<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, 1999
--------------------
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)
C/O ADVANCED CASINO SYSTEMS CORPORATION
200 DECADON DRIVE, SUITE 100
EGG HARBOR TOWNSHIP, NEW JERSEY 08234
- ------------------------------------------ -------------------------------
(Address of principal executive offices) (Zip Code)
(Registrants' telephone number, including area code): (609) 441-0704
--------------------------
(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.
<TABLE>
<CAPTION>
REGISTRANT CLASS OUTSTANDING AT MAY 12, 1999
- -------------------------- ----------------------------- ---------------------------
<S> <C> <C>
PRT Funding Corp. Common Stock, $1.00 par value 1,000 shares
Pratt Casino Corporation Common Stock, $1.00 par value 1,000 shares
</TABLE>
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"). PRT Funding is wholly owned by Pratt Casino
Corporation ("PCC"), a Delaware corporation and an indirect, wholly owned
subsidiary of Greate Bay Casino Corporation ("GBCC"), also a Delaware
corporation. Prior to December 31, 1996, Hollywood Casino Corporation ("HCC")
owned approximately 80% of the common stock of GBCC; such stock was distributed
by HCC to its shareholders. GBCC's common stock is listed on the OTC Bulletin
Board Service under the trading symbol "GEAAQ"; GBCC is 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 200 Decadon Drive, Suite 100, Egg Harbor Township, New Jersey 08234.
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.
Prior to December 31, 1998, PCC owned all of the common stock of GB Holdings,
Inc. ("Holdings"); such ownership has since been reduced to 79%. Greate Bay
Hotel and Casino, Inc. ("GBHC"), a wholly owned subsidiary of Holdings, owns the
Sands Hotel and Casino located in Atlantic City, New Jersey (the "Sands").
Prior to July 7, 1998, New Jersey Management, Inc. ("NJMI"), a subsidiary of
PCC, was responsible for the operations of the Sands under a management
agreement with GBHC.
PCC is a holding company that, through Holdings, owns the Sands. In
addition to its ownership of Holdings, PCC is also the sole limited partner of
Pratt Management, L.P. ("PML"), a limited partnership which manages a riverboat
gaming and entertainment facility located in Aurora, Illinois (the "Aurora
Casino") owned by HCC. Effective April 1, 1997, HCC acquired the general
partnership interest in PML from another subsidiary of GBCC. PCC also has a
consulting agreement with HWCC-Tunica, Inc. ("HCT"), a wholly owned subsidiary
of HCC, which owns and operates a gaming and lodging facility in Tunica County,
Mississippi (the "Tunica Casino"). The contract, which expires on December 31,
2003, provides for a monthly fee of $100,000. Historically, debt service on the
PRT Funding Notes has been funded primarily from management fees earned by NJMI
from the Sands, from distributions made to PCC by PML resulting from fees
generated under the Aurora Casino Management Contract and from consulting fees
earned from the Tunica Casino.
On January 5, 1998, GBHC, Holdings, and GB Property Funding Corp. ("GB
Property Funding"), a wholly owned subsidiary of Holdings, each filed petitions
for relief under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of New
Jersey (the "Bankruptcy Court"). Each company continues to operate in the
ordinary course of business, as set forth in the Bankruptcy Code, and each
company's executive officers and directors remain in office, subject to the
supervision of the Bankruptcy Court. On January 11, 1999, the Bankruptcy Court
terminated the debtors' exclusive right to file a plan of reorganization. As of
May 12, 1999, no plan of reorganization has been formally presented by the
debtors or any other party.
The filings of such petitions constitute a default under the indenture for
the PRT Funding Notes; accordingly, the outstanding principal amount of the PRT
Funding Notes has accelerated and is currently due and payable. PRT Funding
deferred payment of interest due on the April 15 and October 15, 1998 and April
15, 1999 interest payment dates. On October 22, 1998, PRT Funding paid to
bondholders an amount equal to a single semiannual interest payment ($4.9
million) while negotiations to restructure the
2
<PAGE>
PRT Funding Notes continued. In connection with the Restructuring (as defined
below), PRT Funding paid deferred interest amounting to $6.8 million to the
bondholders on April 30, 1999.
On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the restructuring of the PRT Funding Notes (the "Restructuring").
The agreement provides for HCC to acquire the stock of PCC, the parent of PRT
Funding, from GBCC for nominal consideration. When acquired by HCC, PCC's
assets will consist of its limited partnership interest in a management contract
for the Aurora Casino and a consulting contract for the Tunica Casino and its
liabilities will consist of a newly issued promissory note in the principal
amount of $40.3 million payable to the Trustee for the PRT Funding noteholders.
The voting agreement provides for HCC to immediately discharge the promissory
note.
As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC. Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations.
As a result of the Chapter 11 filings by Holdings, GB Property Funding and
GBHC, PCC's control over the filing subsidiaries is subject to supervision of
the Bankruptcy Court and PCC does not expect to have ownership or operating
control of such subsidiaries after reorganization. Furthermore, as a result of
a settlement agreement reached by GBCC and Holdings during September 1998, GBCC
no longer participates in the management of the Sands. Accordingly, Holdings,
GB Property Funding and GBHC are no longer included on the accompanying
consolidated balance sheets of PCC. As more fully explained in Note 1 of the
Notes to Consolidated Financial Statements of PCC, during the period from
January 1, 1998 through June 30, 1998, the operations of Holdings and its
subsidiaries were accounted for by PCC under the equity method of accounting.
As a result of PCC no longer controlling the operations of the Sands, the
expectation that ownership control of Holdings will only be temporary and the
September 1998 settlement agreement which resolved certain significant
uncertainties, PCC's investment in Holdings and its subsidiaries was revalued to
a zero basis effective on July 1, 1998. Accordingly, for periods subsequent to
June 30, 1998, PCC is accounting for its investment in Holdings under the cost
method of accounting.
The financial statements of PRT Funding and the consolidated financial
statements of PCC as of March 31, 1999 and for the three month periods ended
March 31, 1999 and 1998 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, 1999 and their results of
operations and cash flows for the three month periods ended March 31, 1999 and
1998.
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 1998 Annual Report on Form 10-K.
3
<PAGE>
PRT FUNDING CORP.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
(UNAUDITED) 1998
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,000 $ 8,000
Notes receivable from affiliates, net of valuation
allowances 43,500,000 43,500,000
------------ ------------
$ 43,508,000 $ 43,508,000
============ ============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Current maturities of long-term debt $ 85,000,000 $ 85,000,000
Accrued interest payable 17,416,000 14,397,000
------------ ------------
Total current liabilities 102,416,000 99,397,000
------------ ------------
Notes payable to affiliates 15,000,000 15,000,000
------------ ------------
Shareholder's deficit:
Common stock, $1.00 par value per
share, 1,000 shares authorized
and outstanding 1,000 1,000
Accumulated deficit (73,909,000) (70,890,000)
------------ ------------
Total shareholder's deficit (73,908,000) (70,889,000)
------------ ------------
$ 43,508,000 $ 43,508,000
============ ============
</TABLE>
The accompanying introductory notes and notes to financial
statements are an integral part of these balance sheets.
4
<PAGE>
PRT FUNDING CORP.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Revenues:
Interest income $ - $2,653,000
Expenses:
Interest expense 3,019,000 3,019,000
----------- ----------
Net loss $(3,019,000) $ (366,000)
=========== ==========
</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)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(3,019,000) $ (366,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Increase in receivable from affiliates - (2,653,000)
Increase in accrued interest payable 3,019,000 3,019,000
----------- -----------
Net cash used in operating activities - -
Cash and cash equivalents at beginning of period 8,000 13,000
----------- -----------
Cash and cash equivalents at end of period $ 8,000 $ 13,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to financial
statements are an integral part of these financial statements.
6
<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 Greate Bay
Casino Corporation ("GBCC"). Both PCC and GBCC are also Delaware corporations.
Prior to December 31, 1998, PCC also owned all of the common stock of GB
Holdings, Inc. ("Holdings"), the parent of Greate Bay Hotel and Casino, Inc.
("GBHC"), which owns the Sands Hotel and Casino in Atlantic City, New Jersey
(the "Sands"). Effective on December 31, 1998, PCC transferred 21% of its
ownership in Holdings to an entity owned by certain of GBCC's officers and
directors in order to comply with the terms of a legal settlement agreement.
Prior to July 7, 1998, the Sands was managed by New Jersey Management, Inc.
("NJMI"), a New Jersey corporation and also a subsidiary of PCC. PCC also earns
management and consulting fees with respect to gaming facilities owned by
Hollywood Casino Corporation ("HCC"), a Delaware corporation which, prior to
December 31, 1996, owned approximately 80% of the common stock of GBCC.
PRT Funding was formed for the purpose of borrowing funds through the
issuance of $85,000,000 of unsecured senior notes (the "PRT Funding Notes") for
the benefit of PCC and its affiliates. PRT Funding has no operations and is
dependent on the repayment of its notes due from various affiliates for
servicing its debt obligations. Administrative services for PRT Funding are
provided by other GBCC subsidiaries at no charge. The cost of such services is
not significant.
On January 5, 1998, Holdings, GBHC and GB Property Funding Corp. ("GB
Property Funding") filed petitions for relief under Chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy
Court for the District of New Jersey (the "Bankruptcy Court"). Each company
continues to operate in the ordinary course of business, as set forth in the
Bankruptcy Code, and each company's executive officers and directors remain in
office, subject to the supervision of the Bankruptcy Court. On January 11,
1999, the Bankruptcy Court terminated the debtors' exclusive right to file a
plan of reorganization. No plan of reorganization has been formally presented
by the debtors or any other party.
The accompanying financial statements have been prepared assuming that PRT
Funding will continue as a going concern. As discussed above, certain
affiliates of PRT Funding filed for Chapter 11 bankruptcy protection on January
5, 1998. PRT Funding is also dependent on these affiliates to provide cash to
repay its debt obligations. The affiliate filings under Chapter 11 have created
a default under the indenture for PRT Funding's debt obligations; accordingly,
the outstanding principal amount of the PRT Funding Notes has accelerated and is
currently due and payable. PRT Funding deferred payment of interest due on the
April 15 and October 15, 1998 and April 15, 1999 interest payment dates. On
October 22, 1998, PRT Funding paid to the bondholders an amount equal to a
single semiannual interest payment ($4,941,000) while negotiations to
restructure the PRT Funding Notes continued. In connection with the
Restructuring (as defined below), PRT Funding paid deferred interest amounting
to $6,768,000 to the bondholders on April 30, 1999.
On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the restructuring of the PRT Funding Notes (the "Restructuring").
The agreement provides for HCC to acquire the stock of PCC, the parent of PRT
Funding, from GBCC for nominal consideration. When acquired by HCC, PCC's
assets
7
<PAGE>
PRT FUNDING CORP.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
will consist of its limited partnership interest in a management contract for
HCC's Aurora, Illinois gaming operation and a consulting contract for HCC's
Tunica, Mississippi gaming operation and its liabilities will consist of a newly
issued promissory note in the principal amount of $40,329,000 payable to the
Trustee for the PRT Funding noteholders. The voting agreement provides for HCC
to immediately discharge the promissory note.
As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC. Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations. There can be no assurance at this time that the
Restructuring will be successfully completed. The default under the indenture
for PRT Funding's debt obligations raises substantial doubt about PRT Funding's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
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 of PRT Funding as of March 31, 1999 and for the
three month periods ended March 31, 1999 and 1998 have been prepared without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. 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, 1999 and
its results of operations and cash flows for the three month periods ended March
31, 1999 and 1998.
(2) LONG-TERM DEBT
On February 17, 1994, PRT Funding issued the PRT Funding Notes which are
due April 15, 2004. 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 GBCC, 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 debt of other PCC subsidiaries. As a result of the Chapter 11
filings discussed in Note 1, a default under the indenture for the
8
<PAGE>
PRT FUNDING CORP.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
PRT Funding Notes occurred; the notes accelerated by the terms of the indenture
and are currently due and payable. Accordingly, the outstanding principal amount
of the PRT Funding Notes has been classified as current on the accompanying
balance sheets at March 31, 1999 and December 31, 1998. The PRT Funding Notes
will be replaced by new notes to be issued by PCC as part of the Restructuring
(see Note 1).
Proceeds of the PRT Funding Notes were loaned to various affiliates of PRT
Funding on the same terms. The events of default under the PRT Funding Notes
also resulted in the classification of such affiliate loans as currently due on
the accompanying balance sheets at March 31, 1999 and December 31, 1998. Based
on PRT Funding's evaluations of the realizability of the affiliate loans, a
valuation allowance in the amount of $41,500,000 was provided for at both March
31, 1999 and December 31, 1998 and the notes receivable are shown net of such
valuation allowance on the accompanying balance sheets. In addition, valuation
allowances on the interest receivable from affiliates with respect to such notes
amounting to $9,470,000 and $6,999,000 were provided for at March 31, 1999 and
December 31, 1998, respectively.
On February 17, 1994, PRT Funding issued $15,000,000 of junior subordinated
notes due in February 2005 (the "Junior Subordinated Notes") and loaned the
proceeds to various affiliates on the same terms. 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 has not
met the financial coverage tests, no interest has been paid since the end of
1995. At March 31, 1999 and December 31, 1998, accrued interest of $7,946,000
and $7,398,000, respectively, was payable to GBCC with respect to the Junior
Subordinated Notes and is included in interest payable on the accompanying
balance sheets. At December 31, 1998, a valuation provision of $15,000,000 was
provided to reduce the carrying amount of the affiliate notes receivable to
their estimated realizable value. Valuation allowances with respect to interest
receivable on such notes in the amounts of $6,849,000 and $6,300,000,
respectively, have also been provided for at March 31, 1999 and December 31,
1998. The Junior Subordinated Notes and related interest payable will be
forgiven as part of the Restructuring.
No interest was paid during either of the three month periods ended March
31, 1999 or 1998.
(3) INCOME TAXES
Components of the provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
------------ ----------
<S> <C> <C>
Deferred federal income tax benefit $ 934,000 $ 114,000
Deferred state income tax benefit 272,000 33,000
Change in valuation allowance (1,206,000) (147,000)
----------- ---------
$ - $ -
=========== =========
</TABLE>
9
<PAGE>
PRT FUNDING CORP.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
PRT Funding's operations are included in the consolidated federal income
tax return of GBCC. Pursuant to agreements between PCC and GBCC, PRT Funding's
provision for federal income taxes is calculated as if a separate federal return
were filed. No payments have been made under the tax allocation agreements
during the three month periods ended March 31, 1999 or 1998.
At March 31, 1999, PRT Funding has a tax net operating loss carryforward of
$368,000 which expires in 2009 and 2010. In addition, at March 31, 1999 and
December 31, 1998, valuation provisions on affiliate receivables (see Notes 2
and 4) result in deferred tax assets of $23,711,000 and $22,652,000,
respectively.
Statement of Financial Accounting Standards No. 109 ("SFAS 109") requires
that the tax benefit of net operating loss carryforwards and other 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. Due to the limited operations of PRT Funding and questions
regarding its ability to continue as a going concern, management is unable to
determine that realization of such asset is more likely than not and, thus, has
provided a valuation allowance for the entire deferred tax asset at March 31,
1999 and December 31, 1998.
(4) NOTES RECEIVABLE
GBHC issued a promissory note in the amount of $10,000,000 to PRT Funding
on February 17, 1994 in exchange for $10,000,000 of the proceeds PRT Funding
received with respect to the Junior Subordinated Notes. The promissory note
accrues interest at the rate of 14 5/8% per annum payable semiannually
commencing on August 17, 1994 with the principal due on February 17, 2005.
Interest income on the accompanying statement of operations for the three month
period ended March 31, 1999 is shown net of a valuation reserve of $366,000. As
a result of the Chapter 11 filings, PRT Funding has evaluated the collectability
of such note and, as previously described in Note 2, has established valuation
allowances to fully reserve the $10,000,000 note together with the related
interest due from GBHC of $4,566,000 and $4,200,000, respectively, at March 31,
1999 and December 31, 1998. On September 2, 1998, various subsidiaries of GBCC
and HCC entered into an agreement (the "Settlement Agreement") with Holdings, GB
Property Funding and GBHC. Although PRT Funding was not a direct party to the
Settlement Agreement, the Settlement Agreement provides, among other things,
that GBHC preserves whatever rights of offset, if any, it might have with
respect to the $10,000,000 notes and related interest against certain other
obligations owed to GBHC by another GBCC subsidiary.
(5) LITIGATION
On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief under Chapter 11 of the Bankruptcy Code. Each company continues to
operate in the ordinary course of business, as set forth in the Bankruptcy Code,
and each company's executive officers and directors remain in office, subject to
the supervision of the Bankruptcy Court. On January 11, 1999, the Bankruptcy
Court
10
<PAGE>
PRT FUNDING CORP.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
terminated the debtors' exclusive right to file a plan of reorganization. No
plan of reorganization has been formally presented by the debtors or any other
party.
As a result of the default and automatic acceleration under the indenture
for the PRT Funding Notes, the holders of the PRT Funding Notes could initiate
judicial proceedings to enforce their claims for payment (see comments with
respect to the Restructuring in Note 1).
11
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
(UNAUDITED) 1998
----------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $5,891,000 $3,746,000
Due from affiliates 237,000 237,000
Refundable deposits and other
current assets 52,000 114,000
---------- ----------
Total current assets 6,180,000 4,097,000
---------- ----------
Investment in Limited Partnership 3,109,000 3,104,000
---------- ----------
Property and Equipment:
Operating equipment 3,000 3,000
Less - accumulated depreciation and
amortization (3,000) (3,000)
---------- ----------
Net property and equipment - -
---------- ----------
Other Assets:
Due from affiliates, net of valuation allowances 30,000 30,000
Other assets - 8,000
---------- ----------
Total other assets 30,000 38,000
---------- ----------
$9,319,000 $7,239,000
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
12
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
(UNAUDITED) 1998
-------------- --------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 85,000,000 $ 85,000,000
Accounts payable 14,000 83,000
Accrued liabilities -
Interest 17,416,000 14,397,000
Other 5,000 4,000
Due to affiliates 358,000 342,000
------------- -------------
Total current liabilities 102,793,000 99,826,000
------------- -------------
Long-Term Debt 15,000,000 15,000,000
------------- -------------
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 (108,475,000) (107,588,000)
------------- -------------
Total shareholder's deficit (108,474,000) (107,587,000)
------------- -------------
$ 9,319,000 $ 7,239,000
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
13
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THEE MONTHS ENDED
MARCH 31,
--------------------------------
1999 1998
-------------- ------------
<S> <C> <C>
Management and consulting fees $ 300,000 $ 1,466,000
General and administrative expenses 164,000 481,000
----------- -----------
Income from operations 136,000 985,000
----------- -----------
Non-operating income (expense):
Interest income 56,000 64,000
Interest expense (3,019,000) (3,019,000)
Equity in earnings of Limited
Partnership 2,022,000 1,920,000
Equity in earnings of GB Holdings, Inc. - 2,635,000
Restructuring costs (82,000) (60,000)
----------- -----------
Total non-operating income (expense), net (1,023,000) 1,540,000
----------- -----------
(Loss) income before income taxes (887,000) 2,525,000
Income tax provision - (1,392,000)
----------- -----------
Net (loss) income $ (887,000) $ 1,133,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
14
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (887,000) $ 1,133,000
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Provision for doubtful accounts - 141,000
Equity in earnings of Limited Partnership (2,022,000) (1,920,000)
Distributions received from Limited Partnership 2,017,000 2,159,000
Equity in earnings of GB Holdings, Inc. - (2,635,000)
Increase in accounts payable and other accrued liabilities 2,951,000 3,019,000
Net change in other current assets and liabilities 78,000 21,000
Net change in other noncurrent assets and liabilities 8,000 1,222,000
----------- -----------
Net increase in cash and cash equivalents 2,145,000 3,140,000
Cash and cash equivalents at beginning of period 3,746,000 2,231,000
----------- -----------
Cash and cash equivalents at end of period $ 5,891,000 $ 5,371,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
15
<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 which is wholly
owned by Greate Bay Casino Corporation ("GBCC"). Prior to December 31, 1998, PCC
also owned all of the common stock of GB Holdings, Inc. ("Holdings"), the parent
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").
Effective on December 31, 1998, PCC transferred 21% of its ownership in Holdings
to an entity owned by certain of GBCC's officers and directors in order to
comply with the terms of a legal settlement agreement (see Note 7). Prior to
July 7, 1998, the Sands was managed by New Jersey Management, Inc. ("NJMI"),
also a wholly owned subsidiary of PCC. PCC also earns management and consulting
fees with respect to gaming facilities owned by Hollywood Casino Corporation
("HCC") which, prior to December 31, 1996, owned approximately 80% of the common
stock of GBCC.
GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation
and a wholly owned subsidiary of Holdings, 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 (the "10 7/8% 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 (the "PRT Funding 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.
On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of New
Jersey (the "Bankruptcy Court"). Each company continues to operate in the
ordinary course of business, as set forth in the Bankruptcy Code, and each
company's executive officers and directors remain in office, subject to the
supervision of the Bankruptcy Court. On January 11, 1999, the Bankruptcy Court
terminated the debtors' exclusive right to file a plan of reorganization. No
plan of reorganization has been formally presented by the debtors or any other
party.
The accompanying consolidated financial statements have been prepared
assuming that PCC will continue as a going concern. As discussed above, certain
affiliates of PCC filed for Chapter 11 bankruptcy protection on January 5, 1998.
PRT Funding is dependent on these affiliates to provide cash to repay its debt
obligations. The affiliate filings under Chapter 11 have created a default
under the indenture for PRT Funding's debt obligations; accordingly, the
outstanding principal amount of the PRT Funding Notes has accelerated and is
currently due and payable. As a result of the Chapter 11 filings, GBHC filed a
motion seeking to reject the Sands' management contract with NJMI which was
granted by the Bankruptcy Court on September 28, 1998. As a consequence of the
September 1998 settlement agreement (see Note 7), GBCC and GBHC may no longer
assert claims against each other with respect to the management agreement and,
with the passage of time, the cancellation thereof. PCC, as guarantor of the
PRT Funding Notes, does not have sufficient assets to satisfy the outstanding
amounts applicable to the PRT Funding Notes. PRT Funding deferred payment of
interest due on the April 15 and October 15, 1998 and April 15, 1999 interest
payment dates. On October 22, 1998, PRT Funding paid to the bondholders an
amount equal to a single semiannual interest payment ($4,941,000) while
negotiations to restructure the PRT Funding
16
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Notes continued. In connection with the Restructuring (as defined below), PRT
Funding paid deferred interest amounting to $6,768,000 to the bondholders on
April 30, 1999.
On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the restructuring of the PRT Funding Notes (the "Restructuring").
The agreement provides for HCC to acquire the stock of PCC, the parent of PRT
Funding, from GBCC for nominal consideration. When acquired by HCC, PCC's
assets will consist of its limited partnership interest in a management contract
for HCC's Aurora, Illinois gaming operation and a consulting contract for HCC's
Tunica, Mississippi gaming operation and its liabilities will consist of a newly
issued promissory note in the principal amount of $40,329,000 payable to the
Trustee for the PRT Funding noteholders. The voting agreement provides for HCC
to immediately discharge the promissory note.
As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC. Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations. There can be no assurance at this time that the
Restructuring will be successfully completed. The default under the indenture
for PRT Funding's debt obligations raises substantial doubt about PCC's ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
Except as noted in the following paragraph, the accompanying consolidated
financial statements include the operating activities and cash flows of PCC and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated.
As a result of the Chapter 11 filings discussed above, PCC's control over
the filing subsidiaries is subject to supervision of the Bankruptcy Court and
PCC does not expect to have ownership or operating control of such subsidiaries
after reorganization. Prior to July 7, 1998, NJMI was responsible for the
operations of the Sands under a management agreement with GBHC (see Note 4). On
May 22, 1998, GBHC filed a motion with the Bankruptcy Court seeking to reject
the existing management agreement with NJMI. A substitute agreement (the
"Interim Agreement") was entered into on June 27, 1998 and approved by the
Bankruptcy Court on July 7, 1998. Under the Interim Agreement, NJMI continued to
provide certain agreed upon services to GBHC until September 28, 1998.
Furthermore, as the result of a settlement agreement reached by GBCC and
Holdings during September 1998 (see Note 7), PCC no longer controls the
management of the Sands. Accordingly, Holdings, GB Property Funding and GBHC are
no longer included on the accompanying consolidated balance sheets. During the
period from January 1, 1998 through June 30, 1998, the operations of Holdings
and its subsidiaries were accounted for under the equity method of accounting
(see Note 6). As a result of PCC no longer controlling the operations of the
Sands, the expectation that ownership control of Holdings will only be temporary
and the September 1998 settlement agreement which resolved certain significant
uncertainties, PCC's investment in Holdings and
17
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
its subsidiaries was revalued to a zero basis effective on July 1, 1998.
Accordingly, for periods subsequent to June 30, 1998, PCC is accounting for its
investment in Holdings under the cost method of accounting.
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.
In June 1998, the FASB issued a new statement, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"), effective for fiscal years
beginning after June 15, 1999. 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. PCC does not believe the adoption of SFAS 133 will have a significant
impact on its financial position or results of operations.
The financial statements of PCC as of March 31, 1999 and for the three
month periods ended March 31, 1999 and 1998 have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the 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, 1999
and the results of its operations and cash flows for the three month periods
ended March 31, 1999 and 1998.
(2) LONG-TERM DEBT AND PLEDGE OF ASSETS
Certain of the indentures to PCC's indebtedness contain cross-default
provisions with first mortgage notes issued by GB Property Funding. On January
5, 1998, Holdings, GB Property Funding and GBHC filed petitions for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
District of New Jersey. Each company continues to operate in the ordinary
course of business, as set forth in the Bankruptcy Code, and each company's
executive officers and directors as of the date of the filing remain in office,
subject to the supervision of the Bankruptcy Court. The filings of such
petitions constitute a default under the indenture for the PRT Funding Notes.
Accordingly, the outstanding principal amount of the PRT Funding Notes has
accelerated, is currently due and payable and has been classified as current on
the accompanying consolidated balance sheets.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
11 5/8% senior notes, due 2004 (a) $ 85,000,000 $ 85,000,000
14 5/8% junior subordinated notes, due 2005 (b) 15,000,000 15,000,000
------------ ------------
Total indebtedness 100,000,000 100,000,000
Less - current maturities (85,000,000) (85,000,000)
------------ ------------
Total long-term debt $ 15,000,000 $ 15,000,000
============ ============
_____________________
</TABLE>
18
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(a) On February 17, 1994, PRT Funding issued the PRT Funding Notes which are
due April 15, 2004. 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 GBCC, to merge,
consolidate or sell substantially all of their assets or to incur
additional indebtedness beyond certain limitations. The PRT Funding Notes
will be replaced by a new note to be issued by PCC as part of the
Restructuring (see Note 1).
(b) On February 17, 1994, PRT Funding issued $15,000,000 of junior subordinated
notes (the "Junior Subordinated Notes"). 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 has not met the financial coverage tests, no interest has been paid
since the end of 1995. The Junior Subordinated Notes and related interest
payable will be forgiven as part of the Restructuring.
No interest was paid during either of the three month periods ended March
31, 1999 and 1998.
(3) INCOME TAXES
Components of the provision for income taxes consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
----------- ------------
<S> <C> <C>
Federal income tax (provision for) benefit:
Current $ - $(1,392,000)
Deferred 303,000 1,220,000
State income tax (provision) benefit:
Current - -
Deferred 165,000 411,000
Change in valuation allowance ( 468,000) (1,631,000)
---------- -----------
$ - $(1,392,000)
========== ===========
</TABLE>
PCC is included in the consolidated federal income tax return of GBCC.
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 either of the three month
periods ended March 31, 1999 or 1998. 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.
19
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Deferred income taxes result primarily from the provision of valuation
allowances on affiliate receivables, the write off of deferred financing costs
and differences in the timing of deductions taken between tax and financial
reporting purposes for certain restructuring costs.
At March 31, 1999, PCC and its subsidiaries have net operating loss
carryforwards ("NOL's") for federal and state tax purposes totaling
approximately $1,241,000 and $9,000,000, respectively. The federal tax NOL's do
not begin to expire until 2009 and most of the state tax NOL's expire by 2003.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109") requires that the tax benefit of NOL's and 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. Due to (i) the continued availability of NOL's
originating in prior years for federal and state tax purposes, (ii) the limited
operations of PCC following the December 31, 1998 deconsolidation for federal
income tax purposes of Holdings, PCC's most significant operating subsidiary,
and (iii) questions regarding PCC's ability to continue as a going concern,
management is unable to determine that the realization of such asset is more
likely than not and, thus, has provided valuation allowances for the entire
deferred tax asset at both March 31, 1999 and December 31, 1998.
The components of PCC's net deferred tax asset as of March 31, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 1,231,000 $ 760,000
Allowance for doubtful accounts 102,000 102,000
Write off deferred financing costs 720,000 756,000
Restructuring costs 651,000 618,000
----------- -----------
Total deferred tax assets 2,704,000 2,236,000
Valuation allowance (2,704,000) (2,236,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
Sales or purchases of PCC's common stock could 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 PCC to utilize these loss carryforwards in
later tax periods. Should such a change of control occur, the amount of annual
loss carryforwards available for use would most likely be substantially reduced.
Future treasury regulations, administrative rulings or court decisions may also
effect PCC's future utilization of its loss carryforwards.
The Internal Revenue Service is currently examining the consolidated
federal income tax returns of HCC for the years 1993 through 1996 in which PCC
was included. Management believes that the results
20
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
of such examination will not have a material adverse effect on the consolidated
financial position or results of operations of PCC.
(4) TRANSACTIONS WITH RELATED PARTIES
As a result of the Chapter 11 filings discussed in Note 1, the assets and
liabilities of Holdings and its subsidiaries are not included on the
accompanying consolidated balance sheets at March 31, 1999 and December 31,
1998. Accordingly, intercompany receivables and payables with Holdings and its
subsidiaries are considered balances outstanding with affiliates and
transactions with Holdings and its subsidiaries are considered transactions with
affiliates.
Prior to May 1, 1998, NJMI was responsible for the operations of the Sands
under a management agreement with GBHC. Under such agreement, NJMI was entitled
to receive annually (i) a basic consulting fee of 1.5% of "adjusted gross
revenues," as defined, and (ii) incentive compensation of between 5% and 7.5% of
gross operating profits in excess of certain stated amounts should annual "gross
operating profits," as defined, exceed $5,000,000. On May 22, 1998, GBHC filed
a motion with the Bankruptcy Court seeking to reject the existing management
agreement with NJMI. The Interim Agreement was entered into on June 27, 1998
and was approved by the Bankruptcy Court on July 7, 1998. Under the Interim
Agreement, effective as of May 1, 1998 and terminating on September 28, 1998,
NJMI continued to provide certain agreed upon services to GBHC at a monthly fee
of $165,000 of which $122,000 was paid on a monthly basis in arrears and the
remaining $43,000 was deferred and is to be paid upon confirmation of GBHC's
plan of reorganization by the Bankruptcy Court. All management fees terminated
upon the granting of GBHC's motion to reject the management contract by the
Bankruptcy Court on September 28, 1998. As a consequence of the September 1998
settlement agreement (see Note 7), GBCC and GBHC may no longer assert claims
against each other with respect to the operation of the management contract and,
with the passage of time, the cancellation thereof.
Fees earned by NJMI under the management agreement and Interim Agreements
amounted to $1,166,000 during the three month period ended March 31, 1998.
Management fees receivable from the Sands at both March 31, 1999 and December
31, 1998 amounted to $267,000 net of a valuation allowance of $115,000. Of the
amount receivable at March 31, 1999 and December 31, 1998, $30,000, net of the
aforementioned valuation allowance, which was earned prior to GBHC's bankruptcy
filing, is included in noncurrent due from affiliates on the accompanying
consolidated balance sheet and is subject to terms of a reorganization plan
which requires confirmation by the Bankruptcy Court (see Note 7).
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
consulting agreement with HCT which expires in December 2003, PCC receives
monthly consulting fees of $100,000. Such fees amounted to $300,000 for each of
the three month periods ended March 31, 1999 and 1998.
Interest expense incurred with respect to the Junior Subordinated Notes
(Note 2) amounted to $548,000 during each of the three month periods ended March
31, 1999 and 1998. Interest due to GBCC on the Junior Subordinated Notes of
$7,946,000 and $7,398,000, respectively, is included in interest payable on the
accompanying consolidated balance sheets at March 31, 1999 and December 31, 1998
21
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
GBHC issued a promissory note in the amount of $10,000,000 on February 17,
1994 to PRT Funding. Such note accrues interest at the rate of 14 5/8% per
annum and is payable semiannually commencing on August 17, 1994. The principal
amount of the note is due on February 17, 2005. During the first quarter of
1997, PCC loaned $5,000,000 to GBHC for working capital purposes. Such
borrowing accrues interest at the rate of 14 5/8% per annum payable semiannually
commencing July 15, 1997. As a result of (i) GBHC no longer being included as a
consolidated subsidiary and (ii) GBHC's filing under Chapter 11 making prospects
for ultimate collection doubtful, the notes, together with accrued interest
receivable aggregating $3,458,000, were reflected as an adjustment to PCC's
negative investment in Holdings at December 31, 1997. Interest income on the
notes has not been recognized for periods subsequent to GBHC's filing under
Chapter 11 on January 5, 1998. In accordance with certain provisions of the
September 1998 settlement agreement with GBCC (see Note 7), GBHC preserves
whatever rights of offset, if any, it might have with respect to an advance made
by GBHC to another GBCC subsidiary against the $10,000,000 and $5,000,000 loans
described above. The notes, together with accrued interest of $6,200,000 and
$5,652,000, are fully reserved on the accompanying consolidated balance sheets
at March 31, 1999 and December 31, 1998, respectively.
Prior to the September 1998 settlement agreement (see Note 7), PCC and its
subsidiaries performed certain services for GBHC and billed GBHC for such
services. Similarly, PCC and its subsidiaries were charged for certain legal,
accounting and other expenses incurred by GBCC and HCC and their respective
subsidiaries that related to PCC's business. For the three month period ended
March 31, 1998, billings to GBHC amounted to $21,000 and charges from affiliates
amounted to $265,000.
(5) 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 $2,600,000 and $2,546,000, respectively, during the three month
periods ended March 31, 1999 and 1998. PML also incurred operating and other
expenses amounting to $307,000 and $357,000, respectively, during the three
month periods ended March 31, 1999 and 1998. 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 the
general partner.
22
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(6) EQUITY IN EARNINGS OF GB HOLDINGS, INC.
As discussed in Note 1, the operations of Holdings and its subsidiaries
were accounted for under the equity method of accounting for the six month
period from January 1, 1998 through June 30, 1998. Due to the significance of
Holdings' operations, summarized consolidated results of operations of Holdings
and its subsidiaries for the three month period from January 1, 1998 through
March 31, 1998 are set forth below. Transactions with Holdings and its
subsidiaries are included in Note 4.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
-------------------
<S> <C>
Net revenues $55,613,000
-----------
Departmental expenses 45,285,000
General and administrative expenses 3,981,000
Depreciation and amortization 2,899,000
-----------
Total operating expenses 52,165,000
-----------
Income from operations 3,448,000
-----------
Interest, net 260,000
Gain on disposal of assets 28,000
-----------
Total non-operating income 288,000
-----------
Income before taxes and other item 3,736,000
Income tax provision -
-----------
Income before other items 3,736,000
Reorganization and other related costs (1,101,000)
-----------
Net income $ 2,635,000
===========
</TABLE>
(7) LITIGATION
On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief under Chapter 11 of the Bankruptcy Code. Each company continues to
operate in the ordinary course of business, as set forth in the Bankruptcy Code,
and each company's executive officers and directors remain in office, subject to
the supervision of the Bankruptcy Court. On January 11, 1999, the Bankruptcy
Court terminated the debtors' exclusive right to file a plan of reorganization.
No plan of reorganization has been formally presented by the debtors or any
other party.
As a result of the default and automatic acceleration under the indenture
for the PRT Funding Notes, the holders of the PRT Funding Notes could initiate
judicial proceedings to enforce their claims for payment; however, no such
proceedings have been initiated. PCC, as guarantor of the PRT Funding Notes, is
currently involved in the Restructuring (see Note 1).
23
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On May 22, 1998, GBHC filed a motion with the Bankruptcy Court seeking to
reject the management agreement with NJMI (see Note 4). The Interim Agreement
was entered into and approved by the Bankruptcy Court on July 7, 1998 and the
motion to reject the management agreement was approved by the Bankruptcy Court
on September 28, 1998. As a consequence of the September 1998 settlement
agreement described below, GBCC and GBHC may no longer assert claims against
each other with respect to the operation of the management contract and, with
the passage of time, the cancellation thereof.
On July 27, 1998, GBHC filed an action in the Bankruptcy Court against GBCC
seeking, among other things, to enjoin GBCC from using the tax NOL's of GBHC.
On September 2, 1998, GBCC reached a settlement with GBHC which was approved by
the Bankruptcy Court. The terms of the settlement agreement provided, among
other things, that GBHC be included in the consolidated federal income tax
return of GBCC for 1997 and 1998 enabling GBCC to utilize GBHC's tax NOL's. The
agreement also provided that on or before December 31, 1998, GBCC would cause
Holdings and its subsidiaries to be deconsolidated from GBCC for federal income
tax purposes by means of transferring 21% of the stock ownership of Holdings to
an unconsolidated entity. Such transfer was accomplished effective as of
December 31, 1998.
On April 22, GBHC filed a motion with the Bankruptcy Court seeking to
disallow NJMI's pre-petition claims (see Note 4). The motion to disallow is
scheduled to be heard by the Bankruptcy Court on May 24, 1999.
On October 8, 1998, GBCC and HCC filed a complaint in the District Court of
Dallas County, Texas against Arthur Andersen LLP, PCC's former independent
accountants, and selected partners alleging negligent advice and breach of
contract with respect to the tax consequences resulting from the spin-off of
GBCC's stock to HCC's shareholders on December 31, 1996. The lawsuit is
currently in the initial stages of discovery.
24
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
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 operation, cash flows, financial condition and
prospects of PCC. The actual results could differ materially from those
indicated by the forward-looking statements because of various risks and
uncertainties including among other things, changes in competition, economic
conditions, tax regulations, state regulations applicable to the gaming industry
in general or PCC in particular, and other risks indicated in PCC's filing 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
PCC or its management are intended to identify forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
PCC and its subsidiaries conduct two major business activities.
PCC and NJMI provide management and consulting services or invest in entities
which provide such services to affiliates which own hotel and casino properties.
Prior to 1998, cash flow from such activities, specifically the PML limited
partnership interest held by PCC, the Tunica Consulting Contract and the Sands
Management Contract were sufficient to meet debt service obligations on the PRT
Funding Notes ($9.9 million annually) and, when permitted by the PRT Funding
Note indenture, on the Junior Subordinated Notes.
As a consequence of the Chapter 11 filing by Holdings, GB Property Funding
and GBHC, PRT Funding is in default on the $85 million principal amount of PRT
Funding Notes which, together with accrued interest, accelerated and became
immediately due and payable. The bankruptcy filing of GBHC also permitted it to
reject the Sands Management Agreement, an important source of funds for debt
service on the PRT Funding Notes. Management of GBHC requested modification to
the fee arrangement under the Sands management agreement and reserved its right
to reject the agreement. A modified agreement was entered into effective May 1,
1998, and expired on September 28, 1998, which reduced the monthly fee to
$165,000 compared to an average monthly fee of $532,000 during the same period
in 1997. GBHC's motion to reject the management agreement was approved by the
Bankruptcy Court on September 28, 1998. As a consequence of the September 1998
settlement agreement (see Note 7 of Notes to Consolidated Financial Statements
of PCC), GBCC and GBHC may no longer assert claims against each other with
respect to the management agreement and, with the passage of time, the
cancellation thereof. PCC does not have the financial resources or the capacity
to borrow sufficient cash to satisfy the $85 million principal amount of the PRT
Funding Notes which have accelerated. PRT Funding deferred payment of interest
due on the April 15 and October 15, 1998 and April 15, 1999 interest payment
dates. On October 22, 1998, PRT Funding paid to the bondholders an amount equal
to a single semiannual interest payment ($4.9 million) while negotiations to
restructure the PRT Funding Notes continued. In connection with the
Restructuring PRT Funding paid deferred interest amounting to $6.8 million to
the bondholders on April 30, 1999.
On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the Restructuring of the PRT Funding Notes. The agreement provides
for HCC to acquire the stock of PCC, the parent of PRT Funding, from GBCC for
nominal consideration. When acquired by HCC, PCC's assets will consist of
25
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
its limited partnership interest in a management contract for the Aurora Casino
and a consulting contract for the Tunica Casino and its liabilities will consist
of a newly issued promissory note in the principal amount of $40.3 million
payable to the Trustee for the PRT Funding noteholders. The voting agreement
provides for HCC to immediately discharge the promissory note.
As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC. Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations. There can be no assurance at this time that the
Restructuring will be successfully completed. Accordingly, there is substantial
doubt about the ability of PCC to continue as a going concern.
GBHC owns and operates the Sands Hotel and Casino in Atlantic City. Prior to
1996, the Sands' cash flow was sufficient to meet debt service obligations and
fund a substantial portion of annual capital expenditures. The Sands also used
short-term borrowings to fund seasonal cash needs for certain capital projects.
During 1996 and 1997, declines in operating cash flow at the Sands resulted in
the need for periodic financial assistance from PCC and GBCC in order to meet
debt service obligations. Substantial additional financial assistance would
have been required to make the January 15, 1998 principal and interest payments
due on the 10 7/8% First Mortgage Notes.
GBHC was unable to obtain additional borrowings from affiliates or other
sources and, accordingly, on January 5, 1998, Holdings, GB Property Funding and
GBHC filed petitions seeking protection under Chapter 11 of the Bankruptcy Code.
As a result of the filings, the Sands has sufficient cash flow to continue
normal operations while it seeks to develop a plan of reorganization for
submission to its creditors and the Bankruptcy Court. Capital expenditures,
other than normal recurring capital expenditures in the ordinary course of
business, will require prior approval of the Bankruptcy Court. The Bankruptcy
Court has approved a $13.6 million, two-year capital expenditure program
including $7.1 million for rooms renovations and $6.5 million for the
replacement of slot machines. On January 11, 1999, the Bankruptcy Court
terminated the debtor's exclusive right to file a plan of reorganization. As of
May 12, 1999, no plan of reorganization has been formally presented by the
debtors or any other party. There can be no assurance at this time that GBHC's
plan of reorganization, when submitted, will be accepted by its creditors or the
Bankruptcy Court. In any event, it is not anticipated that PCC will retain a
substantial equity position in Holdings as a result of a reorganization and,
accordingly, it is not anticipated that the Holdings group will contribute
significantly to the future cash flows of PCC.
26
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
GENERAL
As a result of the filings by Holdings, GB Property Funding and GBHC, PCC's
control over the filing subsidiaries is subject to the supervision of the
Bankruptcy Court. PCC does not expect to have ownership or operating control of
such subsidiaries after reorganization. Accordingly, the accompanying
consolidated statement of operations for the three months ended March 31, 1998
reflects the operations of the filing subsidiaries under the equity method of
accounting and for the three months ended March 31, 1999 under the cost method
of accounting.
MANAGEMENT AND CONSULTING FEES
Management and consulting fees declined $1.2 million (79.5%) for the three
months ended March 31, 1999 compared to 1998. The 1999 decrease is due to the
elimination of management fees earned resulting from the termination of the NJMI
management contract with the Sands. A motion to reject the management contract
was granted by the Bankruptcy Court on September 28, 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for PCC decreased $317,000 (65.9%) for
the three month period ended March 31, 1999 compared to 1998. A decline in
overhead costs associated with the management of the Sands was partially offset
by increases in administrative costs which are no longer shared with GBHC.
INTEREST
The decrease in interest income for PCC was not significant from a monetary
standpoint during the three month period ended March 31, 1999 compared with
1998. Interest expense was unchanged from the corresponding period of the prior
year.
EQUITY IN EARNINGS OF LIMITED PARTNERSHIP
Effective February 17, 1994, PCC acquired the limited partnership interest
in PML, a limited partnership which 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 the general partner. PCC's equity in the earnings of PML
increased by $102,000 (5.3%) in 1999 compared to 1998. The 1999 increase
reflects improved management fees earned by PML which are based, in part, on the
operating results of the Aurora Casino.
EQUITY IN EARNINGS OF GB HOLDINGS, INC.
PCC's equity in the earnings of Holdings for the three months ended March
31, 1998 amounted to $2.6 million. As a result of PCC no longer controlling the
operations of the Sands, the continued
27
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
expectation that ownership control of Holdings will only be temporary and the
September 1998 settlement agreement which resolved certain significant
uncertainties, PCC's investment in Holdings and its subsidiaries was revalued to
a zero basis effective on July 1, 1998 and PCC is no longer recognizing equity
in the earnings of Holdings and its subsidiaries.
RESTRUCTURING COSTS
The 1999 increase results from professional fees and other corporate
overhead costs incurred in connection with the default of the PRT Funding Notes
and efforts to restructure the obligations. Management believes that such
reorganization costs will continue in the near term pending the outcome of the
Restructuring.
INCOME TAX PROVISION
PCC's operations are included in GBCC's consolidated federal income tax
return. Pursuant to agreements between PCC and GBCC, 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.
Due to (i) the continued availability of NOL's originating in prior years
for federal and state tax purposes, (ii) the limited operations of PCC following
the December 31, 1998 deconsolidation for federal income tax purposes of
Holdings, PCC's most significant operating subsidiary, and (iii) questions
regarding PCC's ability to continue as a going concern, management is unable to
determine that the realization of deferred tax assets resulting from NOL's and
temporary differences is more likely than not. Accordingly, under the
provisions of Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes", PCC has provided valuation allowances for the entire deferred
tax asset at both March 31, 1999 and December 31, 1998.
YEAR 2000 COMPLIANCE
In the year 2000, computer programs that have date sensitive software may
recognize a date using "00" as the year 1900 rather than 2000. Such an error
could result in a system failure or miscalculations causing disruptions of
operations including, among other things, a temporary inability to process
transactions or engage in similar normal business activities.
Management has initiated a program to prepare the Company's computer systems
and applications for the year 2000. Such program includes the use of both
internal and external resources to test and, if necessary, modify or replace
software applications. The costs of acquiring, testing and converting such
systems are expected to be minimal. Management expects its Year 2000 date
conversion projects to be completed on a timely basis. The company has also
initiated formal communication with its suppliers to determine the extent to
which its information systems are vulnerable to those third parties' failure to
resolve their Year 2000 issues. While there can be no assurance that the Company
will fully resolve the Year 2000 issues, neither the estimated cost nor the
outcome of the Year 2000 problem is expected to have a material impact on the
Company's operations, liquidity or financial position.
28
<PAGE>
PRATT CASINO CORPORATION AND SUBSIDIARIES
(WHOLLY OWNED BY PPI CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEASONALITY AND OTHER FLUCTUATIONS
The Aurora Casino experiences some seasonality due to severe winter weather,
and, as a result, management fees earned have fluctuated with such seasonality.
In addition, the Aurora Casino's operations may fluctuate significantly due to a
number of other factors, including chance. Such seasonality and fluctuations
may materially affect PCC's results of operations.
29
<PAGE>
PART II: OTHER INFORMATION
- --------------------------
ITEM 1. LEGAL PROCEEDINGS
On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief under Chapter 11 of the Bankruptcy Code. Each company continues to
operate in the ordinary course of business, as set forth in the Bankruptcy Code,
and each company's executive officers and directors remain in office, subject to
the jurisdiction of the Bankruptcy Court. On January 11, 1999, the Bankruptcy
Court terminated the debtors' exclusive right to file a plan of reorganization.
As of May 12, 1999, no reorganization plan has been formally presented by the
debtors or any other party.
As a result of the default and automatic acceleration under the indenture
for the PRT Funding Notes, the holders of the PRT Funding Notes could initiate
judicial proceedings to enforce their claims for payment. On April 28, 1999,
PCC, PRT Funding, NJMI, GBCC, HCC and the holders of substantially all of the
PRT Funding Notes entered into a voting agreement which provides for the
Restructuring of the PRT Funding Notes. The agreement provides for HCC to
acquire the stock of PCC, the parent of PRT Funding, from GBCC for nominal
consideration. When acquired by HCC, PCC's assets will consist of its limited
partnership interest in a management contract for the Aurora Casino and a
consulting contract for the Tunica Casino and its liabilities will consist of a
newly issued promissory note in the principal amount of $40,329,000 payable to
the Trustee for the PRT Funding noteholders. The voting agreement provides for
HCC to immediately discharge the promissory note.
As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC. Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.
The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization. Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations.
On April 22, 1999, GBHC filed a motion with the Bankruptcy Court seeking to
disallow NJMI's pre-petition claims. The motion to disallow is scheduled to be
heard by the Bankruptcy Court on May 24, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As a result of the filings discussed in Item 1. above, $182,500,000
principal amount of 10 7/8% First Mortgage Notes issued by GB Property Funding
are in default. Principal payments of $2,500,000 each due on January 15 and
July 15, 1998 and on January 15, 1999 were not made. Under an order of the
Bankruptcy Court permitting the disposition of furniture and equipment in the
ordinary course of business, any payments received by GBHC for the sale of such
assets, which are part of the security for the 10 7/8% First Mortgage Notes,
must be remitted to the Trustee for the 10 7/8% First Mortgage Notes as
reductions to the outstanding principal. As of May 12, 1999, $361,000 has been
remitted to the Trustee from the proceeds on the sale of equipment. The accrual
of interest on the 10 7/8% First Mortgage Notes for periods subsequent to the
filings has been suspended; such interest on a contractual basis amounts to
approximately $36,330,000 as of May 12, 1999.
The default on the 10 7/8% First Mortgage Notes also resulted in a default
under the indenture for the $85,000,000 11 5/8% Unsecured Senior Notes issued by
PRT Funding Corp. and guaranteed by Pratt
30
<PAGE>
Casino Corporation. Accordingly, the maturity of the PRT Funding Notes has
accelerated. On October 22, 1998, PRT Funding paid the bondholders an amount
equal to a single interest payment ($4,941,000) while negotiations to
restructure the notes continued. In connection with the Restructuring, PRT
Funding paid deferred interest amounting to $6,768,000 to the bondholders on
April 30, 1999. Interest due on such notes, exclusive of compound interest on
amounts in arrears, amounts to $5,682,000 as of May 12, 1999.
ITEM 6.(A) - EXHIBITS
*10.1 Voting Agreement dated as of April 28, 1999 among GBCC, PCC, PRT Funding
Corp., NJMI, HCC and the Consenting Holders of PRT Funding Notes.
_________________
* Incorporated by reference from the same-numbered exhibit included in
GBCC's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
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, 1999. The registrants filed their Annual Report on Form 10-K for
the year ended December 31, 1998 with the Securities and Exchange Commission on
March 31, 1999.
31
<PAGE>
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.
PRT FUNDING CORP.
PRATT CASINO CORPORATION
------------------------
Registrants
Date: May 12, 1999 By: /s/ John C. Hull
--------------- -------------------------------------
John C. Hull
President and Chief Executive Officer
32
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 43,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,508
<PP&E> 0
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<TOTAL-ASSETS> 43,508
<CURRENT-LIABILITIES> 102,416
<BONDS> 15,000
0
0
<COMMON> 1
<OTHER-SE> (73,909)
<TOTAL-LIABILITY-AND-EQUITY> 43,508
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,019
<INCOME-PRETAX> (3,019)
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<DISCONTINUED> 0
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<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
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<PERIOD-START> JAN-01-1999
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<CURRENT-ASSETS> 6,180
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