract for the Aurora Casino and its consulting agreement with the Tunica
Casino and its liabilities consisted of a new $40.3 million obligation payable
in satisfaction of the PRT Funding Corp. notes in default. The payment of the
$40.3 million obligation by HCC in October 1999 resulted in the termination of
the management contract and consulting agreement and was reflected at that time
as a charge to expense by the affected entities.
The accompanying consolidated financial statements also reflect HCT's one-
third investment in Tunica Golf Course LLC under the equity method of
accounting. This limited liability company was organized in 1996 to develop and
operate a golf course to be used by patrons of the Tunica Casino and other
participating casino/hotel properties. The golf course was completed and opened
for play in November 1998.
In September 1998, the Shreveport Partnership received approval to develop,
own and operate the Shreveport Casino. HCL originally planned to develop the
Shreveport Casino with two partners in a joint venture in which it would have
had an interest of approximately 50%. On March 31, 1999, HCL entered into a
definitive agreement with one of the joint venture partners to acquire its
interest in the Shreveport Partnership. The acquisition price was $2,500,000
(the amount the joint venture partner contributed to the project), $1,000 of
which was paid at closing with the remainder to be paid six months after the
opening of the Shreveport Casino. The revised structure of the joint venture
received approval by the Louisiana Gaming Control Board (the "LGCB") on April
20, 1999. Consequently, HCL now has an effective 100% ownership interest in the
Shreveport Casino with the remaining joint venture partner holding a 10%
residual interest in the event the project is ever sold. The joint venture
partner's interest is included in minority interest on the accompanying
consolidated balance sheets in the amount of $2,000,000.
The $150,000,000 Shreveport First Mortgage Notes (see Note 3), together with
a total of $49,000,000 of capital contributions from HCL, a $1,000,000 capital
contribution from HCL's joint venture partner made with funds loaned by HCL and
$30,000,000 in furniture, fixture and equipment financing are expected to
provide the estimated $230,000,000 needed to construct and open the Shreveport
Casino. In addition, HCC has agreed to contribute up to an additional
$5,000,000 in equity to the Shreveport Casino under certain circumstances which
include cost overruns or delays. As currently planned, the Shreveport Casino
will consist of a three-level riverboat casino with approximately 1,370 slot
machines and 75 table games; a 405-room, all suite, art deco style hotel; and
approximately 42,000 square feet of restaurant and entertainment facilities.
Construction began in August 1999 with a planned opening date in early November
2000 (see Note 9).
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.
10
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
HCC 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, HCC's ultimate liability
may differ from the amounts accrued.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
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.
Land held for sale is shown net of a valuation allowance of $3,084,000 on the
accompanying consolidated balance sheets at March 31, 2000 and December 31,
1999.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" which
summarizes the application of generally accepted accounting principles to
revenue recognition in financial statements. HCC does not believe the adoption
of Staff Accounting Bulletin 101 will have a significant impact on its
consolidated financial position or results of operations.
In June 1998, the FASB issued a new statement, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which has been amended to be
effective for fiscal years beginning after June 15, 2000. SFAS 133 requires,
among other things, that derivatives be recorded on the balance sheet at fair
value. Changes in the fair value of derivatives may, depending on circumstances,
be recognized in earnings or deferred as a component of shareholders' equity
until a hedged transaction occurs. The Company does not believe the adoption of
SFAS 133 will have a significant impact on its financial position or results of
operations.
The consolidated financial statements as of March 31, 2000 and for the three
month periods ended March 31, 2000 and 1999 have been prepared by HCC without
audit. In the opinion of management these consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the consolidated financial position of HCC as of
March 31, 2000 and the results of its operations and cash flows for the three
month periods ended March 31, 2000 and 1999.
(2) Earnings per common share -
Basic earnings per common share is calculated by dividing the net income by
the weighted average number of shares of common stock outstanding. Diluted
earnings per common share is calculated for periods in which income from
continuing operations was earned by dividing the components of net income by the
weighted average number of shares of common stock and potential common shares
outstanding.
11
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The weighted average number of shares of common stock and potential common
shares outstanding used for the calculation of earnings per share is as follows:
Three Months Ended
March 31,
----------------------
2000 1999
---------- ----------
Shares used in the calculation of:
Basic net income per share 24,951,036 24,949,976
Diluted net income per share 26,059,560 24,950,430
The number of shares used in the calculation of diluted earnings per share
for the three month periods ended March 31, 2000 and 1999 has been adjusted to
include potential common shares arising from stock options held by certain
employees and directors. The calculation of diluted earnings per share excludes
certain options to purchase common stock. These options have been excluded as
they would be antidilutive to the diluted earnings per share calculation. The
weighted average number of options excluded was 26,000 and 1,133,000,
respectively, for the three month periods ended March 31, 2000 and 1999.
12
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(3) Long-Term Debt and Pledge of Assets
Substantially all of HCC's assets are pledged in connection with its long-
term indebtedness. The obligations of HCL and its subsidiaries are non-recourse
to HCC.
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Indebtedness of HCC:
11.25% Senior Secured Notes, due 2007 (a) $310,000,000 $310,000,000
Floating rate Senior Secured Notes, due 2006 (a) 50,000,000 50,000,000
Promissory note due to affiliate (Note 6) 1,893,000 2,033,000
------------ ------------
361,893,000 362,033,000
------------ ------------
Indebtedness of HCA:
Promissory note to bank (b) 1,756,000 1,952,000
------------ ------------
Indebtedness of HCT :
Equipment loans (c) 2,160,000 2,488,000
Bank credit facility (d) 232,000 278,000
------------ ------------
2,392,000 2,766,000
------------ ------------
Indebtedness of HCL which is non-recourse to HCC:
13% Shreveport First Mortgage Notes, with contingent
interest, due 2006 (e) 150,000,000 150,000,000
Other, net of discount of $197,000
and 241,000, respectively (f) 1,803,000 1,759,000
------------ ------------
151,803,000 151,759,000
------------ ------------
Total indebtedness 517,844,000 518,510,000
Less - current maturities (4,179,000) (3,551,000)
------------ ------------
Total long-term debt $513,665,000 $514,959,000
============ ============
</TABLE>
- ------------------
(a) During May 1999, HCC completed the refinancing of its outstanding 12.75%
senior secured notes through a debt offering of $310,000,000 of 11.25%
Senior Secured Notes due May 1, 2007 and $50,000,000 of floating rate
Senior Secured Notes due May 1, 2006 (collectively, the "Senior Secured
Notes"). Interest on the floating rate notes is equal to the six-month
LIBOR rate plus 6.28% and is reset semiannually. Interest on the floating
rate notes was adjusted from an initial rate of 11.36% to 12.41% per annum
effective November 1, 1999 and was further adjusted to 12.89% effective May
1, 2000. In addition to refinancing existing debt, the Company used
proceeds from the debt offering to fund a portion of its equity investment
in the Shreveport Casino (see Note 1) and, during October 1999, to acquire
the management and consulting contracts on the Aurora Casino and Tunica
Casino (see Note 1). The Company also plans to use proceeds from the debt
offering to finance construction of a new, dockside gaming facility at the
Aurora Casino and, to the extent available, for working capital purposes.
Interest on the Senior Secured Notes is payable semiannually on May 1 and
November 1 commencing on November 1, 1999. The Senior Secured Notes are
unconditionally guaranteed on a senior secured basis by HCT and Shreveport
Management
13
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
and may be guaranteed by certain future subsidiaries of HCC. Neither HCA
nor HCL are guarantors. The Senior Secured Notes and related guarantees are
secured by, among other things, (1) substantially all of the assets of HCT
and future guarantors, (2) a lien not to exceed approximately $108,000,000
on substantially all of the assets of HCA, (3) a pledge of the capital
stock of certain subsidiaries of HCC and (4) the collateral assignment of
the management contract for the Shreveport Casino. The limitation on the
lien described in (2) above is currently $66,007,000.
The fixed rate Senior Secured notes are redeemable at the option of HCC any
time on or after May 1, 2003 at 107% of the then outstanding principal
amount, decreasing to 104.666%, 102.333% and 100%, respectively, on May 1,
2004, 2005 and 2006. The Company may also redeem up to 35% of the fixed
rate Senior Secured Notes at a redemption price of 111.25% plus accrued
interest at any time prior to May 1, 2002 with the proceeds from an
offering of HCC's common stock if net proceeds to the Company from any such
offering are at least $20,000,000.
The floating rate Senior Secured Notes may be redeemed at the option of HCC
at any time at an initial redemption price of 105% plus accrued interest
with the redemption premium decreasing by 1% on May 1 of each year
beginning May 1, 2000.
The indenture for the Senior Secured Notes contains various provisions
limiting the ability of HCC and certain defined subsidiaries to, among
other things, pay dividends or make other restricted payments; incur
additional indebtedness or issue preferred stock, create liens, create
dividend or other payment restrictions affecting certain defined
subsidiaries; enter into mergers or consolidations or make sales of all or
substantially all assets of HCC, HCT, Shreveport Management or any future
guarantor; or enter into certain transactions with affiliates. The
indenture also requires certain financial reporting information (see Note
7).
(b) During September 1998, HCA entered into a bank loan agreement to borrow up
to $2,000,000 on an unsecured basis. Borrowings under the agreement are
payable in 36 monthly installments of $62,000 including interest at the
rate of 7.5% per annum. HCA borrowed $2,000,000 under the agreement during
October 1998.
On May 18, 1999, HCA borrowed an additional $750,000 from the bank on an
unsecured basis. The loan is payable in 60 monthly installments of $15,000
including interest at the rate of 7.5% per annum.
(c) The equipment loans are payable monthly including interest at effective
rates ranging from 8.5% to 12.9% per annum and mature at various dates
between 2000 and 2002. Current maturities of long-term debt with respect
to HCT also includes short-term equipment loans with balances of $92,000
and $51,000 at March 31, 2000 and December 31, 1999, respectively, which do
not accrue interest and which mature during 2000.
(d) HCT had a bank credit facility in the amount of $1,300,000 available to
borrow against through September 30, 1998. HCT borrowed $541,000 under the
credit facility during 1998 at the rate of 8.875% per annum. Borrowings
under the credit facility are to be repaid in monthly installments
14
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
over a period of 36 months and are collateralized by equipment purchased
with the loan proceeds. The credit facility was not renewed by HCT.
(e) During August 1999, the partnership formed to develop the Shreveport Casino
issued $150,000,000 of 13% First Mortgage Notes, with contingent interest,
due August 1, 2006 (the "Shreveport First Mortgage Notes"), which are non-
recourse to HCC.
Fixed interest on the Shreveport First Mortgage Notes is payable on each
February 1 and August 1, beginning February 1, 2000. In addition,
contingent interest will accrue and be payable on each interest payment
date after the Shreveport Casino begins operations. The amount of
contingent interest will be equal to 5% of the Shreveport Casino's cash
flow, as defined, for the prior two fiscal quarters up to a maximum of
$5,000,000 for any four consecutive fiscal quarters. The notes are
collateralized by a first priority secured interest in substantially all of
the partnership's existing and future assets other than furniture, fixtures
and equipment for which up to $35,000,000 of financing has been or will be
obtained as well as by a pledge of the common stock of the HCC subsidiaries
which hold the partnership interests.
The Shreveport First Mortgage Notes are redeemable at the option of the
partnership at any time on or after August 1, 2003 at 106.5% of the then
outstanding principal amount, decreasing to 103.25% and 100% on August 1,
2004 and 2005, respectively. The Shreveport Partnership may also redeem up
to 35% of the Shreveport First Mortgage Notes at any time prior to August
1, 2002 with proceeds of contributions to the Shreveport Partnership made
by HCC from certain offerings of equity securities by HCC.
The indenture for the Shreveport First Mortgage Notes contains various
provisions limiting the ability of the Shreveport Partnership to borrow
money, pay distributions on its equity interests or prepay debt, make
investments, create liens, sell its assets or enter into mergers or
consolidations. The indenture also restricts the ability of certain HCC
subsidiaries which guarantee the debt to acquire additional assets, become
liable for additional obligations or engage in any business activities
other than holding the partnership interests or acting as managing general
partner of the partnership.
(f) In September 1998, HCC and its partners acquired their interests in the
Shreveport Partnership from its former partners who, prior to October 1997,
conducted riverboat gaming operations in New Orleans. In connection with
their proposed change in site to Shreveport, the former partners negotiated
a settlement with the City of New Orleans to pay $10,000,000 with respect
to claims asserted by the City in connection with the relocation. During
September 1998, the current partners and former partners of the Shreveport
Partnership entered into a Compromise Agreement with the City of New
Orleans under which it was agreed that one of the former partners would pay
$5,000,000 to the City with the former partners being released from any
further relocation claims. The current partners agreed that the Shreveport
Casino would pay the City of New Orleans $5,000,000 upon securing
financing for construction of their project (the Shreveport Casino); such
payment was made in August 1999. In addition, the current partners agreed
that the Shreveport Casino would, contingent on securing financing,
reimburse the former partner $2,000,000 of the amount it paid to the City;
such repayment is to be made at the earlier of the termination of
construction of the Shreveport Casino or in monthly installments of
$200,000, without interest,
15
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
commencing with the opening of the Shreveport Casino. The $2,000,000
liability, net of a discount in the original amount of $308,000, and the
related adjustments to the recorded value of project costs were recorded
upon the issuance of the Shreveport First Mortgage Notes in August 1999.
Scheduled payments of long-term debt as of March 31, 2000 are set forth
below:
2000 (nine months) $ 2,841,000
2001 4,361,000
2002 597,000
2003 168,000
2004 74,000
Thereafter 510,000,000
------------
Total $518,041,000
============
Interest paid, net of amounts capitalized, amounted to $8,274,000 and
$484,000, respectively, during the three month periods ended March 31, 2000 and
1999.
(4) Cash Restricted for Construction Project
Cash restricted for construction project consists of investments in
government securities which are to be used for specified purposes and which were
purchased with net proceeds from the Shreveport First Mortgage Notes (see Note
3) as required by the indenture for the Shreveport First Mortgage Notes. Such
restricted cash includes (1) funds to be used for construction which are subject
to meeting certain conditions prior to their disbursement, (2) funds to be used
to make the first three semiannual interest payments with respect to the
Shreveport First Mortgage Notes and (3) funds to be used to complete and open
the Shreveport Casino in the event the construction funds in (1) above are not
sufficient. Interest earned, but not yet received, on such investments is
included in other current assets on the accompanying consolidated balance sheets
at March 31, 2000 and December 31, 1999. Upon receipt, interest is included in
cash restricted for construction project.
Cash restricted for construction project is comprised of the following:
March 31, December 31,
2000 1999
--------- -----------
Construction reserve $109,359,000 $114,964,000
Interest reserve 18,664,000 27,275,000
Completion reserve 5,136,000 5,071,000
------------ ------------
$133,159,000 $147,310,000
============ ============
16
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(5) Income Taxes
Components of HCC's provision for income taxes consist of the following:
Three Months Ended
March 31,
---------------------------
2000 1999
------------ ------------
Current:
Federal $ - $ -
State (556,000) (203,000)
Deferred:
Federal (971,000) (153,000)
State (14,000) (2,000)
Change in valuation allowance 971,000 153,000
------------ ------------
$ (570,000) $ (205,000)
============ ============
Federal income tax payments of $35,000 and $150,000, respectively, were
made during the three month periods ended March 31, 2000 and 1999. State income
tax payments of $175,000 were made during the three month period ended March 31,
2000; no state tax payments were made during the three month period ended March
31, 1999. Current federal income taxes for the three month period ended March
31, 2000 were offset through the use of available tax net operating loss
carryforwards ("NOL's").
At March 31, 2000, HCC and its subsidiaries continue to have NOL's
available totaling approximately $45,000,000, none of which begin to expire
until the year 2019. Additionally, HCC and its subsidiaries have alternative
minimum and other tax credits available totaling $6,273,000 and $654,000,
respectively. Alternative minimum tax credits do not expire and none of the
other tax credits begin to expire until the year 2010. Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109")
requires that the tax benefit of such NOL's and credit carryforwards, together
with the tax benefit of deferred tax assets resulting from temporary
differences, 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 and deferred tax
assets is more likely than not, a valuation allowance should be recorded.
Management believes that it is more likely than not that future consolidated
taxable income of HCC (primarily from the Aurora Casino and the Tunica Casino)
will be sufficient to utilize a portion of the net deferred tax assets.
Accordingly, valuation allowances have been established which result in net
deferred tax assets of $5,209,000 and $5,246,000 at March 31, 2000 and December
31, 1999, respectively.
The Internal Revenue Service recently completed its examination of the
consolidated federal income tax returns of HCC for the years 1993 and 1994. The
additional estimated current federal income tax obligation resulting from such
examination is included in current federal income taxes payable on the
accompanying consolidated balance sheets at March 31, 2000 and December 31,
1999. HCC's consolidated net deferred tax asset has also been adjusted to
reflect the results of the tax audit. The Internal Revenue Service is
continuing its examination of the consolidated federal income tax returns of HCC
for 1995 and 1996. Management believes that the results of such examination will
not have a material adverse effect on the consolidated financial position or
results of operations of HCC.
17
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(6) Transactions with Related Parties
As partial consideration for its April 1, 1997 acquisition of the general
partnership interest in PML (see Note 1), HCC issued a five-year note in the
original amount of $3,800,000 to PPI Corporation. The note payable to PPI was
amended as of the October 1999 acquisition of PCC (see Note 1) to provide for
monthly installments of $83,000 including interest and additional quarterly
principal payments of $21,000 beginning January 1, 2000. During March 2000, HCC
and PPI Corporation entered into an agreement to defer the March and April
payments of principal and interest on the note described in the previous
paragraph until May while negotiations continue to enable PPI Corporation to
restructure the obligation. The deferral of payments was extended for one
additional month in May 2000. These deferrals do not extend the maturities or
represent a forgiveness of either principal or interest as all past due amounts,
if not otherwise restructured, will become due and payable on the extended
payment date of June 1, 2000.
(7) Unrestricted Subsidiaries
Under the terms of the indenture to the Senior Secured Notes (see Note 3),
certain subsidiaries and investees of HCC have been designated as "Unrestricted
Subsidiaries." Unrestricted Subsidiaries generally do not provide credit
support for the Senior Secured Notes and obligations of Unrestricted
Subsidiaries are non-recourse to HCC. Unrestricted Subsidiaries of HCC
presently consist of HCL and its subsidiaries; HWCC-Holdings, Inc.; HWCC-Golf
Course Partners, Inc.; and, for periods prior to its liquidation in October
1999, PML. The following presentation summarizes the financial position and
results of operations of the
18
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Company reflecting its Unrestricted Subsidiaries under the equity method of
accounting. Such information is not intended to be a presentation in conformity
with generally accepted accounting principles and is included for purposes of
complying with certain reporting requirements as contained in the indenture to
the Senior Secured Notes.
Condensed Balance Sheet
Equity Method for Investment in Unrestricted Subsidiaries
March 31, 2000
(amounts in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Current Assets: Current Liabilities:
Cash and cash items $114,130 Current maturities of long-
Accounts receivable, net of allowance term debt and capital leases $ 4,178
of $2,058 4,390 Accounts payable and accrued
Inventories 1,595 liabilities 46,723
Prepaid expenses and other current assets 4,375 Other current liabilities 3,087
---------
Due from affiliates 7,617 53,988
-------- ---------
132,107
--------
Investment in and advances to Long-term debt 362,862
--------
Unrestricted Subsidiaries 46,843
--------
Capital lease obligations 18,802
---------
Property and equipment, net of
accumulated depreciation and Other noncurrent liabilities 5,649
--------
amortization of $96,168 162,956
--------
Shareholders' deficit:
Other Assets: Common stock 2
Deferred finance costs 9,970 Additional paid-in capital 216,932
Other assets 18,084 Accumulated deficit (288,275)
-------- ---------
28,054 (71,341)
-------- ---------
$369,960 $ 369,960
======== =========
</TABLE>
19
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Condensed Statement of Operations
Equity Method for Investment in Unrestricted Subsidiaries
Three Months Ended March 31, 2000
(amounts in thousands)
Net revenues $ 84,015
--------
Expenses:
Departmental expenses 59,353
General and administrative 5,379
Depreciation and amortization 3,264
Development 230
--------
Total expenses 68,226
--------
Income from operations 15,789
Non-operating expense, net (10,254)
--------
Income before taxes, extraordinary and other items 5,535
Provision for taxes (570)
--------
Income before extraordinary and other items 4,965
Equity in losses of unrestricted subsidiaries (2,153)
--------
Net income $ 2,812
========
(8) Reclassifications
Certain reclassifications have been made to the prior year's consolidated
financial statements to conform to the 2000 consolidated financial statement
presentation.
(9) Subsequent Event
On April 23, 2000, the construction site for the Shreveport Casino suffered
tornado damage. While the project sustained no structural damage, the interior
and exterior finish on several floors of the hotel was damaged. Management
believes that the Company's insurance policies will cover these losses; however,
repair or replacement could take several weeks and could delay the planned
opening date in early November 2000. In order to mitigate all or part of the
delay, management intends to utilize provisions in its insurance coverage,
including the use of overtime and additional workers, to attempt to keep the
project on schedule. This strategy may require scheduling overtime for existing
workers and/or hiring additional construction workers, which are currently in
short supply. In addition, it will be necessary to purchase additional
construction materials on an expedited basis. If the opening of the Shreveport
Casino is delayed due to the tornado damage, the Company will seek to recover
lost profits under its business interruption insurance coverage. Although the
Company remains in the initial
20
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
stage of assessing the impact of the tornado, based on management's assessment
of the condition of the site, the progress of construction since the date of the
tornado and discussions with its insurance carriers, management believes that
the damage from the tornado will not be material.
21
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Hollywood Casino Corporation
Dallas, Texas
We have reviewed the accompanying condensed balance sheet of Hollywood Casino-
Aurora, Inc. as of March 31, 2000, and the related condensed statements of
operations and cash flows for the three month periods ended March 31, 2000 and
1999. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the balance sheet of Hollywood Casino-
Aurora, Inc. as of December 31, 1999, and the related statements of operations,
shareholder's equity and cash flows for the year then ended (not presented
herein); and in our report dated February 25, 2000, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December 31, 1999 is
fairly stated, in all material respects, in relation to the balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
May 1, 2000
22
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 35,639,000 $ 22,148,000
Accounts receivable, net of allowances
of $910,000 and $836,000, respectively 1,140,000 992,000
Inventories 831,000 845,000
Deferred income taxes 1,872,000 1,809,000
Due from affiliates 3,000 1,956,000
Prepaid expenses and other current assets 1,263,000 758,000
------------ ------------
Total current assets 40,748,000 28,508,000
------------ ------------
Property and Equipment:
Land improvements 3,167,000 3,167,000
Buildings and improvements 46,205,000 46,205,000
Riverboats 37,843,000 37,843,000
Operating equipment 40,222,000 39,898,000
Construction in progress 1,795,000 1,625,000
------------ ------------
129,232,000 128,738,000
Less - accumulated depreciation and amortization (49,473,000) (47,717,000)
------------ ------------
Net property and equipment 79,759,000 81,021,000
------------ ------------
Other Assets 2,275,000 2,230,000
------------ ------------
$122,782,000 $111,759,000
============ ============
</TABLE>
The accompanying introductory notes and notes to financial statements are an
integral part of these balance sheets.
23
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 1,822,000 $ 1,794,000
Accounts payable 2,775,000 1,857,000
Accrued liabilities -
Salaries and wages 1,731,000 2,758,000
Interest 3,780,000 1,769,000
Gaming and other taxes 7,011,000 1,129,000
Insurance 988,000 1,051,000
Other 1,866,000 2,115,000
Due to affiliates 2,334,000 218,000
Other current liabilities 1,711,000 1,479,000
------------ ------------
Total current liabilities 24,018,000 14,170,000
------------ ------------
Long-Term Debt 66,940,000 67,152,000
------------ ------------
Capital Lease Obligations 18,802,000 18,961,000
------------ ------------
Deferred Income Taxes 5,635,000 5,429,000
------------ ------------
Commitments and Contingencies
Shareholder's Equity:
Common stock, $.01 par value per share;
2,000,000 shares authorized; 1,501,000
shares issued and outstanding 15,000 15,000
Additional paid-in capital 25,541,000 25,541,000
Retained earnings (18,169,000) (19,509,000)
------------ ------------
Total shareholder's equity 7,387,000 6,047,000
------------ ------------
$122,782,000 $111,759,000
============ ============
</TABLE>
The accompanying introductory notes and notes to financial statements are an
integral part of these balance sheets.
24
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Casino $53,832,000 $41,809,000
Food and beverage 3,842,000 3,348,000
Other 751,000 654,000
----------- -----------
58,425,000 45,811,000
Less - promotional allowances (2,951,000) (2,418,000)
----------- -----------
Net revenues 55,474,000 43,393,000
----------- -----------
Expenses:
Casino 35,668,000 30,150,000
Food and beverage 1,235,000 1,282,000
Other 218,000 222,000
General and administrative 1,481,000 3,806,000
Depreciation and amortization 1,756,000 1,785,000
----------- -----------
Total expenses 40,358,000 37,245,000
----------- -----------
Income from operations 15,116,000 6,148,000
----------- -----------
Non-operating income (expense):
Interest income 222,000 64,000
Interest expense (2,268,000) (1,434,000)
Gain on disposal of assets 1,000 1,000
----------- -----------
Total non-operating expense, net (2,045,000) (1,369,000)
----------- -----------
Income before income taxes 13,071,000 4,779,000
Income tax provision (4,842,000) (1,823,000)
----------- -----------
Net income $ 8,229,000 $ 2,956,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to financial statements
are an integral part of these financial statements.
25
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 8,229,000 $ 2,956,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,756,000 1,785,000
Provision for doubtful accounts 75,000 75,000
Gain on disposal of assets (1,000) (1,000)
Deferred income tax provision 143,000 35,000
Increase in receivables (223,000) (24,000)
Increase in accounts payable and accrued liabilities 7,472,000 4,802,000
Net change in affiliate accounts 4,069,000 1,642,000
Net change in other current assets and liabilities (259,000) 136,000
Net change in other assets and liabilities (45,000) (4,000)
----------- -----------
Net cash provided by operating activities 21,216,000 11,402,000
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (494,000) (529,000)
Proceeds from sale of assets 1,000 1,000
----------- -----------
Net cash used in investing activities (493,000) (528,000)
----------- -----------
FINANCING ACTIVITIES:
Repayments of debt (196,000) (152,000)
Payments on capital lease obligations (147,000) (138,000)
Dividends (6,889,000) -
----------- -----------
Net cash used in financing activities (7,232,000) (290,000)
----------- -----------
Net increase in cash and cash equivalents 13,491,000 10,584,000
Cash and cash equivalents at beginning of period 22,148,000 9,718,000
----------- -----------
Cash and cash equivalents at end of period $35,639,000 $20,302,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to financial statements
are an integral part of these financial statements.
26
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Organization, Business and Basis of Presentation
Hollywood Casino - Aurora, Inc. ("HCA") is an Illinois corporation and a
wholly owned subsidiary of Hollywood Casino Corporation ("HCC"), a Delaware
corporation. HCA was organized and incorporated during December 1990 by certain
relatives of Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt
(collectively, the "Pratt Family") for the purpose of developing and holding the
ownership interest in a riverboat gaming operation located in Aurora, Illinois
(the "Aurora Casino"). In May 1992, HCC, which was then wholly owned by
members of the Pratt Family or by certain general partnerships and trusts
controlled by the Pratt Family, acquired all of the outstanding stock of HCA
through the issuance of HCC stock. Prior to December 31, 1996, HCC also owned
approximately 80% of Greate Bay Casino Corporation ("GBCC"), a Delaware
corporation. Prior to April 1, 1997, subsidiaries of GBCC held the management
services contract for the Aurora Casino. A GBCC subsidiary continued to hold a
limited partnership interest in the entity which held such management contract
prior to the acquisition of such interest by HCC in October 1999 (see Note 4).
The Aurora Casino consists of two, four-level riverboats having a combined
casino space of approximately 32,000 square feet and a four-level pavilion and
docking facility which houses ticketing, food service, passenger waiting, and
various administrative functions. The Aurora Casino also includes two parking
structures with approximately 1,350 parking spaces. HCA was responsible for the
design and construction of the parking garages; however, it leases the
facilities under long-term lease agreements. The leases are treated as capital
leases for financial reporting purposes.
On June 17, 1993, the Illinois Gaming Board (the "IGB") issued HCA a
temporary operating permit and the Aurora Casino commenced operations. The IGB
issued HCA an Owner's License on July 20, 1993 pursuant to the Illinois
Riverboat Gambling Act. HCA's current Owner's License was renewed in December
1999 for a period of one year to December 2000. Gaming taxes imposed by the
state of Illinois are determined using a graduated tax rate applied to the
licensee's gaming revenues. HCA expenses such gaming taxes based on its
anticipated annual effective tax rate.
HCA estimates that a significant amount of the Aurora Casino's revenues are
derived from patrons living in the Chicago area and surrounding northern and
western suburbs. The Aurora Casino faces intense competition from other
riverboat gaming operations in Illinois and Indiana which serve the Chicago area
and management believes that this competition will continue in the future.
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.
HCA 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, HCA's ultimate liability
may differ from the amounts accrued.
27
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements," which
summarizes the application of generally accepted accounting principles to
revenue recognition in financial statements. HCA does not believe the adoption
of Staff Accounting Bulletin 101 will have a significant impact on its financial
position or results of operations.
In June 1998, the FASB issued a new statement, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"), which has been amended to be
effective for fiscal years beginning after June 15, 2000. SFAS 133 requires,
among other things, that derivatives be recorded on the balance sheet at fair
value. Changes in the fair value of derivatives may, depending on circumstances,
be recognized in earnings or deferred as a component of shareholder's equity
until a hedged transaction occurs. HCA does not believe the adoption of SFAS
133 will have a significant impact on its financial position or results of
operations.
The financial statements as of March 31, 2000 and for the three month
periods ended March 31, 2000 and 1999 have been prepared by HCA without audit.
In the opinion of management, these financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of HCA as of March 31, 2000 and the results of its
operations and cash flows for the three month periods ended March 31, 2000 and
1999.
(2) Long-Term Debt and Pledge of Assets
HCA's long-term indebtedness consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
11.25% Promissory note to HCC, due on
May 1, 2007 (a) $66,007,000 $66,007,000
Promissory notes to bank (b) 1,756,000 1,952,000
----------- -----------
Total indebtedness 67,763,000 67,959,000
Less - current maturities (823,000) (807,000)
----------- -----------
Total long-term debt $66,940,000 $67,152,000
=========== ===========
</TABLE>
(a) The intercompany note was issued as of May 19, 1999 and accrues interest at
the rate of 11.25% per annum. The initial borrowing on the note replaced a
previous intercompany note with HCC in the amount of $31,507,000 which
accrued interest at the rate of 12.75%. During October 1999, HCA borrowed
an additional $37,000,000 from HCC under the note agreement to acquire and
terminate its management contract (see Note 4). HCA may borrow up to a
total of $108,000,000 under the intercompany note agreement. Interest on
advances is payable semiannually on October 15 and
28
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
April 15 of each year. The intercompany note is pledged as security with
respect to HCC's $360,000,000 Senior Secured Notes due in 2006 and 2007.
HCA is not a guarantor of HCC's indebtedness; however, the indebtedness is
secured, in part, by a lien limited to the outstanding principal amount on
the intercompany note to HCC on substantially all of the assets of HCA and
by a pledge of the capital stock of HCA.
(b) During September 1998, HCA entered into a bank loan agreement to borrow up
to $2,000,000 on an unsecured basis. Borrowings under the agreement are
payable in 36 monthly installments of $62,000 including interest at the
rate of 7.5% per annum. HCA borrowed $2,000,000 under the agreement during
October 1998.
On May 18, 1999, HCA borrowed an additional $750,000 from the bank on an
unsecured basis. The loan is payable in 60 monthly installments of $15,000
including interest at the rate of 7.5% per annum.
As of March 31, 2000, future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 (nine months) $ 611,000
2001 747,000
2002 156,000
2003 168,000
2004 74,000
Thereafter 66,007,000
-----------
$67,763,000
===========
</TABLE>
Interest paid for the three month periods ended March 31, 2000 and 1999
amounted to $257,000 and $268,000, respectively.
(3) Income Taxes
HCA's provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Current:
Federal $(4,143,000) $(1,589,000)
State (556,000) (199,000)
Deferred:
Federal (129,000) (32,000)
State (14,000) (3,000)
----------- -----------
$(4,842,000) $(1,823,000)
=========== ===========
</TABLE>
29
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
HCA is included in HCC's consolidated federal income tax return. Pursuant
to agreements between HCC and HCA, HCA's current 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. HCA paid no federal income taxes during
either of the three month periods ended March 31, 2000 or 1999. HCA paid state
income taxes of $175,000 during the three month period ended March 31, 2000; no
state income taxes were paid during the three month period ended March 31, 1999.
The Internal Revenue Service recently completed its examination of the
consolidated federal income tax returns of HCC for the years 1993 and 1994 as
they pertain to HCA. The intercompany tax obligation under the tax sharing
agreement and the net deferred tax liability have been adjusted to reflect the
results of such examination. The Internal Revenue Service is continuing its
examination of the consolidated federal income tax returns of HCC for 1995 and
1996. Management believes that the results of such examination will not have a
material adverse effect on the financial position or results of operations of
HCA.
(4) Transactions with Related Parties
Pursuant to a management services agreement which was terminated in October
1999, HCA paid base management and incentive fees to Pratt Management, L.P.
("PML"), a limited partnership in which HCC was the general partner and a
subsidiary of GBCC was the limited partner. HCA incurred such fees totaling
$2,600,000 during the three month period ended March 31, 1999. During October
1999, HCC acquired the GBCC subsidiary which held the limited partnership in PML
following the confirmation of the GBCC subsidiary's plan of reorganization under
Chapter 11 of the United States Bankruptcy Code. HCA borrowed an additional
$37,000,000 under its intercompany note with HCC (see Note 2) to acquire and
terminate the management contract. Accordingly, effective October 13, 1999, HCA
no longer pays a management fee. The $37,000,000 payment by HCA was recorded by
HCA as the cost of terminating the management contract and was reflected as an
expense during the fourth quarter of 1999.
(5) Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform to the 2000 financial statement presentation.
30
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Hollywood Casino Corporation
Dallas, Texas
We have reviewed the accompanying condensed consolidated balance sheet of HWCC-
Tunica, Inc. and subsidiary as of March 31, 2000, and the related condensed
consolidated statements of operations and cash flows for the three month periods
ended March 31, 2000 and 1999. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
HWCC-Tunica, Inc. and subsidiary as of December 31, 1999, and the related
consolidated statements of operations, shareholder's equity and cash flows for
the year then ended (not presented herein); and in our report dated February 25,
2000, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1999 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
May 1, 2000
31
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 12,131,000 $ 10,339,000
Accounts receivable, net of allowances of
$1,148,000 and $990,000, respectively 3,075,000 2,722,000
Inventories 764,000 869,000
Deferred income taxes 1,494,000 1,346,000
Prepaid expenses and other current assets 1,170,000 1,190,000
Due from affiliates 492,000 503,000
------------ ------------
Total current assets 19,126,000 16,969,000
------------ ------------
Property and Equipment:
Land and improvements 4,780,000 4,781,000
Buildings 76,074,000 76,011,000
Barges 2,524,000 2,524,000
Operating equipment 45,002,000 44,731,000
Construction in progress 570,000 134,000
------------ ------------
128,950,000 128,181,000
Less - accumulated depreciation and amortization (45,999,000) (44,575,000)
------------ ------------
Net property and equipment 82,951,000 83,606,000
------------ ------------
Other Assets:
Land rights 6,996,000 7,047,000
Other assets 4,606,000 4,776,000
------------ ------------
Total other assets 11,602,000 11,823,000
------------ ------------
$113,679,000 $112,398,000
============ ============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
32
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 1,409,000 $ 1,491,000
Accounts payable 1,508,000 1,081,000
Accrued liabilities -
Salaries and wages 1,914,000 1,569,000
Interest 437,000 437,000
Gaming and other taxes 1,084,000 1,340,000
Insurance 1,744,000 1,839,000
Other 2,259,000 2,214,000
Other current liabilities 1,230,000 1,168,000
------------ ------------
Total current liabilities 11,585,000 11,139,000
------------ ------------
Long-Term Debt 88,357,000 88,649,000
------------ ------------
Commitments and Contingencies
Shareholder's Equity:
Common stock, $.01 par value
per share; 100,000 shares authorized;
1,000 shares issued and outstanding - -
Additional paid-in capital 22,637,000 22,637,000
Accumulated deficit (8,900,000) (10,027,000)
------------ ------------
Total shareholder's equity 13,737,000 12,610,000
------------ ------------
$113,679,000 $112,398,000
============ ============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
33
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Casino $26,633,000 $24,536,000
Rooms 2,457,000 2,394,000
Food and beverage 4,096,000 3,636,000
Other 348,000 311,000
----------- -----------
33,534,000 30,877,000
Less - promotional allowances (4,993,000) (4,502,000)
----------- -----------
Net revenues 28,541,000 26,375,000
----------- -----------
Expenses:
Casino 20,808,000 17,984,000
Rooms 170,000 269,000
Food and beverage 1,126,000 905,000
Other 150,000 273,000
General and administrative 1,207,000 1,479,000
Depreciation and amortization 1,476,000 1,966,000
----------- -----------
Total expenses 24,937,000 22,876,000
----------- -----------
Income from operations 3,604,000 3,499,000
----------- -----------
Non-operating income (expenses):
Interest income 43,000 135,000
Interest expense (2,520,000) (2,740,000)
Loss on disposal of assets - (2,000)
----------- -----------
Total non-operating expenses, net (2,477,000) (2,607,000)
----------- -----------
Income before income taxes 1,127,000 892,000
Income tax provision - -
----------- -----------
Net income $ 1,127,000 $ 892,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
34
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,127,000 $ 892,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,476,000 1,966,000
Provision for doubtful accounts 217,000 49,000
Loss on disposal of assets - 2,000
Increase in accounts receivable (559,000) (718,000)
Increase in accounts payable and accrued expenses 466,000 716,000
Net change in other current assets and liabilities 187,000 (127,000)
Net change in other noncurrent assets and liabilities 21,000 2,000
----------- -----------
Net cash provided by operating activities 2,935,000 2,782,000
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (769,000) (3,145,000)
Short-term investments - 2,927,000
Investment in unconsolidated affiliate - (66,000)
Proceeds from sale of assets - 36,000
----------- -----------
Net cash used in investing activities (769,000) (248,000)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 104,000 1,876,000
Repayments of long-term debt (478,000) (260,000)
Dividends - (8,000,000)
----------- -----------
Net cash used in financing activities (374,000) (6,384,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,792,000 (3,850,000)
Cash and cash equivalents at beginning of period 10,339,000 16,325,000
----------- -----------
Cash and cash equivalents at end of period $12,131,000 $12,475,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
35
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization, Business and Basis of Presentation
HWCC - Tunica, Inc. ("HCT") is a Texas corporation and a wholly owned
subsidiary of Hollywood Casino Corporation ("HCC"), a Delaware corporation. HCT
was incorporated in December 1993 for the purpose of acquiring and completing a
gaming facility in northern Tunica County, Mississippi approximately 30 miles
southwest of Memphis, Tennessee. The facility (the "Tunica Casino") was
completed and commenced operations on August 8, 1994 under the service mark
Hollywood Casino(R). The Tunica Casino currently includes a casino with 54,000
square feet of gaming space, 506 hotel rooms and suites, a 123-space
recreational vehicle park and related amenities. HCT's gaming license has been
renewed by the Mississippi Gaming Commission through October 18, 2001.
The accompanying consolidated financial statements include the accounts of
HCT and its wholly owned subsidiary, HWCC-Golf Course Partners, Inc. ("Golf").
All significant intercompany balances have been eliminated in consolidation.
Golf, a Delaware corporation, was formed in 1996 to own an initial one-third
interest in Tunica Golf Course LLC, a limited liability company organized to
develop and operate a golf course to be used by patrons of the Tunica Casino and
other participating casino/hotel properties. The golf course opened for
business in November 1998. Golf's investment in Tunica Golf Course, LLC is
accounted for under the equity method of accounting and is included in other
noncurrent assets on the accompanying consolidated balance sheets at March 31,
2000 and December 31, 1999.
HCT estimates that a significant amount of the Tunica Casino's revenues are
derived from patrons living in the Memphis, Tennessee area, northern Mississippi
and Arkansas. The Tunica Casino faces intense competition from other casinos
operating in northern Tunica County and management believes that this
competition will continue in the future.
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.
HCT 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, HCT's ultimate liability
may differ from the amounts accrued.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements", which
summarizes the application of generally accepted accounting principles to
revenue recognition in financial statements. HCT does not believe the adoption
of Staff Accounting Bulletin 101 will have a significant impact on its
consolidated financial position or results of operations.
In June 1998, the FASB issued a new statement, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"), which has been amended to be
effective for fiscal years beginning after June 15, 2000. SFAS 133 requires,
among other things, that derivatives be recorded on the balance sheet at fair
value. Changes in the fair value of derivatives may, depending on
circumstances, be recognized in earnings or deferred as a component of
shareholder's equity until a hedged transaction occurs. HCT does not believe
the adoption of SFAS 133 will have a significant impact on its consolidated
financial position or results of operations.
36
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The consolidated financial statements as of March 31, 2000 and for the
three month periods ended March 31, 2000 and 1999 have been prepared by HCT
without audit. In the opinion of management, these consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the consolidated financial position of
HCT as of March 31, 2000 and the results of its operations and cash flows for
the three month periods ended March 31, 2000 and 1999.
(2) Long-Term Debt and Pledge of Assets
Substantially all of HCT's assets are pledged in connection with its long-
term indebtedness. Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
11.25% Promissory note to HCC due May 1, 2007 (a) $87,045,000 $87,045,000
Note payable to HCC (a) 329,000 329,000
Equipment loans (b) 2,160,000 2,488,000
Bank credit facility (c) 232,000 278,000
----------- -----------
Total indebtedness 89,766,000 90,140,000
Less - current maturities (1,409,000) (1,491,000)
----------- -----------
Total long-term debt $88,357,000 $88,649,000
=========== ===========
</TABLE>
(a) The intercompany note was issued as of May 19, 1999 and accrues interest at
the rate of 11.25% per annum. The initial borrowing on the note replaced
previous intercompany notes with HCC aggregating $84,045,000 and which
accrued interest at the rate of 12.75%. During October 1999, HCT borrowed
the additional $3,000,000 available under the intercompany note with HCC as
well as an additional $329,000 under a new note agreement with HCC to
acquire and terminate its consulting agreement (see Note 4). No additional
borrowings are available under the 11.25% intercompany note agreement.
Interest on advances is payable semiannually on April 15 and October 15 of
each year. The intercompany note is pledged as security with respect to
HCC's $360,000,000 Senior Secured Notes due in 2006 and 2007 which are
unconditionally guaranteed on a senior secured basis by HCT and by certain
other current and future subsidiaries of HCC. HCC's Senior Secured Notes
and related guarantees are secured by, among other things, (1)
substantially all of the assets of HCT and other future guarantors, (2) a
limited lien on substantially all of the assets of another gaming facility
operated by a wholly owned subsidiary of HCC, (3) a pledge of the capital
stock of HCT and certain other subsidiaries of HCC and (4) the collateral
assignment of any future management contracts entered into by HCC. The
limitation on the lien described in (2) is currently $66,007,000 and may be
increased as a result of additional borrowings up to a maximum of
$108,000,000.
37
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The indenture for HCC's Senior Secured Notes contains various provisions
limiting the ability of HCC, HCT and certain defined subsidiaries to, among
other things, pay dividends or make other restricted payments; incur
additional indebtedness or issue preferred stock; create liens; create
dividend or other payment restrictions affecting certain defined
subsidiaries; enter into mergers or consolidations or make sales of all or
substantially all assets of HCC, HCT or any future guarantor; or enter into
certain transactions with affiliates. Dividend payments by HCT to HCC are
not restricted under the terms of the indenture.
(b) The equipment loans are payable monthly including interest at effective
rates ranging from 8.5% to 12.9% per annum and mature at various dates
between 2000 and 2002. Current maturities of long-term debt includes
short-term equipment loans with balances of $92,000 and $51,000 at March
31, 2000 and December 31, 1999, respectively, which do not accrue interest
and which mature during 2000.
(c) HCT had a bank credit facility in the amount of $1,300,000 available to
borrow against until September 30, 1998. HCT borrowed $541,000 under the
credit facility during 1998 at the rate of 8.875% per annum. Borrowings
under the credit facility are to be repaid in monthly installments over a
period of 36 months and are collateralized by equipment purchased with the
loan proceeds. The credit facility was not renewed by HCT.
Scheduled payments of long-term debt as of March 31, 1999 are set forth
below:
<TABLE>
<CAPTION>
<S> <C>
2000 (nine months) $ 1,117,000
2001 1,033,000
2002 242,000
2003 -
2004 -
Thereafter 87,374,000
-----------
Total $89,766,000
===========
</TABLE>
Interest paid amounted to $2,520,000 and $2,740,000, respectively, during
the three month periods ended March 31, 2000 and 1999.
38
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(3) Income Taxes
HCT's provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
<S> <C> <C>
2000 1999
--------- ---------
Provision for deferred federal income taxes $ 389,000 $ 429,000
Valuation allowance (389,000) (429,000)
--------- ---------
$ - $ -
========= =========
</TABLE>
State income taxes have not been provided for since a credit for state
gaming taxes based on gross revenues is allowed to offset income taxes incurred.
The credit is the lesser of total gaming taxes paid or the state income tax,
with no credit carryforward permitted.
HCT is included in HCC's consolidated federal income tax return. HCT'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. HCT paid no
federal or state income taxes during either of the three month periods ended
March 31, 2000 or 1999.
At March 31, 2000, HCT had net operating loss carryforwards ("NOL's")
totaling approximately $7,200,000, which do not begin to expire until the year
2010. Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", requires that the tax benefit of such NOL's, together with the
tax benefit of deferred tax assets resulting from temporary differences, be
recorded as an asset and, to the extent that management can not assess that the
utilization of all or a portion of such deferred tax assets is more likely than
not, a valuation allowance should be recorded. Based on the taxable income
currently being earned by HCT and the expectation of future taxable income,
management believes that it is more likely than not that a portion of the NOL's
and deferred tax assets will be utilized. Accordingly, a valuation allowance
has been established which has resulted in the recording of a net deferred tax
asset of $2,125,000 at both March 31, 2000 and December 31, 1999.
The Internal Revenue Service recently completed its examination of the
consolidated federal income tax returns of HCC for the years 1993 and 1994 as
they pertain to HCT. The intercompany tax receivable under the tax sharing
agreement and the net deferred tax asset have been adjusted to reflect the
results of such examination. The Internal Revenue Service is continuing its
examination of the consolidated federal income tax returns of HCC for 1995 and
1996. Management believes that the results of such examination will not have a
material adverse effect on the consolidated financial position or results of
operations of HCT.
39
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(4) Transactions with Related Parties
Pursuant to a consulting agreement which was terminated during October 1999,
HCT incurred a $100,000 per month consulting fee to Pratt Casino Corporation
("PCC"), an affiliated company. During October 1999, HCC acquired PCC following
the confirmation of PCC's plan of reorganization under Chapter 11 of the United
States Bankruptcy Code. HCT borrowed an additional $3,329,000 from HCC (see
Note 2) to acquire and terminate the consulting agreement. Accordingly,
effective October 13, 1999, HCT no longer pays a consulting fee. The
$3,329,000 payment by HCT was recorded by HCT as the cost of terminating the
consulting agreement and was reflected as an expense during the fourth quarter
of 1999.
(5) Reclassifications
Certain reclassifications have been made to the prior year's consolidated
financial statements to conform to the 2000 consolidated financial statement
presentation.
40
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
about the business, results of operations, cash flows, financial condition and
prospects of the Company. The actual results could differ materially from those
indicated by the forward-looking statements because of various competition,
economic conditions, tax regulations, state regulations applicable to the gaming
industry in general or the Company in particular and other risks indicated in
the Company's filings with the Securities and Exchange Commission. Such risks
and uncertainties are beyond management's ability to control and, in many cases,
can not be predicted by management. When used in this Quarterly Report on Form
10-Q, the words "believes", "estimates", "anticipates" and similar expressions
as they relate to the Company or its management are intended to identify
forward-looking statements.
RESULTS OF OPERATIONS
HCC had net revenues for the three month period ended March 31, 2000 of $84
million, a 20.4% increase from the $69.8 million during the same period of 1999.
The increase is attributable to improved net revenues at the Aurora Casino of
$12.1 million (27.8%) and at the Tunica Casino of $2.2 million (8.2%). Operating
expenses increased by $9.1 million to $69.3 million during the three month
period ended March 31, 2000 from $60.2 million during the same period of 1999.
Consequently, HCC's income from operations increased by $5.5 million
(55.7%) during the first quarter of 2000 compared to the same period of 1999.
Income from operations, exclusive of management fees, at the Aurora Casino
increased by $6.4 million to $15.1 million during the three month period ended
March 31, 2000 compared with the same period of 1999 due to increased patron
volume. Income from operations at the Tunica Casino increased slightly by
$105,000 to $3.6 million due to the elimination of consulting fees as a result
of the Tunica Casino terminating its management contract in October 1999.
Aurora Casino
General
Income from operations at the Aurora Casino, adjusted to exclude management
fees, amounted to $15.1 million and $8.7 million, respectively, for the three
month periods ended March 31, 2000 and 1999. The 2000 increase results from
improvement in casino revenues primarily from the commencement of dockside
gaming on June 26, 1999 as well as to increased marketing efforts.
41
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth certain unaudited financial and operating data
for the Aurora Casino's operations for the three month periods ended March 31,
2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Table games $ 11,323,000 $ 10,465,000
Slot machines 41,697,000 30,776,000
Poker revenues 812,000 568,000
------------ ------------
Total $ 53,832,000 $ 41,809,000
============ ============
Table games:
Gross wagering (drop) (1) $ 67,805,000 $ 59,408,000
Hold percentage (2) 16.7% 17.6%
Slot machines:
Gross wagering (handle) (1) $739,191,000 $542,397,000
Hold percentage (2) 5.6% 5.7%
</TABLE>
- -----------------------
(1) Gross wagering consists of the total value of chips purchased for table
games ("drop") and coins wagered in slot machines ("handle").
(2) 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".
Total gross wagering at the Aurora Casino as measured by table drop and
slot machine handle increased $205.2 million (34.1%) during the first quarter of
2000 compared to the first quarter of 1999. Table games wagering increased by
$8.4 million (14.1%) and slot machine wagering increased by $196.8 million
(36.3%) in the 2000 first quarter compared to the 1999 period. The increases in
gross wagering are primarily attributable to the advent of dockside gaming on
June 26, 1999.
Revenues
Casino revenues increased $12 million (28.8%) during the first quarter of
2000 compared to the same period of 1999 due to the increases in gross wagering
previously discussed. Table game revenues increased $858,000 (8.2%) during the
first quarter of 2000 compared to the 1999 period. The 36.3% increase in slot
machine handle during the first quarter of 2000 coupled with a decline in the
slot machine hold percentage to 5.6% from 5.7% resulted in a three month slot
machine revenue increase of $10.9 million (35.5%) compared to the corresponding
period in 1999. Poker revenues increased $244,000 (43%) in 2000 compared to the
prior year period due to increased hours of operation. Saturday poker
operations were added during the fourth quarter of 1999.
42
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Food and beverage and other revenues at the Aurora Casino increased by
$494,000 (14.8%) and $97,000 (14.8%), respectively, during the first quarter of
2000 compared to the prior year period reflecting the increased patron volume
during 2000.
Promotional allowances represent the estimated value of goods and services
provided free of charge to casino customers under various marketing programs.
These allowances, as a percentage of food and beverage and other revenues at the
Aurora Casino, were 64.2% during the three month period ended March 31, 2000
compared to 60.4% during the like period in 1999. The increase from the prior
year period reflects an increase in promotional activities as part of the Aurora
Casino's marketing efforts.
Departmental Expenses
Casino expenses increased $5.5 million (18.3%) during the first quarter of
2000 compared to the 1999 period. Such increase results primarily from
additional gaming taxes of $3.8 million associated with the increase in casino
revenues as well as to an additional $1.4 million of marketing expenses.
Neither food and beverage nor other expenses changed significantly during
the first quarter of 2000 compared to 1999 despite the volume increases
previously discussed. Higher food and beverage costs attributable to the
increases in patron volume were offset by management's efforts to control
operating costs as well as by increased allocations to the casino department as
part of the Aurora Casino's marketing efforts. Volume and operating cost
increases in other expenses were offset by a $300,000 decrease in costs related
to cruising requirements during 1999 which are no longer necessary as a result
of the commencement of dockside gaming.
Tunica Casino
General
Income from operations at the Tunica Casino amounted to $3.6 million for
the three month period ended March 31, 2000 compared to $3.5 million during the
same period of 1999. In October 1999, the Tunica Casino acquired and terminated
its consulting agreement with PCC. Exclusive of such costs in 1999, income from
operations decreased by $195,000 (5.1%) during the first quarter of 2000
compared to the 1999 first quarter period. The decline is attributable to
increased marketing costs in response to competitive pressures and to a decrease
in the table games hold percentage and is partially offset by an increase in
slot machine revenues resulting from increases in gross wagering.
43
<PAGE>
Gaming Operations
The following table sets forth certain unaudited financial and operating
data relating to the operations of the Tunica facility for the three month
periods ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Casino Revenues:
Table games $ 3,702,000 $ 3,803,000
Slot machines 22,689,000 20,491,000
Poker revenues 242,000 242,000
------------ ------------
Total $ 26,633,000 $ 24,536,000
============ ============
Table games:
Gross wagering (drop) (1) $ 21,526,000 $ 19,127,000
Hold percentage (2) 17.2% 19.9%
Slot machines:
Gross wagering (handle) (1) $432,174,000 $390,615,000
Hold percentage (2) 5.2% 5.2%
</TABLE>
(1)(2) See corresponding notes to the table at "Aurora Casino - Gaming
Operations" above.
Total gross wagering at the Tunica Casino as measured by table game drop
and slot machine handle increased $44 million (10.7%) during the three month
period ended March 31, 2000 compared to the same period of 1999. These
increases consist of improvement in table game drop and slot machine handle of
$2.4 million (12.5%) and $41.6 million (10.6%), respectively. Management
believes the increases are attributable to the implementation during 1999 of a
more aggressive marketing campaign designed to reposition the Tunica Casino
within the Tunica gaming market. Patron volume declined slightly during the
first quarter of 2000 compared to the same period in 1999 while gross wagering
increased, indicating that the Tunica Casino has been successful in attracting
higher value patrons.
Revenues
Casino revenues increased $2.1 million (8.5%) during the three month period
ended March 31, 2000 compared to the 1999 period. Table game revenues decreased
2.7% during the first quarter of 2000 as the increase in table drop was more
than offset by the decline in the table game held percentage to 17.2% in the
2000 first quarter from 19.9% in the comparable 1999 period. Slot machine
revenue increased $2.2 million (10.7%) during the first quarter of 2000 compared
to the 1999 first quarter reflecting the 10.6% increase in drop during the 2000
period. Poker revenues were unchanged during the 2000 period compared to the
prior year.
Rooms revenue did not change significantly during the three month period
ended March 31, 2000 compared to the same period in 1999. Hotel occupancy rates
increased slightly to 83.2% in the first quarter of 2000 compared to 80.8% in
the 1999 first quarter period when renovations to hotel rooms and suites and
44
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
inclement weather negatively impacted occupancy rates. Additional revenues
resulting from the higher occupancy rate were partially offset by a decrease in
the average room rate to $61 per night in the first three months of 2000
compared to $64 per night in the 1999 period. Food and beverage revenues
increased $460,000 (12.7%) during the first quarter of 2000 compared to the same
period in 1999 despite the aforementioned decrease in patron volume. The
increase in food and beverage sales reflects an increase in the use of food and
beverage complimentaries as part of the Tunica Casino's marketing programs and
to an increase in food and beverage prices. Other revenues did not change
significantly during the 2000 period compared to 1999.
Promotional allowances represent the estimated value of goods and services
provided free of charge to casino customers under various marketing programs.
Such allowances, as a percentage of rooms, food and beverage and other revenues,
increased to 72.4% from 71% during the three month period ended March 31, 2000
compared to 1999. The first quarter percentage increase is the result of
increased use of complimentary rooms and food and beverages as part of the
Tunica Casino's marketing programs.
Departmental Expenses
Casino expenses increased $2.8 million (15.7%) during the three month
period ended March 31, 2000 compared to the 1999 period primarily reflecting the
increases in the Tunica Casino's marketing programs. Rooms expense decreased
$99,000 (36.8%) during the first quarter of 2000 compared to the prior year
period reflecting the increased allocation of hotel costs associated with
marketing programs to the casino department. Food and beverage expenses
increased by $221,000 (24.4%) during the first quarter of 2000 compared to the
same period in 1999. Although this increase was on a percentage basis
considerably more than the percentage increase in the associated revenues, gross
profit margins on food and beverage sales remained little changed at 72.5% in
the 2000 first quarter compared to 75.1% in the 1999 period. Other expenses
decreased by $123,000 (45.1%) for the period ended March 31, 2000 compared to
the 1999 period as a result of increased allocations to the casino department.
Other Consolidated Items
- ------------------------
General and Administrative
General and administrative expenses increased by $569,000 (11.6%) during
the first quarter of 2000 compared to the same period in 1999. Such expenses at
the Aurora Casino (net of management fees) increased by 22.8% during the 2000
period primarily as a result of additional overhead costs now charged to the
Aurora Casino which, prior to October 1999, were changed to its management
company, PML. The Tunica Casino experienced an increase in general and
administrative expenses (net of consulting fees) of 2.4% during the 2000 period
compared to the prior year period primarily as a result of increases in
personnel costs. The remaining corporate general and administrative expense
increase of $266,000 (10.6%) during the 2000 period results from increases in
corporate overhead costs, primarily legal fees and personnel costs.
Depreciation and Amortization
Depreciation and amortization expense decreased $497,000 (13.2%) during the
three month period ended March 31, 2000 compared to the 1999 period primarily
due to certain operating equipment at Tunica Casino becoming fully depreciated
during the latter part of 1999.
45
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Development Expenses
Development expenses represent costs incurred in connection with HCC's
pursuit of potential gaming opportunities in jurisdictions where gaming has not
been legalized. The increase in such costs was not significant from a monetary
amount during the three month period ended March 31, 2000 compared to the 1999
period.
Preopening Costs
Preopening costs are the start up costs associated with the development of
the Shreveport Casino which, in accordance with existing accounting
pronouncements, are required to be expensed as incurred. Such costs include,
among other things, organizational costs, marketing and promotional costs,
hiring and training of new employees and other operating costs incurred prior to
the opening of the project. Management expects that these costs will increase
substantially as the opening of the Shreveport Casino approaches.
Interest Income
Interest income increased $2.8 million (782.7%) during the first quarter of
2000 compared to the 1999 period reflecting interest on the unexpended cash
proceeds of HCC's issue of Senior Secured Notes on May 19, 1999 and Hollywood
Casino Shreveport's debt issue on August 10, 1999 (see "Liquidity and Capital
Resources - Financing Activities").
Interest Expense
Interest expense increased by $7.5 million (97.8%) during the first three
months of 2000 compared to the prior year period due primarily to the increase
in HCC's long-term indebtedness from the May 1999 issuance of the Senior Secured
Notes and the August 1999 issuance of $150 million of 13% First Mortgage Notes
with respect to the Shreveport Casino. Although the issuance of the Senior
Secured Notes increased HCC's indebtedness to a face value of $360 million from
a face value of $204.7 million, the initial effective interest rate fell to
11.27% from 13.75%. The interest rate on $50 million of the Senior Secured Notes
is equal to the six-month LIBOR rate plus 6.28% and is reset semiannually. On
May 1, 2000, the interest rate on such notes increased to 12.89% from 12.41%,
effectively increasing the Company's annual interest expense by $239,000. A
portion of the interest on the 13% First Mortgage Notes is being capitalized
during the construction period ($1.4 million during the three month period ended
March 31, 2000).
Income Taxes
Management believes that it is more likely than not that future
consolidated taxable income of HCC (primarily from the Aurora Casino and the
Tunica Casino) will be sufficient to utilize at least a portion of the NOL's,
tax credits and other deferred tax assets resulting from temporary differences.
Current federal income taxes for the three month period ended March 31, 2000
were offset through the use of such NOL's. Accordingly, under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", the consolidated balance sheet reflects a net deferred tax asset of $5.2
million as of March 31, 2000.
Sales by HCC or existing stockholders of common stock, or securities
convertible into common stock, can cause a "change of control", as defined in
Section 382 of the Internal Revenue Code of 1986, as amended, which would limit
the ability of HCC or its subsidiaries to utilize these loss carryforwards in
later
46
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
tax periods. Should such a change of control occur, the amount of loss
carryforwards available for use in any one year would most likely be
substantially reduced. Future treasury regulations, administrative rulings or
court decisions may also effect HCC's future utilization of its loss
carryforwards.
Minority Interest in Earnings of Limited Partnership
The minority interest in the earnings of the limited partnership which held
the management contract for the Aurora Casino decreased by $2 million (100%)
during the 2000 period compared to the 1999 period. As a result of the
acquisition and termination of the management contract, such minority interest
has not been incurred subsequent to October 13, 1999 (see "Liquidity and Capital
Resources - Pratt Casino Corporation Acquisition" below). The acquisition of
the minority interest resulted in a change during the fourth quarter of 1999 of
$37 million.
Year 2000 Compliance
At the beginning of the year 2000, computer programs that had date
sensitive software might have recognized a date using "00" as the year 1900
rather than 2000. Such an error could have resulted in a system failure or
miscalculations which might have caused disruptions of operations including,
among other things, a temporary inability to process transactions or engage in
similar normal business activities.
In preparation for the Year 2000, management conducted a program to prepare
the Company's computer systems and applications as well as its non-information
technology (embedded microchip) systems. The two major information technology
systems identified as not Year 2000-compliant were replaced. The cost of
acquiring, testing and converting HCC's systems was less than $1 million. The
majority of these costs were included in capital expenditures during 1999.
As a result of its planning and implementation efforts, HCC experienced no
significant disruptions to any of its computer systems and non-information
technology systems and management believes that all such systems have
successfully responded to the Year 2000 change. The Company also encountered no
significant Year 2000 problems with its vendors or suppliers. Management is
continuing to monitor the Company's systems and communicate with its suppliers
and vendors to ensure that any latent Year 2000 problems that might arise are
promptly addressed.
Inflation
Management believes that in the near term, modest inflation, together with
increased competition within the gaming industry for qualified and experienced
personnel, will continue to cause increases in operating expenses, particularly
labor and employee benefits costs.
Market Risk
The Company has $50 million of floating rate Senior Secured Notes
outstanding (see "Liquidity and Capital Resources - Financing Activities"
below). Interest on the floating rate notes is at the LIBOR rate plus 6.28% and
is reset semiannually. Accordingly, an increase in the LIBOR rate of 1% would
increase interest expense by $500,000 per year. Management also has a financing
arrangement for the lease of furniture, fixtures and equipment for the
Shreveport Casino. The $30 million financing includes variable interest to be
reset quarterly. Accordingly, an increase in the underlying base rate of 1%
would increase interest expense by $300,000 per annum.
47
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The floating rate loan and the furniture, fixture and equipment financing
were entered into for non-trading purposes as sources of funding for the Company
and management believes that these financings have no other material market
risks other than interest rate risk. Such interest rare risk is beyond
management's control; however, the resulting obligations could be prepaid should
increases in the underlying interest rate result in an excessive financing cost;
however, prepayment of the floating rate notes would require a premium in the
amount of 4% as of May 1, 2000, decreasing by 1% each subsequent May 1.
The 13% First Mortgage Notes issued by the Shreveport Partnership to
finance construction of the Shreveport Casino include interest at the rate of
13% payable semiannually as well as contingent interest once the Shreveport
Casino opens. The contingent interest will be equal to 5% of consolidated cash
flow for the applicable period subject to a maximum contingent interest of $5
million for any four consecutive fiscal quarters. Accordingly, the maximum
potential interest with respect to the 13% First Mortgage Notes for a fiscal
year could be $24.5 million, resulting in an effective annual interest rate of
16.33%. This maximum would assume that the consolidated cash flow of the
Shreveport Casino was at least $100 million. The contingent component of
interest under the 13% First Mortgage Notes was negotiated with the Shreveport
Partnership's lenders as part of determining the fixed rate component of
interest. Management believes that because the contingent interest component is
determined by cash flows and can only be paid if certain coverage ratios are
met, liquidity and capital resources of the Shreveport Partnership will not be
compromised by the payment, if any, of contingent interest.
Changes in the market interest rate would also impact the fair market value
of the Company's outstanding fixed rate debt instruments. Management estimates
that an increase of 1% in the market interest rate would result in a decrease in
the fair market value of HCC's debt securities of approximately $23 million.
Seasonality and Other Fluctuations
Historically, the Aurora Casino's operations have experienced some
seasonality due to severe winter weather. Consequently, the results of HCC's
operations for the first and fourth quarters have traditionally been less
profitable than the other quarters of the fiscal year. Furthermore, management
believes that seasonality may also cause fluctuations in reported results at the
Tunica Casino. In addition, the operations of the Aurora Casino and the Tunica
Casino may fluctuate significantly due to a number of factors, including chance.
Such seasonality and fluctuations may materially affect HCC's casino revenues
and overall profitability.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
The operations of the Aurora Casino and Tunica Casino continue to be HCC's
primary sources of liquidity and capital resources. The Aurora Casino
contributed approximately $21.2 million of cash flow from operations during the
first three months of 2000. The Tunica Casino provided $2.9 million of cash
from operations during the first three months of 2000. HCC's other sources of
funds include interest income earned on temporary investments. In addition to
operating expenses at the Aurora Casino and the Tunica Casino, uses of operating
cash by HCC during the first three months of 2000 included costs to pursue
development opportunities ($230,000), corporate overhead costs ($2.7 million)
and preopening and other costs with respect to the Shreveport Casino ($468,000).
48
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Pratt Casino Corporation Acquisition
In October 1999, HCC acquired all of the capital stock of Pratt Casino
Corporation ("PCC") from Greate Bay Casino Corporation ("GBCC"). PCC owned the
limited partnership interest in Pratt Management, L.P. ("PML"), which held a
management contract for the Aurora Casino, and also held a consulting agreement
with the Tunica Casino.
HCC's acquisition of PCC was part of a pre-negotiated plan of
reorganization approved by the United States Bankruptcy Court for the District
of Delaware in October 1999. When acquired by HCC, PCC's assets consisted of
its management contract for the Aurora Casino and its consulting agreement with
the Tunica Casino and its liabilities consisted of a new $40.3 million
obligation payable in satisfaction of the PRT Funding Corp. notes in default.
The payment of the $40.3 million obligation by HCC in October 1999 resulted in
the termination of the management contract and consulting agreement and was
reflected at that time as a charge to expense by the affected entities.
Financing Activities
During May 1999, HCC issued $310 million of 11.25% Senior Secured Notes due
May 1, 2007 and $50 million of floating rate Senior Secured Notes due May 1,
2006 (collectively, the "Senior Secured Notes"). Interest on the floating rate
notes is equal to the six-month LIBOR rate plus 6.28% (initially 11.36%) and is
reset semiannually. Effective May 1, 2000, the interest rate increased to
12.89% from its previous rate of 12.41% per annum. In addition to refinancing
existing debt, the Company used proceeds from the debt offering to fund a
portion of the Company's equity investment in the Shreveport Casino and, during
October 1999, to acquire the management and consulting contracts on the Aurora
Casino and Tunica Casino. The Company also plans to use proceeds from the debt
offering to finance construction of a new, dockside gaming facility at the
Aurora Casino (see "Liquidity and Capital Resources - Capital Expenditures and
Other Investing Activities"), and, to the extent available, for working capital
purposes. Interest on the Senior Secured Notes is payable semiannually on May 1
and November 1 commencing on November 1, 1999. The Senior Secured Notes are
unconditionally guaranteed on a senior secured basis by HCT and Shreveport
Management and may be guaranteed by certain future subsidiaries of HCC. Neither
HCA nor HCL are guarantors. The Senior Secured Notes and related guarantees are
secured by, among other things, (1) substantially all of the assets of HCT and
future guarantors, (2) a lien not to exceed approximately $108 million on
substantially all of the assets of HCA, (3) a pledge of the capital stock of
certain subsidiaries of HCC and (4) the collateral assignment of the management
contract for the Shreveport Casino. The lien described in (2) above is
currently limited to approximately $66 million.
The fixed rate Senior Secured Notes are redeemable at the option of HCC any
time on or after May 1, 2003 at 107% of the then outstanding principal amount,
decreasing to 104.666%, 102.333% and 100%, respectively, on May 1, 2004, 2005
and 2006. The Company may also redeem up to 35% of the fixed rate Senior
Secured Notes at a redemption price of 111.25% plus accrued interest at any time
prior to May 1, 2002 with the proceeds from an offering of the HCC's common
stock if net proceeds to the Company from any such offering are at least $20
million.
The floating rate Senior Secured Notes may be redeemed at the option of HCC
at any time at an initial redemption price of 105% plus accrued interest with
the redemption premium decreasing by 1% on May 1 of each year beginning May 1,
2000.
49
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The indenture for the Senior Secured Notes contains various provisions
limiting the ability of HCC and certain defined subsidiaries to, among other
things, pay dividends or make other restricted payments; incur additional
indebtedness or issue preferred stock, create liens, create dividend or other
payment restrictions affecting certain defined subsidiaries; enter into mergers
or consolidations or make sales of all or substantially all assets of HCC, HCT,
Shreveport Management or any future guarantor; or enter into certain
transactions with affiliates.
During August 1999, the Shreveport Partnership issued $150 million of 13%
First Mortgage Notes due 2006 with contingent interest, the net proceeds of
which, together with capital contributions from HCL and $30 million of
furniture, fixture and equipment financing, will provide the approximately $230
million of funds necessary to build, equip and open the Shreveport Casino (see
"Liquidity and Capital Resources -Capital Expenditures and Other Investing
Activities"). The Shreveport First Mortgage Notes are non-recourse to HCC.
Fixed interest on the Shreveport First Mortgage Notes is payable semiannually on
each February 1 and August 1 beginning February 1, 2000. In addition,
contingent interest will accrue and be payable on each interest payment date
after the Shreveport Casino begins operations. The amount of the contingent
interest will be equal to 5% of the Shreveport Casino's cash flow, as defined,
for the prior two fiscal quarters up to a maximum of $5 million for any four
consecutive fiscal quarters. The notes are collateralized by a first priority
security interest in substantially all of the Shreveport Partnership's existing
and future assets other than furniture, fixtures and equipment for which up to
$35 million of financing has been or will be obtained as well as by a pledge of
the common stock of the HCC subsidiaries which hold the partnership interests.
The Shreveport First Mortgage Notes are redeemable at the option of the
Shreveport Partnership any time on or after August 1, 2003 at 106.5% of the then
outstanding principal amount, decreasing to 103.25% on August 1, 2004 and 100%
on or after August 1, 2005. Up to 35% of the original aggregate amount of the
Shreveport First Mortgage Notes may also be redeemed at any time or prior to
August 1, 2002 with proceeds of contributions to the Shreveport Partnership made
by HCC from certain offerings of equity securities by HCC.
The indenture for the Shreveport First Mortgage Notes contains various
provisions limiting the ability the Shreveport Partnership to borrow money, pay
distributions on its equity interests or prepay debt, make investments, create
liens, sell its assets or enter into mergers or consolidations. The indenture
also limits the ability of certain HCC subsidiaries which guarantee the debt to
acquire additional assets, become liable for additional obligations or engage in
any business activities other than holding the partnership interests or acting
as managing general partner of the Shreveport Partnership.
The Shreveport Partnership has entered into a lease agreement with a third
party lessor for up to $30 million to be used to acquire furniture, fixtures and
equipment for the Shreveport Casino. Advances under the lease agreement must
be in amounts of at least $1 million and will accrue interest at the rate of
LIBOR plus 4%. No more than two advances may be requested monthly and no more
than ten advances may be requested during the construction period. During the
construction period, the Shreveport Partnership will only pay interest on
outstanding borrowings as well as a fee of .5% per annum on the undrawn portion
of the $30 million. When the Shreveport Casino opens, the total outstanding
borrowings will become payable quarterly including interest over a three year
period to fully amortize the loan. The lease will be treated as a capital lease
for financial reporting purposes. Borrowings under the financing arrangement
will be collateralized by the furniture, fixtures and equipment purchased. The
lease agreement contains certain covenants substantially similar to those
included in the indenture for the Shreveport First Mortgage Notes. As of
March 31, 2000, no borrowings were outstanding under the lease agreement.
50
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During September 1998, HCA entered into a bank loan agreement to borrow up
to $2 million on an unsecured basis. Borrowings under the agreement are payable
in 36 monthly installments including interest at the rate of 7.5% per annum.
HCA borrowed $2 million under the agreement during October 1998. During May
1999, HCA borrowed an additional $750,000 from the bank on an unsecured basis to
be repaid over 60 months. Interest on such loan is at 7.5% per annum.
HCT had a $1.3 million bank credit facility available to borrow against
through September 30, 1998. Outstanding borrowings on the line of credit
($278,000 at December 31, 1999) are being repaid in monthly installments over 36
months and accrue interest at the rate of 8.875% per annum.
Prior to October 14, 1999, HCC was the general partner in the limited
partnership which held the Aurora management agreement, having acquired such
interest in April 1997. HCC's original acquisition price for the general
partnership interest included a note in the amount of $3.8 million and the
assignment of $13.8 million undiscounted principal amount of PPI Funding Notes
and $350,000 accrued interest due from GBCC to PPI Corporation. Annual
principal and interest payments by HCC on the $3.8 million note approximated the
general partner's share of partnership distributions which were made to HCC
prior to the liquidation of the general partnership in October 1999. Effective
November 1, 1999, HCC began making monthly payments of principal and interest
totaling $83,000 which, together with additional quarterly principal payments of
$21,000 beginning in January 2000, approximate HCC's payment obligations while
the management contract was in effect.
During March 2000, HCC and PPI Corporation entered into an agreement to
defer the March and April payments of principal and interest on the note
described in the previous paragraph until May while negotiations continue to
enable PPI Corporation to restructure the obligation. The deferral of payments
was extended for one additional month in May 2000. These deferrals do not
extend the maturities or represent a forgiveness of either principal or interest
as all past due amounts, if not otherwise restructured, will become due and
payable on the extended payment date of June 1, 2000.
As of March 31, 2000, HCC's scheduled maturities of long-term debt and
payments under capital leases during the remainder of 2000 are approximately
$2.8 million and $2 million, respectively.
Capital Expenditures and Other Investing Activities
Aurora Casino -
Capital expenditures at the Aurora Casino during the first quarter of 2000
were $494,000; management anticipates spending $3.6 million during the remainder
of 2000 toward its ongoing capital improvements program. Significant projects
planned for 2000 include new slot machines, renovations to restaurants and other
departmental expenditures. In addition, the Company is currently finalizing
plans to replace the Aurora Casino's two riverboats with a newly constructed,
permanently moored dockside casino. As currently planned, the new facility will
significantly increase passenger capacity and provide a premier gaming and
entertainment facility for the Aurora Casino's patrons. The new facility is
projected to cost approximately $60-65 million and will require a construction
period of 14 months. The Company received the required regulatory approvals for
its planned dockside casino in April 2000 and construction is expected to begin
as soon as possible following the resolution of certain litigation as described
below. Upon the resolution of this litigation, the Aurora Casino will amortize
the remaining net book value of its existing riverboats (approximately $30.3
million at March 31, 2000) over the estimated 14-month construction period prior
to the boats being removed from service. As a result, depreciation expense
during 2000 could be significantly greater than during 1999. Approximately $40
million of the estimated $60-65 million in project
51
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
costs for the proposed dockside facility were obtained from HCC's debt offering
completed in May 1999 with the remainder to come from operating cash flow.
The Company intends to build its new dockside casino in two halves, which
would be connected to form a single dockside casino. The Company is considering
proceeding with the construction of the first half of the dockside casino prior
to the final resolution of the litigation described below. If the Company
proceeds with this approach, it would attempt to place all of its gaming
positions on the first half of the dockside casino and would not develop the
second half of the facility until the litigation is resolved.
A complaint was filed in late 1999 in an Illinois state court concerning
the constitutionality of a portion of the legislation that enabled dockside
gaming in Illinois. Although the constitutional challenge centers on the
relocation of one of the existing gaming licenses, a finding that such portion
of the legislation is unconstitutional could result in a finding that all or a
portion of the legislation, including dockside gaming, is invalid. Pending the
resolution of this litigation, the Company's planned dockside expansion of the
Aurora Casino has been delayed. If the state court rules that all or a portion
of the legislation is invalid, management believes that it may be able to
continue to operate its existing riverboats on a dockside basis pending a final
resolution of the litigation. If the provisions in question are found to be
unconstitutional after all appeals, and the entire legislation is invalidated
and it appears that the Illinois legislature will not pass new legislation
enabling dockside gaming, then the Company will likely modify its expansion
plans for the Aurora Casino. Under this scenario, the Company would proceed with
the development of a new, larger riverboat to replace the smaller of its two
existing riverboats.
Pending resolution of the litigation and without regard to its decision of
whether to build the first half of the dockside casino, management has started
construction of a barge to connect its two existing riverboats. The project is
expected to cost approximately $3.5 million to complete, including approximately
$1.3 million in docking facilities that can be used by the new dockside barge
casino should it be built. The new barge is expected to open in mid-July of
2000. The barge will allow patrons to move freely between the two existing
boats and will enable management to reconfigure its casino space for increased
patron comfort. Management believes that the reconfigured facility will
significantly enhance its current operations until the Company is able to
replace its existing riverboats with the new dockside facility.
Tunica Casino -
Capital expenditures at the Tunica Casino during the first quarter of 2000
amounted to $769,000; management anticipates spending $3.2 million during the
remainder of 2000. Projects planned for 2000 include updating slot machines,
upgrades to marketing systems, renovations to hotel suites and other
departmental expenditures.
HCT entered into an agreement with two other casino operators during 1996
providing for the joint construction and ownership of a golf course.
Contributions by HCT to the limited liability corporation formed to develop and
operate the golf course, which opened in November 1998, have totaled
approximately $2.1 million.
Shreveport Casino -
In September 1998, the Shreveport Partnership received approval to develop,
own and operate a Hollywood-themed hotel and casino complex on the Red River in
Shreveport, Louisiana. HCL originally planned to develop the Shreveport Casino
with two partners in a joint venture in which HCL would have had an interest of
approximately 50%. On March 31, 1999, HCL entered into a definitive agreement
with one
52
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
of the joint venture partners to acquire its interest in the Shreveport
Partnership for $2.5 million (the amount the joint venture partner contributed
to the project), $1,000 of which was paid at closing with the remainder to be
paid six months after the opening of the Shreveport Casino. The revised
structure of the joint venture received approval by the Louisiana Gaming Control
Board on April 20, 1999. Consequently, effective as of April 23, 1999, HCL has
an effective 100% ownership interest in the Shreveport Casino with the remaining
joint venture partner holding a 10% residual interest in the event the project
is sold.
The total estimated cost of the Shreveport Casino is approximately $230
million, of which approximately $69.9 million has been spent as of March 31,
2000. HCL has contributed approximately $49 million as an equity investment in
the project with the other joint venture partner having contributed $1 million
to the project with the proceeds of a loan from HCL. The loan accrues interest
at the rate of prime commencing with the opening of the Shreveport Casino and
will be payable monthly. Principle on the loan is payable on the tenth
anniversary of the opening of the Shreveport Casino. The joint venture partner
was also given credit for an additional $1 million capital contribution upon the
closing of the Shreveport First Mortgage Notes and payment of the $5 million
obligation discussed below. The credit was in recognition of guarantees
provided by an affiliate of the partner which were necessary for the Shreveport
Partnership to obtain approval of its license. The $2 million equity interest
of the partner is reflected as minority interest on the consolidated financial
statements of HCC.
In addition to the capital contributions, funding for the remaining
construction and preopening costs has been provided by the Shreveport First
Mortgage Notes which are non-recourse to HCC (see "Liquidity and Capital
Resources - Financing Activities") and by $30 million of furniture, fixture and
equipment financing. In addition, HCC has agreed to contribute up to an
additional $5 million in equity to the Shreveport Casino under certain
circumstances which include cost overruns or delays. Construction of the
Shreveport Casino began in August 1999 with a planned opening date in early
November 2000.
On April 23, 2000, the construction site for the Shreveport Casino suffered
tornado damage. While the project sustained no structural damage, the interior
and exterior finish on several floors of the hotel was damaged. Management
believes that the Company's insurance policies will cover these losses; however,
repair or replacement could take several weeks and could delay the planned
opening date in early November 2000. In order to mitigate all or part of the
delay, management intends to utilize provisions in its insurance coverage,
including the use of overtime and additional workers, to attempt to keep the
project on schedule. This strategy may require scheduling overtime for existing
workers and/or hiring additional construction workers, which are currently in
short supply. In addition, it will be necessary to purchase additional
construction materials on an expedited basis. If the opening of the Shreveport
Casino is delayed due to the tornado damage, the Company will seek to recover
lost profits under its business interruption insurance coverage. Although the
Company remains in the initial stage of assessing the impact of the tornado,
based on management's assessment of the condition of the site, the progress of
construction since the date of the tornado and discussions with its insurance
carriers, management believes that the damage from the tornado will not be
material.
In September 1998, HCL and its partners acquired their interests in the
Shreveport Partnership from its former partners who, prior to October 1997,
conducted riverboat gaming operations in New Orleans. In connection with their
proposed change in site to Shreveport, the former partners negotiated a
settlement with the City of New Orleans to pay $10 million with respect to
claims asserted by the City in connection with the relocation. During September
1998, the current partners and the former partners of the Shreveport Partnership
entered into a Compromise Agreement with the City of New Orleans under which it
was agreed that one of the former partners would pay $5 million to the City with
the former partners being released from any further relocation claims. The
current partners agreed that the Shreveport Casino would pay the City of New
Orleans $5 million upon securing financing for construction of their project
(the Shreveport Casino);
53
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
such payment was made in August 1999. In addition, the current partners agreed
that the Shreveport Casino would reimburse the former partner $2 million of the
amount it paid to the City; such repayment is to be made upon the earlier of the
termination of construction of the Shreveport Casino or in monthly installments
of $200,000 commencing with the opening of the Shreveport Casino.
Other -
HCC continues to pursue several additional potential gaming opportunities.
HCC intends to finance any future ventures with cash flow from operations,
together with third party financing, including non-recourse project financing.
Conclusion
Management anticipates that HCC's funding requirements for its operating
activities will continue to be satisfied by existing cash and cash generated by
the Aurora Casino and Tunica Casino. Unexpended proceeds from the Senior
Secured Notes are expected to be used for the planned expansion of the Aurora
Casino. Construction financing for the planned Shreveport Casino has been
provided from the August 1999 issuance of the Shreveport First Mortgage Notes,
together with capital contributions and equipment financing. In the absence of
construction overruns, management believes that, once the Shreveport Casino
opens, cash flow from operations will be sufficient to meet its liquidity and
capital resource needs for the next 24 months.
54
<PAGE>
PART II: OTHER INFORMATION
- ---------------------------
Item 6.(a) Exhibits
10.1 Seventh Amendment to Employment Agreement dated as of January 1, 2000
between Jack E. Pratt and Hollywood Casino Corporation.
10.2 Seventh Amendment to Employment Agreement dated as of January 1, 2000
between Edward T. Pratt, Jr. and Hollywood Casino Corporation.
10.3 Seventh Amendment to Employment Agreement dated as of January 1, 2000
between William D. Pratt and Hollywood Casino Corporation.
10.4 Form of Participation Agreement and related agreements among Hollywood
Casino Shreveport, First Security Bank, National Association, the several
lenders party thereto, First Security Trust Company of Nevada, as
Administrative Agent, and Bank of America, National Association, as
Arranger and Documentation Agent (Exhibit 10.27).*
__________________
* Incorporated by reference from the exhibit shown in parenthesis included in
Form S-4 Registration Statement, Amendment No. 4, of Hollywood Casino
Shreveport and Shreveport Capital Corporation as filed with the SEC on
April 18, 2000.
Item 6.(b) - Reports on Form 8-K
The Registrants did not file any reports on Form 8-K during the quarter
ended March 31, 2000. The Registrants filed their Annual Report on Form 10-K
for the year ended December 31, 1999 with the Securities and Exchange Commission
on March 30, 2000.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, each of
the Registrants has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOLLYWOOD CASINO CORPORATION
Date: May 12, 2000 By: /s/ Paul C. Yates
----------------------- ---------------------------------------
Paul C. Yates
Executive Vice President and
Chief Financial Officer
HWCC - TUNICA, INC.
Date: May 12, 2000 By: /s/ Paul C. Yates
----------------------- ---------------------------------------
Paul C. Yates
Executive Vice President and
Chief Financial Officer
55
<PAGE>
Exhibit 10.1
SEVENTH AMENDMENT TO EMPLOYMENT AGREEMENT
-----------------------------------------
THIS SEVENTH AMENDMENT TO EMPLOYMENT AGREEMENT (the "Seventh Amendment") is
made and entered into to be effective as of the 1st day of January, 2000,
between HOLLYWOOD CASINO CORPORATION, a Delaware corporation (the "Employer"),
and JACK E. PRATT (the "Employee") with reference to the foregoing.
RECITALS
--------
A. Pratt Hotel Corporation (nka Greate Bay Casino Corporation), a
Delaware corporation ("PHC") which was a direct approximately 80% owned
subsidiary of Employer prior to December 31, 1996, and Employee entered into
that certain Employment Agreement dated as of September 21, 1989;
B. PHC and Employee subsequently entered into that certain First
Amendment to Employment Agreement dated as of January 1, 1991;
C. PHC and Employee subsequently entered into that certain Second
Amendment to Employment Agreement dated as of September 30, 1992;
D. PHC and Employee subsequently entered into that certain Third
Amendment to Employment Agreement dated as of January 1, 1994;
E. PHC assigned to Employer the right, title and interest of PHC in, to
and under, and Employer assumed the obligations of PHC under, the Employment
Agreement, as amended by the First Amendment to Employment Agreement, the Second
Amendment to Employment Agreement and the Third Amendment to Employment
Agreement, pursuant to that certain Assignment of Pratt Brother Employment
Contracts and Assumption Agreement dated as of October 16, 1995;
F. Employer and Employee subsequently entered into that certain Fourth
Amendment to Employment Agreement dated as of January 1, 1996;
G. Employer and Employee subsequently entered into that certain
Fifth Amendment to Employment Agreement dated as of January 1, 1997;
H. Employer and Employee subsequently entered into that certain Sixth
Amendment to Employment Agreement dated as of January 1, 1998;
I. The Employment Agreement, as amended by the First Amendment to
Employment Agreement, the Second Amendment to Employment Agreement, the Third
Amendment to Employment Agreement, the Fourth Amendment to Employment Agreement,
the Fifth Amendment
<PAGE>
to Employment Agreement and the Sixth Amendment to Employment Agreement, are
hereinafter collectively called the "Existing Employment Agreement"; and
J. Employer and Employee now desire to further amend the Existing
Employment Agreement as provided below.
AGREEMENTS
----------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Paragraph 2 of the Existing Employment Agreement is hereby amended in its
entirety to read as follows:
"2. Term of Employment. The term of employment of the Executive under
------------------
this Agreement shall expire on December 31, 2003; subject, however, to the
provisions of Section 5 of this Agreement."
2. This Seventh Amendment may be executed in multiple counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
3. If any provision of this Seventh Amendment or the application hereof to any
person or circumstances shall to any extent be held void, unenforceable or
invalid, then the remainder of this Seventh Amendment or the application of such
provision to persons or circumstances other than those as to which it is held
void, unenforceable or invalid shall not be affected thereby, and each provision
of this Seventh Amendment shall be valid and enforced to the fullest extent
permitted by law.
4. THIS SEVENTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
ANY OF SUCH STATE'S DOCTRINES REGARD CONFLICTS OF LAWS.
5. Except as amended hereby, the Existing Employment Agreement shall continue
in full force and effect without any further action by the parties thereto. On
or after the effective date of this Seventh Amendment, references to the
"Employment Agreement" in the Existing Employment Agreement, as amended hereby,
shall be deemed to mean, for purposes of determining the rights, remedies,
obligations and liabilities of the parties thereto and all other purposes, the
Existing Employment Agreement, as amended by this Seventh Amendment.
* * *
-2-
<PAGE>
IN WITNESS WHEREOF, the parties to this Seventh Amendment have executed
such Seventh Amendment effective as of the date first set forth above.
/s/ Jack E. Pratt
-------------------------------------
Jack E. Pratt
HOLLYWOOD CASINO CORPORATION
By: /s/ Charles F. LaFrano III
---------------------------------
Name: Charles F. LaFrano III
Title: Vice President of Finance
-3-
<PAGE>
Exhibit 10.2
SEVENTH AMENDMENT TO EMPLOYMENT AGREEMENT
-----------------------------------------
THIS SEVENTH AMENDMENT TO EMPLOYMENT AGREEMENT (the "Seventh Amendment") is
made and entered into to be effective as of the 1st day of January, 2000,
between HOLLYWOOD CASINO CORPORATION, a Delaware corporation (the "Employer"),
and EDWARD T. PRATT, JR. (the "Employee") with reference to the foregoing.
RECITALS
--------
A. Pratt Hotel Corporation (nka Greate Bay Casino Corporation), a
Delaware corporation ("PHC") which was a direct approximately 80% owned
subsidiary of Employer prior to December 31, 1996, and Employee entered into
that certain Employment Agreement dated as of September 21, 1989;
B. PHC and Employee subsequently entered into that certain First
Amendment to Employment Agreement dated as of January 1, 1991;
C. PHC and Employee subsequently entered into that certain Second
Amendment to Employment Agreement dated as of September 30, 1992;
D. PHC and Employee subsequently entered into that certain Third
Amendment to Employment Agreement dated as of February 23, 1995;
E. PHC assigned to Employer the right, title and interest of PHC in, to
and under, and Employer assumed the obligations of PHC under, the Employment
Agreement, as amended by the First Amendment to Employment Agreement, the Second
Amendment to Employment Agreement and the Third Amendment to Employment
Agreement, pursuant to that certain Assignment of Pratt Brother Employment
Contracts and Assumption Agreement dated as of October 16, 1995;
F. Employer and Employee subsequently entered into that certain Fourth
Amendment to Employment Agreement dated as of January 1, 1996;
G. Employer and Employee subsequently entered into that certain Fifth
Amendment to Employment Agreement dated as of January 1, 1997;.
H. Employer and Employee subsequently entered into that certain Sixth
Amendment to Employment Agreement dated as of January 1, 1998;
I. The Employment Agreement, as amended by the First Amendment to
Employment Agreement, the Second Amendment to Employment Agreement, the Third
Amendment to Employment Agreement, the Fourth Amendment to Employment Agreement,
the Fifth Amendment to Employment Agreement and the Sixth Amendment to
Employment Agreement, are hereinafter collectively called the "Existing
Employment Agreement"; and
<PAGE>
J. Employer and Employee now desire to further amend the Existing
Employment Agreement as provided below.
AGREEMENTS
----------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Paragraph 2 of the Existing Employment Agreement is hereby amended in its
entirety to read as follows:
"2. Term of Employment. The term of employment of the Executive under
------------------
this Agreement shall expire on December 31, 2002; subject, however, to the
provisions of Section 5 of this Agreement."
2. Paragraph 1(a) of the Existing Employment Agreement is hereby amended in
its entirety to read as follows:
"1. Employment.
----------
(a) The Corporation shall employ the Executive and the Executive
shall serve as Vice Chairman during the term of employment set forth in
Section 2 of this Agreement. The Executive shall report to the Board of
Directors of the Corporation and diligently perform any and all duties
delegated to him by the Board. The Executive agrees, subject to his
election as such, to serve as a Director of the Corporation, and on any
committee thereof to which he is appointed during his term of employment.
The Executive shall continue to keep actively abreast of developments at
the Corporation by, among other things, participating in weekly management
meetings in person or by telephone and/or speaking periodically (including
telephonically) with members of the senior management team of the
Corporation. In order for the Executive to continue to keep abreast of such
developments of the Corporation, all relevant correspondence and documents
(both internal and external) will be provided to the Executive on a timely
basis. In addition, notice of the time and place of any and all management
meetings will be given to the Executive. In the event that circumstances
do not permit the Executive to participate in a management meeting in
person or by telephone, then, in such event, the Executive will notify the
Corporation of such inability to participate and will be provided a copy of
the minutes of such meeting."
3. Paragraph 5 of the Existing Employment Agreement is hereby amended in its
entirety to read as follows:
-2-
<PAGE>
"5. Termination of Employment and Post-Employment Service as a Consultant.
---------------------------------------------------------------------
(a) Immediately upon the expiration of the Term of Employment
described in Section 2 hereof, or, if later, upon the expiration of any
extension of such Term of Employment, the Corporation shall engage the
Executive, and the Executive hereby agrees to serve, as a consultant for a
period of four (4) years, at an annual compensation to be determined by
negotiation between the parties; provided, however, that the annual rate of
such compensation shall be not less than seventy-five percent (75%) of the
Executive's Highest Annual Salary set forth in Section 3 of this Agreement,
and shall be payable in equal installments not less frequently than
quarterly.
(b) If, for any reason other than the Executive's death or the
Executive's disability or the occurrence of the event described in
paragraph (d) of this Section, the Executive's employment shall terminate
or be terminated before the Term of Employment described in Section 2
hereof has expired, the Executive shall be entitled to receive, and the
Corporation shall pay to the Executive:
(1) his Highest Annual Salary as described in Section 3 of this
Agreement, for each year or fraction thereof of the remainder of the
initial Term of Employment, or any extension thereof then in force (as
described in Section 2 of this Agreement); and
(2) his full compensation for the consulting period described in
paragraph (a) of this Section, paid as a single-sum settlement by
computing the then present value of the projected income stream for
the consulting period at nine percent (9%) per annum, applying no
mortality or morbidity factors.
(c) Upon any failure by the Executive to comply with Paragraph 1(a)
of this Agreement, the Chairman of the Board of the Corporation will
recommend to the Board of Directors of the Corporation that the Executive's
employment shall terminate and, in lieu thereof, the Executive shall serve
the Corporation as a consultant upon the terms and provisions set forth in
the succeeding sentence. If a majority of the Board of Directors of the
Corporation approves such recommendation, the Executive's employment shall
terminate and, in lieu thereof, the Corporation shall engage the Executive,
and the Executive hereby agrees to serve, as a consultant to the
Corporation for a period of four (4) years commencing on the date of such
termination and engagement, at an annual compensation to be determined by
negotiation between the parties; provided, however, that the annual rate of
such compensation shall be not less than seventy-five percent (75%) of the
Executive's Highest Annual Salary set forth in Section 3 of this Agreement
(which compensation shall be payable in equal installments not less
frequently than quarterly).
(d) If, for any reason other than the Executive's death or the
Executive's disability, the Executive's engagement as a consultant is
terminated after it has commenced but before the entirety of the
contractual period thereof has been completed, the Corporation shall pay
-3-
<PAGE>
to the Executive a single-sum amount equal to his full compensation for the
remainder of the consulting period described in paragraph (a) or (c) of
this Section, reduced, however, to the present value of the income stream
represented thereby, calculated by applying to such future income stream an
assumed interest rate of nine percent (9%), with no mortality or morbidity
factors applied.
The Executive shall have the option at any time to treat his
employment as having been constructively terminated if (1) he is relieved
of any material duties or authority other than at his own written request,
(2) the physical conditions of his place of employment are materially
changed to diminish his apparent authority, or (3) he is denied staff
support that is adequate, in his judgment, to permit the efficient and
thorough discharge of his responsibilities."
4. The last sentence of Paragraph 6 of the Existing Employment Agreement is
hereby amended in its entirety to read as follows:
"The pension benefit described herein shall commence as of the first day of
the calendar month next following the expiration of all of the following:
(i) the Term of Employment described in Section 2 of this Agreement, (ii)
any extension of the said Term of Employment, and (iii) the 4-year
contingency period described in paragraph (a) or (c), as applicable, of
Section 5 of this Agreement."
5. This Seventh Amendment may be executed in multiple counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
6. If any provision of this Seventh Amendment or the application hereof to any
person or circumstances shall to any extent be held void, unenforceable or
invalid, then the remainder of this Seventh Amendment or the application of such
provision to persons or circumstances other than those as to which it is held
void, unenforceable or invalid shall not be affected thereby, and each provision
of this Seventh Amendment shall be valid and enforced to the fullest extent
permitted by law.
7. THIS SEVENTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
ANY OF SUCH STATE'S DOCTRINES REGARD CONFLICTS OF LAWS.
8. Except as amended hereby, the Existing Employment Agreement shall continue
in full force and effect without any further action by the parties thereto. On
or after the effective date of this Seventh Amendment, references to the
"Employment Agreement" in the Existing Employment Agreement, as amended hereby,
shall be deemed to mean, for purposes of determining the rights, remedies,
obligations and liabilities of the parties thereto and all other purposes, the
Existing Employment Agreement, as amended by this Seventh Amendment.
-4-
<PAGE>
* * *
IN WITNESS WHEREOF, the parties to this Seventh Amendment have executed
such Seventh Amendment effective as of the date first set forth above.
/s/ Edward T. Pratt, Jr.
--------------------------------------------
Edward T. Pratt, Jr.
HOLLYWOOD CASINO CORPORATION
By: /s/ Charles F. laFrano III
-----------------------------------------
Name: Charles F. LaFrano III
Title: Vice President of Finance
-5-
<PAGE>
Exhibit 10.3
SEVENTH AMENDMENT TO EMPLOYMENT AGREEMENT
-----------------------------------------
THIS SEVENTH AMENDMENT TO EMPLOYMENT AGREEMENT (the "Seventh Amendment") is
made and entered into to be effective as of the 1st day of January, 2000,
between HOLLYWOOD CASINO CORPORATION, a Delaware corporation (the "Employer"),
and WILLIAM D. PRATT (the "Employee") with reference to the foregoing.
RECITALS
--------
A. Pratt Hotel Corporation (nka Greate Bay Casino Corporation), a
Delaware corporation ("PHC") which was a direct approximately 80% owned
subsidiary of Employer prior to December 31, 1996, and Employee entered into
that certain Employment Agreement dated as of September 21, 1989;
B. PHC and Employee subsequently entered into that certain First
Amendment to Employment Agreement dated as of January 1, 1991;
C. PHC and Employee subsequently entered into that certain Second
Amendment to Employment Agreement dated as of September 30, 1992;
D. PHC and Employee subsequently entered into that certain Third
Amendment to Employment Agreement dated as of February 23, 1995;
E. PHC assigned to Employer the right, title and interest of PHC in, to
and under, and Employer assumed the obligations of PHC under, the Employment
Agreement, as amended by the First Amendment to Employment Agreement, the Second
Amendment to Employment Agreement and the Third Amendment to Employment
Agreement, pursuant to that certain Assignment of Pratt Brother Employment
Contracts and Assumption Agreement dated as of October 16, 1995;
F. Employer and Employee subsequently entered into that certain Fourth
Amendment to Employment Agreement dated as of January 1, 1996;
G. Employer and Employee subsequently entered into that certain
Fifth Amendment to Employment Agreement dated as of January 1, 1997;
H. Employer and Employee subsequently entered into that certain Sixth
Amendment to Employment Agreement dated as of January 1, 1998;
I. The Employment Agreement, as amended by the First Amendment to
Employment Agreement, the Second Amendment to Employment Agreement, the Third
Amendment to Employment Agreement, the Fourth Amendment to Employment Agreement,
the Fifth Amendment
<PAGE>
to Employment Agreement and the Sixth Amendment to
Employment Agreement, are hereinafter collectively called the "Existing
Employment Agreement"; and
J. Employer and Employee now desire to further amend the Existing
Employment Agreement as provided below.
AGREEMENTS
----------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Paragraph 2 of the Existing Employment Agreement is hereby amended in its
entirety to read as follows:
"2. Term of Employment. The term of employment of the Executive under
------------------
this Agreement shall expire on December 31, 2002; subject, however, to the
provisions of Section 5 of this Agreement."
2. This Seventh Amendment may be executed in multiple counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
3. If any provision of this Seventh Amendment or the application hereof to any
person or circumstances shall to any extent be held void, unenforceable or
invalid, then the remainder of this Seventh Amendment or the application of such
provision to persons or circumstances other than those as to which it is held
void, unenforceable or invalid shall not be affected thereby, and each provision
of this Seventh Amendment shall be valid and enforced to the fullest extent
permitted by law.
4. THIS SEVENTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
ANY OF SUCH STATE'S DOCTRINES REGARD CONFLICTS OF LAWS.
5. Except as amended hereby, the Existing Employment Agreement shall continue
in full force and effect without any further action by the parties thereto. On
or after the effective date of this Seventh Amendment, references to the
"Employment Agreement" in the Existing Employment Agreement, as amended hereby,
shall be deemed to mean, for purposes of determining the rights, remedies,
obligations and liabilities of the parties thereto and all other purposes, the
Existing Employment Agreement, as amended by this Seventh Amendment.
* * *
-2-
<PAGE>
IN WITNESS WHEREOF, the parties to this Seventh Amendment have executed
such Seventh Amendment effective as of the date first set forth above.
/s/ William D. Pratt
------------------------------------------
William D. Pratt
HOLLYWOOD CASINO CORPORATION
By: /s/ Charles F. LaFrano III
-------------------------------------
Name: Charles F. LaFrano III
Title: Vice President of Finance
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HOLLYWOOD CASINO CORPORATION AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000888245
<NAME> HOLLYWOOD CASINO CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 118,463 53,481
<SECURITIES> 0 0
<RECEIVABLES> 6,448 4,317
<ALLOWANCES> 2,058 1,552
<INVENTORY> 1,595 1,149
<CURRENT-ASSETS> 137,716 69,913
<PP&E> 330,554 252,106
<DEPRECIATION> 96,174 84,292
<TOTAL-ASSETS> 542,361 278,390
<CURRENT-LIABILITIES> 73,586 43,727
<BONDS> 532,467 218,938
0 0
0 0
<COMMON> 2 2
<OTHER-SE> (71,343) 7,840
<TOTAL-LIABILITY-AND-EQUITY> 542,361 278,390
<SALES> 0 0
<TOTAL-REVENUES> 84,015 69,773
<CGS> 0 0
<TOTAL-COSTS> 59,083 50,961
<OTHER-EXPENSES> 9,347 10,888
<LOSS-PROVISION> 292 124
<INTEREST-EXPENSE> 11,911 7,265
<INCOME-PRETAX> 3,382 535
<INCOME-TAX> 570 205
<INCOME-CONTINUING> 2,812 330
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,812 330
<EPS-BASIC> 0.11 0.01
<EPS-DILUTED> 0.11 0.01
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HWCC-TUNICA, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000927801
<NAME> HWCC-TUNICA, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 12,131 12,475
<SECURITIES> 0 0
<RECEIVABLES> 4,223 2,598
<ALLOWANCES> 1,148 824
<INVENTORY> 764 617
<CURRENT-ASSETS> 19,126 18,236
<PP&E> 128,950 125,992
<DEPRECIATION> 45,999 40,759
<TOTAL-ASSETS> 113,679 115,554
<CURRENT-LIABILITIES> 11,585 11,271
<BONDS> 88,357 86,104
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 13,737 18,179
<TOTAL-LIABILITY-AND-EQUITY> 113,679 115,554
<SALES> 0 0
<TOTAL-REVENUES> 28,541 26,375
<CGS> 0 0
<TOTAL-COSTS> 22,037 19,382
<OTHER-EXPENSES> 2,683 3,447
<LOSS-PROVISION> 217 49
<INTEREST-EXPENSE> 2,477 2,605
<INCOME-PRETAX> 1,127 892
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 1,127 892
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,127 892
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
