1
WHG Resorts & Casinos Inc. Exhibit 13
Selected Financial Data:
Years ended June 30,
1997 1996 1995 1994 1993
(In thousands)
Selected Statement of Income Data:
Revenues $ 69,634 $ 68,694 $ 70,878 $ 75,480 $ 70,680
--------- --------- --------- --------- ---------
Operating income $ 17,087 $ 13,558 $ 7,624 $ 13,892 $ 14,162
Interest expense, net (931) (1,859) (1,752) (3,551) (3,873)
Equity in (loss) of nonconsolidated
affiliates (1,196) (3,465) (7,003) (3,534) (135)
--------- --------- --------- --------- ---------
Income (loss) before tax provision and
minority interests 14,960 8,234 (1,131) 6,807 10,154
Credit (provision) for income taxes (3,397) (1,645) 234 7 (1,050)
Minority interests in income (4,000) (3,636) (2,910) (4,597) (3,332)
Dividend on preferred stock of
Condado Plaza (246) (516) (557) -- --
--------- --------- --------- --------- ---------
Net income (loss) $ 7,317 $ 2,437 $ (4,364) $ 2,217 $ 5,772
========= ========= ========= ========= =========
Primary earnings (loss) per share $ 1.20 $ .40 $ (.72) $ .37 $ .95
--------- --------- --------- --------- ---------
Shares used in primary earnings per
share calculations 6,086,443 6,050,200 6,050,200 6,050,200 6,050,200
--------- --------- --------- --------- ---------
Fully diluted earnings (loss) per
share $ 1.17 $ .40 $ (.72) $ .37 $ .95
--------- --------- --------- --------- ---------
Shares used in fully diluted earnings
per share calculations 6,247,241 6,050,200 6,050,200 6,050,200 6,050,200
--------- --------- --------- --------- ---------
Pro forma net income (loss) reflecting
income taxes on a separate return
basis (unaudited)(1) $ 7,236 $ 1,537 $ (6,500) $ 1,257 $ 5,579
========= ========= ========= ========= =========
Selected Balance Sheet Data:
Investments in, receivables and
advances to nonconsolidated affiliates $ 31,708 $ 27,734 $ 29,696 $ 31,367 $ 28,018
Property and equipment, net 43,861 44,919 48,660 51,627 45,454
Total assets 117,473 104,734 111,306 116,144 103,276
Long-term debt, including current
maturities 23,549 26,854 30,741 30,309 36,069
Minority interests 19,990 18,810 16,363 16,387 14,229
Stockholders' equity 55,324 37,500 35,063 39,427 37,210
(1) Pro forma net income (loss) reflecting income taxes on a separate return
basis (unaudited) reflects the provision for income taxes without the tax
benefits allocated to the Company from WMS Industries Inc. ("WMS") for
utilization of partnership losses in the WMS consolidated Federal income
tax return.
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Management's Discussion and Analysis of Financial Condition
and Results of Operations
The discussion set forth below under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as the discussions
contained under "Item 1. Business", "Item 3. Legal Proceedings", and "Item 13.
Certain Relationships and Related Transactions -- Relationship with WMS" in the
Company's Annual Report on Form 10-K contain certain forward looking statements
that involve risks and uncertainties, including the outcome of refinancinc
certain debt and seasonality. The Company's actual results could differ
materially from those anticipated in the forward looking statements.
Financial Condition
Cash flows from consolidated operating, investing and financing activities of
the Company during fiscal 1997 resulted in net cash provided of $11,270,000
compared with net cash provided of $2,989,000 during fiscal 1996.
Cash provided by operating activities before changes in operating assets and
liabilities was $18,933,000 during fiscal 1997 compared with cash provided of
$19,664,000 for fiscal 1996. This decrease was primarily due to a decrease in
deferred tax expense and a lower loss from nonconsolidated affiliates included
in net income in fiscal 1997. This was offset by an increase in net income to
$7,317,000 in fiscal 1997 from $2,437,000 in fiscal 1996.
The changes in operating assets and liabilities, as shown in the consolidated
statements of cash flows, resulted in cash outflow of $4,243,000 during fiscal
1997 and $1,760,000 during fiscal 1996, due in both cases to the increase in net
amounts due from nonconsolidated affiliates.
Cash used by investing activities was $2,941,000 in fiscal 1997 and $164,000 in
fiscal 1996. Cash used for the purchase of property and equipment was $3,153,000
in fiscal 1997 and $1,149,000 in fiscal 1996.
Cash used by financing activities during fiscal 1997 was $527,000 compared with
cash used of $14,751,000 during fiscal 1996. Net payments of long-term debt were
$4,203,000 and $3,887,000 in fiscal 1997 and 1996, respectively. Net
intercompany transactions with WMS Industries Inc. (prior to the spin-off)
resulted in cash provided of $4,273,000 in fiscal 1997 compared to cash used of
$6,275,000 in fiscal 1996. During fiscal 1996 Posadas de Puerto Rico Associates,
Incorporated redeemed $3,400,000 of its preferred stock then owned by WMS
Industries.
See consolidated statements of cash flows on page 22 for further details on cash
flow items.
The three hotels and casinos and Williams Hospitality Group Inc. ("WHGI")
provide for their off-season cash needs through their own cash and from
individual short-term note arrangements. Annual capital expenditures are
provided for each year as part of the annual budgeting process. Capital
expenditures are approved taking into account available cash and available
financing, if necessary.
The Condado Plaza has a $2,000,000 bank line of credit available on which
$1,000,000 was borrowed at June 30, 1997. The El San Juan has a $1,000,000 bank
line of credit available of which none was borrowed at June 30, 1997. El San
Juan and El Conquistador long-term debt agreements provide that advances and
other payments to the owners are to be based on defined levels of cash flow from
the respective hotels and casinos which based on historical results limits and
prohibits, respectively, such transactions. The long-term debt agreements and
other agreements permit the payment to WHGI of certain management fees and
intercompany charges from the three hotels and casinos. There are no agreements
restricting WHGI from paying dividends or otherwise making advances and the
Company expects to receive dividends from WHGI cash flow to provide for its
operating expenses. Management believes that cash flow from the operations of
Condado Plaza and El San Juan will be adequate to pay or refinance its long-term
debt as it becomes due and provide for its normal planned capital additions for
the next twelve months.
In September, 1997, the Company executed an asset purchase agreement to acquire
an existing 127 room hotel and related land next to the Condado Plaza for
$9,600,000, subject to certain terms and conditions. If the agreement is
finalized, the Company intends to finance the purchase price through
long term financing and the use of excess cash currently available.
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El Conquistador will have $120,000,000 of indebtedness due on February 1, 1998,
unless extended, which is secured by substantially all of the assets of the El
Conquistador. El Conquistador has retained investment advisors to assist in
structuring the refinancing of the El Conquistador debt. Based on operating
history of the El Conquistador, the Company believes such refinancing will be
achieved, but there can be no assurance thereof. If such financing is not
renewed or replaced and as a consequence thereof the existing lenders foreclose
on the El Conquistador, the Company would probably incur a loss on its
investment in and receivables from the El Conquistador which would adversely
affect the financial position of the Company. In addition, WHGI would, most
likely, cease to receive management fees from the El Conquistador. See Note 4 to
the consolidated financial statements of the Company included elsewhere herein.
FISCAL 1997 COMPARED WITH FISCAL 1996
Segment data discussed below is taken or derived from segment disclosure in Note
15 to the consolidated financial statements of the Company included elsewhere
herein.
Consolidated revenues increased by $940,000 or 1.4% in fiscal 1997 to
$69,634,000 from $68,694,000 in fiscal 1996. Both WHGI and Condado Plaza
revenues increased.
Operating income in the Condado Plaza segment was $6,348,000 in fiscal 1997
compared to $2,830,000 in fiscal 1996. The increase was primarily due to
reductions in costs and expenses in all departments resulting from cost
reduction efforts of management and reduced provision for doubtful accounts
receivable.
Operating income in the WHGI segment increased due to increased management fees
from the El San Juan and Condado Plaza because of their improved operations.
Consolidated operating income increased by 26% in fiscal 1997 to $17,087,000
from $13,558,000 in fiscal 1996 due primarily to cost reductions at the Condado
Plaza and increased management fees primarily from the El San Juan.
The equity in loss of nonconsolidated affiliates was ($1,196,000) for fiscal
1997 compared with a loss of ($3,465,000) for fiscal 1996. The 50% equity in
income of the El San Juan was $988,000 in fiscal 1997 compared with equity in
loss of ($679,000) in fiscal 1996. The improved results at the El San Juan were
due primarily to higher casino revenues resulting from a higher win percentage
and lower costs and expenses resulting from cost reduction efforts by management
and reduced provision for doubtful accounts receivable. The 23.3% equity in loss
of the El Conquistador was ($2,184,000) in fiscal 1997 compared with
($2,786,000) in fiscal 1996.
The income tax provision results primarily from Puerto Rico and Federal income
tax provisions for WHGI and Federal taxes or credit allocated from WMS
Industries Inc. (prior to the spin-off) primarily on the equity in the income or
loss of nonconsolidated affiliates. The income tax provision in fiscal 1997 was
$3,397,000 compared with $1,645,000 in fiscal 1996. The increase is primarily
due to higher Federal income taxes on WHGI income and a lower equity in loss on
nonconsolidated affiliates.
Net income in fiscal 1997 was $7,317,000 compared with net income of $2,437,000
in fiscal 1996. The net income increased by approximately 300% due primarily to
higher casino revenues at the El San Juan and cost reductions and reduced
provision for doubtful accounts receivable at all the hotels and casinos in
which the Company owns interests notwithstanding the higher income taxes.
FISCAL 1996 COMPARED TO FISCAL 1995
Consolidated revenues were $68,694,000 in fiscal 1996 representing a 3.1%
decrease from fiscal 1995 consolidated revenues of $70,878,000. The decrease was
due primarily to a reduction in net casino revenues (casino revenues minus
casino promotional allowances) at Condado Plaza from $17,712,000 in fiscal 1995
to $15,452,000 in fiscal 1996. The decrease in Condado Plaza net casino revenues
was due
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primarily to a lower win percentage resulting in reduced revenues when casino
promotional allowances remained constant.
Consolidated operating income increased by 78% in fiscal 1996 to $13,558,000
from $7,624,000 in fiscal 1995 due primarily to cost reductions and lower
expenses at the Condado Plaza and increased management fee revenues at WHGI
primarily from the El Conquistador.
Operating income of the Condado Plaza segment was $2,830,000 in fiscal 1996
compared with an operating loss of ($1,465,000) in fiscal 1995. This improvement
in operating results was achieved by cost reductions initiated by management and
reduced provision for doubtful accounts receivable and insurance expense and the
incurrence in fiscal 1995 of approximately $450,000 of additional expenses
related to emergency water costs associated with the drought experienced in
Puerto Rico during that fiscal year.
Operating income of the WHGI segment increased to $10,837,000 or 18% in fiscal
1996 compared with $9,174,000 in fiscal 1995. In fiscal 1996 revenues from
central services declined by $2,151,000, and management fee revenues increased
by $1,739,000 in comparison to fiscal 1995. Operating income resulting from
lower revenue from central services is negligible in comparison to increased
operating income from incremental management fees.
Consolidated selling and administrative expenses decreased to $9,487,000 in
fiscal 1996 from $12,301,000 in fiscal 1995 primarily at the Condado Plaza due
to cost reductions initiated by management and reduced provision for doubtful
accounts receivable and insurance expense.
The equity in the loss of nonconsolidated affiliates was ($3,465,000) in fiscal
1996 compared with ($7,003,000) in fiscal 1995, representing a 50.5% improvement
in 1996 over 1995. The decrease in equity in loss was primarily due to lower
costs and expenses at the El Conquistador resulting from cost reduction
activities during the second full year of operation after opening in November
1993 and from increased revenues from hotel operations at the El San Juan with
only minor increases in hotel operating expenses. The 50% equity in loss of the
El San Juan was ($679,000) in fiscal 1996 compared with ($1,200,000) in fiscal
1995. The 23.3% equity in loss of the El Conquistador was ($2,786,000) in fiscal
1996 compared with ($5,803,000) in fiscal 1995.
The provision for income taxes in fiscal 1996 of $1,645,000 represents Federal
and Puerto Rico income taxes on WHGI reduced by the tax benefit allocated from
WMS Industries on the equity in loss of nonconsolidated affiliates. A net income
tax credit of $234,000 occurred in fiscal 1995 because the allocated tax benefit
from WMS Industries, due to the size of the equity in loss, exceeded the tax
provision for WHGI.
Consolidated net income was $2,437,000 in fiscal 1996 compared with the net loss
of ($4,364,000) in fiscal 1995. The improved results were attributable primarily
to cost reductions at the Condado Plaza increasing operating income and
decreased equity in loss of nonconsolidated affiliates partially offset by the
change in the provision for income taxes, as described above.
INFLATION
During the past three years, the level of inflation affecting the Company has
been relatively low. The ability of the Company to pass on future cost increases
in the form of higher room rates and other price increases will continue to be
dependent on the prevailing competitive environment and the acceptance of the
Company's services in the market place.
SEASONALITY
The hotel and casino business in Puerto Rico is highly seasonal. From December
through April the occupancies of the hotels are greater than other months and
the average room rates are higher than other months resulting in higher revenues
and net income primarily in the third quarter of the June 30 fiscal year. The
first quarter of the June 30 fiscal year normally has a net loss.
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Market for the Company's Common Stock
and Related Security-Holder Matters
The Company's Common Stock, $.01 par value, is traded on the New York Stock
Exchange (ticker symbol WHG). The following table sets forth the high and low
sales prices of the Common stock since it began to be publicly traded on April
21, 1997:
1997 Calendar Period High Low
Second quarter (April 21 to June 30) $11 3/4 $ 8 3/8
Third quarter (July 1 to September 19) $19 1/4 $11 1/4
No cash dividends were declared or paid during 1997. The Company has no plans
to declare or pay any future cash dividends.
At September 19, 1997, there were approximately 2,000 holders of record of the
Common Stock.
Report of Independent Auditors
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
WHG RESORTS & CASINOS INC.
We have audited the accompanying consolidated balance sheets of WHG Resorts &
Casinos Inc. as of June 30, 1997 and 1996, and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ended June 30, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WHG Resorts &
Casinos Inc. as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
August 7, 1997
except for Note 18, as to which
the date is September 17, 1997.
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WHG Resorts & Casinos Inc.
Consolidated Balance Sheets
June 30,
----------------------
1997 1996
----------------------
(Thousands of dollars)
ASSETS
Current assets:
Cash and cash equivalents $ 17,886 $ 6,616
Receivables, net of allowances of $649 in 1997 and $475 in 1996 3,477 2,534
Receivables from nonconsolidated affiliates 1,105 608
Inventories 590 651
Other current assets 791 689
--------------------
Total current assets 23,847 11,098
Investments in, receivables and advances to nonconsolidated affiliates 30,603 27,126
Property and equipment, net 43,861 44,919
Land held as investment 5,095 5,095
Excess of purchase cost over amount assigned to net assets acquired,
net of accumulated amortization of $3,739 in 1997 and $3,340 in 1996 8,710 9,109
Other assets 5,355 7,387
--------------------
$117,473 $104,734
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,760 $ 3,297
Accrued compensation and related benefits 2,855 2,128
Other accrued liabilities 3,723 2,721
Dividend payable on preferred stock of Condado Plaza -- 94
Notes payable 1,000 2,000
Current maturities of long-term debt 3,681 3,299
--------------------
Total current liabilities 15,019 13,539
Long-term debt, less current maturities 19,868 23,555
Deferred income taxes 2,638 2,291
Other noncurrent liabilities 4,532 4,542
Payable to WMS Industries Inc. 102 397
Minority interests 19,990 18,810
Preferred stock of Condado Plaza held by WMS Industries Inc. -- 4,100
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized -- --
Common stock, class A, $.01 par value, non-voting, 3,000,000 shares authorized -- --
Common stock, no par value, 12,000,000 shares, $.01 par value, authorized,
6,050,200 shares outstanding in 1997 and 1,000 shares authorized and 100 shares
outstanding in 1996 61 1
Additional paid-in capital 14,296 3,849
Retained earnings 40,967 33,650
--------------------
Total stockholders' equity 55,324 37,500
--------------------
$117,473 $104,734
====================
See Notes to Consolidated Financial Statements.
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WHG Resorts & Casinos Inc.
Consolidated Statements of Operations
Years Ended June 30,
-------------------------------------------
1997 1996 1995
-------------------------------------------
(Thousands of dollars)
Revenues:
WHGI management fees from
nonconsolidated affiliates $ 13,937 $ 13,372 $ 13,348
Condado Plaza hotel/casino:
Casino 23,720 22,438 24,584
Casino promotional allowances (7,721) (6,986) (6,872)
Rooms 25,629 25,477 25,210
Food and beverages 11,034 11,478 11,412
Other 3,035 2,915 3,196
-------------------------------------------
55,697 55,322 57,530
-------------------------------------------
Total revenues 69,634 68,694 70,878
Costs and expenses:
WHGI operating expenses (excl. depreciation) 3,910 3,882 5,175
Condado Plaza operating expenses (excl. depreciation):
Casino 11,334 12,375 13,737
Rooms 7,639 8,593 9,081
Food and beverages 9,076 10,088 10,503
Other 4,968 5,281 6,463
-------------------------------------------
33,017 36,337 39,784
Selling and administrative 9,913 9,487 12,301
Depreciation and amortization 5,707 5,430 5,994
-------------------------------------------
Total costs and expenses 52,547 55,136 63,254
-------------------------------------------
Operating income 17,087 13,558 7,624
Interest income, primarily from nonconsolidated affiliates,
and other income 2,334 1,830 2,548
Interest expense (3,265) (3,689) (4,300)
Equity in loss of nonconsolidated affiliates (1,196) (3,465) (7,003)
-------------------------------------------
Income (loss) before tax credit (provision) and minority interests 14,960 8,234 (1,131)
Credit (provision) for income taxes (3,397) (1,645) 234
Minority interests in income (4,000) (3,636) (2,910)
Dividend on preferred stock of Condado Plaza (246) (516) (557)
-------------------------------------------
Net income (loss) $ 7,317 $ 2,437 $ (4,364)
===========================================
Primary earnings (loss) per share $ 1.20 $ .40 $ (.72)
===========================================
Shares used in primary earnings per share calculation 6,086,443 6,050,200 6,050,200
===========================================
Fully diluted earnings (loss) per share $ 1.17 $ .40 $ (.72)
===========================================
Shares used in fully diluted earnings per share calculation 6,247,241 6,050,200 6,050,200
===========================================
Pro forma information reflecting income taxes on a separate return basis
(unaudited):
Income (loss) before tax provision and minority interests $ 14,960 $ 8,234 $ (1,131)
Provision for income taxes (3,478) (2,545) (1,902)
Minority interests in income (4,000) (3,636) (2,910)
Dividend on preferred stock of Condado Plaza (246) (516) (557)
-------------------------------------------
Net income (loss) $ 7,236 $ 1,537 $ (6,500)
===========================================
See Notes to Consolidated Financial Statements.
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WHG Resorts & Casinos Inc.
Consolidated Statements of Cash Flows
Years Ended June 30,
----------------------------------
1997 1996 1995
----------------------------------
(Thousands of dollars)
Operating activities:
Net income (loss) $ 7,317 $ 2,437 $ (4,364)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 5,707 5,430 5,994
Provision for loss on receivables 366 1,457 1,842
Undistributed loss of nonconsolidated affiliates 1,196 3,465 7,003
Deferred income taxes 347 3,239 (1,626)
Minority interests 4,000 3,636 2,910
Increase (decrease) resulting from changes in
operating assets and liabilities:
Receivables (1,309) 342 (541)
Other current assets 54 459 471
Accounts payable and accruals 2,192 (12) (1,152)
Net amounts due from nonconsolidated affiliates (5,170) (1,931) (5,906)
Other assets and liabilities not reflected
elsewhere (10) (618) 218
-----------------------------------
Net cash provided by operating activities 14,690 17,904 4,849
Investing activities:
Purchase of property and equipment (3,153) (1,149) (2,066)
Purchase of additional shares of subsidiaries (1,500) -- (3,925)
Investments in and advances to nonconsolidated affiliates -- -- (1,360)
Collections from nonconsolidated affiliates -- 985 2,010
Other investing 1,760 -- --
-----------------------------------
Net cash used in investing activities (2,893) (164) (5,341)
Financing activities:
Payment of long-term debt and notes payable (8,703) (3,887) (4,568)
Proceeds from short-term note 4,500
Capital contribution from WMS Industries Inc. 1,643
Net intercompany transactions with WMS Industries Inc. 4,273 (6,275) 3,125
Purchase of preferred stock of Condado Plaza
by WMS Industries Inc. -- -- 2,500
Redemption of preferred stock of Condado Plaza
from WMS Industries Inc. -- (3,400) --
Dividends paid to minority shareholders of subsidiary (2,240) (1,189) (783)
Net cash (used) provided by financing activities ------------------------------------
(527) (14,751) 274
Increase (decrease) in cash and cash equivalents ------------------------------------
11,270 2,989 (218)
Cash and cash equivalents at beginning of year 6,616 3,627 3,845
Cash and cash equivalents at end of year ------------------------------------
$ 17,886 $ 6,616 $ 3,627
------------------------------------
See Notes to Consolidated Financial Statements.
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WHG Resorts & Casinos Inc.
Consolidated Statements of Stockholders' Equity
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
----------------------------------------------------
(Thousands of dollars)
Balance as of June 30, 1994 $ 1 $ 3,849 $ 35,577 $ 39,427
Net loss -- -- (4,364) (4,364)
Balance as of June 30, 1995 -------- -------- -------- --------
1 3,849 31,213 35,063
Net income -- -- 2,437 2,437
Balance as of June 30, 1996 -------- -------- -------- --------
1 3,849 33,650 37,500
Net income -- -- 7,317 7,317
Capital contributions by WMS Industries Inc. -- 10,507 -- 10,507
6,050.2 for 1 stock split 60 (60) -- --
-------- -------- -------- --------
$ 61 $ 14,296 $ 40,967 $ 55,324
-------- -------- -------- --------
See Notes to Consolidated Financial Statements.
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WHG Resorts & Casinos Inc.
Notes to Consolidated Financial Statements
NOTE 1: BASIS OF PRESENTATION AND COMPANY OPERATIONS
BASIS OF PRESENTATION
WHG Resorts & Casinos Inc. ("WHG") was formerly known as WMS Hotel Corporation.
Prior to the April 21, 1997 spin-off, WHG was a wholly owned subsidiary of
Williams Hotel Corporation ("WHC"). WHC was a wholly-owned subsidiary of WMS
Industries Inc. ("WMS"). WMS merged WHC, just prior to the April 21, 1997
spin-off, into WHG at which time the predecessor financial statements of WHC
appearing herein became the financial statements of WHG.
The consolidated financial statements of WHG reflect results of operations, cash
flows, financial position and changes in stockholders' equity and have been
prepared using the historical basis in the assets and liabilities and historical
results of operations of WHG and subsidiaries and affiliates.
The pro forma information reflecting income taxes on a separate return basis
(unaudited), included with the consolidated statements of operations, reflects
the provision for income taxes without the tax benefits allocated to WHG from
WMS for utilization of partnership losses in the WMS consolidated Federal income
tax return, see Note 6 -- Income Taxes. WHG during the periods presented did not
have income subject to Federal income tax that could have been included in its
consolidated Federal income tax return or in the separate tax returns of certain
of its subsidiaries along with the partnership losses to be able to realize the
tax benefits.
COMPANY OPERATIONS
WHG through its subsidiaries and affiliates owns, operates and manages two of
the leading hotels and casinos located in San Juan, Puerto Rico, and through a
second affiliate, the El Conquistador Resort & Country Club, a destination
resort complex in Las Croabas, Puerto Rico. WHG's holdings include: a 100%
interest in Posadas de Puerto Rico Associates, Incorporated, the owner of the
Condado Plaza Hotel & Casino ("Condado Plaza"); a 50% interest in Posadas de San
Juan Associates, a partnership which owns the El San Juan Hotel & Casino ("El
San Juan"); a 23.3% indirect interest in El Conquistador Partnership L.P. which
owns the El Conquistador Resort & Country Club; and a 62% interest in Williams
Hospitality Group Inc. ("WHGI"), the management company for the above
properties.
WHG was a wholly owned subsidiary of WMS prior to April 21, 1997. On April 21,
1997 WMS distributed 100% of the outstanding voting common stock of WHG to WMS's
stockholders, thereby creating a new independent public corporation.
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NOTE 2: PRINCIPAL ACCOUNTING POLICIES
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of WHG and its
majority-owned subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated. Investments in companies that
are 20% to 50% owned are accounted for by the equity method. WHG records its
equity in the results of operations of El Conquistador Partnership L.P., based
on that partnership's fiscal year end of March 31.
USE OF ESTIMATES
The preparation of the 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 revenue and expenses during the period reported. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
INVENTORIES
Inventories, which consist mainly of food, beverages and supplies, are valued at
the lower of cost (determined by the first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated by the straight-line
method over their estimated useful lives.
EXCESS OF PURCHASE COST OVER AMOUNT ASSIGNED TO NET ASSETS ACQUIRED (GOODWILL)
Goodwill arising from acquisitions is being amortized by the straight-line
method over 20 to 40 years.
CASINO REVENUES
Casino revenues are the net win from gaming activities, which is the difference
between gaming wins and losses.
CASINO PROMOTIONAL ALLOWANCES
Casino promotional allowances represent the retail value of complimentary food,
beverages and hotel services furnished to patrons, commissions and
transportation costs.
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ADVERTISING EXPENSE
The cost of advertising is charged to earnings as incurred and for fiscal 1997,
1996 and 1995 was $809,000, $988,000 and $1,103,000, respectively.
NOTE 3: ACQUISITIONS
In July 1994, the Company acquired 5% of Williams Hospitality increasing its
interest from 57% to 62%. In July 1994, the Company acquired 2.5% of Posadas de
Puerto Rico Associates, Incorporated increasing its interest from 92.5% to 95%.
In April 1997, the Company acquired the remaining 5% of Posadas de Puerto Rico
Associates, Incorporated increasing its interest from 95% to 100%.
NOTE 4: INVESTMENTS IN NONCONSOLIDATED AFFILIATES
Investments in nonconsolidated affiliates consist of a 50% interest in Posadas
de San Juan Associates, a partnership ("PSJA") and a 23.3% indirect interest in
El Conquistador Partnership L.P. ("El Conquistador") through a 46.5% interest in
WKA El Con Associates, a partnership ("WKA El Con").
Current receivables from nonconsolidated affiliates at June 30 were:
1997 1996
(In thousands)
PSJA $ 252 $ 61
WKA El Con 85 64
El Conquistador 768 483
------ ------
$1,105 $ 608
====== ======
Investments in and noncurrent receivables and advances to nonconsolidated
affiliates at June 30 were:
1997 1996
(In thousands)
Investments:
PSJA $ (6,690) $ (7,678)
WKA El Con (2,813) (612)
Receivables and advances:
PSJA 25,541 23,148
WKA El Con 5,062 4,556
El Conquistador 9,503 7,712
-------- --------
$ 30,603 $ 27,126
======== ========
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13
PSJA operates as a partnership, therefore, 50% of its accumulated deficit is
recorded as an investment. Summarized financial data for PSJA's financial
position at June 30, 1997 and 1996 and PSJA's results of operations for fiscal
1997, 1996 and 1995 were:
June 30, June 30, June 30,
1997 1996 1995
(In thousands)
Current assets $ 8,133 $ 6,558
Noncurrent assets 35,804 35,198
Total assets $ 43,937 $ 41,756
Payable to affiliates $ 237 $ 61
Other current liabilities 10,659 10,101
Total current liabilities 10,896 10,162
Noncurrent payable to affiliates 25,591 23,148
Other noncurrent liabilities 20,831 23,803
Total noncurrent liabilities 46,422 46,951
Partners' capital deficiency (13,381) (15,357)
Total liabilities and partners' capital deficiency 43,937 $ 41,756
Revenues $ 51,732 $ 50,124 $ 51,797
Management fees and interest payable to WHGI 5,325 4,738 4,691
Other costs and expenses 44,431 46,746 $ 49,507
Net income (loss) $ 1,976 $ (1,360) $ (2,401)
The Company has a 46.5% interest in WKA El Con which has a 50% interest in El
Conquistador. Summarized financial data for WKA El Con's financial position at
June 30, 1997 and 1996 and WKA El Con's results of operations for fiscal 1997,
1996 and 1995 were:
June 30, June 30, June 30,
1997 1996 1995
(In thousands)
Loans receivable from El Conquistador $ 18,343 $ 16,116
Investment in El Conquistador, net (12,464) (7,763)
Other assets, net 2,384 3,566
Total assets $ 8,263 $ 11,919
Current payable to WHGI $ 85 $ 64
Long-term note payable including interest 5,527 5,197
Long-term notes payable to partners including interest 10,475 9,791
Partners' (capital deficiency) (7,824) $ (3,133)
Total liabilities and partners' capital deficiency $ 8,263 $ 11,919
Net operating income (loss) $ 10 $ (178) $ (356)
Equity in net loss of El Conquistador for fiscal year (4,701) $ (6,120) (13,739)
ended March 31
Equity in income of Las Casitas -- 313 1,627
Net (loss) $ (4,691) $ (5,985) $(12,468)
E13-13
14
The WKA El Con's long-term note payable is collateralized by a pledge of a
second mortgage on land owned by the Company that cost $3,761,000 and a WMS
guarantee of $1,000,000 as to which WHG will indemnify WMS in the event of any
payments made on the guarantee. The other partners of WKA El Con have pledged
cash and a portion of their interest in WHGI stock, in proportion to their
interests in WKA El Con, to WHG to be used in the event the guarantee is drawn
on.
El Conquistador is a destination resort and casino which began operations in
November 1993. Summarized financial data for El Conquistador's financial
position at March 31, 1997 and 1996 (the partnership's fiscal year end) and El
Conquistador's results of operations for fiscal years ended March 31, 1997, 1996
and 1995 were:
March 31, March 31, March 31,
1997 1996 1995
(In thousands)
Current assets $ 13,618 $ 11,823
Land, building and equipment, net 185,552 190,463
Deferred debt issuance and pre-opening costs, net 5,841 8,587
Other assets 419 818
Total assets $ 205,430 $ 211,691
Current liabilities $ 22,829 $ 23,281
Debt due February 1, 1998 120,000 --
Long-term debt 26,660 149,324
Long-term due to partners and affiliates 48,869 42,611
Partners' (capital deficiency) (12,928) (3,525)
Total liabilities and capital deficiency $ 205,430 $ 211,691
Revenues $ 92,958 $ 89,214 $ 84,743
Management fees and interest payable to WHGI 6,282 5,820 3,874
Interest payable to partners 2,498 2,598 1,898
Other costs and expenses 84,434 82,538 95,324
Depreciation and amortization 9,147 10,499 11,124
Net (loss) $ (9,403) $ (12,241) $ (27,477)
At March 31, 1997 WHGI has provided guarantees amounting to $2,170,000 in
connection with leasing and other financing transactions of El Conquistador.
Debt of the El Conquistador of $120,000,000 is collateralized by a letter of
credit which terminates on March 9, 1998. Under the terms of the loan agreement,
such debt is required to be repaid on February 1, 1998 in the event the letter
of credit is not renewed or replaced prior to November 9, 1997. El Conquistador
has engaged investment advisors to investigate obtaining an alternative letter
of credit or financing arrangement. If such an alternative is not found, the
Company's investment in, receivables from, advances to and potential payments on
guarantees for El Conquistador totaling $18,463,000 at June 30, 1997 may not be
recoverable. In the event this amount is not recovered the 38% minority interest
in WHGI would absorb approximately $5,900,000 of the charge. WHGI would also
incur a loss of future management fees from El Conquistador. For the years ended
June 30, 1997, 1996 and 1995, the Company accrued approximately $5,650,000,
$5,395,000 and $3,704,000, respectively, in management fee revenue from El
Conquistador. The Company also recorded equity in losses of El Conquistador of
$2,188,000, $2,786,000 and $5,803,000 in the years ending June 30, 1997, 1996
and 1995, respectively.
E13-14
15
Consolidated retained earnings of the Company at June 30, 1997 is reduced by
$23,262,000 for the Company's ownership percentage in the accumulated deficit of
PSJA and WKA El Con which are accounted for under the equity method.
Interest earned by the Company from all the nonconsolidated affiliates for the
years ended June 30, 1997, 1996 and 1995 was $1,823,000, $1,650,000 and
$1,373,000, respectively.
NOTE 5: PROPERTY AND EQUIPMENT
At June 30 net property and equipment were:
1997 1996
(In thousands)
Land $ 7,535 $ 7,535
Buildings and improvements 47,865 45,294
Furniture, fixtures and equipment 31,975 30,473
-------- --------
87,375 83,302
Less accumulated depreciation (43,514) (38,383)
-------- --------
Net property and equipment $ 43,861 $ 44,919
======== ========
NOTE 6: INCOME TAXES
The Company's two operating subsidiaries and two nonconsolidated affiliates
operate under the provisions of the Puerto Rico Tourism Incentives Act of 1993
which provides a ten-year incentive grant which may be extended for ten years.
Major benefits include a 90% exemption from income taxes on income deemed to be
derived from tourism operations. The grant also provides a 90% exemption from
municipal real and personal property taxes. Income deemed to be derived from
casino operations are not covered by the grant.
The two operating subsidiaries, the Condado Plaza and WHGI elect to file income
tax returns under Section 936 of the United States Internal Revenue Code which
provides for total or, after 1994, partial exemption from Federal income taxes
on income from sources within Puerto Rico if certain conditions are met. The
portion of taxes that can be exempt under Section 936 is determined by the
calculation of certain limits prescribed by Section 936. These limits are either
based on certain costs and expenses ("economic activity method") or a fixed
percentage as prescribed in Section 936 ("percentage limitation method").
Corporations that operate under Section 936 cannot be members of a consolidated
Federal income tax return. The tax exemption under Section 936 generally
decreases each year until the benefits terminate in 2005.
The Condado Plaza elected the economic activity method which results in a 100%
exemption from Federal income taxes. WHGI elected the percentage limitation
method which resulted in a Federal tax provision of $2,793,000 in fiscal 1997,
$1,741,000 in fiscal 1996 and $1,149,000 in fiscal 1995.
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income taxes in the consolidated Federal income tax
return of WMS and allocated to the Company through April 22, 1997.
E13-15
16
Significant components of the Company's deferred tax assets and liabilities at
June 30 were:
1997 1996
(In thousands)
Deferred tax liabilities resulting from:
Tax over book deductions of WKA El Con $ 1,033 $ 686
Tax over book deductions of PSJA 1,605 1,605
------- -------
Deferred tax liability $(2,638) $(2,291)
======= =======
The Company's provision for income taxes was calculated on a historical basis.
WHG and certain of its subsidiaries were members of the WMS consolidated Federal
income tax return since their inception until April 21, 1997, the effective date
of the spin off. Accordingly, losses for Federal income tax purposes which were
primarily generated by the Company's equity in loss of nonconsolidated
affiliates in the form of partnership losses were utilized by WMS in its
consolidated tax return and resulted in tax benefits. The Company received the
tax benefits of $428,000, $4,139,000 and $510,000 for usage of such losses
during the years ended June 30, 1997, 1996 and 1995, respectively.
Significant components of the (provision) credit for income taxes for the years
ended June 30, 1997, 1996 and 1995 were:
1997 1996 1995
(In thousands)
Current:
Federal:
Certain Puerto Rico corporate income subject to federal tax $(2,793) $(1,741) $(1,149)
U.S. subsidiaries -- primarily partnership losses of
nonconsolidated affiliates 428 4,139 510
------- ------- -------
Total federal (2,365) 2,398 (639)
Puerto Rico (685) (804) (753)
------- ------- -------
Total current (provision) credit 3,050 1,594 (1,392)
Deferred -- federal, primarily from book to tax differences
on partnership losses (347) (3,239) 1,626
------- ------- -------
(provision) Credit for income taxes $(3,397) $(1,645) $ 234
======= ======= =======
For financial reporting purposes, income (loss) before income tax credit
(provision) and minority interests is comprised of the following components for
the years ended June 30:
1997 1996 1995
(In thousands)
Income (loss) before income tax credit (provision)
and minority interests:
Puerto Rico corporate income $ 16,908 $ 11,487 $ 5,652
U.S. subsidiaries-- primarily partnership losses of
nonconsolidated affiliates (1,948) (3,253) (6,783)
-------- -------- --------
$ 14,960 $ 8,234 $ (1,131)
======== ======== ========
E13-16
17
The provision (credit) for income taxes differs from the amount computed using
the statutory federal income tax rate as follows for the years ended June 30:
1997 1996 1995
(In thousands)
Statutory federal income tax at 35% $ 5,236 $ 2,882 $ (395)
Puerto Rico corporate loss resulting in no tax benefit -- 199 1,525
Puerto Rico corporate income taxed at lower rates (2,180) (1,671) (1,602)
Other, net 341 235 238
------- ------- -------
$ 3,397 $ 1,645 $ (234)
======= ======= =======
Undistributed earnings of the Puerto Rico subsidiaries that operate as Section
936 corporations under Federal income tax regulations were approximately
$41,800,000 at June 30, 1997. Those earnings are considered indefinitely
reinvested and, accordingly, no provision for income or toll gate taxes has been
provided thereon. Upon distribution of those earnings in the form of dividends,
the Company would be subject to U.S. income tax of approximately $2,300,000 and
toll gate withholding taxes of approximately $750,000.
WHG and WMS have entered into a tax sharing agreement that provides for the
rights and obligations of each company regarding deficiencies and refunds, if
any, relating to Federal and Puerto Rico income taxes for tax years up to and
including fiscal 1997.
During fiscal 1997, 1996 and 1995 income taxes paid to taxing authorities were
$2,728,000, $2,289,000 and $1,549,000, respectively.
NOTE 7: NOTES PAYABLE AND LONG-TERM DEBT
The Condado Plaza has a $2,000,000 bank line of credit which is payable on
demand with interest at the prime rate plus 1 percentage point, 9.5% and 9.25%
at June 30, 1997 and 1996, respectively. Borrowings under the line was
$1,000,000 on June 30, 1997 and $2,000,000 on June 30, 1996. The line of credit
is collateralized by a mortgage on the Condado Plaza property and accounts
receivable.
Long-term debt at June 30 was:
1997 1996
(In thousands)
Condado Plaza mortgage note, due in increasing semi-annual amounts
through 1999, 12% $ 21,900 $ 24,150
Other 1,649 2,704
-------- --------
23,549 26,854
Less current maturities (3,681) (3,299)
-------- --------
$ 19,868 $ 23,555
======== ========
Scheduled payments by fiscal year on long-term debt are as follows: $3,681,000
in 1998 and $19,868,000 in 1999.
The amount of interest paid during fiscal 1997, 1996 and 1995 was $3,255,000,
$3,679,000 and $4,306,000, respectively.
E13-17
18
NOTE 8: AUTHORIZED SHARES
At June 30, 1997 the authorized common stock of WHG consists of 12,000,000
shares of $.01 par value of which 6,050,200 shares were issued and outstanding.
The Company's capital structure at June 30, 1997 also consists of 3,000,000
shares of Class A non-voting common stock of which none are outstanding. The
Company also has 2,000,000 shares of authorized preferred stock, none were
issued at June 30, 1997. The preferred stock will be issuable in series, and the
relative rights and preferences and the number of shares in each series are
established by the Board of Directors. At June 30, 1997, 300,000 shares of the
Preferred Stock were designated as Series B Preferred Stock and reserved for
issuance. See Note 16. At June 30, 1996 the capital structure consisted of 1,000
shares of no par value common stock of which 100 were issued and outstanding.
NOTE 9: STOCK OPTION PLAN
The Company's stock option plan allows for the grant of both incentive stock
options and nonqualified options on shares of voting common stock through the
year 2007. The stock option plan allows for the grant of options on 900,000
shares of common stock to officers, directors, employees and under certain
conditions to consultants and advisers to the Company and its subsidiaries. The
stock option committee has the authority to fix the terms and conditions upon
which each option is granted, but in no event shall the term exceed ten years or
be granted at less than 100% of the fair market value of the stock at the date
of grant in the case of incentive stock options and 85% of the fair market value
of the stock on the date of grant in the case of non-qualified stock options.
The Company accounts for stock options for purposes of determining net income in
accordance with APB Opinion No. 25 "Accounting for Stock Issued to Employees."
SFAS No. 123 regarding stock option plans permits the use of APB No. 25 but
requires the inclusion of certain pro forma disclosures in the footnotes.
If the Company had adopted the expensing provisions of SFAs No. 125 the
Company's pro forma net income for fiscal 1997 would have been $5,876,000. Pro
forma primary and fully diluted earnings per share for fiscal 1997 would have
been $0.97 and $0.96, respectively. There is no effect on reported amounts for
fiscal 1996, since the options were not granted until fiscal 1997.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants, all of which were in 1997: dividend yield 0%;
expected volatility 32%; risk free interest rates of 6.2%; and expected lives of
four years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
During fiscal 1997, there were 898,000 options granted, all of which were
outstanding on June 30, 1997 and have a weighted average exercise price of
$8.49, a weighted average fair market value of $2.94, a weighted average
contractual life of 9.8 years and exercise prices that range from $8.38 to
$11.00. At June 30, 1997, 472,000 options are exercisable with a weighted
average exercise price of $8.38.
E13-18
19
NOTE 10: CONCENTRATION OF CREDIT AND MARKET RISK AND FAIR VALUE DISCLOSURES OF
FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentrations of
credit and market risk consist primarily of cash equivalents and accounts
receivable. By policy, the Company places its cash equivalents only in high
credit quality securities and limits the amounts invested in any one security.
At June 30, 1997, accounts receivable are from hotel and casino guests and
travel agents located throughout North America and Latin America and because of
the number and geographic distribution, concentration is limited.
The estimated fair value of financial instruments at June 30, 1997 has been
determined by the Company, using available market information and valuation
methodologies considered to be appropriate. The amounts reported for cash
equivalents and current notes payable are considered to be a reasonable estimate
of their fair value.
At June 30, 1997, the $21,900,000 Condado Plaza 12% mortgage note payable is
estimated to have a fair value of $22,781,000 using discounted cash flow
analysis based on an estimated interest rate of 8.25%. The mortgage note is
subject to a substantial prepayment penalty based on interest rate differentials
plus a fixed percentage.
NOTE 11: LEASE COMMITMENTS
Operating leases relate principally to hotel facilities and equipment. A portion
of the Condado Plaza hotel facilities are leased from a partnership owned by a
former minority shareholder of the Condado Plaza. The former minority
shareholder lease extends through 2008 at an annual rent of $684,000 through
September 30, 1998 with periodic escalations thereafter to an annual rent of
$827,000 in 2004. Rent expense for fiscal 1997, 1996 and 1995 was $760,000,
$1,027,000 and $1,077,000, respectively (including $684,000, paid in each fiscal
1997, 1996 and 1995, under the former minority shareholder lease at the Condado
Plaza). Total net future lease commitments for minimum rentals at June 30, 1998,
1999, 2000, 2001, 2002 and thereafter are $718,000, $769,000, $786,000,
$786,000, $786,000 and $1,490,000, respectively.
NOTE 12: TRANSACTIONS WITH WMS
The Company's two operating subsidiaries and two nonconsolidated affiliates have
each provided for its off-season cash needs through its own operating cash and
from individual short-term note arrangements. Plant and equipment additions at
each property have also generally been provided by its own cash from
E13-19
20
operations or third party financing. Cash advances from WMS, for the periods
reported, have been used for investment purposes. A summary of advances and
repayments between WMS and the Company prior to the April 21, 1997 spin-off for
the years ended June 30, 1997, 1996 and 1995 were:
1997 1996 1995
(In thousands)
Advances from (repayments to) WMS by use or source:
Purchase of additional shares in subsidiaries -- -- 3,738
Investment in and advances to (repayments from) WKA El Con -- (546) 157
Cash primarily generated from Williams Hospitality
dividends -- (1,590) (260)
Cash received from WMS for cumulative tax benefits 4,357 -- --
Other, net 409 -- --
Income tax benefits from partnership losses utilized by
WMS -- see Note 6 (493) (4,139) (510)
------- ------- -------
$ 4,273 $(6,275) $ 3,125
======= ======= =======
During fiscal 1995 the Condado Plaza sold to WMS 50 shares of 8% non-voting
preferred stock with a liquidation preference of $50,000 per share for
$2,500,000 bringing the total of such preferred stock held by WMS to 150 shares
and $7,500,000 at June 30, 1995. During fiscal 1996 the Condado Plaza redeemed
68 of those preferred shares at $50,000 per share for $3,400,000. During fiscal
1997 the remaining 82 preferred shares were contributed to the capital of WHG.
In April 1997, the Condado Plaza redeemed 41 of those preferred shares at
$50,000 per share for $2,050,000. Subsequent to June 30, 1997 (July and August
1997), an additional 24 shares were redeemed at $50,000 per share for
$1,200,000.
During fiscal 1997 WMS contributed the following to the capital of WHG (in thousands):
Net, intercompany payable to WMS $ 4,764
Cash contribution 1,643
82 preferred shares of PPRA, liquidation preference of $50,000 4,100
-------
Total contribution $10,507
=======
NOTE 13: PENSION PLAN
Certain subsidiaries are required to make contributions on behalf of unionized
employees to defray part of the costs of the multi-employer pension plans
established by their respective labor unions. Such contributions are computed
using a fixed charge per employee. Contributions to the plans for fiscal 1997,
1996 and 1995 were $377,000, $340,000 and $352,000, respectively.
E13-20
21
NOTE 14: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for fiscal 1997 and 1996 are as
follows, in thousands except per share amounts:
September 30, December 31, March 31, June 30,
1996 1996 1997 1997
Fiscal 1997 Quarters:
Revenues $ 12,879 $ 17,175 $ 21,592 $ 17,988
=========== =========== =========== ===========
Operating income $ 790 $ 4,312 $ 8,115 $ 3,870
Interest expense, net (301) (282) (263) (85)
Equity in income (loss) of nonconsolidated affiliates (1,289) (1,739) 633 1,199
Credit (provision) for income taxes 89 (313) (2,078) (1,095)
Minority interests (421) (841) (1,670) (1,068)
Dividend on preferred stock of subsidiary (82) (82) (82) --
----------- ----------- ----------- -----------
Net income (loss) $ (1,214) $ 1,055 $ 4,655 $ 2,821
=========== =========== =========== ===========
Primary earnings per share $ (.20) $ (.17) $ .77 $ .46
=========== =========== =========== ===========
Shares used in calculation 6,050,200 6,050,200 6,050,200 6,195,774
=========== =========== =========== ===========
Fully diluted earnings per share $ (.20) $ (.17) $ .77 $ .45
=========== =========== =========== ===========
Shares used in calculation 6,050,200 6,050,200 6,050,200 6,247,241
=========== =========== =========== ===========
Pro forma net income (loss) reflecting income taxes
on a separate return basis $ (1,675) $ 435 $ 5,121 $ 3,355
=========== =========== =========== ===========
September 30, December 31, March 31, June 30,
1995 1995 1996 1996
Fiscal 1996 Quarters:
Revenues $ 13,404 $ 17,452 $ 21,450 $ 16,388
=========== =========== =========== ===========
Operating income (loss) $ (226) $ 4,069 $ 7,248 $ 2,467
Interest expense, net (560) (493) (395) (411)
Equity in income (loss) of nonconsolidated affiliates (2,087) (1,510) (318) 450
Credit (provision) for income taxes 448 (153) (1,005) (935)
Minority interests (298) (896) (1,585) (857)
Dividend on preferred stock of subsidiary (150) (146) (126) (94)
----------- ----------- ----------- -----------
Net income (loss) $ (2,873) $ 871 $ 3,819 $ 620
=========== =========== =========== ===========
Earnings per share $ (.47) $ .14 $ .63 $ .10
=========== =========== =========== ===========
Shares used 6,050,200 6,050,200 6,050,200 6,050,200
=========== =========== =========== ===========
Pro forma net income (loss) reflecting
income taxes on a separate return basis $ (3,623) $ 361 $ 3,713 $ 1,086
=========== =========== =========== ===========
For pro forma net income (loss), see Note 1 -- Basis of Presentation.
E13-21
22
NOTE 15: SEGMENT INFORMATION
The Company's operations are conducted through two industry segments: the
operation of the Condado Plaza and the management of hotels/casinos. Industry
segment information for the fiscal years ended June 30 follows:
1997 1996 1995
(in thousands)
Revenues
Condado Plaza $ 55,697 $ 55,322 $ 57,530
WHGI 18,227 16,939 17,350
Intersegment revenues elimination -- WHGI
fees charged to Condado Plaza (4,290) (3,567) (4,002)
--------- --------- ---------
Total revenues $ 69,634 $ 68,694 $ 70,878
========= ========= =========
Operating income (loss)
Condado Plaza $ 6,348 $ 2,830 $ (1,465)
WHGI 11,923 10,837 9,174
General corporate administrative expenses (1,184) (109) (85)
--------- --------- ---------
Total operating income $ 17,087 $ 13,558 $ 7,624
========= ========= =========
Identifiable assets
Condado Plaza $ 55,385 $ 53,323 $ 57,879
WHGI 15,086 18,582 17,737
General investment and corporate 15,340 5,095 5,994
Investments in, receivables and advances to
nonconsolidated affiliates 31,708 27,734 29,696
--------- --------- ---------
Total identifiable assets $ 117,473 $ 104,734 $ 111,306
========= ========= =========
Depreciation of property and equipment
Condado Plaza $ 4,227 $ 4,120 $ 4,656
WHGI 777 769 681
--------- --------- ---------
Total depreciation of property
and equipment $ 5,004 $ 4,889 $ 5,337
========= ========= =========
Capital expenditures
Condado Plaza $ 3,181 $ 1,078 $ 2,030
WHGI 41 71 36
--------- --------- ---------
Total capital expenditures $ 3,222 $ 1,149 $ 2,066
========= ========= =========
NOTE 16: CONTINGENT LIABILITIES
The Company is involved in various disputes arising in the ordinary course of
business, which may result in litigation. Management expects no material
adverse effect on the Company's financial condition as a result of these
matters.
NOTE 17: SALE OF PREFERRED STOCK SUBSEQUENT TO JUNE 30, 1997
The Board of Directors exercised the put provisions of a Put Option and Call
Option Agreement that was established on April 21, 1997 which resulted in the
Chairman of the Board purchasing on July 31, 1997, 300,000 shares of Series B
Preferred Stock for $3,000,000 in cash. Each share of Series B Preferred
Stock has 5 votes per share voting collectively with the common stockholders and
a liquidation preference of $10.00 per share plus accrued dividends, has a
quarterly dividend equal to the prime rate plus one half percent calculated on
the liquidation preference and the holder has a redemption right after three
years or earlier in the event of two unpaid quarterly dividends. The holder of
the Series B Preferred Stock can convert into shares of common stock. The
conversion price is $9.00, which is the lower of the closing price of the voting
common stock on its first day of official trading ($9.00) and the closing price
in the New York Stock Exchange at the close of business on the business day
immediately prior to the date of issuance of the Preferred Stock ($12.50).
NOTE 18: PROPOSED ACQUISITION SUBSEQUENT TO JUNE 30, 1997
On September 17, 1997, the Company executed an asset purchase agreement to
acquire an existing 127 room Hotel and related land next to the Condado Plaza
for $9,600,000, subject to certain terms and conditions, including satisfactory
due diligence. If the agreement is finalized, the Company intends to finance the
purchase price through long term financing and the use of excess cash currently
available.
E13-22