SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q/A
(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, 2002
-------------------------------------------------
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 33-69716
-------------------------------
GB PROPERTY FUNDING CORP.
GB HOLDINGS, INC.
GREATE BAY HOTEL AND CASINO, INC.
- --------------------------------------------------------------------------------
(Exact name of each Registrant as specified in its charter)
DELAWARE 75-2502290
DELAWARE 75-2502293
NEW JERSEY 22-2242014
- ---------------------------------------- -------------------------------------
(States or other jurisdictions of (I.R.S. Employer
incorporation or organization) Identification No.'s)
c/o Sands Hotel & Casino
Indiana Avenue & Brighton Park
Atlantic City, New Jersey 08401
- ------------------------------------------ ------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrants" telephone number, including area code): (609) 441-4517
--------------------------
(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 by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
--- ------------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Registrant Class Outstanding at November 8, 2002
- --------------------------------------- --------------------------------- -------------------------------
GB Property Funding Corp. Common stock, $1.00 par value 100 shares
GB Holdings, Inc. Common stock, $.01 par value 10,000,000 shares
Greate Bay Hotel and Casino, Inc. Common stock, no par value 100 shares
1
Introductory Note
This Amendment on Form 10-Q/A is being filed to restate the
Certifications of the Principal Executive Officer and the Principal Financial
Officer, respectively (the "Certifications") for the Quarterly Report on Form
10-Q/A for the period ended March 31, 2002.
The previously filed Form 10-Q/A for the period ended March 31, 2002
contained, as exhibits, the Certifications, which were prepared pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (the "SO Act"). On August 29,
2002, the Securities and Exchange Commission ("SEC"), in accordance with the SO
Act, adopted new rules (the "New Rules"), requiring a revised form of the
Certifications. The New Rules also require that the Certifications be included
in any amended Quarterly Reports filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Because the Amendment to the Quarterly Report for the period ended March
31, 2002, which was filed on September 6, 2002, did not include the revised form
of the Certifications, this amendment to that amendment is being filed. The
Certifications contained herein conform to the New Rules.
2
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2002 2001
---------------- ---------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 58,608,000 $ 57,369,000
Accounts receivable, net of allowances
of $12,830,000 and $14,406,000, respectively 8,671,000 8,911,000
Inventories 2,403,000 2,431,000
Income taxes receivable 759,000 759,000
Prepaid expenses and other current assets 1,217,000 2,266,000
------------- --------------
Total current assets 71,658,000 71,736,000
------------- --------------
Property and Equipment:
Land 54,814,000 54,814,000
Buildings and improvements 89,006,000 84,890,000
Equipment 28,713,000 27,321,000
Construction in progress 13,330,000 17,003,000
------------- --------------
185,863,000 184,028,000
Less - accumulated depreciation and
amortization (15,656,000) (13,016,000)
------------- --------------
Property and equipment, net 170,207,000 171,012,000
------------- --------------
Other Assets:
Obligatory investments, net of allowances of
$9,615,000 and $9,290,000, respectively 9,671,000 9,302,000
Other assets 3,665,000 3,872,000
------------- --------------
Total other assets 13,336,000 13,174,000
------------- --------------
$ 255,201,000 $ 255,922,000
============= ==============
The accompanying notes to consolidated financial
statements are an integral part of these consolidated financial statements.
3
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
2002 2001
------------- -------------
(Unaudited)
Current Liabilities
Current maturities of long-term debt $ 20,000 $ 19,000
Accounts payable 5,808,000 6,843,000
Accured liabilities -
Salaries and wages 4,503,000 4,144,000
Interest 67,000 3,092,000
Reorganization costs 40,000 155,000
Insurance 1,695,000 1,670,000
Other 5,200,000 5,266,000
Other current liabilities 4,870,000 3,873,000
------------- ---------------
Total current liabilities 22,203,000 25,062,000
------------- ---------------
Long-Term Debt 110,347,000 110,352,000
------------- ---------------
Other Noncurrent Liabilities 3,724,000 3,839,000
------------- ---------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.01 par value per share;
5,000,000 shares authorized; 0 shares outstanding - -
Common Stock, $.01 par value per share;
20,000,000 shares authorized;
10,000,000 shares outstanding 100,000 100,000
Additional paid-in capital 124,900,000 124,900,000
Accumulated deficit (6,073,000) (8,331,000)
------------- ---------------
Total shareholders' equity 118,927,000 116,669,000
------------- ---------------
$ 255,201,000 $ 255,922,000
============= ===============
The accompanying notes to consolidated financial
statements are an integral part of these consolidated financial statements.
4
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
------------------------------------
2002 2001
--------------- ----------------
(Unaudited) (Unaudited)
Revenues:
Casino $ 55,670,000 $ 53,666,000
Rooms 2,746,000 2,554,000
Food and beverage 6,465,000 6,741,000
Other 928,000 905,000
------------ -------------
65,809,000 63,866,000
Less - promotional allowances (12,565,000) (15,265,000)
------------ -------------
Net revenues 53,244,000 48,601,000
------------ -------------
Expenses:
Casino 36,819,000 40,426,000
Rooms 1,105,000 1,171,000
Food and beverage 2,489,000 2,008,000
Other 733,000 641,000
General and administrative 2,912,000 3,905,000
Depreciation and amortization 3,243,000 2,964,000
------------ -------------
Total expenses 47,301,000 51,115,000
------------ -------------
Income/(loss) from operations 5,943,000 (2,514,000)
------------ -------------
Non-operating income (expense):
Interest income 290,000 991,000
Interest expense (net of capitalized interest of
$379,000 for the three months ended March 31, 2002) (2,730,000) (3,129,000)
Gain on disposal of assets 15,000 5,000
------------ -------------
Total non-operating expense, net (2,425,000) (2,133,000)
------------ -------------
Income/(loss) before income taxes 3,518,000 (4,647,000)
Income tax benefit (provision) (1,260,000) 1,591,000
------------ -------------
Net income/(loss) $ 2,258,000 $ (3,056,000)
============ =============
Basic/diluted income/(loss) per common share $ 0.23 $ (0.31)
============ =============
Weighted average common shares outstanding 10,000,000 10,000,000
============ =============
The accompanying notes to consolidated financial
statements are an integral part of these consolidated financial statements.
5
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
-----------------------------------
2002 2001
---------------- ---------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income (loss) $ 2,258,000 $ (3,056,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,243,000 2,964,000
Gain on disposal of assets (15,000) (5,000)
Provision for doubtful accounts 315,000 608,000
(Increase) decrease in accounts receivable (75,000) 802,000
Decrease in accounts payable
and accrued liabilities (3,857,000) (5,345,000)
Net change in other current assets and liabilities 1,874,000 (742,000)
Net change in other noncurrent assets and liabilities 78,000 33,000
------------- -------------
Net cash provided by (used in) operating activities 3,821,000 (4,741,000)
------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment (1,923,000) (3,821,000)
Proceeds from disposition of assets 15,000 5,000
Obligatory investments (670,000) (651,000)
-------------- -------------
Net cash used in investing activities (2,578,000) (4,467,000)
-------------- -------------
FINANCING ACTIVITIES:
Repayments of long-term debt (4,000) (21,000)
--------------- -------------
Net cash used in financing activities (4,000) (21,000)
-------------- -------------
Net increase (decrease) in cash and cash equivalents 1,239,000 (9,229,000)
Cash and cash equivalents at beginning of period 57,369,000 77,903,000
-------------- -------------
Cash and cash equivalents at end of period $ 58,608,000 $ 68,674,000
============== =============
The accompanying notes to consolidated financial
statements are an integral part of these consolidated financial statements.
6
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization, Business and Basis of Presentation
GB Holdings, Inc. ("Holdings") is a Delaware corporation and was a
wholly owned subsidiary of Pratt Casino Corporation ("PCC") through December 31,
1998. PCC, a Delaware corporation, was incorporated in September 1993 and was
wholly owned by PPI Corporation ("PPI"), a New Jersey corporation and a wholly
owned subsidiary of Greate Bay Casino Corporation ("GBCC"). Effective after
December 31, 1998, PCC transferred 21% of the stock ownership in Holdings to
PBV, Inc. ("PBV"), a newly formed entity controlled by certain stockholders of
GBCC. As a result of a certain confirmed plan of reorganization of PCC and
others in October 1999, the remaining 79% stock interest of PCC in Holdings was
transferred to Greate Bay Holdings, LLC ("GBLLC"), whose sole member as a result
of the same reorganization was PPI. In February 1994, Holdings acquired Greate
Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation, through a capital
contribution by its then parent. GBHC's principal business activity is its
ownership of the Sands Hotel and Casino located in Atlantic City, New Jersey
(the "Sands"). GB Property Funding Corp. ("GB Property Funding"), a Delaware
corporation and a wholly owned subsidiary of Holdings, was incorporated in
September 1993 as a special purpose subsidiary of Holdings for the purpose of
borrowing funds for the benefit of GBHC. Holdings has no operating activities
and its only significant assets are its investment in GBHC and cash and cash
equivalents of $38.0 million and $37.9 million as of March 31, 2002 and December
31, 2001, respectively. Effective September 2, 1998, GBHC acquired the
membership interests in Lieber Check Cashing LLC ("Lieber"), a New Jersey
limited liability company that owned a land parcel adjacent to GBHC.
The accompanying consolidated financial statements include the accounts
and operations of Holdings and its subsidiaries (Holdings, GBHC and GB Property
Funding, collectively, the "Company"). All significant intercompany balances and
transactions have been eliminated. Throughout this document, references to Notes
refer to the Notes to Consolidated Financial Statements contained herein.
On January 5, 1998, the Company 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").
On August 14, 2000, the Bankruptcy Court entered an order (the "Confirmation
Order") confirming the Modified Fifth Amended Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code Proposed by the Official Committee of
Unsecured Creditors and High River Limited Partnership and its Affiliates (the
"Plan") for the Company. High River Limited Partnership ("High River") is an
entity controlled by Carl C. Icahn. On September 13, 2000, the New Jersey Casino
Control Commission (the "Commission") approved the Plan. On September 29, 2000,
the Plan became effective (the "Effective Date"). All material conditions
precedent to the Plan becoming effective were satisfied on or before September
29, 2000.
A significant amount of the Company's revenues are derived from patrons
living in northern New Jersey, southeastern Pennsylvania and metropolitan New
York City. Competition in the Atlantic City gaming market is intense and
management believes that this competition will continue or intensify in the
future.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
7
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The consolidated financial statements have been prepared in accordance
with the accounting policies described in the Company's 2001 Annual Report on
Form 10-K. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, the Company suggests these
consolidated financial statements be read in conjunction with the notes to the
consolidated financial statements which appear in that report. In the opinion of
management, the accompanying consolidated financial statements include all
adjustments (consisting only of a normal recurring nature), which are necessary
for a fair presentation of the results for the interim periods presented.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission. Interim results are not necessarily
indicative of results to be expected for any future interim period or for the
entire fiscal year. Certain reclassifications have been made to prior year's
consolidated financial statements to conform to the current year's consolidated
financial statement presentation.
(2) Long-Term Debt and Pledge of Assets
Long-term debt is comprised of the following:
March 31, December 31,
2002 2001
--------------- --------------
11% notes, due 2005 (a) $ 110,000,000 $110,000,000
Other 367,000 371,000
-------------- -------------
Total 110,367,000 110,371,000
Less - current maturities (20,000) (19,000)
-------------- -------------
Total long-term debt $ 110,347,000 $110,352,000
============== =============
(a) As a result of the Confirmation Order and the occurrence of the
Effective Date and under the terms of the Plan, GB Property Funding
issued $110,000,000 of 11% notes due 2005 (the "New Notes"). Interest
on the New Notes is payable on March 29 and September 29, beginning
March 29, 2001. The outstanding principal is due on September 29, 2005.
The New Notes are unconditionally guaranteed, on a joint and several
basis, by both Holdings and GBHC, and are secured by substantially all
of the assets, as of the Effective Date, other than cash and gaming
receivables of Holdings and GBHC.
The original indenture for the New Notes contained various provisions,
which, among other things, restricted the ability of Holdings, and GBHC
to incur certain senior secured indebtedness beyond certain limitations
and contained certain other limitations on the ability to merge,
consolidate, or to sell substantially all of their assets, to make
certain restricted payments, to incur certain additional senior liens,
and to enter into certain sale-leaseback transactions.
8
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In a Consent Solicitation Statement and Consent Form dated September
14, 2001, GB Property Funding sought the consent of holders of the New
Notes to make certain changes to the original indenture (the
"Modifications"). The Modifications included, but were not limited to,
a deletion of, or changes to, certain provisions the result of which
would be (i) to permit Holdings and its subsidiaries to incur any
additional indebtedness without restriction, to issue preferred stock
without restriction, to make distributions in respect of preferred
stock and to prepay indebtedness without restriction, to incur liens
without restriction and to enter into sale-leaseback transactions
without restriction, (ii) to add additional exclusions to the
definition of "asset sales" to exclude from the restrictions on "asset
sales" sale-leaseback transactions, conveyances or contributions to any
entity in which Holdings or its subsidiaries has or obtains equity or
debt interests, and transactions (including the granting of liens) made
in accordance with another provision of the Modifications relating to
collateral release and subordination or any documents entered into in
connection with an "approved project" (a new definition included as
part of the Modifications which includes, if approved by the Board of
Directors of Holdings, incurrence of indebtedness or the transfer of
assets to any person if Holdings or any of its subsidiaries has or
obtain debt or equity interests in the transferee or any similar,
related or associated event, transaction or activity) in which a
release or subordination of collateral has occurred including, without
limitation, any sale or other disposition resulting from any default or
foreclosure, (iii) to exclude from the operation of covenants related
to certain losses to collateral any assets and any proceeds thereof,
which have been subject to the release or subordination provisions of
the Modifications, (iv) to permit the sale or other conveyances of
Casino Reinvestment Development Authority investments in accordance
with the terms of a permitted security interest whether or not such
sale was made at fair value, (v) to exclude from the operation of
covenants related to the deposit into a collateral account of certain
proceeds of "asset sales" or losses to collateral any assets and any
proceeds thereof, which have been subject to the release or
subordination provisions of the Modifications, (vi) to add new
provisions authorizing the release or subordination of the collateral
securing the New Notes in connection with, in anticipation of, as a
result of, or in relation to, an "approved project", and (vii) various
provisions conforming the text of the original indenture to the intent
of the preceding summary of the Modifications.
Holders representing approximately 98% in principal amount of the New
Notes provided consents to the Modifications. Under the terms of the
original indenture, the consent of holders representing a majority in
principal amount of New Notes was a necessary condition to the
Modifications. Accordingly, GB Property Funding, as issuer, and
Holdings and GBHC, as guarantors, and Wells Fargo Bank Minnesota,
National Association, as Trustee, entered into an Amended and Restated
Indenture dated as of October 12, 2001, containing the Modifications to
the original indenture described in the Consent Solicitation Statement
(the "Amended and Restated Indenture"). In accordance with the terms of
the Consent Solicitation Statement, holders of New Notes, who consented
to the Modifications and who did not revoke their consents ("Consenting
Noteholders"), were entitled to $17.50 per $1,000 in principal amount
of New Notes, subject to certain conditions including entry into the
Amended and Restated Indenture. Upon entry into the Amended and
Restated Indenture on October 12, 2001, the Company transferred
approximately $1.9 million to the Trustee for distribution to
Consenting Noteholders.
9
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Scheduled payments of long-term debt as of March 31, 2002, are set forth
below:
2002 (nine months) $ 15,000
2003 21,000
2004 23,000
2005 110,026,000
2006 28,000
Thereafter 254,000
-------------
Total $ 110,367,000
=============
Interest paid amounted to $6,059,000 and $6,068,000 respectively, for the
three months ended March 31, 2002 and 2001. At March 31, 2002 and December 31,
2001, accrued interest on the New Notes was $67,000 and $3,092,000,
respectively.
(3) Income Taxes
The components of the benefit (provision) for income taxes are as
follows:
Three Months Ending March 31,
2002 2001
------------- ------------
Federal income tax benefit (provision):
Current $ (1,260,000) $ 1,591,000
Deferred - -
State income tax benefit (provision):
Current - -
Deferred - -
------------- ------------
$ (1,260,000) $ 1,591,000
============= ============
Prior to 1997, the Company was included in the consolidated federal
income tax return of Hollywood Casino Corporation ("HCC"). The Company's
operations were included in GBCC's consolidated federal income tax returns for
the years ended December 31, 1998 and 1997, but GBCC agreed to allow the Company
to become deconsolidated from the GBCC group effective after December 31, 1998.
In accordance therewith, PCC transferred 21% of the stock ownership in Holdings
to PBV, effecting the deconsolidation of the Company from the GBCC group for
federal income tax purposes (the "Deconsolidation"). Accordingly, beginning in
1999, the Company's provision for federal income taxes has been calculated and
paid on a consolidated basis.
10
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
At March 31, 2002, the Company had deferred tax assets including State
net operating losses, Federal credit carryforwards and temporary differences.
The State net operating losses ("State NOL's") begin to expire in the year 2003
for state tax purposes. A portion of the credit carryforwards, if not utilized,
will begin to expire each year through 2004. The remaining credit carryforwards
expire through the year 2019. In addition, as part of a certain settlement
agreement, GBCC may utilize Federal net operating losses ("Federal NOL's") of
the Company through December 31, 1998 to offset federal taxable income of GBCC
and other members of its consolidated tax group. The Company has utilized the
balance of its Federal NOL's in its 1999 (amended) and 2000 consolidated Federal
tax returns. Statement of Financial Accounting Standards No. 109 ("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, requires the recording of a
valuation allowance. Due to various uncertainties, management is unable to
determine that realization of the Company's deferred tax asset is more likely
than not and, thus, has provided a valuation allowance for the entire amount at
March 31, 2002.
The Internal Revenue Service is examining the consolidated federal income
tax returns of HCC for the years 1995 and 1996 and the consolidated federal
income tax returns for GBCC for the years 1997 and 1998 in which the Company was
included (the "Audit"). GBCC management has disclosed in its annual SEC Form
10-K, filed for the year ended December 31, 2001, that the Audit is
substantially complete and has resulted in adjustments to GBCC's Federal NOL's
and deferred tax assets. The Company is dependent upon receipt of information
from HCC and GBCC as to their operations including their affiliates and the
impact of those operations on the former HCC and GBCC consolidated groups'
Federal NOL's. The Company has not yet received information regarding the
details of the Audit adjustments and, therefore, is unable to estimate their
impact on the Company's financial position or results of operations.
The State of New Jersey is examining the state corporate business tax
return of GBHC for the years 1996, 1997 and 1998. It is management's position
that any claims by the State of New Jersey against GBHC attributable to anytime
prior to January 5, 1998 is barred by applicable provisions of the Bankruptcy
Code. Management is presently unable to estimate the impact of New Jersey's tax
audit on the financial position or results of operations of GBHC.
Federal and State income tax benefits or provisions are based upon the
results of operations for the current period and the estimated adjustments for
income tax purposes of certain nondeductible expenses. The Federal income tax
provision of approximately $1.3 million for the three months ended March 31,
2002 is a result of applying the statutory Federal income tax rate of 35% to the
pretax income after adjustments for income tax purposes.
11
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(4) Transactions with Related Parties
GBHC's rights to the trade name "Sands" (the "Trade Name") were derived
from a license agreement between GBCC and an unaffiliated third party. Amounts
payable by the Sands for these rights were equal to the amounts paid to the
unaffiliated third party. As a result of the Confirmation Order and the
occurrence of the Effective Date and under the terms of the Plan, GBHC was
assigned by High River the rights under a certain agreement with the owner of
the Trade Name to use the Trade Name as of the Effective Date. High River
received no payments for its assignment of these rights. Payment is made
directly to the owner of the Trade Name. The calculation of the license fee is
the same as under the previous agreement. Such charges amounted to $68,000 and
$60,000, respectively, for the three months ended March 31, 2002 and 2001.
Excluding the New Notes, there were no affiliate advances and borrowings
for the three months ended March 31, 2002 and 2001, respectively. There was no
interest expense incurred with respect to affiliate advances and borrowings for
the three months ended March 31, 2002 and 2001, respectively.
(5) Legal Proceedings
The Company has filed tax appeals with the New Jersey Tax Court
challenging the amount of its real property assessment for calendar years 1996
through 2001, inclusive, and has filed an appeal for calendar year 2002 with the
Atlantic County Tax Board. The City of Atlantic City has also appealed the
amount of the assessments for the years 1996 through 2001, inclusive, and has
filed a cross-petition with the Atlantic County Tax Board for calendar year
2002.
The Company has discovered certain failures relating to currency
transaction reporting and self-reported the situation to the applicable
regulatory agencies. The Company has conducted an internal examination of the
matter and the New Jersey Division of Gaming Enforcement is conducting a
separate review. The Company has revised internal control processes and taken
other measures to address the situation. The Company may be subjected to
regulatory remedies, which may include cash penalties. However, the potential
cash penalties cannot be estimated at this time.
The Company is a party in various legal proceedings with respect to the
conduct of casino and hotel operations. Although a possible range of losses
cannot be estimated, in the opinion of management, based upon the advice of
counsel, the Company does not expect settlement or resolution of these
proceedings to have a material adverse impact upon the consolidated financial
position or results of operations of the Company, but the outcome of litigation
is subject to uncertainties and no assurances can be given. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of the uncertainties described above.
12
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(6) Income (Loss) Per Share
Statement of Financial Accounting Standards No. 128: "Earnings Per
Share" requires, among other things, the disclosure of basic earnings per share
for public companies. Since the capital structure of the Company is simple, in
that no potentially dilutive securities were outstanding during the periods
presented, only basic income (loss) per share disclosure is required. Basic
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding.
(7) Supplemental Cash Flow Information
Cash paid for interest and income taxes during the three months ended
March 31, 2002 and 2001 are set forth below:
Three Months Ended
March 31,
----------------------------
2002 2001
------------- -------------
Interest paid $ 6,059,000 $ 6,068,000
============= ============
Income taxes paid $ - $ -
============= ============
(8) New Accounting Pronouncements
In 2001, the Emerging Issues Task Force ("EITF") reached a consensus on
certain issues within Issue No. 00-22: "Accounting for `Points' and Certain
Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to Be Delivered in the Future" ("EITF 00-22"). Application
of EITF 00-22 is required for interim and annual periods ending after February
15, 2001. EITF 00-22 requires volume-based cash rebates to be classified as a
reduction of revenue. Accordingly, such rebates have been classified as
promotional allowances.
In 2001, the EITF reached a consensus on Issue No. 01-09: "Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products)" ("EITF 01-09"). For a sales incentive offered voluntarily by
a vendor to its patrons, EITF 01-09 requires the vendor to recognize the cost of
the sales incentive at the later of the date at which the related revenue is
recorded by the vendor, or the date at which the sales incentive is offered.
Application of EITF 01-09 is required in annual or interim financial statements
for periods beginning after December 15, 2001. EITF 01-09 requires, among other
things, that cash or other consideration provided customers as part of a
transaction is presumed to be a reduction in revenue unless the vendor is able
to establish both that it received or will receive a separate identifiable
benefit and the fair value of the benefit can be reasonably estimated. The
Company, offers cash inducements to encourage visitation and play at the casino
and as the Company was unable to meet the criteria as discussed in EITF 01-09,
these costs have been reclassified from casino expenses to promotional
allowances on the accompanying consolidated statements of operations.
13
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
With the adoption of the new standards, the prior year periods presented
have been reclassified to conform to the new presentation. This resulted in a
$3.7 million and $5.0 million increase in promotional allowances (and a
corresponding reduction of casino expenses) for the three months ended March 31,
2002 and 2001, respectively. Application of the requirements of EITF 01-09 do
not have an impact on previously reported operating income or net income and
have no impact on the previously reported consolidated financial statements
other than the reclassifications noted above.
In 2001, the Financial Accounting Standards Board ("FASB") issued FASB
Statements Nos. 141 and 142 ("FAS 141" and "FAS 142"): "Business Combinations"
and "Goodwill and Other Intangible Assets," respectively. FAS 141 replaces
Accounting Principals Board Opinion No. 16 and eliminates pooling-of-interests
accounting prospectively. It also provides guidance on purchase accounting
related to the recognition of intangible assets and accounting for negative
goodwill. FAS 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Under FAS 142, goodwill will be tested
annually and whenever events or circumstances occur indicating that goodwill
might be impaired. FAS 141 is effective for all business combinations completed
after June 30, 2001. Upon adoption of FAS 142, amortization of goodwill recorded
for business combinations consummated prior to July 1, 2001 will cease and
intangible assets acquired prior to July 1, 2001 that do not meet the criteria
for recognition under FAS 141 will be reclassified to goodwill. Companies are
required to adopt FAS 142 for fiscal years beginning after December 15, 2001,
but early adoption is permitted. The adoption of these standards did not have
any impact on the Company's results of operations or financial position, as the
Company does not have intangible assets or goodwill.
In 2001, the FASB issued FASB Statement No. 143, which addresses
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
statement is effective for fiscal years beginning after June 15, 2002.
Management is currently assessing the impact of this new standard.
In 2002, the Company adopted FASB Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"), which excludes
from the definition of long-lived assets goodwill and other intangibles that are
not amortized in accordance with FAS No. 142. FAS No. 144 requires that
long-lived assets to be disposed of by sale be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. FAS No. 144 also expands the reporting
of discontinued operations to include components of an entity that have been or
will be disposed of rather than limiting such discontinuance to a segment of a
business. The adoption of FAS No. 144 did not have a material impact on the
Company's consolidated financial statements.
14
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q/A contains forward-looking statements
about the business, financial condition and prospects of the Company. The actual
results could differ materially from those indicated by the forward-looking
statements because of various risks and uncertainties. Such risks and
uncertainties are beyond management's ability to control and, in many cases,
cannot be predicted by management. When used in this Quarterly Report on Form
10-Q/A, the words "believes", "estimates", "anticipates", "expects", "intends"
and similar expressions as they relate to the Company or its management are
intended to identify forward-looking statements (see "Private Securities
Litigation Reform Act" below).
LIQUIDITY AND CAPITAL RESOURCES
On January 5, 1998, the Company filed petitions for relief under Chapter
11 of the Bankruptcy Code in the Bankruptcy Court. On August 14, 2000, the
Bankruptcy Court entered the Confirmation Order confirming the Plan for the
Company. On September 13, 2000, the Commission approved the Plan. On September
29, 2000, the Plan became effective (the "Effective Date"). All material
conditions precedent to the Plan becoming effective were satisfied on or before
September 29, 2000.
On the Effective Date, GB Property Funding's existing debt securities,
consisting of its 10 7/8% First Mortgage Notes due January 15, 2004 (the "Old
Notes") and all of Holdings' issued and outstanding shares of common stock owned
by PBV and GBLLC (the "Old Common Stock") were cancelled. As of the Effective
Date, an aggregate of 10,000,000 shares of new common stock of Holdings (the
"Common Stock") were issued and outstanding, and $110,000,000 of 11% First
Mortgage Notes due 2005 were issued (the "Notes"). Holders of the Old Notes
received a distribution of their pro rata shares of (i) the Notes and (ii)
5,375,000 shares of the Common Stock (the "Stock Distribution").
In a Consent Solicitation Statement and Consent Form dated September
14, 2001, GB Property Funding sought the consent of holders of the New Notes to
make certain changes to the original indenture (the "Modifications"). The
Modifications included, but were not limited to, a deletion of, or changes to,
certain provisions the result of which would be (i) to permit Holdings and its
subsidiaries to incur any additional indebtedness without restriction, to issue
preferred stock without restriction, to make distributions in respect of
preferred stock and to prepay indebtedness without restriction, to incur liens
without restriction and to enter into sale-leaseback transactions without
restriction, (ii) to add additional exclusions to the definition of "asset
sales" to exclude from the restrictions on "asset sales" sale-leaseback
transactions, conveyances or contributions to any entity in which Holdings or
its subsidiaries has or obtains equity or debt interests, and transactions
(including the granting of liens) made in accordance with another provision of
the Modifications relating to collateral release and subordination or any
documents entered into in connection with an "approved project" (a new
definition included as part of the Modifications which includes, if approved by
the Board of Directors of Holdings, incurrence of indebtedness or the transfer
of assets to any person if Holdings or any of its subsidiaries has or obtain
debt or equity interests in the transferee or any similar, related or associated
event, transaction or activity) in which a release or subordination of
collateral has occurred including, without
15
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
limitation, any sale or other disposition resulting from any default or
foreclosure, (iii) to exclude from the operation of covenants related to certain
losses to collateral any assets and any proceeds thereof, which have been
subject to the release or subordination provisions of the Modifications, (iv) to
permit the sale or other conveyances of Casino Reinvestment Development
Authority investments in accordance with the terms of a permitted security
interest whether or not such sale was made at fair value, (v) to exclude from
the operation of covenants related to the deposit into a collateral account of
certain proceeds of "asset sales" or losses to collateral any assets and any
proceeds thereof, which have been subject to the release or subordination
provisions of the Modifications, (vi) to add new provisions authorizing the
release or subordination of the collateral securing the New Notes in connection
with, in anticipation of, as a result of, or in relation to, an "approved
project", and (vii) various provisions conforming the text of the original
indenture to the intent of the preceding summary of the Modifications.
Holders representing approximately 98% in principal amount of the New
Notes provided consents to the Modifications. Under the terms of the original
indenture, the consent of holders representing a majority in principal amount of
New Notes was a necessary condition to the Modifications. Accordingly, GB
Property Funding, as issuer, and Holdings and GBHC, as guarantors, and Wells
Fargo Bank Minnesota, National Association, as Trustee, entered into an Amended
and Restated Indenture dated as of October 12, 2001, containing the
Modifications to the original indenture described in the Consent Solicitation
Statement (the "Amended and Restated Indenture"). In accordance with the terms
of the Consent Solicitation Statement, holders of New Notes, who consented to
the Modifications and who did not revoke their consents ("Consenting
Noteholders"), were entitled to $17.50 per $1,000 in principal amount of New
Notes, subject to certain conditions including entry into the Amended and
Restated Indenture. Upon entry into the Amended and Restated Indenture on
October 12, 2001, the Company transferred approximately $1.9 million to the
Trustee for distribution to Consenting Noteholders.
Operating Activities
At March 31, 2002, the Company had cash and cash equivalents of $58.6
million. The Company generated $3.8 million of net cash from operations during
the three months ended March 31, 2002 compared to using net cash of $4.7 million
for the three months ended March 31, 2001. During the first quarter of 2002, the
Company utilized internal funds for capital additions of $1.9 million and to
make obligatory investments of $670,000.
Financing Activities
The Sands entered into a long-term lease of the Madison House Hotel (the
"Madison House"). The initial lease period is from December 2000 to December
2012 with lease payments ranging from $1.8 million per year to $2.2 million per
year. The Madison House is physically connected at two floors to the existing
Sands casino-hotel complex and is presently undergoing renovations to upgrade
and combine the rooms into a total of 113 suites and 13 single rooms. To date,
89 of the suites and 12 of the single rooms have been completed. It is the
intention of the Sands to maintain and operate the Madison House in the same
quality as the Sands, making those rooms available to Sands casino customers and
the general public.
16
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Total scheduled maturities of long term debt during the remainder of 2002
is $15,000.
Investing Activities
Capital expenditures at the Sands for the three months ended March 31,
2002 amounted to approximately $1.9 million. In order to enhance its competitive
position in the market place, the Sands may determine to incur additional
substantial costs and expenses to maintain, improve and expand its facilities
and operations. The Company may require additional financing in connection with
those activities.
In 2000, GBHC also entered into an agreement with the entities
controlling the Claridge, subject to Bankruptcy Court approval, to acquire the
Claridge Administration Building ("CAB"), which was situated between GBHC's
existing main entrance and the new Pacific Avenue entrance completed in June
2000. The purchase price was $3.5 million, consisting of $1.5 million in cash at
closing with the remaining $2.0 million consideration tendered through the
elimination for 40 months of a $50,000 monthly license fee paid by the Claridge
to GBHC under an agreement between the Claridge and GBHC governing the
development and operation of the "People Mover" leading from the Boardwalk to
the Sands and Claridge (the "PM Agreement"). GBHC and the Claridge also obtained
Bankruptcy Court approval of the assumption of the PM Agreement, as modified
above, and by the reduction of the monthly license fee to $20,000 a month after
the 40 months elimination of the license fee. In April 2000, closing took place
on the CAB and the existing structure was subsequently demolished.
The Sands is required by the Casino Act to make certain quarterly
deposits based on gross revenue with the Casino Reinvestment Development
Authority ("CRDA") in lieu of a certain investment alternative tax. Deposits for
the three months ended March 31, 2002 totaled $670,000. The Sands has agreed to
contribute certain of its future investment obligations to the CRDA in
connection with the renovation related to the Atlantic City Boardwalk Convention
Center. The projected total contribution will amount to $7.0 million, which will
be paid through 2011 based on an estimate of certain of the Sands' future CRDA
deposit obligations.
Summary
Management believes that cash flows generated from operations during
2002, as well as available cash reserves, will be sufficient to meet its
operating plan and provide for scheduled capital expenditures.
17
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
Gaming Operations
Information contained herein, regarding Atlantic City casinos other than
the Sands, was obtained from reports filed with the Commission.
The following table sets forth certain unaudited financial and operating
data relating to the Sands' and all other Atlantic City casinos' capacities,
volume of play, hold percentages and revenues:
Three Months Ended
March 31,
-------------------------
2002 2001
----------- ------------
(Dollars in Thousands)
Units: (at end of period)
Table Games - Sands 82 80
- Atlantic City (ex. Sands) 1,190 1,228
Slot Machines - Sands 2,061 2,010
- Atlantic City (ex. Sands) 35,251 34,327
Gross Wagering (1)
Table Games - Sands $ 95,017 $ 110,772
- Atlantic City (ex. Sands) 1,587,589 1,614,737
Slot Machines - Sands 582,553 543,244
- Atlantic City (ex. Sands) 9,032,470 8,536,918
Hold Percentages (2)
Table Games - Sands 15.5% 13.7%
- Atlantic City (ex. Sands) 16.3% 15.4%
Slot Machines - Sands 7.1% 7.2%
- Atlantic City (ex. Sands) 8.1% 8.1%
Revenues (2)
Table Games - Sands $ 14,747 $ 15,137
- Atlantic City (ex. Sands) 258,046 248,390
Slot Machines - Sands 41,083 39,135
- Atlantic City (ex. Sands) 728,202 692,004
Other (3) - Sands 590 690
- Atlantic City (ex. Sands) N/A N/A
- -------------
(1) Gross wagering consists of the total value of chips purchased for table
games (excluding poker) and keno wagering (the "Drop") and coins wagered
in slot machines (the "Handle").
(2) Casino revenues consist of the portion of gross wagering that a casino
retains and, as a percentage of gross wagering, is referred to as the
"hold percentage." The Sands' hold percentages and revenues are reflected
on an accrual basis. Comparable accrual basis data for the remainder of
the Atlantic City gaming industry as a whole is not available;
consequently, industry hold percentages and revenues are based on
information available from the Commission and are possibly higher than if
computed on the accrual basis.
18
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
(3) Consists of revenues from poker and simulcast horse racing wagering.
Comparable information for the remainder of the Atlantic City gaming
industry is not available.
Patron Gaming Volume
Information contained herein, regarding Atlantic City casinos other than
the Sands, was obtained from reports filed with the Commission.
Table game drop decreased by $15.7 million (14.2%) during the three
months ended March 31, 2002 compared with the same period of 2001. By
comparison, according to Casino Commission reports, table game drop at all other
Atlantic City casinos during the same period reflected a decrease of 1.7%. As a
result, the Sands table game market share (expressed as a percentage of the
Atlantic City gaming industry (the "industry") aggregate table game drop)
decreased to 5.6%. The decrease in table game drop is attributable to among
other things: (i) the overall trend in table game business throughout the
industry, (ii) the result of the Company's decision in the prior period to offer
promotional odds thereby causing increased table game drop with less than
profitable results and (iii) the Company's decision during the current period to
eliminate table game programs that had become less profitable. Table game hold
percentage increased 0.9 percentage points to 15.8% for the three months ended
March 31, 2002 compared to the same period last year. Between the first quarter
of 2001 and the first quarter of 2002, the number of table games increased 2.5%
at the Sands, compared with a decrease of 3.1% at all other Atlantic City
casinos. The Sands plans to reduce its number of table games significantly
during the second quarter 2002. Aggregate gaming space at all other Atlantic
City casinos increased by approximately 34,000 square feet at March 31, 2002
compared to 2001. The amount of gaming space at the Sands increased
approximately 1,000 square feet between periods.
Slot machine handle increased $39.3 million (7.2%) during the three
months ended March 31, 2002 compared with the same period of 2001. By
comparison, the percentage increase in slot machine handle for all other
Atlantic City casinos in the first quarter of 2002 vs. the same period in 2001
was 5.8%. As a result, the Sands' market share of slot machine handle as a
percentage of total industry slot handle increased to 6.1%, despite operating
just 5.5% of the slot machines in the Atlantic City market. The increased Sands
slot handle during 2002 is primarily attributable to an increased volume of play
from both rated and unrated players as a result of an overall lower hold
percentage. The number of slot machines increased 2.5% at the Sands. On an
industry-wide basis, the number of slot machines increased 2.7% in the first
quarter of 2002 compared to the first quarter of 2001. As part of the Sands
capital expenditure program, new and more popular slot machines continue to be
purchased. The Sands plans to add approximately 400 new slot machines in the
third quarter of this year on existing casino floor space currently occupied by
table games.
19
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The following table sets forth the changes in operating revenues and
expenses (unaudited) for the three-month periods ended March 31, 2002 and 2001:
Three Months Ended March 31,
-------------------------------------------------
Increase (Decrease)
2002 2001 $ %
----------- ---------- ---------- ----------
(Dollars In Thousands)
Revenues:
Casino $ 55,670 $ 53,666 $ 2,004 3.73
Rooms 2,746 2,554 192 7.52
Food and Beverage 6,465 6,741 (276) (4.09)
Other 928 905 23 2.54
Promotional Allowances 12,565 15,265 (2,700) (17.69)
Expenses:
Casino 36,819 40,426 (3,607) (8.92)
Rooms 1,105 1,171 (66) (5.64)
Food and Beverage 2,489 2,008 481 23.95
Other 733 641 92 14.35
General and Administrative 2,912 3,905 (993) (25.43)
Depreciation and Amortization 3,243 2,964 279 9.41
Income/(loss) from Operations 5,943 (2,514) 8,457 336.40
Non-operating items, net 2,425 2,133 292 13.69
Income Tax (Provision) Benefit (1,260) 1,591 (2,851) (179.20)
Revenues
Overall casino revenues increased $2.0 million primarily due to increased
handle (7.2%) on slots. The slot revenue increase was partially offset by a
decrease in table revenues primarily due to a 14.2% decrease in table drop.
Rooms revenue increased $192,000 as a result of a combination of
increased occupancy and an increase in the average daily room rate.
Food and beverage revenues decreased $276,000 due to a decrease in
complimentary food and beverage sales.
Other revenues increased $23,000 as a result of an increase in Other
Income due to an increase in entertainment revenue offset slightly by a decrease
in merchandise sales.
20
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Promotional Allowances
Promotional allowances are comprised of (i) the estimated retail value of
goods and services provided free of charge to casino customers under various
marketing programs, (ii) the cash value of redeemable points earned under a
customer loyalty program based on the amount of slot play and (iii) coin and
cash coupons and discounts. As a percentage of casino revenues, promotional
allowances decreased to 22.6% during the three months ended March 31, 2002 from
28.4% during the same period of 2001. The decrease is primarily attributable to
the elimination of marketing programs and other promotional activities that were
deemed unprofitable and a continued focus on, and development of, the segments
of play that created more volume with less expense. Promotional Allowances also
decreased due to the reduction in bus coin incentives.
Departmental Expenses
Casino expenses at the Sands decreased by $3.6 million as a result of the
decrease in costs associated with the allocation of complimentaries described
under Promotional Allowances. Casino payroll expenses decreased due to more
focus on the table game costs related to a lower drop compared to the prior
period. The decrease in the provision for doubtful accounts expense was caused
by a reduction in credit issuance due to lower table game activity. There was no
television advertising expense in the first quarter 2002 while there were such
expenses in the same prior year period.
The rooms expense decrease of $66,000 was due to a decrease in
housekeeping supplies expense and amenity package costs.
Food and beverage expenses increased $481,000 due to a smaller share of
costs allocated to casino expense as a result of a decrease in casino
complimentaries. Increases in payroll, benefits and operating supplies were
slightly offset by decreases in food and beverage cost of sales.
Other expenses increased $92,000 as a result of a smaller share of costs
allocated to casino expense as a result of a decrease in casino complimentaries
offset by a decrease in payroll and benefits.
General and Administrative Expenses
General and administrative expenses decreased $1.0 million due to costs
incurred during 2001 associated with the attempted acquisition of the Claridge
Hotel Casino and the cost of a severance package related to an internal
reorganization. Also, decreases in gas, utilities and insurance costs
contributed to the variance.
Depreciation and Amortization
Depreciation and amortization expense increased $279,000 as a result of
the increased investment in infrastructure and equipment.
21
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Interest Income and Expense
Interest income decreased by $701,000 during the three months ended March
31, 2002 compared to the same period in 2001. The decrease was due to lower
interest rates and lower average balances of cash reserves in 2002 compared to
2001.
Interest expense decreased $399,000 during the three months ended March
31, 2002 compared to the same period in 2001. The decrease is due to the
capitalization of interest expense in 2002.
Income Tax Benefit (Provision)
Prior to 1997, the Company was included in the consolidated federal
income tax return of Hollywood Casino Corporation ("HCC"). The Company's
operations were included in GBCC's consolidated federal income tax returns for
the years ended December 31, 1998 and 1997, but GBCC agreed to allow the Company
to become deconsolidated from the GBCC group effective after December 31, 1998.
In accordance therewith, PCC transferred 21% of the stock ownership in Holdings
to PBV, effecting the deconsolidation of the Company from the GBCC group for
federal income tax purposes (the "Deconsolidation"). Accordingly, beginning in
1999, the Company's provision for federal income taxes has been calculated and
paid on a consolidated basis.
At March 31, 2002, the Company had deferred tax assets including State
net operating losses, Federal credit carryforwards and temporary differences.
The State net operating losses ("State NOL's") begin to expire in the year 2003
for state tax purposes. A portion of the credit carryforwards, if not utilized,
will begin to expire each year through 2004. The remaining credit carryforwards
expire through the year 2019. In addition, as part of a certain settlement
agreement, GBCC may utilize Federal net operating losses ("Federal NOL's") of
the Company through December 31, 1998 to offset federal taxable income of GBCC
and other members of its consolidated tax group. The Company has utilized the
balance of its Federal NOL's in its 1999 (amended) and 2000 consolidated Federal
tax returns. Statement of Financial Accounting Standards No. 109 ("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, requires the recording of a
valuation allowance. Due to various uncertainties, management is unable to
determine that realization of the Company's deferred tax asset is more likely
than not and, thus, has provided a valuation allowance for the entire amount at
March 31, 2002.
The Internal Revenue Service is examining the consolidated federal income
tax returns of HCC for the years 1995 and 1996 and the consolidated federal
income tax returns for GBCC for the years 1997 and 1998 in which the Company was
included (the "Audit"). As a result of such Audit, GBCC management has disclosed
in its annual SEC Form 10-K, filed for the year ended December 31, 2001, that
the Audit is substantially complete and has resulted in adjustments to GBCC's
Federal NOL's and deferred tax assets. The Company is dependent upon receipt of
information from HCC and GBCC as to their operations including their affiliates
and the impact of those operations on the former HCC and GBCC consolidated
groups' Federal NOL's. The Company has not yet received information regarding
the details of the Audit adjustments and, therefore, is unable to estimate their
impact on the Company's financial position or results of operations.
22
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The State of New Jersey is examining the state corporate business tax
return of GBHC for the years 1996, 1997 and 1998. It is management's position
that any claims by the State of New Jersey against GBHC attributable to anytime
prior to January 5, 1998 is barred by applicable provisions of the Bankruptcy
Code. Management is presently unable to estimate the impact of New Jersey's tax
audit on the financial position or results of operations of GBHC.
Federal and State income tax benefits or provisions are based upon the
results of operations for the current period and the estimated adjustments for
income tax purposes of certain nondeductible expenses. The Federal income tax
provision of approximately $1.3 million for the three months ended March 31,
2002 is a result of applying the statutory Federal income tax rate of 35% to the
pretax income after adjustments for income tax purposes.
Inflation
Management believes that in the near term, modest inflation, together
with increasing competition within the gaming industry for qualified and
experienced personnel, will continue to cause increases in operating expenses,
particularly labor and employee benefits costs.
Seasonality
Historically, the Sands' operations have been highly seasonal in nature,
with the peak activity occurring from May to September. Consequently, the
results of operations for the first and fourth quarters are traditionally less
profitable than the other quarters of the fiscal year. In addition, the Sands'
operations may fluctuate significantly due to a number of factors, including
chance. Such seasonality and fluctuations may materially affect casino revenues
and profitability.
Private Securities Litigation Reform Act
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q and other materials filed or to be filed by Holdings, GB Property
Funding or GBHC with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made by such
companies) contains statements that are forward-looking, such as statements
relating to plans for future expansion, future construction costs and other
business development activities as well as other capital spending, economic
conditions, financing sources, competition and the effects of tax regulation and
state regulations applicable to the gaming industry in general or Holdings, GB
Property Funding and GBHC in particular. Such forward-looking information
involves important risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made by or on behalf of
Holdings, GB Property Funding or GBHC. These risks and uncertainties include,
but are not limited to, those relating to development and construction
activities, dependence on existing management, leverage and debt service
(including sensitivity to fluctuations in interest rates), domestic or global
economic conditions, activities of competitors and the presence of new or
additional competition, fluctuations and changes in customer preference and
attitudes, changes in federal or state tax laws or the administration of such
laws and changes in gaming laws or regulations (including the legalization of
gaming in certain jurisdictions).
23
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from changes in market rates and
prices, such as interest rates and foreign currency exchange rates. The Company
does not have securities subject to interest rate fluctuations and has not
invested in derivative-based financial instruments.
24
PART II: OTHER INFORMATION
Item 6. (a) Exhibits (Restated)
Item 6. (b) Reports on Form 8-K
The registrants did not file any reports on Form 8K for the quarter ended
March 31, 2002.
During the quarter ended June 30, 2002, the Registrants filed the
following reports on Form 8-K:
Items Listed Dates Filed
------------ -----------
4 May 23, 2002
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Atlantic City, State of New Jersey on November 8, 2002.
GB HOLDINGS, INC.
GB PROPERTY FUNDING CORP.
GREATE BAY HOTEL AND CASINO, INC.
Registrants
Date: November 8, 2002 By: /s/ Timothy A. Ebling
------------------ ----------------------------------------
Timothy A. Ebling
Chief Financial Officer
25
Certifications (Restated)
Certification of Chief Financial Officer
Pursuant to 13a-14
of the Securities Exchange Act of 1934, as amended (the "Act")
I, Timothy A. Ebling, Chief Financial Officer and the individual performing
functions of the Chief Executive Officer solely for purposes of this
certification of GB Property Funding Corp. certify that:
(1) I have reviewed the Registrant's Quarterly Report on Form 10-Q/A
for the period ended March 31, 2002 of the Registrant (the "Report");
(2) Based on my knowledge, the Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the Report; and
(3) Based on my knowledge, the financial statements, and other
financial information included in the Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in the Report.
/s/ Timothy A. Ebling
- --------------------------------
Name: Timothy A. Ebling
Date: November 8, 2002
--------------------------
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
I, Timothy A. Ebling, Chief Financial Officer and the individual performing
functions of the Chief Executive Officer solely for purposes of this
certification of GB Property Funding Corp. certify that to the best of my
knowledge, based upon a review of the Quarterly Report on Form 10-Q for the
period ended March 31, 2002 of the Registrant (the "Report"):
(1) The Report fully complies with the requirements of Section 13 (a)
or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Registrant.
/s/ Timothy A. Ebling
- --------------------------------
Name: Timothy A. Ebling
Date: November 8, 2002
--------------------------
26
Certification of Chief Financial Officer
Pursuant to 13a-14
of the Securities Exchange Act of 1934, as amended (the "Act")
I, Timothy A. Ebling, Chief Financial Officer and the individual performing
functions of the Chief Executive Officer solely for purposes of this
certification of GB Holdings, Inc. certify that:
(1) I have reviewed the Registrant's Quarterly Report on Form 10-Q/A or
the period ended March 31, 2002 of the Registrant (the "Report");
(2) Based on my knowledge, the Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the Report; and
(3) Based on my knowledge, the financial statements, and other
financial information included in the Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in the Report.
/s/ Timothy A. Ebling
- ----------------------------------
Name: Timothy A. Ebling
Date: November 8, 2002
----------------------------
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
I, Timothy A. Ebling, Chief Financial Officer and the individual performing
functions of the Chief Executive Officer solely for purposes of this
certification of GB Holdings, Inc. certify that certify that to the best of my
knowledge, based upon a review of the Quarterly Report on Form 10-Q for the
period ended March 31, 2002 of the Registrant (the "Report"):
(1) The Report fully complies with the requirements of Section 13 (a)
or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Registrant.
/s/ Timothy A. Ebling
- ----------------------------------
Name: Timothy A. Ebling
Date: November 8, 2002
----------------------------
27
Certification of President and Chief Financial Officer
Pursuant to 13a-14
of the Securities Exchange Act of 1934, as amended (the "Act")
I, Timothy A. Ebling, President and Chief Financial Officer of Greate Bay Hotel
and Casino, Inc. certify that:
(1) I have reviewed the Registrant's Quarterly Report on Form 10-Q/A
for the period ended March 31, 2002 of the Registrant (the "Report");
(2) Based on my knowledge, the Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the Report; and
(3) Based on my knowledge, the financial statements, and other
financial information included in the Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in the Report.
/s/ Timothy A. Ebling
- -----------------------------------
Name: Timothy A. Ebling
Date: November 8, 2002
-----------------------------
Certification of President and Chief Financial Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
I, Timothy A. Ebling, President and Chief Financial Officer of Greate Bay Hotel
and Casino, Inc. certify that to the best of my knowledge, based upon a review
of the Quarterly Report on Form 10-Q for the period ended March 31, 2002 of the
Registrant (the "Report"):
(1) The Report fully complies with the requirements of Section 13 (a)
or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Registrant.
/s/ Timothy A. Ebling
- -----------------------------------
Name: Timothy A. Ebling
Date: November 8, 2002
-----------------------------
28