-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PITUzAUWPyxCUeVdmUScZp8GgqH7GSvWVK350pQ3kJMZHNQbmC8P6gHUvBJdium6 0Jb7O5GHrZ6/hx+AVm146w== 0000930661-96-001603.txt : 19961118 0000930661-96-001603.hdr.sgml : 19961118 ACCESSION NUMBER: 0000930661-96-001603 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: GB PROPERTY FUNDING CORP CENTRAL INDEX KEY: 0000912906 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 752502290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-69716 FILM NUMBER: 96663398 BUSINESS ADDRESS: STREET 1: TWO GALLERIA TWR STE 2200 STREET 2: 13455 NOEL RD LB48 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2143869777 MAIL ADDRESS: STREET 1: TWO GALLERIA TWRSTE 2200 STREET 2: 13455 NOEL ROAD, LB48 CITY: DALLAS STATE: TX ZIP: 75240 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREATE BAY HOTEL & CASINO INC CENTRAL INDEX KEY: 0000906595 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 222242014 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-69716-02 FILM NUMBER: 96663399 BUSINESS ADDRESS: STREET 1: TWO GALLERIA TOWER SUITE 2200 13455 NOEL CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2143869777 MAIL ADDRESS: STREET 1: TWO GALLERIA TOWER SUITE 2200 STREET 2: 13455 NOEL ROAD CITY: DALLAS STATE: TX ZIP: 75240 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GB HOLDINGS INC CENTRAL INDEX KEY: 0000912926 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 752502293 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-69716-01 FILM NUMBER: 96663400 BUSINESS ADDRESS: STREET 1: TWO GALLERIA TOWER 13455 NOEL ROAD STREET 2: STE 2200 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2143869777 MAIL ADDRESS: STREET 1: TWO GALLERIA TOWER SUITE 2200 STREET 2: 13455 NOEL ROAD CITY: DALLAS STATE: TX ZIP: 75240 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1996 ----------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- ---------------------- Commission file number 33-69716 -------- 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) TWO GALLERIA TOWER, SUITE 2200 13455 NOEL ROAD, LB48 DALLAS, TEXAS 75240 - ---------------------------------------- ---------------------------- (Address of principal executive offices) (Zip Code) (Registrants' telephone number, including area code): (214) 386-9777 ------------------------- (NOT APPLICABLE) - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report.) Indicate by check mark whether each of the Registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date.
REGISTRANT CLASS OUTSTANDING AT NOVEMBER 12, 1996 - ----------------------------------- ----------------------------- --------------------------------- GB Property Funding Corp. Common stock, $1.00 par value 1,000 shares GB Holdings, Inc. Common stock, $1.00 par value 1,000 shares Greate Bay Hotel and Casino, Inc. Common stock, no par value 100 shares
Each of the Registrants meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format. 1 PART I: FINANCIAL INFORMATION - ------------------------------ INTRODUCTORY NOTES TO FINANCIAL STATEMENTS - ------------------------------------------ The registered securities consist of 10 7/8% First Mortgage Notes (the "10 7/8% First Mortgage Notes") in the principal amount of $185,000,000 due January 15, 2004 issued by GB Property Funding Corp. ("GB Property Funding") and listed on the American Stock Exchange. GB Property Funding's obligations are unconditionally guaranteed by GB Holdings, Inc. ("Holdings"), a Delaware corporation with principal executive offices at Two Galleria Tower, Suite 2200, 13455 Noel Road, LB48, Dallas, TX 75240 and by Greate Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation and a wholly owned subsidiary of Holdings with principal offices at 136 South Kentucky Avenue, Atlantic City, New Jersey 08401. GB Property Funding is wholly owned by Holdings. Holdings is a wholly owned subsidiary of Pratt Casino Corporation ("PCC"), which is an indirect wholly owned subsidiary of Pratt Hotel Corporation ("PHC"). PHC is an American Stock Exchange listed company subject to the reporting requirements of the Securities Act of 1934. GB Property Funding was organized during September 1993 as a special purpose subsidiary of Holdings for the purpose of borrowing funds through the issuance of the 10 7/8% First Mortgage Notes for the benefit of GBHC. GBHC owns the Sands Hotel and Casino located in Atlantic City, New Jersey (the "Sands"). Substantially all of Holdings' assets and operations relate to the Sands. Historically, the Sands' gaming operations have been highly seasonal in nature, with the peak activity occurring from May to September. Consequently, the results of operations for the three and nine month periods ended September 30, 1996 are not necessarily indicative of the operating results to be reported for the full year. The financial statements of GB Property Funding and the consolidated financial statements of Holdings as of September 30, 1996 and for the three and nine month periods ended September 30, 1996 and 1995 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, their respective financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly their respective financial positions as of September 30, 1996, their respective results of operations for the three and nine month periods ended September 30, 1996 and 1995 and their respective cash flows for the nine month periods ended September 30, 1996 and 1995. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in GB Property Funding, Holdings and GBHC's 1995 Annual Report on Form 10-K. 2 GB PROPERTY FUNDING CORP. (WHOLLY OWNED BY GB HOLDINGS, INC.) BALANCE SHEETS (UNAUDITED) ASSETS
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ Current assets: Cash $ 1,000 $ 1,000 Note receivable from affiliate 2,500,000 - Interest receivable from affiliate 4,247,000 9,277,000 ------------ ------------ Total current assets 6,748,000 9,278,000 ------------ ------------ Note receivable from affiliate 182,500,000 185,000,000 ------------ ------------ $189,248,000 $194,278,000 ============ ============ LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Current maturities of long-term debt $ 2,500,000 $ - Accrued interest payable 4,247,000 9,277,000 ------------ ------------ Total current liabilities 6,747,000 9,277,000 ------------ ------------ Long-term debt 182,500,000 185,000,000 ------------ ------------ Shareholder's equity (Note 1): Common stock, $1.00 par value per share, 1,000 shares authorized and outstanding 1,000 1,000 ------------ ------------ $189,248,000 $194,278,000 ============ ============
The accompanying introductory notes and notes to financial statements are an integral part of these balance sheets. 3 GB PROPERTY FUNDING CORP. (WHOLLY OWNED BY GB HOLDINGS, INC.) STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, ---------------------- 1996 1995 ---------- ---------- Revenues: Interest income $5,029,000 $5,029,000 Expenses: Interest expense 5,029,000 5,029,000 ---------- ---------- Net income $ - $ - ========== ==========
The accompanying introductory notes and notes to financial statements are an integral part of these financial statements. 4 GB PROPERTY FUNDING CORP. (WHOLLY OWNED BY GB HOLDINGS, INC.) STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1996 1995 ----------- ----------- Revenues: Interest income $15,089,000 $15,089,000 Expenses: Interest expense 15,089,000 15,089,000 ----------- ----------- Net income $ - $ - =========== ===========
The accompanying introductory notes and notes to financial statements are an integral part of these financial statements. 5 GB PROPERTY FUNDING CORP. (WHOLLY OWNED BY GB HOLDINGS, INC.) STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1996 1995 ----------- ----------- OPERATING ACTIVITIES: Net income $ - $ - Adjustments to reconcile net income to net cash provided by operating activities: Decrease in interest receivable from affiliate 5,030,000 5,030,000 Decrease in accrued interest payable (5,030,000) (5,030,000) ----------- ----------- Net cash provided by operating activities - - ----------- ----------- Net change in cash - - ----------- ----------- Cash at beginning of period 1,000 1,000 ----------- ----------- Cash at end of period $ 1,000 $ 1,000 =========== ===========
The accompanying introductory notes and notes to financial statements are an integral part of these financial statements. 6 GB PROPERTY FUNDING CORP. (WHOLLY OWNED BY GB HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) ORGANIZATION AND OPERATIONS GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation, was incorporated on September 29, 1993. GB Property Funding is a wholly owned subsidiary of GB Holdings, Inc. ("Holdings"), a Delaware corporation which is an indirect, wholly owned subsidiary of Pratt Hotel Corporation ("PHC"). Holdings was incorporated in September 1993 and, on February 17, 1994, acquired through capital contributions by its parent, all of the outstanding capital stock of Greate Bay Hotel and Casino, Inc. ("GBHC"), which owns the Sands Hotel and Casino in Atlantic City, New Jersey (the "Sands"). GB Property Funding was formed for the purpose of borrowing $185,000,000 for the benefit of GBHC; such debt was issued during February 1994 at the rate of 10 7/8% per annum and the proceeds were loaned to GBHC (see Note 2). The operation of an Atlantic City casino/hotel is subject to significant regulatory control. Under provisions of the New Jersey Casino Control Act, GBHC is required to maintain a nontransferable license to operate a casino in Atlantic City. Administrative services for GB Property Funding are provided by other PHC subsidiaries at no charge. The cost of such services is not significant. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statements as of September 30, 1996 and for the three and nine month periods ended September 30, 1996 and 1995 have been prepared by GB Property Funding without audit. In the opinion of management, these financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of GB Property Funding as of September 30, 1996, the results of its operations for the three and nine month periods ended September 30, 1996 and 1995 and its cash flows for the nine month periods ended September 30, 1996 and 1995. (2) LONG-TERM DEBT On February 17, 1994, GB Property Funding issued $185,000,000 of non-recourse first mortgage notes due January 15, 2004 (the "10 7/8% First Mortgage Notes"). Interest on the notes accrues at the rate of 10 7/8% per annum, payable semiannually commencing July 15, 1994. Interest only is payable during the first three years. Commencing on July 15, 1997, semiannual principal payments of $2,500,000 will become due on each interest payment date. 7 GB PROPERTY FUNDING CORP. (WHOLLY OWNED BY GB HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The indenture for the 10 7/8% First Mortgage Notes contains various provisions which, among other things, restrict the ability of certain subsidiaries of PHC to pay dividends to PHC, to merge, consolidate or sell substantially all of their assets or to incur additional indebtedness beyond certain limitations. In addition, the indenture requires the maintenance of certain cash balances and, commencing in 1994, requires that a minimum of $7,000,000 be expended for property and fixture renewals, replacements and betterments at the Sands, subject to increases of five percent per annum thereafter. The proceeds of the 10 7/8% First Mortgage Notes were loaned to GBHC on the same terms and conditions. Interest paid and received with respect to the 10 7/8% First Mortgage Notes and the loan to GBHC was $20,119,000 during each of the nine month periods ended September 30, 1996 and 1995. (3) INCOME TAXES GB Property Funding is included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"), PHC's parent. Pursuant to agreements between Holdings, PHC and HCC, GB Property Funding's provision for federal income taxes is calculated as if a separate federal return were filed. For the nine month periods ended September 30, 1996 and 1995, no provision or payments were made under the agreements. 8 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
SEPTEMBER 30, DECEMBER 31, 1996 1995 -------------- -------------- Current Assets: Cash and cash equivalents $ 12,781,000 $ 21,769,000 Accounts receivable, net of allowances of $15,288,000 and $16,494,000, respectively 10,744,000 11,350,000 Inventories 3,882,000 4,268,000 Due from affiliate 2,784,000 7,638,000 Refundable deposits and other current assets 3,719,000 4,736,000 ------------- ------------- Total current assets 33,910,000 49,761,000 ------------- ------------- Property and Equipment: Land 37,807,000 37,807,000 Buildings and improvements 185,508,000 185,077,000 Operating equipment 89,653,000 87,489,000 Construction in progress 3,197,000 2,310,000 ------------- ------------- 316,165,000 312,683,000 Less - accumulated depreciation and amortization (157,772,000) (145,243,000) ------------- ------------- Net property and equipment 158,393,000 167,440,000 ------------- ------------- Other Assets: Obligatory investments 5,999,000 5,521,000 Due from affiliate 17,098,000 13,681,000 Deferred financing costs and other assets 9,667,000 9,155,000 ------------- ------------- Total other assets 32,764,000 28,357,000 ------------- ------------- $ 225,067,000 $ 245,558,000 ============= =============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated balance sheets. 9 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) CONSOLIDATED BALANCE SHEETS (UNAUDITED) LIABILITIES AND SHAREHOLDER'S (DEFICIT) EQUITY
SEPTEMBER 30, DECEMBER 31, 1996 1995 -------------- ------------- Current Liabilities: Current maturities of long-term debt $ 2,511,000 $ 11,000 Short-term credit facilities 2,000,000 - Short-term borrowings from affiliates 6,500,000 - Accounts payable 7,758,000 8,409,000 Accrued liabilities - Salaries and wages 4,949,000 5,108,000 Interest 5,354,000 9,828,000 Insurance 3,002,000 2,330,000 Other 7,168,000 6,365,000 Due to affiliates 571,000 359,000 Other current liabilities 3,944,000 4,890,000 ------------ ------------ Total current liabilities 43,757,000 37,300,000 ------------ ------------ Long-Term Debt 192,934,000 195,442,000 ------------ ------------ Other Noncurrent Liabilities 1,715,000 2,390,000 ------------ ------------ Commitments and Contingencies Shareholder's (Deficit) Equity: Common stock, $1.00 par value per share; 1,000 shares authorized and outstanding 1,000 1,000 Additional paid-in capital 18,438,000 18,438,000 Accumulated deficit (31,778,000) (8,013,000) ------------ ------------ Total shareholder's (deficit) equity (13,339,000) 10,426,000 ------------ ------------ $225,067,000 $245,558,000 ============ ============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated balance sheets. 10 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, ------------------------- 1996 1995 ----------- ----------- Revenues: Casino $65,820,000 $72,235,000 Rooms 2,660,000 2,671,000 Food and beverage 9,167,000 9,905,000 Other 1,535,000 1,274,000 ----------- ----------- 79,182,000 86,085,000 Less - promotional allowances (7,462,000) (7,913,000) ----------- ----------- Net revenues 71,720,000 78,172,000 ----------- ----------- Expenses: Casino 56,240,000 55,998,000 Rooms 405,000 477,000 Food and beverage 3,149,000 3,071,000 Other 1,296,000 484,000 General and administrative 4,568,000 5,851,000 Depreciation and amortization 5,014,000 4,975,000 ----------- ----------- Total expenses 70,672,000 70,856,000 ----------- ----------- Income from operations 1,048,000 7,316,000 ----------- ----------- Non-operating income (expense): Interest income 360,000 474,000 Interest expense (5,635,000) (5,445,000) Gain on sale of assets - 56,000 ----------- ----------- Total non-operating expense, net (5,275,000) (4,915,000) ----------- ----------- (Loss) income before income taxes (4,227,000) 2,401,000 Income tax provision - (1,323,000) ----------- ----------- Net (loss) income $(4,227,000) $ 1,078,000 =========== ===========
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated statements. 11 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 1996 1995 ------------ ------------ Revenues: Casino $188,735,000 $202,571,000 Rooms 7,049,000 7,341,000 Food and beverage 26,478,000 24,499,000 Other 4,532,000 2,928,000 ------------ ------------ 226,794,000 237,339,000 Less - promotional allowances (21,616,000) (20,267,000) ------------ ------------ Net revenues 205,178,000 217,072,000 ------------ ------------ Expenses: Casino 169,156,000 157,060,000 Rooms 1,675,000 1,953,000 Food and beverage 8,337,000 7,128,000 Other 2,488,000 1,476,000 General and administrative 14,178,000 17,555,000 Depreciation and amortization 15,324,000 14,947,000 ------------ ------------ Total expenses 211,158,000 200,119,000 ------------ ------------ (Loss) income from operations (5,980,000) 16,953,000 ------------ ------------ Non-operating income (expense): Interest income 1,174,000 1,347,000 Interest expense (16,555,000) (16,272,000) Gain on sale of assets 13,000 56,000 ------------ ------------ Total non-operating expense, net (15,368,000) (14,869,000) ------------ ------------ (Loss) income before income taxes (21,348,000) 2,084,000 Income tax provision (2,417,000) (1,842,000) ------------ ------------ Net (loss) income $(23,765,000) $ 242,000 ============ ============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated statements. 12 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 1996 1995 ------------ ------------ OPERATING ACTIVITIES: Net (loss) income $(23,765,000) $ 242,000 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 15,324,000 14,947,000 Provision for doubtful accounts 1,562,000 2,263,000 Deferred income tax provision (benefit) 2,417,000 (2,376,000) Increase in accounts receivable (956,000) (802,000) Decrease in accounts payable and accrued expenses (3,609,000) (3,467,000) Net change in other current assets and liabilities (539,000) 3,305,000 Net change in other noncurrent assets and liabilities (988,000) (683,000) ------------ ------------ Net cash (used in) provided by operating activities (10,554,000) 13,429,000 ------------ ------------ INVESTING ACTIVITIES: Net property and equipment additions (4,668,000) (15,664,000) Obligatory investments (2,248,000) (2,102,000) ------------ ------------ Net cash used in investing activities (6,916,000) (17,766,000) ------------ ------------ FINANCING ACTIVITIES: Net borrowings on credit facilities 2,000,000 - Borrowings from affiliates 6,500,000 - Deferred financing costs (10,000) (32,000) Repayments of long-term debt (8,000) (8,000) ------------ ------------ Net cash provided by (used in) financing activities 8,482,000 (40,000) ------------ ------------ Net decrease in cash and cash equivalents (8,988,000) (4,377,000) Cash and cash equivalents at beginning of period 21,769,000 23,137,000 ------------ ------------ Cash and cash equivalents at end of period $ 12,781,000 $ 18,760,000 ============ ============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated statements. 13 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION GB Holdings, Inc. ("Holdings") is a Delaware corporation and a wholly owned subsidiary of Pratt Casino Corporation ("PCC"), also a Delaware corporation. PCC was incorporated during September 1993 and is wholly owned by PPI Corporation, a New Jersey corporation and a wholly owned subsidiary of Pratt Hotel Corporation ("PHC"). On February 17, 1994, Holdings acquired Greate Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation, through a capital contribution by its parent. GBHC's principal business activity is its ownership of the Sands Hotel and Casino in Atlantic City, New Jersey (the "Sands"). The Sands is managed by New Jersey Management, Inc. ("NJMI"), also a wholly owned subsidiary of PCC. GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation and a wholly owned subsidiary of Holdings, was incorporated in September 1993 for the purpose of borrowing funds through the issuance of $185,000,000 of ten-year, nonrecourse first mortgage notes for the benefit of GBHC; such debt was issued in February 1994 at the rate of 10 7/8% per annum and the proceeds were loaned to GBHC (see Note 3). Holdings has no operating activities and its only significant asset is its investment in GBHC. The accompanying consolidated financial statements include the accounts and operations of Holdings, GBHC and GB Property Funding; all significant intercompany balances and transactions have been eliminated. GBHC estimates that a significant amount of the Sands' revenues is derived from patrons living in southeastern Pennsylvania, northern New Jersey and metropolitan New York City. Competition in the Atlantic City gaming market is intense and management believes that this competition will continue in the future. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. GBHC is self insured for a portion of its general liability, certain health care and other liability exposures. Accrued insurance includes estimates of such accrued liabilities based on an evaluation of the merits of individual claims and historical claims experience; accordingly, GBHC's ultimate liability may differ from the amounts accrued. During the fourth quarter of 1995, GBHC adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets" ("SFAS 121"). SFAS 121 requires, among other things, that an entity review its long-lived assets and certain related intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. As a result of its review, GBHC does not believe that any material impairment currently exists related to its long- lived assets. 14 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The consolidated financial statements as of September 30, 1996 and for the three and nine month periods ended September 30, 1996 and 1995 have been prepared by Holdings without audit. In the opinion of management, these consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position of Holdings as of September 30, 1996, the results of its operations for the three and nine month periods ended September 30, 1996 and 1995 and its cash flows for the nine month periods ended September 30, 1996 and 1995. (2) SHORT-TERM CREDIT FACILITIES As of April 30, 1996, GBHC extended $2,000,000 of its bank line of credit until April 30, 1997. As of September 30, 1996, $2,000,000 was outstanding under the line of credit; no such borrowings were outstanding under the line of credit at December 31, 1995. Borrowings under the line of credit accrue interest at the bank's prime rate plus 3/4% per annum payable monthly and are guaranteed by PCC. Additionally, PCC has pledged a certificate of deposit in the face amount of $2,000,000 as collateral for the line of credit. (3) LONG-TERM DEBT AND PLEDGE OF ASSETS Substantially all of Holdings' and GBHC's assets are pledged in connection with their long-term indebtedness.
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ 10 7/8% first mortgage notes, due 2004 (a) $185,000,000 $185,000,000 14 5/8% affiliate loan, due 2005 (b) 10,000,000 10,000,000 Other 445,000 453,000 ------------- ------------ Total indebtedness 195,445,000 195,453,000 Less - current maturities (2,511,000) (11,000) ------------- ------------ Total long-term debt $192,934,000 $195,442,000 ============= ============
- -------------------------- (a) On February 17, 1994, the Sands obtained $185,000,000 from GB Property Funding, which issued $185,000,000 of non-recourse first mortgage notes due January 15, 2004 (the "10 7/8% First Mortgage Notes"). Interest on the notes accrues at the rate of 10 7/8% per annum, payable semiannually commencing July 15, 1994. Interest only is payable during the first three years. Commencing on July 15, 1997, semiannual principal payments of $2,500,000 will become due on each interest payment date. The 10 7/8% First Mortgage Notes are redeemable at the option of the issuer, in whole or in part, on or after January 15, 1999 at stated redemption prices ranging up to 104.08% of par plus accrued interest. 15 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The indenture for the 10 7/8% First Mortgage Notes contains various provisions which, among other things, restrict the ability of certain subsidiaries of PHC to pay dividends to PHC, to merge, consolidate or sell substantially all of their assets or to incur additional indebtedness beyond certain limitations. In addition, the indenture requires the maintenance of certain cash balances and, commencing in 1994, requires that a minimum of $7,000,000 be expended for property and fixture renewals, replacements and betterments at the Sands, subject to increases of five percent per annum thereafter. (b) On February 17, 1994, GBHC issued a $10,000,000 subordinated promissory note to an affiliate. The note bears interest at the rate of 14 5/8% per annum, payable semiannually commencing August 17, 1994, subject to maintaining average daily cash balances required by the indenture for the 10 7/8% First Mortgage Notes, with the principal due in February 2005. Scheduled payments of long-term debt as of September 30, 1996 are set forth below:
1996 (three months) $ 3,000 1997 2,512,000 1998 5,013,000 1999 5,014,000 2000 5,015,000 Thereafter 177,888,000 ------------ Total $195,445,000 ============
Interest paid amounted to $21,029,000 and $22,404,000, respectively, during the nine month periods ended September 30, 1996 and 1995. 16 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (4) INCOME TAXES Components of the provision for income taxes consisted of the following:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ---------------------------- 1996 1995 1996 1995 ----------- ---------- ----------- ----------- Benefit in lieu of (provision for) federal income taxes: Current $ - $(1,806,000) $ - $(3,313,000) Deferred - 782,000 (2,364,000) 1,879,000 State income tax benefit (provision): Current - (509,000) - (905,000) Deferred - 210,000 (53,000) 497,000 $ - $(1,323,000) $(2,417,000) $(1,842,000)
Holdings is included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"), PHC's parent. Pursuant to agreements between Holdings, PCC, PHC and HCC, Holdings' provision for federal income taxes is based on the amount of tax which would be provided if a separate federal income tax return were filed. The payment of taxes in accordance with the tax allocation agreements is subject to the approval of the New Jersey Casino Control Commission ("CCC"). Holdings made no federal or state income tax payments during the nine month periods ended September 30, 1996 and 1995. Federal and state income tax provisions or benefits are based upon estimates of the results of operations for the current period and reflect the nondeductibility for income tax purposes of certain items, including certain amortization, meals and entertainment and other expenses. Deferred income taxes result primarily from the use of the allowance method rather than the direct write-off method for doubtful accounts, the use of accelerated methods of depreciation for federal and state income tax purposes and differences in the timing of deductions taken between tax and financial reporting purposes for contributions of and adjustments to the carrying value of certain investment obligations and for vacation and other accruals. 17 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The components of the deferred tax asset as of September 30, 1996 and December 31, 1995 are as follows:
SEPTEMBER 30, DECEMBER 31, 1996 1995 -------------- ------------- Deferred tax assets: Net operating loss carryforwards $ 8,042,000 $ 1,506,000 Allowance for doubtful accounts 6,552,000 6,829,000 Other liabilities and accruals 2,508,000 2,089,000 Other 2,016,000 1,377,000 ------------ ----------- Total deferred tax assets 19,118,000 11,801,000 ------------ ----------- Deferred tax liabilities: Depreciation and amortization (8,212,000) (8,679,000) Other (597,000) (597,000) ------------ ----------- Total deferred tax liabilities (8,809,000) (9,276,000) ------------ ----------- Net deferred tax asset 10,309,000 2,525,000 Valuation allowance (10,309,000) - ------------ ----------- $ - $ 2,525,000 ============ ===========
Holdings and its subsidiaries have net operating loss carryforwards ("NOL's") totaling approximately $17,000,000, none of which expire before the year 2009 for federal tax purposes and the year 2001 for state tax purposes. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") requires that the tax benefit of NOL's and deferred tax assets resulting from temporary differences be recorded as an asset and, to the extent that management can not assess that the utilization of all or a portion of such NOL's and deferred tax assets is more likely than not, a valuation allowance should be recorded. Due to the continued availability of NOL's originating in 1994 for federal and state tax purposes and the significant book and tax losses sustained in 1996, management is unable to determine that realization of such asset was more likely than not and, thus, has provided a valuation allowance for the entire deferred tax asset at September 30, 1996. Sales or purchases of Holdings' common stock could cause a "change of control", as defined in Section 382 of the Internal Revenue Code of 1986, as amended, which would limit the ability of Holdings to utilize these loss carryforwards in later tax periods. Should such a change of control occur, the amount of annual loss carryforwards available for use would most likely be substantially reduced. Future treasury 18 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) regulations, administrative rulings or court decisions may also effect Holdings' future utilization of its loss carryforwards. Receivables from and payables to affiliates in connection with the aforementioned tax allocation agreements are as follows:
SEPTEMBER 30, DECEMBER 31, 1996 1995 -------------- ------------- Due from affiliate - current $2,284,000 $7,365,000 Due from affiliate - non-current 8,618,000 5,903,000 Due to affiliate - current (129,000) (129,000)
(5) TRANSACTIONS WITH RELATED PARTIES NJMI, under a management agreement with the Sands, is responsible for the supervision, direction and control of the day-to-day operations of the Sands. NJMI is entitled to receive annually (i) a basic consulting fee of 1.5% of "adjusted gross revenues," as defined, and (ii) incentive compensation of between 5% and 7.5% of gross operating profits in excess of certain stated amounts should annual "gross operating profits," as defined, exceed $5,000,000. Such fees amounted to $1,431,000 and $2,246,000 during the three month periods ended September 30, 1996 and 1995, respectively, and $3,591,000 and $5,276,000 during the nine month periods ended September 30, 1996 and 1995, respectively. These fees are included in general and administrative expenses in the accompanying consolidated financial statements. Management fees payable to NJMI at September 30, 1996 and December 31, 1995 amounted to $16,000 and $28,000, respectively. GBHC licenses the trade name "Sands" from PHC, which licenses the name from an unaffiliated third party. Amounts payable by GBHC under this agreement are equal to the amounts paid to the unaffiliated third party. Such charges amounted to $80,000 for each of the three month periods ended September 30, 1996 and 1995 and $211,000 and $220,000 for the nine month periods ended September 30, 1996 and 1995, respectively. GBHC has, from time to time, advanced monies to PCC or certain of its subsidiaries and PHC or certain of its subsidiaries have advanced monies to GBHC primarily for working capital purposes. An advance to a PHC subsidiary in the amount of $5,672,000 was outstanding as of September 30, 1996 and December 31, 1995 and accrues interest at the rate of 16.5% per annum. During the third quarter of 1996, GBHC borrowed a total of $6,500,000 from PHC for working capital purposes. Such borrowings accrue interest at the rate of 13 3/4% per annum payable quarterly commencing October 1, 1996. Repayment of 19 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) such borrowings from PHC and the payment of the related interest are subject to approval by the CCC. Interest income (expense) incurred with respect to affiliate advances and borrowings is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ---------------------------- 1996 1995 1996 1995 ----------- ---------- ----------- ----------- Net advances $ 52,000 $ 234,000 $ 520,000 $ 702,000 Affiliate loan (Note 3) (366,000) (366,000) (1,097,000) (1,097,000)
Interest receivable on affiliate advances, included in non-current due from affiliates in the accompanying consolidated balance sheets at September 30, 1996 and December 31, 1995 was $2,808,000 and $2,106,000, respectively. Interest accrued on the affiliate loan and advance from PHC aggregating $1,092,000 and $544,000, respectively, is included in interest payable in the accompanying consolidated balance sheets at September 30, 1996 and December 31, 1995. From time to time, GBHC performs certain services for HCC and its subsidiaries and invoices those companies for the Sands' cost of providing those services. Similarly, GBHC is charged for certain legal, accounting and other expenses incurred by HCC and its subsidiaries that relate to the Sands' business. Such affiliate transactions are summarized below:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ---------------------------- 1996 1995 1996 1995 ----------- ---------- ----------- ----------- Billings to affiliates $ 516,000 $ 242,000 $1,299,000 $ 711,000 Charges from affiliates (204,000) (141,000) (704,000) (481,000)
(6) LITIGATION GBHC is a party in various legal proceedings with respect to the conduct of casino and hotel operations. Although a possible range of loss can not be estimated, in the opinion of management, based upon the advice of counsel, settlement or resolution of these proceedings should not have a material adverse impact upon the consolidated financial position or results of operations of Holdings and GBHC. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainties described above. 20 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (7) RECLASSIFICATIONS Certain reclassifications have been made to the 1995 consolidated financial statements to conform to the 1996 consolidated financial statement presentation. Such reclassifications include the reallocation of certain costs among the various operating departments and general and administrative expenses resulting from the completion of a comprehensive internal review of departmental allocations. Management believes that such reclassifications better reflect the matching of costs with the associated revenues. 21 GB HOLDINGS, INC. (WHOLLY OWNED BY PRATT CASINO CORPORATION) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS GENERAL The Sands earned income from operations of $1 million and sustained a loss from operations of $6 million for the three and nine month periods ended September 30, 1996, respectively. These results compare to income from operations of $7.3 million and $17 million earned during the same periods in 1995. Operating results have been adversely affected in 1996 by the advent of unprecedented and highly aggressive marketing programs instituted by certain other Atlantic City casinos seeking to increase their market share together with record winter snowstorms in January and weekend snowstorms in February. These factors, as well as declines in both the table games and slot machine hold percentages, resulted in three and nine month declines in net revenues of 8.3% and 5.5%, respectively (to $71.7 million and $205.2 million in 1996 from $78.2 million and $217.1 million in 1995). In addition, marketing and advertising costs increased by $1.2 million and $10.7 million (7% and 22.8%), respectively, during the third quarter and first nine months of 1996 compared to the same periods of 1995 in response to competitive pressures. GAMING OPERATIONS The following table sets forth certain unaudited financial and operating data relating to the Sands' operations:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ---------------------------- 1996 1995 1996 1995 ----------- ---------- ----------- ----------- (IN THOUSANDS, EXCEPT PERCENTAGES) REVENUES: Table games $ 21,170 $ 24,978 $ 61,750 $ 72,521 Slot machines 43,663 46,038 123,934 126,616 Other (1) 987 1,219 3,051 3,434 ----------- ---------- ----------- ----------- Total $ 65,820 $ 72,235 $ 188,735 $ 202,571 =========== ========== =========== =========== TABLE GAMES: Gross Wagering (Drop) (2) $ 161,052 $ 170,245 $ 444,435 $ 463,555 =========== ========== =========== =========== Hold Percentages: (3) Sands 13.1% 14.7% 13.9% 15.6% Atlantic City Casino Gaming Industry 15.2% 15.7% 15.5% 15.9% SLOT MACHINES: Gross Wagering (Handle) (2) $ 535,346 $ 521,596 $1,510,865 $1,459,882 =========== ========== =========== =========== Hold Percentage:(3) Sands (4) 8.2% 8.8% 8.2% 8.7%
22 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - ------------------------------ (1) Consists of revenues from poker and simulcast horse racing wagering. (2) Gross wagering consists of the total value of chips purchased for table games (excluding poker) and keno wagering (collectively, the "drop") and coins wagered in slot machines ("handle"). (3) Casino revenues consist of the portion of gross wagering that a casino retains and, as a percentage of gross wagering, is referred to as the "hold percentage". (4) The Sands' hold percentage with respect to slot machines is reflected on an accrual basis. Comparable data for the Atlantic City gaming industry is not available. Table games drop at the Sands declined $9.2 million (5.4%) and $19.1 million (4.1%), respectively, during the three and nine month periods ended September 30, 1996 compared with the same periods of 1995. The Sands' decreases compare with increases of 6.6% and 5.9% in table drop for all other Atlantic City casinos during the same periods. As a result, the Sands' table game market share (expressed as a percentage of the Atlantic City industry aggregate table game drop) decreased to 7.6% and 7.9%, respectively, during the three and nine month periods ended September 30, 1996 from 8.5% and 8.6%, respectively, during the same periods of 1995. Table game drop throughout the nine month period was adversely impacted by the increase in competitive pressures in the rated table market segment, of which a significant portion was in the "high end" and mid- market segments. The third quarter of 1996 also saw a decline in the unrated table market segment as expansions at competing properties, construction on roadways into the city and other factors all served to reduce unrated table play at the Sands. Slot machine handle increased $13.8 million (2.6%) and $51 million (3.5%), respectively, during the three and nine month periods ended September 30, 1996 compared with the same periods of 1995. The Sands' increases compare with 2.4% and 5.5% increases in slot machine handle for all other Atlantic City casinos. As a result, the Sands' maintained its market share of 6% during the third quarter of 1996 compared to 1995; however, its market share decreased slightly to 6.2% from 6.3% during the nine months ended September 1996 compared to the same period in 1995. The increases in slot machine handle are largely attributable to increases in marketing programs, such as coin incentive and direct marketing programs, which have resulted in significant increases in the number of bus patrons for the nine months ended September 30, 1996 compared to 1995. The Sands' average number of slot machines increased .9% during the first nine months of 1996 compared to an increase of 9.2% for all other Atlantic City casinos. The greater percentage increase in the number of slot machines for other Atlantic City casinos reflects, in part, expansions of certain facilities during 1996 which resulted in an overall increase of approximately 118,000 square feet of casino space and further contributed to the Sands' decline in market share. 23 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) REVENUES Casino revenues at the Sands, including poker and simulcast horse racing wagering revenues, decreased by $6.4 million (8.9%) and $13.8 million (6.8%), respectively, for the three and nine month periods ended September 30, 1996 compared with the same periods of 1995. Casino revenues were negatively impacted by the decline in table game wagering as discussed previously and by decreases in both the table games and slot machine hold percentages at the Sands during the 1996 periods compared to the 1995 periods. Rooms revenue did not change significantly during the three and nine month periods ended September 30, 1996 compared with 1995. Food and beverage revenues decreased $738,000 (7.5%) for the three month period ended September 30, 1996 compared with the 1995 period primarily due to the decline in patron volume; such revenues increased $2 million (8.1%) for the nine month period ended September 30, 1996 compared with the prior year period primarily as a result of the opening of the Epic Buffet during the third quarter of 1995. Other revenues increased $261,000 (20.5%) and $1.6 million (54.8%), respectively, during the three and nine month periods ended September 30, 1996 compared to the 1995 periods as a result of an increase in theater entertainment revenue. Promotional allowances represent the estimated value of goods and services provided free of charge to casino customers under various marketing programs. As a percentage of rooms, food and beverage and other revenues at the Sands, these allowances decreased to 55.8% and 56.8%, respectively, during the three and nine month periods ended September 30, 1996 from 57.1% and 58.3% during the third quarter and first nine months of 1995. Such decreases are primarily attributable to increases in other types of marketing programs in lieu of promotional allowances. DEPARTMENTAL EXPENSES Casino expenses at the Sands remained flat during the third quarter of 1996 compared to 1995 and increased $12.1 million (7.7%) during the nine month period ended September 30, 1996 compared to the same period in 1995. The nine month increase is primarily due to the expansion of various marketing programs, particularly coin incentive programs, in response to competitive pressures. The additional costs of such programs result in greater allocation of rooms, food and beverage and other expenses to casino expense. Rooms expense decreased $72,000 (15.1%) during the third quarter of 1996 as compared to the same period of 1995 resulting in a nine month decrease of $278,000 (14.2%) primarily due to increased allocation of rooms expense to casino expense resulting from increases in casino marketing activities relating to rooms. Decreased payroll expenses resulting from an overall decline in occupancy particularly during the first quarter of 1996 as compared to 1995 also contributed to the reduction in rooms expense. Food and beverage expense did not change significantly during the three month period ended 24 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) September 30, 1996 compared to the three month period ended September 30, 1995. The increase of $1.2 million (17%) in food and beverage expense during the nine month period ended September 30, 1996 compared to the same period in 1995 reflects increased costs associated with the Epic Buffet which were partially offset by increases in marketing programs, the costs of which are allocated to the casino department. Other expenses increased $812,000 (167.8%) and $1 million (68.6%), respectively, during the three and nine month periods ended September 30, 1996 compared with the same periods in 1995 as increases in theater entertainment costs were partially offset by increased allocations to the casino department. GENERAL AND ADMINISTRATIVE General and administrative expenses decreased $1.3 million (21.9%) and $3.4 million (19.2%), respectively, during the three and nine month periods ended September 30, 1996 as compared to the 1995 periods primarily due to decreases in management fees, equipment rental and legal expenses. In addition, cost containment measures implemented by management helped reduce administrative costs during the third quarter. INTEREST Interest income decreased $114,000 (24.1%) and $173,000 (12.8%), respectively, during the three and nine month periods ended September 30, 1996 compared with the same periods of 1995 due to a decrease in the amount of cash available for temporary cash investments. Interest expense did not change significantly during the three and nine months ended September 30, 1996 and 1995 compared to the prior year periods. INCOME TAX BENEFIT (PROVISION) Holdings is included in HCC's consolidated federal income tax return. Pursuant to agreements between Holdings, PHC and HCC, Holdings' provision for federal income taxes is based on the amount of tax which would have been provided if a separate return were filed. Holdings and its subsidiaries have net operating loss carryforwards ("NOL's") totaling approximately $17 million, none of which expire before the years 2001 and 2009, respectively, for state and federal tax purposes. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") requires that the tax benefit of NOL's and deferred tax assets resulting from temporary differences be recorded as an asset and, to the extent that management can not assess that the utilization of all or a portion of such NOL's and deferred tax assets is more likely than not, a valuation allowance should be recorded. Due to the continued availability of NOL's originating in 1994 for federal and state tax purposes and the significant book and tax losses sustained in 1996, management is unable to 25 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) determine that the realization of such asset was more likely than not and, thus, has provided a valuation allowance for the entire deferred tax asset at September 30, 1996. 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 Holdings' 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 Holdings' casino revenues and profitability. LIQUIDITY AND CAPITAL RESOURCES Holdings' only operations and resulting sources of liquidity and capital resources are those of its wholly owned subsidiary, GBHC, whose only operations are those of the Sands. GBHC's earnings before depreciation, interest, amortization, taxes and intercompany management fees have been sufficient to meet its debt service obligations (other than certain maturities of principal that have been refinanced) and to fund a substantial portion of its capital expenditures. GBHC has also used short-term borrowings to fund seasonal cash needs and has used long-term borrowings for certain capital projects. OPERATING ACTIVITIES At September 30, 1996, GBHC had cash and cash equivalents of $12.8 million. GBHC sustained an operating cash flow deficit of $10.6 million for the nine months ended September 30, 1996 compared to net cash generated from operations of $13.4 million during the 1995 period, resulting in an aggregate decline in operating cash flow of $24 million and a decline in working capital of $25.4 million compared to September 30, 1995. GBHC utilized its existing cash, available lines of credit and short-term borrowings from affiliates during the first nine months of 1996 to meet its operating needs, to fund capital additions totaling $4.7 million and to make obligatory investments of $2.2 million. 26 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) FINANCING ACTIVITIES During February 1994, GBHC refinanced virtually all of its outstanding debt as part of an overall restructuring by PHC (the "PHC Recapitalization"). The refinancing was completed through a public offering of $270 million of debt securities consisting of $185 million of 10 7/8% First Mortgage Notes due January 15, 2004 and $85 million of 11 5/8% Senior Notes due April 15, 2004. Proceeds from the debt offerings were used, in part, to refinance the Sands' first mortgage and other indebtedness scheduled to mature in 1994 and to provide partial funding for an expansion of gaming space at the Sands. As part of the PHC Recapitalization, a subsidiary of PHC also issued $15 million of 14 5/8% junior subordinated notes due in 2005 to HCC, the parent of PHC; the subsidiary loaned $10 million of such proceeds to GBHC on the same terms. Interest on this subordinated affiliate debt is payable semiannually commencing August 17, 1994, with payment subject to meeting certain tests required by the indenture for the 10 7/8% First Mortgage Notes. As of April 30, 1996, GBHC extended $2 million of its bank line of credit until April 30, 1997. As of September 30, 1996, $2 million was outstanding under the line of credit. No other lines of credit are currently available to GBHC. During the third quarter of 1996, GBHC borrowed $6.5 million from PHC for working capital purposes with interest at the rate of 13 3/4% per annum payable quarterly commencing October 1, 1996. Repayment of such borrowings and payment of the related accrued interest is subject to regulatory approval. Scheduled maturities of long-term debt during the remainder of 1996 are $3,000. Commencing in July 1997, semiannual principal payments of $2.5 million will become due with respect to the 10 7/8% First Mortgage Notes. CAPITAL EXPENDITURES AND OBLIGATORY INVESTMENTS Capital expenditures at the Sands during the nine month period ended September 30, 1996 amounted to approximately $4.7 million and management anticipates capital expenditures during the remainder of 1996 will be approximately $1 million. Projects currently planned during the remainder of 1996 include additional upgrades and improvements to rooms at the Sands, including its higher-end suite product, and other departmental expenditures. The Sands is required by the New Jersey Casino Control Act to make certain investments with the Casino Reinvestment Development Authority, a governmental agency which administers the statutorily mandated investments made by casino licensees. Deposit requirements for the first nine months of 1996 totaled $2.2 million and are anticipated to be approximately $800,000 during the remainder of 1996. 27 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SUMMARY As previously discussed, GBHC sustained a significant cash flow deficit from operations during the nine month period ended September 30, 1996 and required additional cash from affiliate borrowings and its line of credit to meet its financial obligations. In order to fund its future cash requirements, including debt service and obligatory investments, GBHC will need to achieve substantially improved operating results or rely on additional borrowings from affiliates. It appears that absent any further material deterioration of operating results, GBHC will be able to rely on borrowings from affiliates to meet its obligations in the near term; however, GBHC's long-term financial viability is dependent on a substantial improvement in operating results of the Sands as GBHC's affiliates have certain limitations on their ability to provide ongoing financial support. During the third quarter of 1996, PHC engaged a major Wall Street investment banking firm as its financial advisor to explore strategic transactions regarding the Sands including, among other things, the potential consummation of strategic alliances including joint ventures for the possible expansion of the Sands. 28 PART II: OTHER INFORMATION - --------------------------- The Registrants did not file any reports on Form 8-K during the quarter ended September 30, 1996. SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, each of the Registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GB HOLDINGS, INC. GB PROPERTY FUNDING CORP. ------------------------------------------- Registrants Date: November 12, 1996 By: /s/ John C. Hull ----------------- ---------------------------------------- John C. Hull Principal Accounting Officer 29 EX-27.A 2 FINANCIAL DATA SCHEDULE FOR GB PROPERTY FUNDING
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GB PROPERTY FUNDING CORP. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000912906 GB PROPERTY FUNDING CORP. 1,000 3-MOS 9-MOS DEC-31-1996 DEC-31-1996 JUL-01-1996 JAN-01-1996 SEP-30-1996 SEP-30-1996 1 1 0 0 4,247 4,247 0 0 0 0 6,748 6,748 0 0 0 0 189,248 189,248 6,747 6,747 182,500 182,500 0 0 0 0 1 1 0 0 189,248 189,248 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.B 3 FINANCIAL DATA SCHEDULE FOR GB HOLDINGS, INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GB HOLDINGS, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000912926 GB HOLDINGS, INC. 1,000 3-MOS 9-MOS DEC-31-1996 DEC-31-1996 JUL-01-1996 JAN-01-1996 SEP-30-1996 SEP-30-1996 12,781 12,781 0 0 26,032 26,032 15,288 15,288 3,882 3,882 33,910 33,910 316,165 316,165 157,772 157,772 225,067 225,067 43,757 43,757 192,934 192,934 0 0 0 0 1 1 (13,340) (13,340) 225,067 225,067 0 0 71,720 205,178 0 0 60,422 180,094 9,582 29,489 668 1,562 5,275 15,381 (4,227) (21,348) 0 2,417 (4,227) (23,765) 0 0 0 0 0 0 (4,227) (23,765) 0 0 0 0
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