<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
(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, 1996
-----------------------------------------------
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 33-69768
---------------------
PRT FUNDING CORP.
PRATT CASINO CORPORATION
- - --------------------------------------------------------------------------------
(Exact name of each Registrant as specified in its charter)
DELAWARE 75-2502289
DELAWARE 75-2502292
- - --------------------------------- ----------------------------
(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): (214) 386-9777
--------------------------
(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 the
Registrants were 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.
OUTSTANDING AT
REGISTRANT CLASS MAY 13, 1996
- - ------------------------ ----------------------------- --------------
PRT Funding Corp. Common Stock, $1.00 par value 1,000 shares
Pratt Casino Corporation Common Stock, $1.00 par value 1,000 shares
Each of the Registrants meet the conditions set forth in General
Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form
with the reduced disclosure format.
1
<PAGE>
PRT FUNDING CORP.
PRATT CASINO CORPORATION
PART 1: FINANCIAL INFORMATION
- - -----------------------------
INTRODUCTORY NOTES TO FINANCIAL STATEMENTS
- - ------------------------------------------
The registered securities consist of 11 5/8% Senior Notes (the "PRT
Funding Notes") in the principal amount of $85,000,000 due April 15, 2004 issued
by PRT Funding Corp. ("PRT Funding") and listed on the American Stock Exchange.
PRT Funding is wholly owned by Pratt Casino Corporation ("PCC"), a Delaware
corporation and an indirect wholly owned subsidiary of Pratt Hotel Corporation
("PHC"), also a Delaware corporation. PHC is an American Stock Exchange listed
company subject to the reporting requirements of the Securities Act of 1934.
PRT Funding's obligations are unconditionally guaranteed as to the timely
payment of principal, premium, if any, and interest by PCC. PRT Funding and PCC
have principal executive offices at Two Galleria Tower, Suite 2200, 13455 Noel
Road, LB48, Dallas, Texas 75240.
PRT Funding was organized during September 1993 as a special purpose
subsidiary of PCC for the purpose of borrowing funds through the issuance of the
PRT Funding Notes for the benefit of PCC and certain of its subsidiaries.
Greate Bay Hotel and Casino, Inc. ("GBHC"), a wholly owned subsidiary of
PCC, owns the Sands Hotel and Casino located in Atlantic City, New Jersey (the
"Sands"). Historically, the Sands' gaming operations have been highly seasonal
in nature, with the peak activity occurring from May to September. Consequently,
the results of operations for the three month period ended March 31, 1996 are
not necessarily indicative of the operating results to be reported for the full
year. The Sands is managed by New Jersey Management, Inc. ("NJMI"), which is
also a subsidiary of PCC. The principal executive offices of GBHC are located at
the Sands Administrative and Employee Services Complex, 136 South Kentucky
Avenue, Atlantic City, New Jersey 08401, telephone (609) 441-4000.
PCC is also the sole limited partner of Pratt Management, L.P. ("PML"), a
limited partnership which, since February 17, 1994, manages a riverboat gaming
facility located in Aurora, Illinois (the "Aurora Casino") owned by Hollywood
Casino Corporation ("HCC"), PHC's parent. PCC also receives, pursuant to a ten-
year consulting agreement, a monthly consulting fee of $100,000 from a
subsidiary of HCC which in August 1994 opened a gaming and lodging facility in
Tunica County, Mississippi (the "Tunica Casino"). Debt service on the PRT
Funding Notes is funded primarily from management fees earned by NJMI from the
Sands, from distributions made to PCC by PML (resulting from fees generated from
the management of the Aurora Casino) and from consulting fees earned from the
Tunica Casino, supplemented by dividends, if any, received from GBHC.
The financial statements of PRT Funding and the consolidated financial
statements of PCC as of March 31, 1996 and for the three month periods ended
March 31, 1996 and 1995 have been prepared without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, their respective financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
their respective financial positions as of March 31, 1996, and their results of
operations and cash flows for the three month periods ended March 31, 1996 and
1995.
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
PRT Funding and PCC's 1995 Annual Report on Form 10-K.
2
<PAGE>
PRT FUNDING CORP.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 1,114,000 $ 18,000
Interest receivable from affiliates 4,797,000 2,875,000
------------ ------------
Total current assets 5,911,000 2,893,000
------------ ------------
Notes receivable from affiliates 100,000,000 100,000,000
------------ ------------
$105,911,000 $102,893,000
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accrued interest payable $ 5,894,000 $ 2,875,000
Due to affiliates 12,000 13,000
------------ ------------
Total current liabilities 5,906,000 2,888,000
------------ ------------
Long-term debt 85,000,000 85,000,000
------------ ------------
Note payable to affiliate 15,000,000 15,000,000
------------ ------------
Shareholder's equity:
Common stock, $1.00 par value per
share, 1,000 shares authorized
and outstanding 1,000 1,000
Retained earnings 4,000 4,000
------------ ------------
Total shareholder's equity 5,000 5,000
------------ ------------
$105,911,000 $102,893,000
============ ============
</TABLE>
The accompanying introductory notes and notes to financial
statements are an integral part of these balance sheets.
3
<PAGE>
PRT FUNDING CORP.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Interest income $3,019,000 $3,019,000
---------- ----------
Expenses:
Interest expense 3,019,000 3,019,000
General and administrative expenses - 3,000
---------- ----------
Total expenses 3,019,000 3,022,000
---------- ----------
Loss before income taxes - (3,000)
Income tax provision - -
---------- ----------
Net loss $ - $ (3,000)
========== ==========
</TABLE>
The accompanying introductory notes and notes to financial
statements are an integral part of these financial statements.
4
<PAGE>
PRT FUNDING CORP.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ - $ (3,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Increase in receivable from affiliates (1,922,000) (3,019,000)
Increase in accrued interest payable 3,019,000 3,019,000
Net change in other current assets
and liabilities (1,000) 2,000
----------- -----------
Net cash provided by (used in) operating
activities 1,096,000 (1,000)
Cash at beginning of period 18,000 1,000
----------- -----------
Cash at end of period $ 1,114,000 $ -
=========== ===========
</TABLE>
The accompanying introductory notes and notes to financial
statements are an integral part of these financial statements.
5
<PAGE>
PRT FUNDING CORP.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND OPERATIONS
PRT Funding Corp. ("PRT Funding"), a Delaware corporation, was
incorporated on September 29, 1993. PRT Funding is a wholly owned subsidiary of
Pratt Casino Corporation ("PCC"), which is an indirect, wholly owned subsidiary
of Pratt Hotel Corporation ("PHC"). Both PCC and PHC are also Delaware
corporations. PCC was incorporated in September 1993 and, on February 17, 1994,
acquired through capital contributions by its parent, all of the outstanding
capital stock of Greate Bay Hotel and Casino, Inc. ("GBHC"), which owns the
Sands Hotel and Casino in Atlantic City, New Jersey (the "Sands"). The Sands is
managed by New Jersey Management, Inc. ("NJMI"), a New Jersey corporation and
also a subsidiary of PCC. Substantially all of PCC's assets are attributable to
the Sands. PCC also earns management and consulting fees with respect to gaming
facilities owned by Hollywood Casino Corporation ("HCC"), the parent of PHC.
PRT Funding was formed for the purpose of borrowing $85,000,000 for the
benefit of PCC and its affiliates. Administrative services for PRT Funding are
provided by other PHC subsidiaries at no charge. The cost of such services is
not significant.
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.
The financial statements as of March 31, 1996 and for the three month
periods ended March 31, 1996 and 1995 have been prepared by PRT Funding without
audit. In the opinion of management, the financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of PRT Funding as of March 31, 1996 and
the results of its operations and cash flows for the three month periods ended
March 31, 1996 and 1995.
(2) LONG-TERM DEBT
On February 17, 1994, PRT Funding issued $85,000,000 of unsecured
senior notes due April 15, 2004 (the "PRT Funding Notes"). Interest on the PRT
Funding Notes accrues at the rate of 11 5/8% per annum, payable semiannually
commencing October 15, 1994. The PRT Funding Notes are redeemable at the option
of the issuer, in whole or in part, on or after April 15, 1999 at stated
redemption prices ranging up to 104.36% of par plus accrued interest. The
indenture to the PRT Funding Notes contains various provisions which, among
other things, restrict the ability of certain subsidiaries of PCC to pay
dividends to PHC, to merge, consolidate or sell substantially all of their
assets or to incur additional indebtedness beyond certain limitations. The
indenture also contains certain cross default provisions with outstanding debt
of other PCC subsidiaries. Proceeds of the PRT Funding Notes were loaned to
various affiliates of PRT Funding on the same terms.
6
<PAGE>
PRT FUNDING CORP.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On February 17, 1994, PRT Funding issued $15,000,000 of junior subordinated
notes due in February 2005 (the "Junior Subordinated Notes") to HCC, and loaned
the proceeds to various affiliates on the same terms. During 1994, HCC assigned
$6,262,000 principal amount of the Junior Subordinated Notes to PHC. Interest on
the Junior Subordinated Notes accrues at the rate of 14 5/8% per annum and is
payable semiannually commencing August 17, 1994, with payment subject to PCC,
the guarantor, meeting certain financial coverage and other payment restriction
tests required by the indenture for the PRT Funding Notes. Because PCC had not
met the financial coverage tests, interest was not paid on February 17, 1996. At
March 31, 1996, accrued interest of $570,000 and $795,000, respectively, was
payable to PHC and HCC. At December 31, 1995, accrued interest of $341,000 and
$476,000, respectively, was payable to PHC and HCC. All such amounts are
included in interest payable in the accompanying balance sheets.
No interest was paid during either of the three month periods ended
March 31, 1996 and 1995.
(3) INCOME TAXES
PRT Funding is included in the consolidated federal income tax return
of HCC. Pursuant to agreements between PCC, PHC and HCC, PRT Funding's
provision for federal income taxes is calculated as if a separate federal return
were filed. There are no timing differences resulting in deferred income taxes.
For the three month periods ended March 31, 1996 and 1995, no provision for
taxes or payments have been made under the tax allocation agreements. At March
31, 1996 and December 31, 1995, $1,000 is included in due to affiliates on the
accompanying balance sheets representing taxes currently payable under the
agreements.
7
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 20,339,000 $ 25,606,000
Accounts receivable, net of allowances
of $16,946,000 and $16,494,000,
respectively 11,203,000 11,513,000
Inventories 4,161,000 4,268,000
Due from affiliates 12,898,000 10,009,000
Refundable deposits and other
current assets 5,078,000 4,764,000
------------- -------------
Total current assets 53,679,000 56,160,000
------------- -------------
Investment in Limited Partnership 1,990,000 2,017,000
------------- -------------
Property and Equipment:
Land 37,807,000 37,807,000
Buildings and improvements 185,404,000 185,077,000
Operating equipment 88,346,000 87,491,000
Construction in progress 2,260,000 2,310,000
------------- -------------
313,817,000 312,685,000
Less - accumulated depreciation and
amortization (149,814,000) (145,244,000)
------------- -------------
Net property and equipment 164,003,000 167,441,000
------------- -------------
Other Assets:
Obligatory investments 5,122,000 5,521,000
Due from affiliates 13,960,000 13,681,000
Deferred financing costs 8,455,000 8,730,000
Other assets 4,220,000 3,390,000
------------- -------------
Total other assets 31,757,000 31,322,000
------------- -------------
$ 251,429,000 $ 256,940,000
============= =============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
8
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 11,000 $ 11,000
Short-term credit facilities 2,000,000 -
Accounts payable 8,901,000 8,444,000
Accrued liabilities -
Salaries and wages 3,709,000 4,187,000
Interest 10,165,000 12,159,000
Insurance 2,610,000 2,336,000
Other 10,026,000 8,885,000
Due to affiliates 767,000 999,000
Other 2,763,000 3,498,000
------------ ------------
Total current liabilities 40,952,000 40,519,000
------------ ------------
Long-Term Debt 285,439,000 285,442,000
------------ ------------
Other Noncurrent Liabilities 2,495,000 2,390,000
------------ ------------
Commitments and Contingencies
Shareholder's Deficit:
Common stock $1.00 par value per share,
1,000 shares authorized and outstanding 1,000 1,000
Accumulated deficit (77,458,000) (71,412,000)
------------ ------------
Total shareholder's deficit (77,457,000) (71,411,000)
------------ ------------
$251,429,000 $256,940,000
============ ============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
9
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Casino $57,605,000 $63,876,000
Rooms 2,135,000 2,219,000
Food and beverage 8,524,000 7,247,000
Other 1,854,000 924,000
----------- -----------
70,118,000 74,266,000
Less - promotional allowances (7,119,000) (6,130,000)
----------- -----------
Net revenues 62,999,000 68,136,000
----------- -----------
Expenses:
Casino 53,113,000 49,738,000
Rooms 310,000 575,000
Food and beverage 2,394,000 2,012,000
Other 740,000 799,000
General and administrative 5,457,000 6,518,000
Depreciation and amortization 5,197,000 5,050,000
----------- -----------
Total expenses 67,211,000 64,692,000
----------- -----------
(Loss) income from operations (4,212,000) 3,444,000
----------- -----------
Non-operating income (expense):
Interest income 472,000 424,000
Interest expense (7,972,000) (7,917,000)
Equity in earnings of limited
partnership 2,012,000 1,835,000
----------- -----------
Total non-operating expense, net (5,488,000) (5,658,000)
----------- -----------
Loss before income taxes (9,700,000) (2,214,000)
Income tax benefit 3,654,000 539,000
----------- -----------
Net loss $(6,046,000) $(1,675,000)
=========== ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
10
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(6,046,000) $(1,675,000)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 5,197,000 5,050,000
Provision for doubtful accounts 567,000 805,000
Equity in earnings of limited partnership (2,012,000) (1,835,000)
Dividends received from limited partnership 2,039,000 2,009,000
Deferred income tax benefit (293,000) (531,000)
(Increase) decrease in accounts receivable (257,000) 156,000
Decrease in accounts payable and other
accrued liabilities (503,000) (2,453,000)
Net change in other current assets and
liabilities (3,766,000) (382,000)
Net change in other noncurrent assets and
liabilities (298,000) (178,000)
----------- -----------
Net cash (used in) provided by operating
activities (5,372,000) 966,000
----------- -----------
INVESTING ACTIVITIES:
Net property and equipment additions (1,130,000) (3,330,000)
Obligatory investments (762,000) (652,000)
----------- -----------
Net cash used in investing activities (1,892,000) (3,982,000)
----------- -----------
FINANCING ACTIVITIES:
Borrowings on short-term credit facilities 2,000,000 -
Repayments of long-term debt (3,000) (3,000)
----------- -----------
Net cash provided by (used in) financing
activities 1,997,000 (3,000)
----------- -----------
Net decrease in cash and cash equivalents (5,267,000) (3,019,000)
Cash and cash equivalents at beginning of period 25,606,000 25,457,000
----------- -----------
Cash and cash equivalents at end of period $20,339,000 $22,438,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
11
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
Pratt Casino Corporation ("PCC") is a Delaware corporation and a
wholly owned subsidiary of PPI Corporation, a New Jersey corporation and a
wholly owned subsidiary of Pratt Hotel Corporation ("PHC"). On February 17,
1994, PCC acquired, through capital contributions by its parent, all of the
outstanding stock of Greate Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey
corporation, which owns the Sands Hotel and Casino in Atlantic City, New Jersey
(the "Sands"). The Sands is managed by New Jersey Management, Inc. ("NJMI")
which also became a wholly owned subsidiary of PCC through a capital
contribution by its parent. Substantially all of PCC's assets are attributable
to the Sands. PCC also earns management and consulting fees with respect to
gaming facilities owned by Hollywood Casino Corporation ("HCC"), the parent of
PHC.
GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation
and a wholly owned subsidiary of PCC, was incorporated on September 29, 1993 for
the purpose of borrowing funds through the issuance of $185,000,000 of ten-year,
nonrecourse first mortgage notes for the benefit of GBHC. PRT Funding Corp.
("PRT Funding"), also a Delaware corporation and a wholly owned subsidiary of
PCC, was incorporated on September 29, 1993 for the purpose of borrowing funds
through the issuance of $85,000,000 of unsecured notes for the benefit of PCC
and its affiliates. GB Property Funding and PRT Funding completed their
respective debt offerings on February 17, 1994 and the proceeds were loaned to
various affiliates (see Note 3).
The accompanying consolidated financial statements include the accounts and
operations of PCC, NJMI and GBHC; all significant intercompany balances and
transactions have been eliminated.
PCC estimates that a significant amount of the Sands' revenues are
derived from patrons living in southeastern Pennsylvania, northern New Jersey
and metropolitan New York City. Competition in the Atlantic City gaming market
is intense and management believes that this competition will continue in the
future.
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.
PCC is self insured for a portion of its general liability insurance,
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, PCC's ultimate
liability may differ from the amounts accrued.
During the fourth quarter of 1995, PCC adopted the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets") ("SFAS 121"). SFAS 121 requires, among other
things, that an entity review its long-lived assets and certain related
intangibles for impairment whenever changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. As a result of its
review, PCC does not believe that any material impairment currently exists
related to its long-lived assets.
12
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The consolidated financial statements as of March 31, 1996 and for the
three month periods ended March 31, 1996 and 1995 have been prepared by PCC
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
PCC as of March 31, 1996 and the results of its operations and cash flows for
the three month periods ended March 31, 1996 and 1995.
(2) SHORT-TERM CREDIT FACILITIES
GBHC is presently renegotiating a bank line of credit in the amount of
$5,000,000 which expired on April 30, 1996. As of March 31, 1996, $2,000,000
was outstanding under the line of credit; no such borrowings were outstanding as
of December 31, 1995. Borrowings under the line of credit are guaranteed to the
extent of $2,000,000 by PCC.
(3) LONG-TERM DEBT AND PLEDGE OF ASSETS
Substantially all of PCC's assets are pledged in connection with long-
term indebtedness of its subsidiaries. Additionally, certain of the indentures
for indebtedness of PCC's subsidiaries contain cross-default provisions.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
10 7/8% first mortgage notes, due 2004 (a) $185,000,000 $185,000,000
11 5/8% senior notes, due 2004 (b) 85,000,000 85,000,000
14 5/8% junior subordinated notes, due 2005 (c) 15,000,000 15,000,000
Other 450,000 453,000
------------ ------------
Total indebtedness 285,450,000 285,453,000
Less - current maturities (11,000) (11,000)
------------ ------------
Total long-term debt $285,439,000 $285,442,000
============ ============
</TABLE>
- - -----------------------
(a) On February 17, 1994, GB Property Funding issued $185,000,000 of non-
recourse first mortgage notes due January 15, 2004 (the "10 7/8% First
Mortgage Notes") and collateralized by a first mortgage on the Sands.
Interest on the notes accrues at the rate of 10 7/8% per annum, payable
semiannually commencing July 15, 1994. Interest only is payable during the
first three years. Commencing on July 15, 1997, semiannual principal
payments of $2,500,000 will become due on each interest payment date. The
10 7/8% First Mortgage Notes are redeemable at the option of the issuer, in
whole or in part, on or after January 15, 1999 at stated redemption prices
ranging up to 104.08% of par plus accrued interest.
The indenture for the 10 7/8% First Mortgage Notes contains various
provisions which, among other things, restrict the ability of certain
subsidiaries of PHC to pay dividends to PHC, to merge, consolidate
13
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
or sell substantially all of their assets or to incur additional
indebtedness beyond certain limitations. In addition, the indenture
requires the maintenance of certain cash balances and, commencing in 1994,
requires that a minimum of $7,000,000 be expended for property and fixture
renewals, replacements and betterments at the Sands, subject to increases
of five percent per annum thereafter. The indenture also contains certain
cross-default provisions with the indenture to the PRT Funding Notes
described in (b) below.
(b) On February 17, 1994, PRT Funding issued $85,000,000 of unsecured senior
notes due April 15, 2004 (the "PRT Funding Notes"). Interest on the PRT
Funding Notes accrues at the rate of 11 5/8% per annum, payable
semiannually commencing October 15, 1994. The PRT Funding Notes are
redeemable at the option of the issuer, in whole or in part, on or after
April 15, 1999 at stated redemption prices ranging up to 104.36% of par
plus accrued interest. The indenture for the PRT Funding Notes contains
various provisions which, among other things, restrict the ability of
certain subsidiaries of PCC to pay dividends to PHC, to merge, consolidate
or sell substantially all of their assets or to incur additional
indebtedness beyond certain limitations. The indenture also contains
certain cross default provisions with the indenture to the 10 7/8% First
Mortgage Notes described in (a) above.
(c) On February 17, 1994, PRT Funding issued $15,000,000 of junior subordinated
notes (the "Junior Subordinated Notes") to HCC. During 1994, HCC assigned
$6,262,000 principal amount of the Junior Subordinated Notes to PHC. The
Junior Subordinated Notes are due in February 2005 and bear interest at the
rate of 14 5/8% per annum which, subject to PCC, the guarantor, meeting
certain financial coverage and other payment restriction tests required by
the indenture for the PRT Funding Notes, is payable semiannually commencing
August 17, 1994. Because PCC had not met the financial coverage tests,
interest was not paid on February 17, 1996.
Scheduled payments of long-term debt as of March 31, 1996 are set
forth below:
<TABLE>
<CAPTION>
<S> <C>
1996 (9 months) $ 8,000
1997 2,512,000
1998 5,013,000
1999 5,014,000
2000 5,015,000
Thereafter 267,888,000
------------
Total $285,450,000
============
</TABLE>
Interest paid amounted to $10,118,000 and $10,082,000, respectively, for
the three month periods ended March 31, 1996 and 1995.
14
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
(4) INCOME TAXES
Components of the income tax benefit consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Benefit in lieu of federal income taxes:
Current $2,580,000 $ 6,000
Deferred 226,000 404,000
State income tax benefit:
Current 781,000 2,000
Deferred 67,000 127,000
---------- ----------
$3,654,000 $ 539,000
========== ==========
</TABLE>
PCC is included in HCC's consolidated federal income tax return.
Pursuant to tax allocation agreements, PCC'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. No federal or state tax payments were made during
the three month periods ended March 31, 1996 and 1995. The payment of GBHC's
taxes in accordance with the tax allocation agreements is subject to the
approval of the New Jersey Casino Control Commission.
Federal and state income tax provisions or benefits are based upon the
estimates of the results of operations for the current annual period and reflect
the nondeductibility for income tax purposes of certain items, including certain
amortization, meal and entertainment and other expenses.
Deferred income taxes result primarily from the use of the allowance
method rather than the direct write-off method for doubtful accounts, the use of
accelerated methods of depreciation for federal and state income tax purposes
and differences in the timing of deductions taken between tax and financial
reporting purposes for contributions of and adjustments to the carrying value of
certain investment obligations and for vacation and other accruals.
15
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The components of the net deferred tax asset as of March 31, 1996 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 6,883,000 $ 6,829,000
Other liabilities and accruals 2,369,000 2,149,000
Other 1,227,000 1,377,000
----------- -----------
Total deferred tax assets 10,479,000 10,355,000
----------- -----------
Deferred tax liabilities:
Depreciation and amortization (8,509,000) (8,679,000)
Other (597,000) (596,000)
----------- -----------
Total deferred tax liabilities (9,106,000) (9,275,000)
----------- -----------
Net deferred tax asset $ 1,373,000 $ 1,080,000
=========== ===========
</TABLE>
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109") requires that 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. The net deferred tax asset has been reflected in the accompanying
balance sheets at March 31, 1996 and December 31, 1995 with no reduction for
valuation allowances as management believes that it is more likely than not that
future earnings will be sufficient to utilize such tax benefits.
Receivables from and payables to affiliates in connection with the
aforementioned tax allocation agreements were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Due from affiliates - current $12,070,000 $9,310,000
Due from affiliates - noncurrent 5,948,000 5,903,000
Due to affiliate - current (129,000) (129,000)
</TABLE>
Included in current due from affiliate at March 31, 1996 and December 31,
1995 are net current federal taxes receivable under the tax allocation
agreements of $5,810,000 and $3,229,000, respectively, with the balance
representing current deferred federal taxes receivable.
16
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
(5) TRANSACTIONS WITH RELATED PARTIES
GBHC licenses the trade name "Sands" from PHC, which licenses the name
from an unaffiliated third party. Amounts payable by the Sands under this
agreement are equal to the amounts paid to the unaffiliated third party. Such
charges amounted to $61,000 and $66,000, respectively, for the three month
periods ended March 31, 1996 and 1995.
HWCC - Tunica, Inc. ("HCT"), a wholly owned subsidiary of HCC, owns
and operates a gaming and lodging facility in Tunica County, Mississippi (the
"Tunica Casino") which commenced operations in August 1994. Pursuant to a ten-
year consulting agreement with HCT, PCC receives monthly consulting fees of
$100,000. Such fees amounted $300,000 for each of the three month periods ended
March 31, 1996 and 1995.
PCC has, from time to time, advanced monies to PHC or certain of its
subsidiaries and PHC or certain of its subsidiaries have advanced monies to PCC
primarily for working capital purposes. Subsidiaries of PCC have also
periodically entered into short-term borrowing arrangements with affiliated
companies in connection with various construction projects. An advance to a PHC
subsidiary in the amount of $5,672,000 was outstanding as of March 31, 1996 and
December 31, 1995. All such related party advances bear interest at the rate of
16.5% per annum. Interest income (expense) incurred with respect to affiliate
advances and borrowings is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Net advances $ 234,000 $ 234,000
Junior Subordinated Notes (Note 3) (548,000) (548,000)
</TABLE>
Interest receivable on affiliate advances, included in amounts due
from affiliates in the accompanying consolidated balance sheets at March 31,
1996 and December 31, 1995 was $2,340,000 and $2,106,000, respectively.
Interest accrued on the Junior Subordinated Notes of $1,365,000 ($570,000 due to
PHC and $795,000 due to HCC) and $817,000 ($341,000 due to PHC and $476,000 due
to HCC) is included in interest payable on the accompanying consolidated balance
sheets at March 31, 1996 and December 31, 1995, respectively.
From time to time, PCC and its subsidiaries perform certain services
for HCC and its subsidiaries and invoice those companies for PCC's cost of
providing those services. Similarly, PCC and its subsidiaries are
17
<PAGE>
charged for certain legal, accounting and other expenses incurred by HCC and its
subsidiaries that relate to PCC's business. Such affiliate transactions are
summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1996 1995
------------ ----------
<S> <C> <C>
Billings to affiliates $ 927,000 $ 631,000
Charges from affiliates $(1,075,000) $(619,000)
</TABLE>
(6) INVESTMENT IN LIMITED PARTNERSHIP
During February 1994, PCC acquired a limited partnership interest in
Pratt Management, L.P. ("PML"), a limited partnership which, since February 17,
1994, has managed a riverboat gaming and entertainment complex owned by HCC and
located in Aurora, Illinois (the "Aurora Casino"). PML earned management fees
amounting to $2,943,000 and $2,629,000, respectively, during the three month
periods ended March 31, 1996 and 1995. PML also incurred operating and other
expenses amounting to $661,000 and $526,000, respectively, during the three
month periods ended March 31, 1996 and 1995. PPI Corporation is the general
partner of PML. In accordance with certain terms of the Partnership Agreement,
PCC, as limited partner, receives 1% of the first $84,000 of net income earned
by the partnership each month and 99% of any net income earned above such
amount, with all remaining income distributed to PPI Corporation.
(7) LITIGATION
PCC's subsidiaries are parties in various legal proceedings with
respect to the conduct of casino and hotel operations. Although a possible
range of loss can not be estimated, in the opinion of management, based upon the
advice of counsel, settlement or resolution of these proceedings should not have
a material adverse impact upon the consolidated financial position or results of
operations of PCC and its subsidiaries. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
such uncertainties.
(8) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 consolidated
financial statements to conform to the 1996 consolidated financial statement
presentation.
18
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Sands sustained a loss from operations, exclusive of management fees
paid to NJMI, of $4.1 million for the three month period ended March 31, 1996
compared to income from operations of $3.8 million reported for the 1995 period.
Operating results were adversely affected by record winter snowstorms in
January, two additional weekend snowstorms in February and the advent of both
unprecedented and highly aggressive marketing programs instituted by certain
other Atlantic City casinos seeking to increase their market share. These
factors, together with declines in both the table games and slot hold
percentages, combined to produce a 7.6% decline in net revenues (from $67.8
million in 1995 to $62.7 million in 1996). In addition, marketing and
advertising costs increased by $2.7 million (16.8%) during the first quarter of
1996 compared to the same period of 1995 in response to competitive pressures.
As a result of the foregoing, PCC experienced a loss from operations of
$4.2 million for the three month period ended March 31, 1996 as compared to
income from operations of $3.4 million during the same period of 1995.
Distributions received from PML amounted to $2 million during the first
quarter of 1996, approximating PCC's equity in PML's earnings; distributions
from PML are paid in arrears. Management fees earned by PML during the three
month period ended March 31, 1996 were $314,000 more than those earned during
the 1995 period primarily due to improved operating results subsequent to the
1995 expansion of one of the Aurora Casino's two riverboats. In addition, PCC
received $300,000 with respect to its consulting agreement with the Tunica
Casino.
19
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
GAMING OPERATIONS
The following table sets forth certain unaudited financial and operating
data relating to the Sands' operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1995
------------ -------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C>
REVENUES:
Table games $ 20,175 $ 22,961
Slot machines 36,441 39,737
Other (1) 989 1,178
-------- --------
Total $ 57,605 $ 63,876
======== ========
TABLE GAMES:
Gross Wagering
(Drop) (2) $134,388 $142,588
======== ========
Hold Percentages: (3)
Sands 15.0% 16.1%
Atlantic City Casino
Gaming Industry 16.5% 15.9%
SLOT MACHINES:
Gross Wagering
(Handle) (2) $439,380 $469,817
======== ========
Hold Percentage:(3)
Sands (4) 8.3% 8.5%
</TABLE>
____________________________
(1) Consists of revenues from poker ($651,000 and $841,000, respectively, for
the three month periods ended March 31, 1996 and 1995) and simulcast horse
racing wagering ($338,000 and $337,000, respectively, for the three month
periods ended March 31, 1996 and 1995).
(2) Gross wagering consists of the total value of chips purchased for table
games (excluding poker) and keno wagering (collectively, the "drop") and
coins wagered in slot machines ("handle").
(3) Casino revenues consist of the portion of gross wagering that a casino
retains and, as a percentage of gross wagering, is referred to as the "hold
percentage".
(4) The Sands' hold percentage with respect to slot machines is reflected on an
accrual basis. Comparable data for the Atlantic City gaming industry is
not available.
20
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Table games drop at the Sands declined $8.2 million (5.8%) during the three
month period ended March 31, 1996 compared with the same period of 1995. The
Sands' decrease compares with an increase of 3.6% in table drop for all other
Atlantic City casinos during the same period. As a result, the Sands' table
game market share (expressed as a percentage of the Atlantic City industry
aggregate table game drop) decreased to 8.2% during the three month period ended
March 31, 1996 from 9% during the same period of 1995. The Sands' table game
drop decrease is largely attributable to an increase in competitive pressures in
the rated table market segment, of which a significant portion is in the "high
end" and mid-market segments.
Slot machine handle decreased $30.4 million (6.5%) during the three month
period ended March 31, 1996 compared with the same period of 1995. The Sands'
decrease in slot machine handle compares with a 7.5% increase in handle for all
other Atlantic City casinos. The decrease experienced by the Sands is a result
of the same competitive pressures resulting from casino expansions and
aggressive marketing campaigns at other properties as discussed above with
respect to table games, particularly in the "high-end" slot segment. The Sands'
average number of slot machines increased 1.2% during the first quarter of 1996
compared to an increase of 7.4% for all other Atlantic City casinos. The
greater percentage increase in the number of slot machines for other Atlantic
City casinos reflects, in part, expansions of certain facilities during the
first quarter of 1996, which resulted in an overall increase of approximately
33,000 square feet of casino space in Atlantic City compared to the 1995 first
quarter.
The Sands' decrease in table games drop and slot machine handle also
reflects, in part, a return to pre-expansion market shares. The Sands increased
the size of its casino in 1994 and posted higher than industry increases in
casino wagering during the last half of 1994 and early 1995. During the first
quarter of 1995, for example, the Sands' increases in table games drop and slot
machine handle over the same period of 1994 were 16.8% and 33.5%, respectively,
compared with increases of 5.1% and 25%, respectively, for all other Atlantic
City casinos. The Sands' table game market share increased to 9% in the first
quarter of 1995 from 8.1% in the first quarter of 1994. As other casinos
complete new expansions, the Sands' previous market share gains are being
offset.
REVENUES
Casino revenues at the Sands, including poker and simulcast horse racing
wagering revenues, decreased by $6.3 million (9.8%) for the three month period
ended March 31, 1996 compared with the same period of 1995. Casino revenues
were negatively impacted by the loss of market share as discussed previously and
by decreases in both the table games and slot machine hold percentages at the
Sands during the 1996 period compared to the 1995 period.
Rooms revenue did not change significantly during the three month period
ended March 31, 1996 compared with 1995. Food and beverage revenues increased
$1.3 million (17.6%) for the three month period ended March 31, 1996 compared
with the prior year period primarily as a result of the opening of the Epic
Buffet during the third quarter of 1995. Other revenues increased $930,000
(100.6%) during the three month period ended March 31, 1996 compared to the 1995
period as a result of an increase in theater entertainment revenue at the Sands.
21
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Promotional allowances represent the estimated value of goods and services
provided free of charge to casino customers under various marketing programs.
As a percentage of rooms, food and beverage and other revenues at the Sands,
these allowances decreased to 58.3% during the three month period ended March
31, 1996 from 60.8% during the first quarter of 1995. Such decrease is
primarily attributable to an increase in other types of marketing programs not
associated with promotional allowances being used in lieu of complimentaries.
DEPARTMENTAL EXPENSES
Casino expenses at the Sands increased $3.4 million (6.8%) during the three
month period ended March 31, 1996 compared with 1995. This increase is
primarily due to increased costs with respect to marketing activities, which
resulted in higher allocations of rooms, food and beverage and other expenses to
casino expense.
Rooms expense decreased $265,000 (46.1%) during the first quarter of 1996
as compared to the first quarter of 1995 primarily due to increased allocation
of rooms expense to casino expense as a result of an increase in casino
marketing activities relating to rooms. Decreased payroll expenses resulting
from an overall decline in occupancy during the first quarter of 1996 as
compared to 1995 also contributed to the reduction in rooms expense. Food and
beverage expense increased by $382,000 (19%) during the three month period ended
March 31, 1996 compared to the same period in 1995. Increased costs associated
with the Epic Buffet were partially offset by increases in food and beverage
marketing programs, the costs of which are allocated to the casino department.
Other expenses decreased $59,000 (7.4%) during the three month period ended
March 31, 1996 compared with 1995 as increases in costs related to theater
entertainment were offset by increased allocations to the casino department.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased by approximately $1.1 million
(16.3%) during the three month period ended March 31, 1996 compared to the 1995
period primarily due to decreases in legal expenses at the Sands and payroll
costs associated with NJMI's management of the Sands.
INTEREST
Interest income increased $48,000 (11.3%) during the three month period
ended March 31, 1996 compared with the same period of 1995 due primarily to
additional interest earned on temporary cash investments and investments with
the Casino Reinvestment Development Authority ("CRDA") (see "Liquidity and
Capital Resources - Capital Expenditures and Obligatory Investments"). Interest
expense did not change significantly during the three month period ended March
31, 1996 compared to the prior year first quarter.
22
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
EQUITY IN EARNINGS OF LIMITED PARTNERSHIP
Effective February 17, 1994, PCC acquired a limited partnership interest in
PML, a limited partnership in which PPI Corporation is the general partner and
PCC is the limited partner; PML earns management fees from the operation of the
Aurora Casino. The Agreement of Limited Partnership of PML provides for
distributions to PCC of 1% of the first $84,000 of net income earned by PML each
month and 99% of any net income earned above such amount, with all remaining
income distributed to PPI Corporation. PCC's equity in the earnings of PML
increased slightly (9.6%) to $2 million during the first quarter of 1996 from
$1.8 million in 1995.
INCOME TAX PROVISION
PCC is included in HCC's consolidated federal income tax return. Pursuant
to agreements between PCC, PHC and HCC, PCC's provision for federal income taxes
is based on the amount of tax which would have been provided if a separate
return were filed.
INFLATION
Management believes that in the near term, modest inflation, together with
increasing competition within the gaming industry for qualified and experienced
personnel, will continue to cause increases in operating expenses, particularly
labor and employee benefits costs.
SEASONALITY
Historically, the Sands' operations have been highly seasonal in nature,
with the peak activity occurring from May to September. Consequently, the
results of PCC's operations for the first and fourth quarters are traditionally
less profitable than the other quarters of the fiscal year. Furthermore, the
Aurora Casino has also experienced seasonality, but to a lesser degree than the
Sands, and, as a result, the management fees earned have fluctuated with such
seasonality. In addition, the Sands' and the Aurora Casino's operations may
fluctuate significantly due to a number of factors, including chance. Such
seasonality and fluctuations may materially affect PCC's casino revenues and
profitability.
LIQUIDITY AND CAPITAL RESOURCES
PCC's principal activities and resulting sources of liquidity and capital
resources include the operations of the Sands, management of the Aurora Casino
through PML, and consulting fees for services provided to the Tunica Casino.
The Sands' earnings before depreciation, interest, amortization, taxes and
intercompany management fees have been sufficient to meet debt service
obligations (other than certain maturities of principal that have been
refinanced) and to fund a substantial portion of its capital expenditures. The
Sands has also used short-term borrowings to fund seasonal cash needs and has
used long-term borrowings for certain capital projects.
23
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
OPERATING ACTIVITIES
At March 31, 1996, PCC had consolidated cash and cash equivalents of $20.3
million. Dividends, tax sharing payments and certain other transfers of cash
from the Sands to PCC or other affiliates of the Sands are restricted by
provisions to the indenture for the 10 7/8% First Mortgage Notes or are subject
to the approval of the New Jersey Casino Control Commission. During the three
month period ended March 31, 1996, net cash used in operating activities was
$5.4 million compared with cash provided by operating activities of $1 million
during the same period of 1995. The change in net cash from operating
activities compared to 1995 resulted from a $6.4 million decline in cash flow
generated by the Sands. PCC utilized short-term borrowings during the three
month period ended March 31, 1996 to meet its operating needs, to fund capital
additions of $1.1 million and to make obligatory investments of $762,000.
FINANCING ACTIVITIES
During February 1994, PHC completed the refinancing of virtually all of its
casino-related outstanding debt (the "PHC Recapitalization"). The refinancing
was completed through a public offering of $270 million of debt securities
consisting of $185 million of 10 7/8% First Mortgage Notes due January 15, 2004
and $85 million of 11 5/8% PRT Funding Notes due April 15, 2004. Proceeds from
the debt offerings were used, in part, to refinance the Sands' first mortgage
and other indebtedness scheduled to mature in 1994 and to provide partial
funding for an expansion of gaming space at the Sands. As part of the PHC
Recapitalization, a subsidiary of PCC also issued $15 million of 14 5/8% junior
subordinated notes due in 2005 to HCC; the subsidiary loaned $10 million of such
proceeds to GBHC on the same terms. During 1994, HCC assigned $6.3 million
principal amount of the junior subordinated notes to PHC. Interest on this
subordinated affiliate debt is payable semiannually commencing August 17, 1994,
with payment subject to meeting certain financial coverage and other payment
restriction tests required by the indenture for the PRT Funding Notes. Because
PCC had not met the financial coverage tests, interest was not paid on February
17, 1996.
GBHC is presently renegotiating a $5 million bank line of credit which
expired on April 30, 1996. As of March 31, 1996, $2 million was outstanding
under the line of credit.
Scheduled maturities of long-term debt during the remainder of 1996 are
$8,000.
CAPITAL EXPENDITURES AND OBLIGATORY INVESTMENTS
Capital expenditures at the Sands during the three month period ended March
31, 1996 amounted to approximately $1.1 million and management anticipates
capital expenditures during the remainder of 1996 will be approximately $5
million. Projects currently planned during 1996 include substantial upgrades
and improvements to all rooms at the Sands, including its higher-end suite
product, and the purchase of additional gaming equipment.
The Sands is required by the New Jersey Casino Control Act to make certain
investments with the Casino Reinvestment Development Authority, a governmental
agency which administers the statutorily
24
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
mandated investments made by casino licensees. Deposit requirements for the
first quarter of 1996 totaled $762,000 and are anticipated to be approximately
$2.6 million during the remainder of 1996.
SUMMARY
Management anticipates that PCC's funding requirements for the next 12
months will be substantially met by (i) existing cash, (ii) cash generated by
the Sands' operations, (iii) net cash flows from management fees (after related
expenses) from the Aurora Casino by virtue of PCC's limited partnership interest
in PML (iv) consulting fees from the Tunica Casino and (v) borrowings from a
bank line of credit or from affiliates.
25
<PAGE>
PART II: OTHER INFORMATION
- - ---------------------------
The Registrants did not file any reports on Form 8-K during the quarter
ended March 31, 1996. The Registrants filed their Annual Report on Form 10-K for
the year ended December 31, 1995 with the Securities and Exchange Commission on
March 29, 1996.
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 their behalf
by the undersigned thereunto duly authorized.
PRT FUNDING CORP.
PRATT CASINO CORPORATION
------------------------
Registrants
Date: May 13, 1996 By: /s/ John C. Hull
------------------------ ------------------------------
John C. Hull
Principal Accounting Officer
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR PRT FUNDING CORP. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000912897
<NAME> PRT FUNDING CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,114
<SECURITIES> 0
<RECEIVABLES> 4,797
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,911
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,911
<CURRENT-LIABILITIES> 5,906
<BONDS> 100,000
0
0
<COMMON> 1
<OTHER-SE> 4
<TOTAL-LIABILITY-AND-EQUITY> 105,911
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PRATT CASINO CORPORATION AND SUBSIDIARIES
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000912928
<NAME> PRATT CASINO CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 20,339
<SECURITIES> 0
<RECEIVABLES> 28,149
<ALLOWANCES> 16,946
<INVENTORY> 4,161
<CURRENT-ASSETS> 53,679
<PP&E> 313,817
<DEPRECIATION> 149,814
<TOTAL-ASSETS> 251,429
<CURRENT-LIABILITIES> 40,952
<BONDS> 285,439
0
0
<COMMON> 1
<OTHER-SE> (77,458)
<TOTAL-LIABILITY-AND-EQUITY> 251,429
<SALES> 0
<TOTAL-REVENUES> 62,999
<CGS> 0
<TOTAL-COSTS> 55,990
<OTHER-EXPENSES> 8,642
<LOSS-PROVISION> 567
<INTEREST-EXPENSE> 7,500
<INCOME-PRETAX> (9,700)
<INCOME-TAX> (3,654)
<INCOME-CONTINUING> (6,046)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,046)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
