-----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, IbItDsPOOJ5CgZzpbeVLFJExlHV8TODA17nCSqEeUF52aXxIRouV8GQJpRu0Lq9x K2rQxmLZ+2wcsz/gQpPWGQ== 0000930661-97-002621.txt : 19971113 0000930661-97-002621.hdr.sgml : 19971113 ACCESSION NUMBER: 0000930661-97-002621 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 033-69716 FILM NUMBER: 97715385 BUSINESS ADDRESS: STREET 1: C/O SANDS HOTEL & CASINO STREET 2: INDIANA AVE & BRIGHTON PARK 9TH FLOOR CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 BUSINESS PHONE: 609-441-0704 MAIL ADDRESS: STREET 1: C/O SANDS HOTEL & CASINO STREET 2: INDIANA AVE & BRIGHTON PARK 9TH FLOOR CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 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: SEC FILE NUMBER: 033-69716-02 FILM NUMBER: 97715386 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: SEC FILE NUMBER: 033-69716-01 FILM NUMBER: 97715387 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, 1997 ------------------ 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, 9TH FLOOR ATLANTIC CITY, NEW JERSEY 08401 - ----------------------------------------- -------------- (Address of principal executive offices) (Zip Code) (Registrants' telephone number, including area code): (609) 441-0704 -------------- TWO GALLERIA TOWER, SUITE 2200, 13455 NOEL ROAD, LB48, DALLAS, TEXAS 75240 - -------------------------------------------------------------------------------- (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 11, 1997 - --------------------------------- ----------------------------- ------------------------------- 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 meet the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format. 1 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 original 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 Indiana Avenue and Brighton Park, 9th Floor, Atlantic City, New Jersey 08401 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 Greate Bay Casino Corporation ("GBCC"). GBCC 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, 1997 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, 1997 and for the three and nine month periods ended September 30, 1997 and 1996 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, 1997, and their respective results of operations for the three and nine month periods ended September 30, 1997 and 1996 and their cash flows for the nine month periods ended September 30, 1997 and 1996. 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 1996 Annual Report on Form 10-K. 2 GB PROPERTY FUNDING CORP. (WHOLLY OWNED BY GB HOLDINGS, INC.) BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ ASSETS Current assets: Cash $ 1,000 $ 1,000 Interest receivable from affiliate 4,191,000 9,277,000 Note receivable from affiliate 5,000,000 2,500,000 ------------ ------------ Total current assets 9,192,000 11,778,000 ------------ ------------ Note receivable from affiliate 177,500,000 182,500,000 ------------ ------------ $186,692,000 $194,278,000 ============ ============ LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Current maturities of long-term debt $ 5,000,000 $ 2,500,000 Accrued interest payable 4,191,000 9,277,000 ------------ ------------ Total current liabilities 9,191,000 11,777,000 ------------ ------------ Long-term debt 177,500,000 182,500,000 ------------ ------------ Shareholder's equity (Note 1): Common stock, $1.00 par value per share, 1,000 shares authorized and outstanding 1,000 1,000 ------------ ------------ $186,692,000 $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, ---------------------- 1997 1996 ---------- ---------- Revenues: Interest income $4,962,000 $5,029,000 Expenses: Interest expense 4,962,000 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, ------------------------ 1997 1996 ----------- ----------- Revenues: Interest income $14,980,000 $15,089,000 Expenses: Interest expense 14,980,000 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, -------------------------- 1997 1996 ------------ ------------ OPERATING ACTIVITIES: Net income $ - $ - Adjustments to reconcile net income to net cash provided by operating activities: Decrease in interest receivable from affiliate 5,086,000 5,030,000 Decrease in accrued interest payable (5,086,000) (5,030,000) ----------- ----------- Net cash provided by operating activities - - 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 Greate Bay Casino Corporation ("GBCC"). 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. GB Property Funding has no operations and is dependent on the repayment of its note to GBHC for servicing its debt obligations. Administrative services for GB Property Funding are provided by other GBCC 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, 1997 and for the three and nine month periods ended September 30, 1997 and 1996 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, 1997, and the results of its operations for the three and nine month periods ended September 30, 1997 and 1996 and cash flows for the nine month periods ended September 30, 1997 and 1996. (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. Interest only was payable during the first three years. Commencing on July 15, 1997, semiannual principal payments of $2,500,000 are due on each interest payment date with the balance due at maturity. Such semiannual payments may be made in cash or by 7 GB PROPERTY FUNDING CORP. (WHOLLY OWNED BY GB HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) tendering to the trustee 10 7/8% First Mortgage Notes previously purchased or otherwise acquired by GB Property Funding. During May 1997, GB Property Funding acquired $2,500,000 face amount of 10 7/8% First Mortgage Notes which were used on June 4, 1997 to make the July 15, 1997 required principal payment. The indenture for the 10 7/8% First Mortgage Notes contains various provisions which, among other things, restrict the ability of Holdings and its subsidiaries to pay dividends to GBCC, 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 requires minimum expenditures, as defined in the indenture, for property and fixture renewals, replacements and betterments at the Sands. 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 $20,066,000 and $20,119,000, respectively, during the nine month periods ended September 30, 1997 and 1996. (3) INCOME TAXES GB Property Funding is included in the consolidated federal income tax return of GBCC and, for periods prior to December 31, 1996, was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"), GBCC's parent prior to that date. Pursuant to agreements between Holdings and GBCC, 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, 1997 and 1996, 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, 1997 1996 -------------- -------------- Current Assets: Cash and cash equivalents $ 12,333,000 $ 15,624,000 Accounts receivable, net of allowances of $14,539,000 and $15,524,000, respectively 9,198,000 10,112,000 Inventories 3,545,000 3,873,000 Due from affiliate 1,829,000 2,382,000 Refundable deposits and other current assets 4,173,000 3,180,000 ------------- ------------- Total current assets 31,078,000 35,171,000 ------------- ------------- Property and Equipment: Land 38,093,000 38,093,000 Buildings and improvements 185,508,000 185,508,000 Operating equipment 93,213,000 91,865,000 Construction in progress 2,104,000 1,535,000 ------------- ------------- 318,918,000 317,001,000 Less - accumulated depreciation and amortization (170,199,000) (160,987,000) ------------- ------------- Net property and equipment 148,719,000 156,014,000 ------------- ------------- Other Assets: Obligatory investments 7,604,000 6,382,000 Due from affiliate 18,642,000 17,606,000 Deferred financing costs and other assets 8,505,000 9,265,000 ------------- ------------- Total other assets 34,751,000 33,253,000 ------------- ------------- $ 214,548,000 $ 224,438,000 ============= =============
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
SEPTEMBER 30, DECEMBER 31, 1997 1996 -------------- ------------- Current Liabilities: Current maturities of long-term debt $ 5,013,000 $ 2,512,000 Short-term credit facilities - 2,000,000 Short-term borrowings from affiliates 13,000,000 6,500,000 Accounts payable 6,438,000 7,881,000 Accrued liabilities - Salaries and wages 4,829,000 4,981,000 Interest 8,315,000 10,978,000 Insurance 3,121,000 3,112,000 Other 7,435,000 6,683,000 Due to affiliates 251,000 826,000 Other current liabilities 3,802,000 5,429,000 ------------ ------------ Total current liabilities 52,204,000 50,902,000 ------------ ------------ Long-Term Debt 187,921,000 192,930,000 ------------ ------------ Other Noncurrent Liabilities 1,404,000 1,550,000 ------------ ------------ Commitments and Contingencies Shareholder's Deficit: Common stock, $1.00 par value per share; 1,000 shares authorized and outstanding 1,000 1,000 Additional paid-in capital 18,438,000 18,438,000 Accumulated deficit (45,420,000) (39,383,000) ------------ ------------ Total shareholder's deficit (26,981,000) (20,944,000) ------------ ------------ $214,548,000 $224,438,000 ============ ============
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, ---------------------------- 1997 1996 -------------- ------------ Revenues: Casino $63,272,000 $65,820,000 Rooms 2,713,000 2,660,000 Food and beverage 9,043,000 9,167,000 Other 1,175,000 1,535,000 ----------- ----------- 76,203,000 79,182,000 Less - promotional allowances (6,962,000) (7,462,000) ----------- ----------- Net revenues 69,241,000 71,720,000 ----------- ----------- Expenses: Casino 52,384,000 56,265,000 Rooms 630,000 405,000 Food and beverage 3,105,000 3,149,000 Other 908,000 1,296,000 General and administrative 4,813,000 4,543,000 Depreciation and amortization 3,350,000 5,014,000 ----------- ----------- Total expenses 65,190,000 70,672,000 ----------- ----------- Income from operations 4,051,000 1,048,000 ----------- ----------- Non-operating income (expense): Interest income 394,000 360,000 Interest expense (5,802,000) (5,635,000) Gain on disposal of assets 22,000 - ----------- ----------- Total non-operating expense, net (5,386,000) (5,275,000) ----------- ----------- Loss before income taxes (1,335,000) (4,227,000) Income tax provision - - ----------- ----------- Net loss $(1,335,000) $(4,227,000) =========== ===========
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, ----------------------------- 1997 1996 -------------- ------------- Revenues: Casino $183,425,000 $188,735,000 Rooms 7,405,000 7,049,000 Food and beverage 25,420,000 26,478,000 Other 3,087,000 4,532,000 ------------ ------------ 219,337,000 226,794,000 Less - promotional allowances (19,418,000) (21,616,000) ------------ ------------ Net revenues 199,919,000 205,178,000 ------------ ------------ Expenses: Casino 152,789,000 169,243,000 Rooms 1,897,000 1,675,000 Food and beverage 8,325,000 8,337,000 Other 2,053,000 2,488,000 General and administrative 14,126,000 14,091,000 Depreciation and amortization 10,883,000 15,324,000 ------------ ------------ Total expenses 190,073,000 211,158,000 ------------ ------------ Income (loss) from operations 9,846,000 (5,980,000) ------------ ------------ Non-operating income (expense): Interest income 1,219,000 1,174,000 Interest expense (17,458,000) (16,555,000) Gain on disposal of assets 46,000 13,000 ------------ ------------ Total non-operating expense, net (16,193,000) (15,368,000) ------------ ------------ Loss before income taxes and extraordinary item (6,347,000) (21,348,000) Income tax provision - (2,417,000) ------------ ------------ Loss before extraordinary item (6,347,000) (23,765,000) Gain on early extinguishment of debt 310,000 - ------------ ------------ Net loss $ (6,037,000) $(23,765,000) ============ ============
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, ----------------------------- 1997 1996 -------------- ------------- OPERATING ACTIVITIES: Net loss $(6,037,000) $(23,765,000) Adjustments to reconcile net loss to net cash used in operating activities: Extraordinary item (310,000) - Depreciation and amortization 10,883,000 15,324,000 Gain on disposal of assets (46,000) (13,000) Provision for doubtful accounts 2,265,000 1,562,000 Deferred income tax provision - 2,417,000 Increase in accounts receivable (1,351,000) (956,000) Decrease in accounts payable and accrued expenses (3,497,000) (3,609,000) Net change in other current assets and liabilities (2,912,000) (539,000) Net change in other noncurrent assets and liabilities (693,000) (988,000) ----------- ------------ Net cash used in operating activities (1,698,000) (10,567,000) ----------- ------------ INVESTING ACTIVITIES: Net property and equipment additions (1,917,000) (4,668,000) Proceeds from disposition of assets 46,000 13,000 Obligatory investments (2,089,000) (2,248,000) ----------- ------------ Net cash used in investing activities (3,960,000) (6,903,000) ----------- ------------ FINANCING ACTIVITIES: (Repayments) borrowings on credit facilities (2,000,000) 2,000,000 Borrowings from affiliates 6,500,000 6,500,000 Deferred financing costs - (10,000) Repayments of long-term debt (2,133,000) (8,000) ----------- ------------ Net cash provided by financing activities 2,367,000 8,482,000 ----------- ------------ Net decrease in cash and cash equivalents (3,291,000) (8,988,000) Cash and cash equivalents at beginning of period 15,624,000 21,769,000 ----------- ------------ Cash and cash equivalents at end of period $12,333,000 $ 12,781,000 =========== ============
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 Greate Bay Casino Corporation ("GBCC"). 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 are derived from patrons living in southeastern Pennsylvania, northern New Jersey and metropolitan New York City. Competition in the Atlantic City gaming market is intense and management believes that this competition will continue or intensify 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. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets" 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 (UNAUDITED) The consolidated financial statements as of September 30, 1997 and for the three and nine month periods ended September 30, 1997 and 1996 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, 1997, the results of its operations for the three and nine month periods ended September 30, 1997 and 1996 and cash flows for the nine month periods ended September 30, 1997 and 1996. The accompanying consolidated financial statements have been prepared assuming Holdings will continue as a going concern. The Sands' operating results for the first six months of 1997 reflected a substantial improvement over 1996 and were on target with management's operating plan due to mild winter weather conditions compared to a year ago, an abatement of the intense marketing competition for bus customers and implementation of cost containment measures. The Sands' operating results for the third quarter, although improved from the prior year period results, were significantly below its operating plan. Accordingly, Holdings has incurred an operating cash flow deficit of $1,698,000 through the third quarter of 1997 and, consequently, cash reserves have been reduced. October operating results continued to be below management's operating plan. In order to meet its debt service requirements of approximately $12,500,000 in January 1998, Holdings will require financial assistance from affiliated companies or other sources. The availability of additional borrowings from GBCC and other subsidiaries of GBCC during the remainder of 1997 is limited. Hollywood Casino Corporation ("HCC") which, prior to December 31, 1996, owned approximately 80% of the outstanding common stock of GBCC, loaned $6,500,000 to GBCC in 1996 for use by the Sands (see Note 5); HCC is subject to certain indenture provisions which restrict its ability to provide ongoing financial support to an additional $3,500,000. There is no assurance that HCC, which is no longer the parent of GBCC, or GBCC will agree to provide such additional financial support, if needed. (2) SHORT-TERM CREDIT FACILITIES As of December 31, 1996, GBHC had $2,000,000 outstanding under a bank line of credit. Borrowings under the line of credit were guaranteed to the extent of $2,000,000 by PCC, which pledged a certificate of deposit in the face amount of $2,000,000 as collateral for the line of credit. The line of credit was repaid upon maturity of the certificate of deposit during January 1997 with proceeds from affiliate borrowings (see Note 5) and the line of credit was cancelled. 15 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (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, 1997 1996 -------------- ------------- 10 7/8% first mortgage notes, due 2004 (a) $182,500,000 $185,000,000 14 5/8% affiliate loan, due 2005 (b) 10,000,000 10,000,000 Other 434,000 442,000 ------------ ------------ Total indebtedness 192,934,000 195,442,000 Less - current maturities (5,013,000) (2,512,000) ------------ ------------ Total long-term debt $187,921,000 $192,930,000 ============ ============ - --------------------------
(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 was payable during the first three years. Commencing on July 15, 1997, semiannual principal payments of $2,500,000 are due on each interest payment date with the balance due at maturity. Such semiannual payments may be made in cash or by tendering 10 7/8% First Mortgage Notes previously purchased or otherwise acquired by Holdings. Holdings acquired $2,500,000 face amount of 10 7/8% First Mortgage Notes at a discount during May 1997 which it used during June to make its July 15, 1997 required principal payment. The 10 7/8% First Mortgage Notes are redeemable at the option of the issuer, in whole or in part, on or after January 15, 1999 at stated redemption prices ranging up to 104.08% of par plus accrued interest. The indenture for the 10 7/8% First Mortgage Notes contains various provisions which, among other things, restrict the ability of Holdings and its subsidiaries to pay dividends to GBCC, 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 requires minimum expenditures, as defined in the indenture, for property and fixture renewals, replacements and betterments at the Sands. (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 16 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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. As a result of such payment restrictions, interest has been paid only through February 17, 1996. Scheduled payments of long-term debt as of September 30, 1997 are set forth below:
1997 (three months) $ 4,000 1998 5,013,000 1999 5,014,000 2000 5,016,000 2001 5,017,000 Thereafter 172,870,000 ------------ Total $192,934,000 ============
Interest paid amounted to $20,121,000 and $21,029,000, respectively, during the nine month periods ended September 30, 1997 and 1996. (4) INCOME TAXES Components of the provision for income taxes consisted of the following:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ------------------------- 1997 1996 1997 1996 ---------- ------------- --------- --------- Benefit in lieu of (provision for) federal income taxes: Current $ 845,000 $ - $ 2,297,000 $ - Deferred (441,000) - (456,000) (2,364,000) State income tax benefit (provision): Current 204,000 - 604,000 - Deferred (97,000) - (101,000) (53,000) Valuation allowance (511,000) - (2,344,000) - --------- ------ ----------- ----------- $ - $ - $ - $(2,417,000) ========= ====== =========== ============
17 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Holdings is included in the consolidated federal income tax return of GBCC and, for periods prior to December 31, 1996, was included in the consolidated federal income tax return of HCC, GBCC's parent prior to that date. Pursuant to agreements between Holdings, PCC and GBCC, 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 (the "Casino Commission"). Holdings made no federal or state income tax payments during the nine month periods ended September 30, 1997 and 1996. 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. 18 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The components of the deferred tax asset as of September 30, 1997 and December 31, 1996 were as follows:
SEPTEMBER 30, DECEMBER 31, 1997 1996 -------------- ------------- Deferred tax assets: Net operating loss carryforwards $ 13,647,000 $ 10,746,000 Allowance for doubtful accounts 5,736,000 6,429,000 Other liabilities and accruals 2,991,000 2,734,000 Other 2,360,000 2,037,000 ------------ ------------ Total deferred tax assets 24,734,000 21,946,000 ------------ ------------ Deferred tax liabilities: Depreciation and amortization (8,964,000) (8,520,000) Other (597,000) (597,000) ------------ ------------ Total deferred tax liabilities (9,561,000) (9,117,000) ------------ ------------ Net deferred tax asset 15,173,000 12,829,000 Valuation allowance (15,173,000) (12,829,000) ------------ ------------ $ - $ - ============ ============
At September 30, 1997, Holdings and its subsidiaries have net operating loss carryforwards ("NOL's") totaling approximately $31 million, 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 prior years for federal and state tax purposes and the book and tax losses sustained in 1997 to date, management is unable to determine that the realization of such asset is more likely than not and thus, has provided a valuation allowance for the entire deferred tax asset at both September 30, 1997 and December 31, 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 19 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) of annual loss carryforwards available for use would most likely be substantially reduced. Future treasury regulations, administrative rulings or court decisions may also effect Holdings' future utilization of its loss carryforwards. The Internal Revenue Service is currently examining the consolidated Federal income tax returns of HCC for the years 1993 and 1994 in which Holdings' was included. Management believes that the results of such examination will not have a material adverse effect on the consolidated financial position of Holdings. Net receivables from and payables to affiliates representing deferred federal income taxes in connection with the aforementioned tax allocation agreements were as follows:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------- Due from affiliate - current $1,548,000 $2,010,000 Due from affiliate - non-current 9,226,000 8,892,000 Due to affiliate - current - (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 $1,630,000 and $4,432,000, respectively, during the three and nine month periods ended September 30, 1997 and $1,431,000 and $3,591,000, respectively, during the three and nine month periods ended September 30, 1996 and are included in general and administrative expenses in the accompanying consolidated financial statements. A receivable balance of $28,000 representing estimated management fees paid to NJMI in excess of costs incurred is included in the consolidated balance sheet at September 30, 1997. Management fees payable to NJMI and included in the consolidated balance sheet at December 31, 1996 amounted to $231,000. GBHC licenses the trade name "Sands" from GBCC, which licenses the name from an unaffiliated third party. Amounts payable by the Sands under this agreement are equal to the amounts paid to the unaffiliated third party. Such charges amounted to $82,000 and $80,000, respectively, for the three month periods ended September 30, 1997 and 1996 and $222,000 and $211,000, respectively, for the nine month periods ended September 30, 1997 and 1996. 20 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) An advance to a GBCC subsidiary in the amount of $5,672,000 was outstanding as of September 30, 1997 and December 31, 1996 which accrues interest at the rate of 16.5% per annum. Interest receivable with respect to this advance was $3,744,000 and $3,042,000 at September 30, 1997 and December 31, 1996, respectively. The advance and related interest receivable are both included in noncurrent due from affiliates in the accompanying consolidated balance sheets. During the third quarter of 1996, GBCC borrowed a total of $6,500,000 from HCC which it then loaned to GBHC for working capital purposes. Such borrowings accrue interest at the rate of 13 3/4% per annum payable quarterly commencing October 1, 1996. During the first quarter of 1997, GBHC borrowed an additional $1,500,000 from GBCC on similar terms. GBHC also borrowed $5,000,000 from another subsidiary of GBCC during January 1997 at the rate of 14 5/8% per annum payable semiannually commencing July 15, 1997. Interest accrued on affiliate loans in the amount of $1,752,000 and $410,000 is included in interest payable in the accompanying consolidated balance sheets at September 30, 1997 and December 31, 1996, respectively. Repayment of such borrowings and the payment of the related interest are subject to approval by the Casino Commission. Interest (expense) income incurred with respect to affiliate advances and borrowings is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ----------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ------------ Net advances $(230,000) $ 52,000 $ (640,000) $ 520,000 Affiliate loan (Note 3) (366,000) (366,000) (1,097,000) (1,097,000)
Interest accrued on the Affiliate loan (Note 3) of $2,373,000 and $1,276,000 is included in interest payable in the accompanying consolidated balance sheets at September 30, 1997 and December 31, 1996, respectively. GBHC performs certain services for other subsidiaries of GBCC and for HCC and its subsidiaries and invoices those companies for the Sands' cost of providing those services. Similarly, GBHC is charged 21 for certain legal, accounting and other expenses incurred by GBCC and HCC and their respective subsidiaries that relate to the Sands' business. Such affiliate transactions are summarized below:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ----------- Billings to affiliates $ 200,000 $ 516,000 $ 858,000 $1,299,000 Charges from affiliates (177,000) (204,000) (907,000) (704,000)
(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. (7) RECLASSIFICATIONS Certain reclassifications have been made to the prior year's consolidated financial statements to conform to the 1997 consolidated financial statement presentation. 22 GB HOLDINGS, INC. (WHOLLY OWNED BY PRATT CASINO CORPORATION) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains forward-looking statements about the business, financial condition and prospects of Holdings. The actual results could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, among other things, changes in competition, economic conditions, tax regulations, state regulations applicable to the gaming industry in general or Holdings in particular, and other risks indicated in Holdings' filings with the Securities and Exchange Commission. Such risks and uncertainties are beyond management's ability to control and, in many cases, can not be predicted by management. When used in this Quarterly Report on Form 10-Q, the words "believes", "estimates", "anticipates" and similar expressions as they relate to Holdings or its management are intended to identify forward-looking statements. GENERAL The Sands earned income from operations of $4.1 million and $9.8 million, respectively, during the three and nine month periods ended September 30, 1997 compared to income from operations of $1 million and a loss from operations of $6 million, respectively, reported for the three and nine month periods ended September 30, 1996. Operating results during the first nine months of 1997 were favorably impacted by operating efficiencies and by management's decision to discontinue certain aggressive marketing programs. Operating results during the first nine months of 1996 were adversely affected by the advent of both unprecedented and highly aggressive marketing programs instituted by certain other Atlantic City casinos seeking to increase their market share together with record snowstorms in January and weekend snowstorms in February. Net revenues declined for the respective three and nine month periods (to $69.2 million and $199.9 million in 1997 from $71.7 million and $205.2 million in 1996). However, operating expenses also decreased significantly, most notably (i) marketing and advertising costs which decreased by $1.2 million (6.3%) and $8.8 million (15.3%) during the quarter and nine month period, respectively, as a result of management's efforts to control costs while maintaining positive gross operating profit and (ii) salaries and related benefits costs which decreased by $1.6 million (6.5%) and $5 million (6.7%), respectively. 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) 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, ------------------------ --------------------- 1997 1996 1997 1996 --------- ---------- -------- -------- (IN THOUSANDS, EXCEPT PERCENTAGES) REVENUES: Table games $ 19,764 $ 21,170 $ 58,920 $ 61,750 Slot machines 42,726 43,663 122,096 123,934 Other (1) 782 987 2,409 3,051 -------- -------- ---------- ---------- Total $ 63,272 $ 65,820 $ 183,425 $ 188,735 ======== ======== ========== ========== TABLE GAMES: Gross Wagering (Drop) (2) $143,483 $161,052 $ 406,116 $ 444,435 ======== ======== ========== ========== Hold Percentages: (3, 4) Sands 13.8% 13.1% 14.5% 13.9% Atlantic City 14.6% 15.2% 15.0% 15.5% SLOT MACHINES: Gross Wagering (Handle) (2) $526,470 $535,346 $1,486,379 $1,510,865 ======== ======== ========== ========== Hold Percentages: (3, 4) Sands 8.1% 8.2% 8.2% 8.2% Atlantic City 8.4% 8.3% 8.4% 8.3% - ----------------------------
(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 percentages are reflected on an accrual basis. Comparable data for the Atlantic City gaming industry is not available; consequently, industry percentages have been calculated based on information available from the New Jersey Casino Control Commission. 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) Table game drop at the Sands declined $17.6 million (10.9%) and $38.3 million (8.6%), respectively, during the three and nine month periods ended September 30, 1997 compared with the same periods of 1996. The Sands' decreases compare to increases of 0.9% and 3.9%, respectively, 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 6.8% and 7%, respectively, during the three and nine month periods ended September 30, 1997 from 7.6% and 7.9%, respectively, during the same periods of 1996. The Sands' table game drop decreases are primarily attributable to declines in patron volume from the unrated or "mass" segment. Expansions of other Atlantic City casinos resulted in an increase of approximately 91,000 square feet of gaming space and 80 tables at September 30, 1997 compared to September 30, 1996. Such expansions typically result in intense marketing campaigns which lure the "mass" segment to the new facility. Gaming space at the Sands has remained virtually unchanged since mid- 1996 and the number of table games has decreased by 5.4%. The decline in table game drop during the second and third quarters of 1997 also reflects management's decision to discontinue certain promotional activities, including the use of "special odds" offered at table games, which has caused a decline in the rated table market segment. Slot machine handle decreased $8.9 million (1.7%) and $24.5 million (1.6%), respectively, during the three and nine month periods ended September 30, 1997 compared with the same periods of 1996. The Sands' decreases in slot machine handle compare with increases of 1.3% and 2.2%, respectively, in handle for all other Atlantic City casinos. The Sands' average number of slot machines remained virtually unchanged during 1997 compared to an increase of 8.1% for all other Atlantic City casinos. The below industry-wide performance in handle experienced by the Sands is a result of the same competitive pressures resulting from casino expansions and related marketing campaigns at other properties as discussed above with respect to table games. REVENUES Casino revenues at the Sands, including poker and simulcast horse racing wagering revenues, decreased slightly by $2.5 million (3.9%) and $5.3 million (2.8%), respectively, for the three and nine month periods ended September 30, 1997 compared with the same periods of 1996. Decreases in both slot machine and table game wagering were partially offset by improvements in the table game hold percentage. Rooms revenue did not change significantly during the third quarter of 1997 resulting in an increase of $356,000 (5.1%) for the nine month period ended September 30, 1997 compared with 1996. Such increase was primarily due to an increase in the average daily rate earned on rooms. Food and beverage revenues decreased slightly during both the three and nine month periods ended September 30, 1997 compared with the prior year periods as a result of reduced patron volume, the rescheduling of unit operating hours to increase overall profitability and the reduction of certain promotional activities. Other revenues decreased $360,000 (23.5%) and $1.4 million (31.9%), respectively, during the three and nine 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) month periods ended September 30, 1997 compared to the 1996 periods as a result of replacing ongoing "review show" type entertainment with less frequent "star show" entertainment. 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 53.8% and 54.1% , respectively, during the three and nine month periods ended September 30, 1997 from 55.8% and 56.8%, respectively, during the three and nine month periods ended September 30, 1996. Such decreases are primarily attributable to reductions in certain marketing programs and other promotional activities. DEPARTMENTAL EXPENSES Casino expenses at the Sands decreased $3.9 million (6.9%) and $16.5 million (9.7%), respectively, during the three and nine month periods ended September 30, 1997 compared with 1996. During 1996, an unprecedented and highly aggressive industry-wide attempt to increase market share resulted in significantly higher costs with respect to coin incentive packages. The abatement of these competitive pressures during 1997 together with management's ongoing efforts to create operating efficiencies, have significantly reduced expenses. Such factors have also resulted in a reduction in the allocation of rooms, food and beverage and other expenses to casino expense. Rooms expense increased $225,000 (55.6%) and $222,000 (13.3%), respectively, during the three and nine month periods ended September 30, 1997 compared to the same periods of 1996. The increase results from a lesser percentage of rooms being sold on a complimentary basis which has reduced the allocation of room costs to the casino department. Food and beverage expense did not change significantly during the 1997 three and nine month periods compared with 1996. Other expenses decreased by $388,000 (29.9%) and $435,000 (17.5%), respectively, during the third quarter and first nine months of 1997 compared to the 1996 periods due to cost savings with respect to theater entertainment. GENERAL AND ADMINISTRATIVE General and administrative expenses increased $270,000 (5.9%) during the three month period ended September 30, 1997 compared to the 1996 period resulting in a nine month 1997 expense slightly above that for the same period in 1996. DEPRECIATION AND AMORTIZATION As a result of the revision in estimated useful life of its buildings effective October 1, 1996 and the completion of amortization with respect to certain long lived assets, the Sands' depreciation and amortization expense for the third quarter and first nine months of 1997 decreased by $1.7 million (33.2%) and $4.4 million (29%), respectively, compared to the same periods during 1996. 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) INTEREST Interest income increased $34,000 (9.4%) during the three month period ended September 30, 1997 compared to the same periods during 1996 bringing the nine month total in line with 1996. Interest expense increased $167,000 (3%) and $903,000 (5.5%), respectively, during the 1997 periods compared to the prior year primarily due to additional interest with respect to GBHC's borrowings from affiliates. INCOME TAX BENEFIT Holdings' operations are included in GBCC's consolidated federal income tax return and, for periods through December 31, 1996, were included in HCC's consolidated federal income tax return. Pursuant to agreements between Holdings and GBCC, Holdings' provision for federal income taxes is based on the amount of tax which would have been provided if a separate return were filed. As of September 30, 1997, Holdings and its subsidiaries have net operating loss carryforwards ("NOL's") totaling approximately $31 million, 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 prior years for federal and state tax purposes and the book and tax losses sustained in 1997 to date, management is unable to determine that the realization of such asset is more likely than not and, thus, has provided a valuation allowance for the entire deferred tax asset at September 30, 1997. EXTRAORDINARY ITEM A subsidiary of Holdings acquired $2.5 million of 10 7/8% First Mortgage Notes at a discount of $375,000 with which to make its scheduled July 1997 principal payment (see "Liquidity and Capital Resources - Financing Activities" below). Such gain was partially offset by the write off of associated financing costs, resulting in a net gain from early extinguishment of debt amounting to $310,000. 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. 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) 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 in turn are those of the Sands. Prior to 1996, GBHC's earnings before depreciation, interest, amortization, taxes and intercompany management fees were 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 for certain capital projects. OPERATING ACTIVITIES At September 30, 1997, GBHC had cash and cash equivalents of $12.3 million. During the nine month period ended September 30, 1997, net cash used by operating activities was $1.7 million compared with $10.6 million during the same 1996 period. GBHC utilized its cash from operations and borrowings from affiliates during the first nine months of 1997 to make its required principal payment with respect to the 10 7/8% First Mortgage Notes, to repay its $2 million bank line of credit, to fund capital additions totaling $1.9 million and to make obligatory investments of $2.1 million. FINANCING ACTIVITIES During February 1994, GBHC refinanced virtually all of its outstanding debt as part of an overall restructuring by GBCC (the "GBCC 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 GBCC Recapitalization, a subsidiary of GBCC also issued $15 million of 14 5/8% junior subordinated notes due in 2005 to HCC; the subsidiary loaned $10 million of such proceeds to GBHC on the same terms. 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 a result of such payment restrictions, interest has been paid only through February 17, 1996. 28 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) During the third quarter of 1996, GBHC borrowed $6.5 million from GBCC for working capital purposes with interest at the rate of 13 3/4% per annum payable quarterly commencing October 1, 1996. During the first quarter of 1997, GBHC borrowed an additional $1.5 million from GBCC on similar terms and borrowed an additional $5 million from another subsidiary of GBCC at the rate of 14 5/8% per annum payable semiannually commencing July 15, 1997. Repayment of such borrowings and payment of the related accrued interest is subject to regulatory approval. GBHC repaid its $2 million bank line of credit during January 1997 with proceeds from affiliate borrowings and the line of credit was cancelled. Commencing in July 1997, semiannual principal payments of $2.5 million are due with respect to the 10 7/8% First Mortgage Notes. Such semiannual payments may be made in cash or by tendering 10 7/8% First Mortgage Notes previously purchased or otherwise acquired by Holdings. Holdings acquired $2.5 million face amount of 10 7/8% First Mortgage Notes at a discount during May 1997 which it used during June to make its July 15, 1997 required principal payment. Total scheduled maturities of long-term debt during the remainder of 1997 are $4,000. CAPITAL EXPENDITURES AND OBLIGATORY INVESTMENTS Capital expenditures at the Sands during the nine month period ended September 30, 1997 amounted to $1.9 million and management anticipates capital expenditures during the remainder of 1997 will be approximately $1 million. Projects currently planned during 1997 include 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 1997 totaled $2.1 million and are anticipated to be approximately $780,000 during the remainder of 1997. SUMMARY The Sands' operating results for the first six months of 1997 reflected a substantial improvement over 1996 and were on target with management's operating plan due to mild winter weather conditions compared to a year ago, an abatement of the intense marketing competition for bus customers and implementation of cost containment measures. The Sands' operating results for the third quarter, although improved from the prior year period results, were significantly below its operating plan. Accordingly, Holdings has incurred an operating cash flow deficit of $1.7 million through the third quarter of 1997 and, consequently, cash reserves have been reduced. October operating results continued to be below management's operating plan. In order to meet its debt service requirements of approximately $12.5 million in January 1998, Holdings will require financial assistance from affiliated companies or other 29 GB HOLDINGS, INC. AND SUBSIDIARIES (WHOLLY OWNED BY PRATT CASINO CORPORATION) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) sources. The availability of additional borrowings from GBCC and other subsidiaries of GBCC during the remainder of 1997 is limited. HCC, which loaned $6.5 million to GBCC in 1996 for use by the Sands, is subject to certain indenture provisions which restrict its ability to provide ongoing financial support to an additional $3.5 million. There is no assurance that HCC, which is no longer the parent of GBCC, or GBCC will agree to provide such additional financial support, if needed. 30 PART II: OTHER INFORMATION - --------------------------- The Registrants did not file any reports on Form 8-K during the quarter ended September 30, 1997. 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, 1997 By:/s/ John C. Hull - ------------------------ ----------------------- John C. Hull Principal Accounting Officer 31 EX-27.1 2 FINANCIAL DATA SCHEDULE
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-31-1997 DEC-31-1997 JUL-01-1997 JAN-01-1997 SEP-30-1997 SEP-30-1997 1 1 0 0 9,191 9,191 0 0 0 0 9,192 9,192 0 0 0 0 186,692 186,692 9,191 9,191 177,500 177,500 0 0 0 0 1 1 0 0 186,692 186,692 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-27.2 3 FINANCIAL DATA SCHEDULE
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-31-1997 DEC-31-1997 JUL-01-1997 JAN-01-1997 SEP-30-1997 SEP-30-1997 12,333 12,333 0 0 23,737 23,737 14,539 14,539 3,545 3,545 31,078 31,078 318,918 318,918 170,199 170,199 214,548 214,548 52,204 52,204 187,921 187,921 0 0 0 0 1 1 (26,982) (26,982) 214,548 214,548 0 0 69,241 199,919 0 0 56,321 162,799 8,141 24,963 706 2,265 5,408 16,239 (1,335) (6,347) 0 0 (1,335) (6,347) 0 0 0 310 0 0 (1,335) (6,037) 0 0 0 0
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