-----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, UfNVTkB5zty9HQBXRsq0vxsMDLwCL8bkaFagCW9vBHeV91HgeGFJgN4UycEYFUvS zlBfLobqGY6rQAWgA9WONg== 0001005477-01-003289.txt : 20010516 0001005477-01-003289.hdr.sgml : 20010516 ACCESSION NUMBER: 0001005477-01-003289 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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: 001-16403 FILM NUMBER: 1635541 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: 6094414517 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: 000-31657 FILM NUMBER: 1635542 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: 001-15064 FILM NUMBER: 1635543 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 0001.txt 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 March 31, 2001 ------------------------------------------------- OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________________ to ____________________ Commission file number 33-69716 -------- GB PROPERTY FUNDING CORP. GB HOLDINGS, INC. GREATE BAY HOTEL AND CASINO, INC. - -------------------------------------------------------------------------------- (Exact name of each Registrant as specified in its charter) DELAWARE 75-2502290 DELAWARE 75-2502293 NEW JERSEY 22-2242014 - --------------------------------- --------------------- (States or other jurisdictions of (I.R.S. Employer incorporation or organization) Identification No.'s) c/o Sands Hotel & Casino Indiana Avenue & Brighton Park Atlantic City, New Jersey 08401 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (Registrants" telephone number, including area code): (609) 441-4517 -------------------------- (Not Applicable) - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report.) Indicate by check mark whether each of the Registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer"s classes of common stock, as of the last practicable date.
Registrant Class Outstanding at May 10, 2001 - --------------------------------- ----------------------------- --------------------------- GB Property Funding Corp. Common stock, $1.00 par value 100 shares GB Holdings, Inc. Common stock, $.01 par value 10,000,000 shares Greate Bay Hotel and Casino, Inc. Common stock, no par value 100 shares
1 GB HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
March 31, December 31, 2001 2000 ------------- ------------- (Unaudited) Current Assets: Cash and cash equivalents $ 68,674,000 $ 77,903,000 Accounts receivable, net of allowances of $11,112,000 and $11,408,000, respectively 9,562,000 10,972,000 Inventories 2,722,000 2,851,000 Deferred income taxes and income taxes receivable 2,200,000 1,159,000 Prepaid expenses and other current assets 2,310,000 2,707,000 ------------- ------------- Total current assets 85,468,000 95,592,000 ------------- ------------- Property and Equipment: Land 54,814,000 54,814,000 Buildings and improvements 81,975,000 81,203,000 Equipment 20,777,000 18,252,000 Construction in progress 7,287,000 6,763,000 ------------- ------------- 164,853,000 161,032,000 Less - accumulated depreciation and amortization (5,286,000) (2,706,000) ------------- ------------- Property and equipment, net 159,567,000 158,326,000 ------------- ------------- Other Assets: Obligatory investments, net of allowances of $8,636,000 and $8,418,000, respectively 8,185,000 7,918,000 Other assets 2,371,000 2,411,000 ------------- ------------- Total other assets 10,556,000 10,329,000 ------------- ------------- $ 255,591,000 $ 264,247,000 ============= =============
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. 2 GB HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDER'S EQUITY
March 31, December 31, 2001 2000 ------------- ------------- (Unaudited) Current Liabilities Current maturities of long-term debt $ 451,000 $ 467,000 Accounts payable 7,305,000 9,822,000 Accrued liabilities - Salaries and wages 4,697,000 4,424,000 Interest 67,000 3,092,000 Reorganization costs 562,000 1,280,000 Insurance 2,548,000 2,411,000 Other 5,841,000 5,336,000 Other current liabilities 4,149,000 4,283,000 ------------- ------------- Total current liabilities 25,620,000 31,115,000 ------------- ------------- Long-Term Debt 110,366,000 110,371,000 ------------- ------------- Other Noncurrent Liabilities 4,158,000 4,258,000 ------------- ------------- Commitments and Contingencies Shareholder's Equity: Preferred stock, $.01 par value per share; 5,000,000 shares authorized; 0 shares outstanding -- -- Common stock, $.01 par value per share; 20,000,000 shares authorized; 10,000,000 shares outstanding 100,000 100,000 Additional paid-in capital 124,900,000 124,900,000 Accumulated deficit (9,553,000) (6,497,000) ------------- ------------- Total shareholder's equity 115,447,000 118,503,000 ------------- ------------- $ 255,591,000 $ 264,247,000 ============= =============
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. 3 GB HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, ------------------------------------------- Post-reorganization Pre-reorganization 2001 2000 ------------------- ------------------ (Unaudited) (Unaudited) Revenues: Casino $ 53,666,000 $ 54,845,000 Rooms 2,554,000 2,169,000 Food and beverage 6,741,000 6,527,000 Other 905,000 1,080,000 ------------ ------------ 63,866,000 64,621,000 Less - promotional allowances (10,231,000) (9,490,000) ------------ ------------ Net revenues 53,635,000 55,131,000 ------------ ------------ Expenses: Casino 45,460,000 43,278,000 Rooms 1,171,000 677,000 Food and beverage 2,008,000 1,951,000 Other 641,000 809,000 General and administrative 3,905,000 2,411,000 Depreciation and amortization 2,964,000 3,089,000 ------------ ------------ Total expenses 56,149,000 52,215,000 ------------ ------------ Income (loss) from operations (2,514,000) 2,916,000 ------------ ------------ Non-operating income (expense): Interest income 991,000 187,000 Interest expense (contractual interest of $5,515,000 for the three months ended March 31, 2000) (3,129,000) (73,000) Reorganization and other related costs -- (1,245,000) Gain/(loss) on disposal of assets 5,000 (10,000) ------------ ------------ Total non-operating expense, net (2,133,000) (1,141,000) ------------ ------------ Income (loss) before income taxes (4,647,000) 1,775,000 Income tax benefit (provision) 1,591,000 (639,000) ------------ ------------ Net income (loss) $ (3,056,000) $ 1,136,000 ============ ============ Basic income (loss) per common share $ (0.31) ============ Weighted average common shares outstanding 10,000,000 ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. 4 GB HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, ------------------------------------------- Post-reorganization Pre-reorganization 2001 2000 ------------------- ------------------ (Unaudited) (Unaudited) OPERATING ACTIVITIES: Net income (loss) $ (3,056,000) $ 1,136,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,964,000 3,089,000 (Gain) loss on disposal of assets (5,000) 10,000 Provision for doubtful accounts 608,000 633,000 Decrease in accounts receivable 802,000 1,152,000 (Decrease) increase in accounts payable and accrued liabilities (5,345,000) 1,825,000 Net change in other current assets and liabilities (742,000) 463,000 Net change in other noncurrent assets and liabilities 33,000 65,000 ------------ ------------ Net cash (used in) provided by operating activities (4,741,000) 8,373,000 ------------ ------------ INVESTING ACTIVITIES: Purchase of property and equipment (3,821,000) (3,102,000) Proceeds from disposal of assets 5,000 12,000 Obligatory investments (651,000) (652,000) ------------ ------------ Net cash used in investing activities (4,467,000) (3,742,000) ------------ ------------ FINANCING ACTIVITIES: Repayments of long-term debt (21,000) (22,000) ------------ ------------ Net cash used in financing activities (21,000) (22,000) ------------ ------------ Net (decrease) increase in cash and cash equivalents (9,229,000) 4,609,000 Cash and cash equivalents at beginning of period 77,903,000 20,897,000 ------------ ------------ Cash and cash equivalents at end of period $ 68,674,000 $ 25,506,000 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. 5 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Organization, Business and Basis of Presentation GB Holdings, Inc. ("Holdings") is a Delaware corporation and was a wholly owned subsidiary of Pratt Casino Corporation ("PCC") through December 31, 1998. PCC, a Delaware corporation, was incorporated in September 1993 and was wholly owned by PPI Corporation ("PPI"), a New Jersey corporation and a wholly owned subsidiary of Greate Bay Casino Corporation ("GBCC"). Effective after December 31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV, Inc. ("PBV"), a newly formed entity controlled by certain stockholders of GBCC. As a result of a certain confirmed plan of reorganization of PCC and others in October 1999, the remaining 79% stock interest of PCC in Holdings was transferred to Greate Bay Holdings, LLC ("GBLLC"), whose sole member as a result of the same reorganization was PPI. In February 1994, Holdings acquired Greate Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation, through a capital contribution by its then parent. GBHC's principal business activity is its ownership of the Sands Hotel and Casino located in Atlantic City, New Jersey (the "Sands"). GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation and a wholly owned subsidiary of Holdings, was incorporated in September 1993 as a special purpose subsidiary of Holdings for the purpose of borrowing funds for the benefit of GBHC. Holdings has no operating activities and its only significant assets are its investment in GBHC and cash and cash equivalents of $51.4 million and $60.1 million as of March 31, 2001 and December 31, 2000, respectively. Effective September 2, 1998, GBHC acquired the membership interests in Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company that owned a land parcel adjacent to GBHC. The accompanying consolidated financial statements include the accounts and operations of Holdings and its subsidiaries (Holdings, GBHC, GB Property Funding and Lieber, collectively, the "Company"). All significant intercompany balances and transactions have been eliminated. On January 5, 1998, the Company filed petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). On August 14, 2000, the Bankruptcy Court entered an order (the "Confirmation Order") confirming the Modified Fifth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code Proposed by the Official Committee of Unsecured Creditors and High River Limited Partnership and its Affiliates (the "Plan") for the Debtors. High River Limited Partnership ("High River") is an entity controlled by Carl C. Icahn. On September 13, 2000, the New Jersey Casino Control Commission (the "Commission") approved the Plan. On September 29, 2000, the Plan became effective (the "Effective Date"). All material conditions precedent to the Plan becoming effective were satisfied on or before September 29, 2000. Accordingly, the accompanying consolidated financial statements have been prepared in accordance with Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"). In addition, as a result of the Confirmation Order and the occurrence of the Effective Date, and in accordance with SOP 90-7, the Company has adopted "fresh start reporting" in the preparation of the accompanying consolidated financial statements. The emergence of the Company from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit as of September 30, 2000. As a result, the consolidated financial statements for the periods subsequent to September 30, 2000 reflect the new basis of 6 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) accounting. A black line has been drawn on the accompanying consolidated financial statements to distinguish between the pre-reorganization and post-reorganization entities. A significant amount of the Company's revenues are derived from patrons living in northern New Jersey, southeastern Pennsylvania and metropolitan New York City. Competition in the Atlantic City gaming market is intense and management believes that this competition will continue or intensify in the future. The preparation of financial statements in conformity with 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 consolidated financial statements have been prepared in accordance with the accounting policies described in the Company's 2000 Annual Report on Form 10-K. Although the Company believes that the disclosures are adequate to make the information presented not misleading, the Company suggests these financial statements be read in conjunction with the notes to the consolidated financial statements which appear in that report. In the opinion of management, the accompanying consolidated financial statements include all adjustments (consisting only of a normal recurring nature), which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Interim results are not necessarily indicative of results to be expected for any future interim period or for the entire fiscal year. Certain reclassifications have been made to prior year's consolidated financial statements to conform to the 2001 consolidated financial statement presentation. (2) Long-Term Debt and Pledge of Assets Long-term debt is comprised of the following: March 31, December 31, 2001 2000 ------------- ------------- 11% first mortgage notes, due 2005 (a) $ 110,000,000 $ 110,000,000 Lieber mortgage (b) 433,000 450,000 Other 384,000 388,000 ------------- ------------- Total 110,817,000 110,838,000 Less - current maturities (451,000) (467,000) ------------- ------------- Total long-term debt $ 110,366,000 $ 110,371,000 ============= ============= 7 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (a) As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, GB Property Funding issued $110,000,000 of 11% first mortgage notes due 2005 (the "Notes"). Interest on the Notes is payable on March 29 and September 29, beginning March 29, 2001. The outstanding principal is due on September 29, 2005. The Notes are unconditionally guaranteed, on a joint and several basis, by both Holdings and GBHC, and are secured by substantially all of the assets, as of the Effective Date, other than cash and gaming receivables of Holdings and GBHC. The indenture for the Notes contains various provisions, which, among other things, restrict the ability of Holdings, and GBHC to incur certain senior secured indebtedness beyond certain limitations and contain certain other limitations on the ability to merge, consolidate, or sell substantially all of their assets, to make certain restricted payments, to incur certain additional senior liens, and to enter into certain sale-leaseback transactions. (b) On September 2, 1998, GBHC acquired the membership interests in Lieber, which owned a certain parcel of land on Pacific Avenue in Atlantic City until transferring it to GBHC in September 2000. Principal mortgage indebtedness at the time of acquisition was $591,000 and bears interest at the rate of 7% per annum. Principal and interest are paid monthly based on a ten-year amortization schedule The balance of the note is due in July 2001. Scheduled payments of long-term debt as of March 31, 2001, are set forth below: 2001 (nine months) $ 446,000 2002 19,000 2003 21,000 2004 23,000 2005 110,026,000 Thereafter 282,000 ------------ Total $110,817,000 ============ Interest paid amounted to $6,068,000 and $19,000, respectively, for the three months ended March 31, 2001 and 2000. At March 31, 2001 and December 31, 2000, accrued interest on the Notes was $67,000 and $3,092,000, respectively. 8 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (3) Income Taxes The components of the benefit (provision) for income taxes are as follows: Post-reorganization Pre-reorganization ------------------- ------------------ January 1, 2001 January 1, 2000 through through March 31, 2001 March 31, 2000 ------------------- ------------------ Federal income tax benefit (provision): Current $ 1,591,000 $(417,000) Deferred -- (222,000) State income tax benefit (provision): Current -- -- Deferred -- -- ----------- --------- $ 1,591,000 $(639,000) =========== ========= Prior to 1997, the Company was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"). The Company's operations were included in GBCC's consolidated federal income tax returns for the years ended December 31, 1998 and 1997 but GBCC agreed to allow the Company to become deconsolidated from the GBCC group effective after December 31, 1998. In accordance therewith, PCC transferred 21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of the Company from the GBCC group for federal income tax purposes (the "Deconsolidation"). Accordingly, beginning in 1999, the Company's provision for federal income taxes is calculated and paid on a consolidated basis. The Internal Revenue Service is examining the consolidated federal income tax returns of HCC for the years 1995 and 1996 and the consolidated federal income tax returns for GBCC for the years 1997 and 1998 in which the Company was included (the "Audit"). As a result of such Audit, GBCC management has disclosed in its annual SEC Form 10-K, filed for the year ended December 31, 2000, that it is presently unable to estimate the impact of the Audit on the consolidated financial position or results of operations of GBCC. The Company is dependent upon receipt of information from HCC and GBCC as to the operations of their affiliates and the impact of those operations on the former HCC and GBCC consolidated groups' Federal net operating losses ("Federal NOL's"). Any such use of these NOL's, by either HCC or GBCC, are subject to the terms of a certain settlement agreement. Federal and State income tax benefits or provisions are based upon the results of operations for the current period and the estimated adjustments, for income tax purposes, of certain nondeductible expenses. The Federal income tax benefit of approximately $1.6 million for the three months ended March 31, 2001 is a result of applying the statutory Federal income tax rate of 35% to the pretax loss after adjustments for income tax purposes. Management believes that over the remainder of 2001, pretax income after similar adjustments for 9 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) income tax purposes will exceed the first quarter 2001 pretax loss. As such, the Federal income tax benefit of approximately $1.6 million is offset to current deferred tax assets without any associated provision for a valuation allowance. At March 31, 2001, the Company has deferred tax assets including State net operating losses and Federal credit carryforwards. The State net operating losses ("State NOL's") begin to expire in the year 2003 for state tax purposes. A portion of the Federal credit carryforwards, if not utilized, will expire each year through 2019. In addition, as part of a certain settlement agreement, GBCC may utilize Federal NOL's of the Company through December 31, 1998 to offset Federal taxable income of GBCC and other members of its consolidated tax group. Subsequent to the Deconsolidation, the Company had approximately $6.0 million in Federal NOL's, which were revised from $2.8 million due to recent developments in the on-going Audit. The Company expects to utilize approximately $5.1 million in Federal NOL's in its amended 1999 consolidated Federal tax return resulting in approximately $900,000 in Federal NOL's available for the year 2000. Statement of Financial Accounting Standards No. 109 ("SFAS 109") requires that the tax benefit of NOL's and deferred tax assets resulting from temporary differences be recorded as an asset and, to the extent that management can not assess that the utilization of all or a portion of such NOL's and deferred tax assets is more likely than not, requires the recording of a valuation allowance. Due to various uncertainties impacting estimates of the tax basis in future years, management is unable to determine that realization of the Company's deferred tax asset is more likely than not and, thus, has provided a valuation allowance for all but the portion resulting from the current quarter loss at March 31, 2001. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, the Company's outstanding debt was discharged. Pursuant to the Internal Revenue Code, debt that is cancelled or discharged under the Bankruptcy Code does not generate taxable income in the current period to the debtor. Instead, certain tax attributes otherwise available to the debtor are reduced. This attribute reduction is effective for tax purposes beginning January 1, 2001 and reduces the tax basis of noncurrent assets by approximately $14.9 million. The Company had a change of ownership as defined under Internal Revenue Code Section 382 upon the Effective Date. Management currently estimates there will be no significant limitations on the ability of the company to use its tax attributes, if any, on a post confirmation basis as a result of this change of ownership. (4) Transactions with Related Parties GBHC's rights to the trade name "Sands" (the "Trade Name") were derived from a license agreement between GBCC and an unaffiliated third party. Amounts payable by the Sands for these rights were equal to the amounts paid to the unaffiliated third party. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, GBHC was assigned by High River the rights under a certain agreement with the owner of the Trade Name to use the Trade Name as of the Effective Date. High River received no payments for its assignment of these rights. Payment is made directly to the owner of the Trade Name. The calculation of the license fee is the same as under the previous agreement. Such charges amounted to $60,000 and $65,000, respectively, for the three months ended March 31, 2001 and 2000. There were no affiliate advances and borrowings for the three months ended March 31, 2001 and 2000, respectively. 10 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) There was no interest expense incurred with respect to affiliate advances and borrowings for the three months ended March 31, 2001 and 2000, respectively. (5) Legal Proceedings GBHC has filed tax appeals with the New Jersey Tax Court challenging the amount of its real property assessment for calendar years 1996, 1997, 1998, 1999, 2000 and 2001. The City of Atlantic City has also appealed the amount of the assessments for the same years. GBHC is a party in various legal proceedings with respect to the conduct of casino and hotel operations. Although a possible range of losses cannot be estimated, in the opinion of management, based upon the advice of counsel, 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. (6) Income (Loss) Per Share Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), requires, among other things, the disclosure of basic earnings per share for public companies. Since the capital structure of the Company is simple, in that no potentially dilutive securities were outstanding during the periods presented, only basic income (loss) per share disclosure is required. Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. On a pro forma basis, for the three months ended March 31, 2000, income per share would have been as follows: Basic income per common share $ 0.11 ============== Weighted average common shares outstanding 10,000,000 ============== 11 GB HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (7) Supplemental Cash Flow Information Cash paid for interest and income taxes during the three months ended March 31, 2001 and 2000 are set forth below: Three Months Ended March 31, ------------------------------ 2001 2000 ---------- ------- Interest paid $6,068,000 $19,000 ========== ======= Income taxes paid $ -- $ -- ========== ======= (8) New Accounting Pronouncement In January 2001, the Emerging Issues Task Force (EITF) reached a consensus on certain issues within Issue No. 00-22, "Accounting for 'Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future," (EITF 00-22). Application of EITF 00-22 is required for interim and annual periods ending after February 15, 2001. EITF 00-22 requires volume-based cash rebates to be classified as a reduction of revenue. Accordingly, such rebates have been classified as promotional allowances. The Company previously classified these expenditures as a gaming expense. Prior period amounts have been reclassified to conform with the current presentation. 12 GB HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains forward-looking statements about the business, financial condition and prospects of the Company. The actual results could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties. Such risks and uncertainties are beyond management's ability to control and, in many cases, cannot be predicted by management. When used in this Quarterly Report on Form 10-Q, the words "believes", "estimates", "anticipates", "expects", "intends" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements (see "Private Securities Litigation Reform Act" below). LIQUIDITY AND CAPITAL RESOURCES Holdings owns GBHC, which owns the Sands Hotel and Casino in Atlantic City (the "Sands"). Prior to 1996, the Sands' cash flow from operations was sufficient to meet debt service obligations and to fund a substantial portion of annual maintenance capital expenditures. In addition, the Sands used short-term borrowings as necessary to fund seasonal cash needs and for certain capital projects. After 1995, however, the competitive position of the Sands became impaired, which was due, in part, to insufficient capital expenditures particularly compared to certain competing Atlantic City casinos. In 1996, due to adverse weather in the first quarter, a decline in both table games and slot hold percentages and increased industry competition resulting in higher marketing expenditures, the Sands cash flow decreased significantly compared to prior years. While cash flow improved in 1997, it remained significantly below historical levels. These declines in operating cash flow at the Sands resulted in the need for periodic financial assistance from PCC and GBCC in order for GBHC to meet its debt service obligations. Substantial additional financial assistance from affiliates or other sources would have been required to meet GBHC's debt service payments due in January 1998. GBHC was unable to obtain additional borrowings from affiliates or other sources and, accordingly, on January 5, 1998, the Debtors filed petitions for relief under the Bankruptcy Code in the Bankruptcy Court. On August 14, 2000, the Bankruptcy Court entered the Confirmation Order confirming the Plan for the Company. On September 13, 2000, the Commission approved the Plan. On September 29, 2000, the Plan became effective. All material conditions precedent to the Plan becoming effective were satisfied on or before September 29, 2000. Accordingly, the accompanying consolidated financial statements have been prepared in accordance with SOP 90-7. In addition, as a result of the Confirmation order and the occurrence of the Effective Date, and in accordance with SOP 90-7, the Company has adopted "fresh start reporting" as of September 30, 2000. The emergence of the Company from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit as of September 30, 2000. As a result, the consolidated financial statements for the periods subsequent to September 30, 2000 reflect the new basis of accounting. A black line has been drawn on the accompanying consolidated financial statements to distinguish between the pre-reorganization and post-reorganization entities. On the Effective Date, GB Property Funding's existing debt securities, consisting of its 10 7/8% First Mortgage Notes due January 15, 2004 (the "Old Notes") and all of Holdings' issued and outstanding shares of common stock owned by PBV and GBLLC (the "Old Common Stock") were cancelled. As of the Effective Date, an aggregate of 10,000,000 shares of new common stock of Holdings (the "Common Stock") were issued and outstanding, and $110,000,000 of 11% First Mortgage Notes due 2005 were issued (the "Notes"). Holders of the 13 GB HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Old Notes received a distribution of their pro rata shares of (i) the Notes and (ii) 5,375,000 shares of the Common Stock (the "Stock Distribution"). Operating Activities At March 31, 2001, the Company had cash and cash equivalents of $68.7 million. The Company used $4.7 million of net cash for operations during the three months ended March 31, 2001 compared to generating net cash of $8.4 million for the three months ended March 31, 2000. During the first quarter of 2001, the Company utilized internal funds for capital additions of $3.8 million and to make obligatory investments of $651,000. Financing Activities The Sands entered into a long-term lease of the Madison House Hotel (the "Madison House"). The initial lease period is from December 2000 to December 2012 with lease payments ranging from $1.8 million per year to $2.2 million per year. The Madison House is already physically connected at two floors to the existing Sands casino-hotel complex and the present intention of management is to upgrade and combine the rooms into approximately 105-125 business suites. It is the intention of the Sands to maintain and operate the Madison House in the same quality as the Sands, making those rooms available to Sands casino customers and the general public. On the Effective Date, GB Property Funding's existing debt securities, consisting of the Old Notes, and all of Holdings' Old Common Stock owned by PBV and GBLLC were cancelled. Also, on the Effective Date, 10,000,000 shares of Common Stock were issued and outstanding. Of the 10,000,000 shares, 5,375,000 shares were distributed to the holders of the Old Notes in a pro rata distribution, and 4,625,000 shares were purchased by High River for $65 million. The Notes in the amount of $110,000,000 were issued and distributed to the holders of the Old Notes in a pro rata distribution. Total scheduled maturities of long term debt during the remainder of 2001 is $446,000. Under an order of the Bankruptcy Court, permitting the disposition of furniture and equipment in the ordinary course of business, any payments received by GBHC for the sale of such assets prior to the Effective Date, which were part of the security for the Old Notes, were remitted to the Indenture Trustee as reductions to the outstanding principal of the Old Notes. Proceeds from the sale of such assets, amounting to $3,000 for the three months ended March 31, 2000, were remitted to the Indenture Trustee. Although the payments were remitted to the Indenture Trustee as reductions on principal in accordance with the Order of the Bankruptcy Court, the Indenture Trustee advised the Company (i) that such payments were retained by the Indenture Trustee pursuant to the terms of the Indenture as security for the payment of the fees and expenses incurred by the Indentured Trustee in the Chapter 11 proceeding and (ii) that the Indenture Trustee included the amount of such payments in its fee application before the Bankruptcy Court for the benefit of the holders of the Old Notes. Subject to a certain reduction as respects the Company, the Bankruptcy Court granted the fee application of the Indenture Trustee. 14 GB HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Investing Activities Capital expenditures at the Sands for the three months ended March 31, 2001 amounted to approximately $3.8 million. In order to enhance its competitive position in the market place, the Sands may determine to incur additional substantial costs and expenses to maintain, improve and expand its facilities and operations. The Company may require additional financing in connection with those activities. In connection with, among other things, obtaining any such financing, the Company may seek to amend or supplement the terms of existing financing arrangements. In 1998, and as part of a certain settlement agreement, GBHC acquired the membership interests in Lieber from affiliates of GBCC for $251,000. GBHC also caused Lieber to acquire the rights to purchase a certain hotel/motel on Pacific Avenue in Atlantic City, New Jersey (the "Pacific Avenue Hotel") from another affiliate of GBCC for payment of $1.3 million and a payment of $500,000 on the Effective Date. The purchase price of the Pacific Avenue Hotel was $10 million. With Bankruptcy Court approval, Lieber closed on that purchase with funds advanced by GBHC in 1999. Demolition of the Pacific Avenue Hotel was completed in 1999 and construction of a new front entrance to the Sands' facility was completed in June 2000. GBHC also entered into an agreement with the entities controlling the Claridge, subject to Bankruptcy Court approval, to acquire the Claridge Administration Building ("CAB"), which was situated between GBHC's existing main entrance and the new Pacific Avenue entrance. The purchase price was $3.5 million, consisting of $1.5 million in cash at closing with the remaining $2.0 million consideration tendered through the elimination for 40 months of a $50,000 monthly license fee paid by the Claridge to GBHC under an agreement between the Claridge and GBHC governing the development and operation of the "People Mover" leading from the Boardwalk to the Sands and Claridge (the "PM Agreement"). GBHC and the Claridge also obtained Bankruptcy Court approval of the assumption of the PM Agreement, as modified above, and by the reduction of the monthly license fee to $20,000 a month after the 40 months elimination of the license fee. In April 2000, closing took place on the CAB and the existing structure was subsequently demolished. The Sands is required by the Casino Act to make certain quarterly deposits based on gross revenue with the Casino Reinvestment Development Authority ("CRDA") in lieu of a certain investment alternative tax. Deposits for the three months ended March 31, 2001 totaled $651,000. The Sands has agreed to contribute certain of its future investment obligations to the CRDA in connection with the renovation related to the Atlantic City Boardwalk Convention Center. The projected total contribution will amount to $7.0 million, which will be paid through 2011 based on an estimate of certain of the Sands' future CRDA deposit obligations. Summary In accordance with the Confirmation Order and the occurrence of the Effective Date, the Company emerged as a new reporting entity with a new equity structure. Continuation of the business thereafter is dependent on GBHC's ability to achieve successful future operations. Management believes that cash flows generated from operations during 2001, as well as available cash reserves, will be sufficient to meet its operating plan and provide for scheduled capital expenditures. 15 GB HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS Gaming Operations Information contained herein, regarding Atlantic City casinos other than the Sands, was obtained from reports filed with the Commission. 16 GB HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following table sets forth certain unaudited financial and operating data relating to the Sands' and all other Atlantic City casinos' capacities, volume of play, hold percentages and revenues:
Three Months Ended March 31, ------------------------------ 2001 2000 ---------- ---------- (Dollars In Thousands) Units: (at end of quarter) Table Games - Sands 80 100 - Atlantic City (ex. Sands) 1,228 1,240 Slot Machines - Sands 2,010 1,949 - Atlantic City (ex. Sands) 34,327 33,339 Gross Wagering (1) Table Games - Sands $ 110,722 $ 109,640 - Atlantic City (ex. Sands) 1,614,737 1,692,981 Slot Machines - Sands 543,244 484,705 - Atlantic City (ex. Sands) 8,536,918 8,334,020 Hold Percentages (2) Table Games - Sands 13.8% 15.2% - Atlantic City (ex. Sands) 15.4% 15.5% Slot Machines - Sands 6.9% 7.7% - Atlantic City (ex. Sands) 8.1% 8.2% Revenues (2) Table Games - Sands $ 15,257 $ 16,659 - Atlantic City (ex. Sands) 248,390 261,561 Slot Machines - Sands 37,719 37,390 - Atlantic City (ex. Sands) 692,004 679,399 Other (3) - Sands 690 796 - Atlantic City (ex. Sands) N/A N/A
- ---------- (1) Gross wagering consists of the total value of chips purchased for table games (excluding poker) and keno wagering (the "Drop") and coins wagered in slot machines ("Handle"). (2) Casino revenues consist of the portion of gross wagering that a casino retains and, as a percentage of gross wagering, is referred to as the "hold percentage." The Sands' hold percentages and revenues are reflected on an accrual basis. Comparable accrual basis data for the remainder of the Atlantic City gaming industry as a whole is not available; consequently, industry hold percentages and revenues are based on information available from the Commission and are possibly higher than if computed on the accrual basis. (3) Consists of revenues from poker and simulcast horse racing wagering. Comparable information for the remainder of the Atlantic City gaming industry is not available. 17 GB HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Patron Gaming Volume Information contained herein, regarding Atlantic City casinos other than the Sands, was obtained from reports filed with the Commission. Table game drop increased by $1.1 million (1.0%) during the three months ended March 31, 2001 compared with the same period of 2000. By comparison, according to Casino Commission reports, table game drop at all other Atlantic City casinos during the same period reflected a decrease of 4.6%. As a result, the Sands table game market share (expressed as a percentage of the Atlantic City gaming industry (the "industry") aggregate table game drop) increased to 6.4%. The Sands table game drop increase in 2001 is attributable to an increased volume of play from patrons whose wagering is tracked and whose level of play generally entitles them to a varying level of rewards, including cash and/or complimentary rooms, food, beverage, entertainment and gifts ("rated players"). Table game hold percentage decreased 1.4 percentage points to 13.8% for the three months ended March 31, 2001 compared to the same period last year. The decrease in table game hold percentage is primarily due to a marketing program that attracted significantly higher play at lower than normal hold percentages. Although the program was successful in increasing table game drop, the lower than normal hold percentage had an unfavorable impact on table game revenue and the program was discontinued during the first quarter 2001. Between the first quarter of 2000 and the first quarter of 2001, the number of table games decreased 20% at the Sands, compared with a decrease of 1% at all other Atlantic City casinos. Aggregate gaming space at all other Atlantic City casinos increased by approximately 29,000 square feet at March 31, 2001 compared to 2000. The amount of gaming space at the Sands increased approximately 5,000 square feet between periods. Slot machine handle increased $58.5 million (12.1%) during the three months ended March 31, 2001 compared with the same period of 2000. By comparison, the percentage increase in slot machine handle for all other Atlantic City casinos in the first quarter of 2001 vs. the same period in 2000 was 2.4%. As a result, the Sands' market share of slot machine handle as a percentage of total industry slot handle increased to 6.0%. The increased Sands slot handle during 2001 is primarily attributable to an increased volume of play from both rated and unrated players brought on by the lowering of the hold percentage, which is a result of the Sands' "value gaming" philosophy. The number of slot machines increased 3% at the Sands. On an industry-wide basis, the number of slot machines also increased 3% in 2001 compared to 2000. As part of the Sands capital expenditure program new and more popular slot machines continue to be purchased. 18 GB HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following table sets forth the changes in operating revenues and expenses (unaudited) for the three- month periods ended March 31, 2001 and 2000:
Increase (Decrease) --------------------- 2001 2000 Dollars Percentage -------- -------- ------- ---------- (Dollars In Thousands) Revenues: Casino $ 53,666 $ 54,845 $(1,179) (2.1) Rooms 2,554 2,169 385 17.8 Food and Beverage 6,741 6,527 214 3.3 Other 905 1,080 (175) (16.2) Promotional Allowances 10,231 9,490 741 7.8 Costs and Expenses: Casino 45,460 43,278 2,182 5.0 Rooms 1,171 677 494 73.0 Food and Beverage 2,008 1,951 57 2.9 Other 641 809 (168) (20.8) General and Administrative 3,905 2,411 1,494 62.0 Depreciation and Amortization 2,964 3,089 (125) (4.0) Income (loss) from Operations (2,514) 2,916 (5,430) (186.2) Non-operating items, net 2,133 1,141 992 86.9 Income Tax Benefit (Provision) 1,591 (639) (2,230) (349.0)
Revenues Casino revenues decreased $1.2 million due to table game hold percentage decreasing by 9% while table game drop increased by 1%. The table revenue decrease was offset by an increase in slot revenues with slot handle increasing 12% but the slot hold percentage decreasing 10%. Rooms revenue increased $385,000 as a result of more room nights available with the addition of the Madison House Hotel and an increase in the average daily room rate. Food and beverage revenues increased $214,000 due to an increase in revenue per cover ("average check"). Other revenues decreased $175,000 as a result of a decrease in Other Income due to a certain commission agreement not being in place in the first quarter of 2001. 19 GB HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Promotional Allowances Promotional allowances are comprised of (i) the estimated retail value of goods and services provided free of charge to casino customers under various marketing programs and (ii) the cash value of redeemable points earned under a customer loyalty program based on their casino play. As a percentage of rooms, food and beverage and other revenues, the component of the allowances related to the retail value of goods and services increased to 60.0% during the three months ended March 31, 2001 from 59.7% during the same period of 2000. The increase is primarily attributable to additions to and changes in marketing programs and other promotional activities that resulted in the increased gaming volume from rated players. Departmental Expenses Casino expenses at the Sands increased by $2.2 million as a result of the increase in costs associated with the allocation of complimentaries, utilities, property taxes and facilities. Rooms, food and beverage and other cost allocation all increased over the same quarter of 2000 due to an increase in the use of complimentaries as a percentage of total revenue. The increase in utilities and facilities was a function of increased costs in procuring those services. Property taxes increased as a result of increased tax rates and ratables. Rooms expense increase of $494,000 was due to rental cost of the Madison House Hotel and payroll and related cost offset by an increase in the allocation of rooms expense to casino expense due to a higher percentage of rooms being utilized on a complimentary basis. Food and beverage expense increased $57,000 due to an increase in revenue and the related cost of food and beverage offset by an increase in the allocation of expenses to casino expense due to a higher percentage of food and beverage being utilized on a complimentary basis. Other expenses decreased $168,000 as a result of higher allocation of other expenses to casino expense. General and Administrative Expenses General and administrative expenses increased $1.5 million due to the expensing of costs associated with the attempted acquisition of the Claridge Hotel Casino and the cost of a severance package incurred due to a corporate structural reorganization. Also, increases in property taxes, utilities and insurance contributed to the variance. Depreciation and Amortization Depreciation and amortization expense decreased $125,000 as a result of the asset basis reduction associated with "fresh start reporting" implemented in September 2000. 20 GB HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Interest Income and Expense Interest income increased by $803,000 during the three months ended March 31, 2001 compared to the same period in 2000. The increase was due to earnings on increased cash reserves since the Effective Date. Prior to September 2000 earnings on cash reserves were recorded as a reduction of reorganization costs. Interest expense increased $3.1 million during the three months ended March 31, 2001 compared to the same period in 2000. The increase is due to the accrual of interest expense on the Notes. Income Tax Benefit (Provision) Prior to 1997, the Company was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"). The Company's operations were included in GBCC's consolidated federal income tax returns for the years ended December 31, 1998 and 1997 but GBCC agreed to allow the Company to become deconsolidated from the GBCC group effective after December 31, 1998. In accordance therewith, PCC transferred 21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of the Company from the GBCC group for federal income tax purposes (the "Deconsolidation"). Accordingly, beginning in 1999, the Company's provision for federal income taxes is calculated and paid on a consolidated basis. The Internal Revenue Service is examining the consolidated federal income tax returns of HCC for the years 1995 and 1996 and the consolidated federal income tax returns for GBCC for the years 1997 and 1998 in which the Company was included (the "Audit"). As a result of such Audit, GBCC management has disclosed in its annual SEC Form 10-K, filed for the year ended December 31, 2000, that it is presently unable to estimate the impact of the Audit on the consolidated financial position or results of operations of GBCC. The Company is dependent upon receipt of information from HCC and GBCC as to the operations of their affiliates and the impact of those operations on the former HCC and GBCC consolidated groups' Federal net operating losses ("Federal NOL's"). Any such use of these NOL's, by either HCC or GBCC, are subject to the terms of a certain settlement agreement. Federal and State income tax benefits or provisions are based upon the results of operations for the current period and the estimated adjustments, for income tax purposes, of certain nondeductible expenses. The Federal income tax benefit of approximately $1.6 million for the three months ended March 31, 2001 is a result of applying the statutory Federal income tax rate of 35% to the pretax loss after adjustments for income tax purposes. Management believes that over the remainder of 2001, pretax income after similar adjustments for income tax purposes will exceed the first quarter 2001 pretax loss. As such, the Federal income tax benefit of approximately $1.6 million is offset to current deferred tax assets without any associated provision for a valuation allowance. At March 31, 2001, the Company has deferred tax assets including State net operating losses and Federal credit carryforwards. The State net operating losses ("State NOL's") begin to expire in the year 2003 for state tax purposes. A portion of the Federal credit carryforwards, if not utilized, will expire each year through 2019. In addition, as part of a certain settlement agreement, GBCC may utilize Federal NOL's of the Company through December 31, 1998 to offset Federal taxable income of GBCC and other members of its consolidated tax group. Subsequent to the Deconsolidation, the Company had approximately $6.0 million in Federal NOL's, which were 21 GB HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) revised from $2.8 million due to recent developments in the on-going Audit. The Company expects to utilize approximately $5.1 million in Federal NOL's in its amended 1999 consolidated federal tax return resulting in approximately $900,000 in Federal NOL's available for the year 2000. Statement of Financial Accounting Standards No. 109 ("SFAS 109") requires that the tax benefit of NOL's and deferred tax assets resulting from temporary differences be recorded as an asset and, to the extent that management can not assess that the utilization of all or a portion of such NOL's and deferred tax assets is more likely than not, requires the recording of a valuation allowance. Due to various uncertainties impacting estimates of the tax basis in future years, management is unable to determine that realization of the Company's deferred tax asset is more likely than not and, thus, has provided a valuation allowance for all but the portion resulting from the current quarter loss at March 31, 2001. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, the Company's outstanding debt was discharged. Pursuant to the Internal Revenue Code, debt that is cancelled or discharged under the Bankruptcy Code does not generate taxable income in the current period to the debtor. Instead, certain tax attributes otherwise available to the debtor are reduced. This attribute reduction is effective for tax purposes beginning January 1, 2001 and reduces the tax basis of noncurrent assets by approximately $14.9 million. The Company had a change of ownership as defined under Internal Revenue Code Section 382 upon the Effective Date. Management currently estimates there will be no significant limitations on the ability of the company to use its tax attributes, if any, on a post confirmation basis as a result of this change of ownership. Reorganization and Other Related Costs Reorganization and other related costs include costs associated with the Company's reorganization under Chapter 11, including, among other things, professional fees, costs associated with the termination of agreements, and other administrative costs. Interest income on cash accumulated during the reorganization is reflected as a reduction to reorganization and other related costs. Inflation Management believes that in the near term, modest inflation, together with increasing competition within the gaming industry for qualified and experienced personnel, will continue to cause increases in operating expenses, particularly labor and employee benefits costs. Seasonality Historically, the Sands' operations have been highly seasonal in nature, with the peak activity occurring from May to September. Consequently, the results of operations for the first and fourth quarters are traditionally less profitable than the other quarters of the fiscal year. In addition, the Sands' operations may fluctuate significantly due to a number of factors, including chance. Such seasonality and fluctuations may materially affect casino revenues and profitability. 22 GB HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Form 10-Q and other materials filed or to be filed by Holdings, GB Property Funding or GBHC with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made by such companies) contains statements that are forward-looking, such as statements relating to plans for future expansion, future construction costs and other business development activities as well as other capital spending, economic conditions, financing sources, competition and the effects of tax regulation and state regulations applicable to the gaming industry in general or Holdings, GB Property Funding and GBHC in particular. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of Holdings, GB Property Funding or GBHC. These risks and uncertainties include, but are not limited to, those relating to development and construction activities, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or global economic conditions, activities of competitors and the presence of new or additional competition, fluctuations and changes in customer preference and attitudes, changes in federal or state tax laws or the administration of such laws and changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions). Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss arising from changes in market rates and prices, such as interest rates and foreign currency exchange rates. The Company does not have securities subject to interest rate fluctuations and has not invested in derivative-based financial instruments. 23 PART II: OTHER INFORMATION Item 6.(a) Exhibits Item 6.(b) Reports on Form 8-K The registrants did not file any reports on form 8-K for the quarter ended March 31, 2001. SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlantic City, State of New Jersey on May 14, 2001. GB HOLDINGS, INC. GB PROPERTY FUNDING CORP. GREATE BAY HOTEL AND CASINO, INC. --------------------------------- Registrants Date: May 14, 2001 By: /s/ Timothy A. Ebling ---------------------------- ------------------------------------ Timothy A. Ebling Executive Vice President, Chief Financial Officer and Principal Accounting Officer 24 -----END PRIVACY-ENHANCED MESSAGE-----