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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
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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
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GB PROPERTY FUNDING CORP.
GB HOLDINGS, INC.
GREATE BAY HOTEL AND CASINO, INC.
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(Exact name of each Registrant as specified in its charter)
DELAWARE 75-2502290
DELAWARE 75-2502293
NEW JERSEY 22-2242014
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(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
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (609) 441-4517
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share American Stock Exchange
$110,000,000 principal amount
of 11% First Mortgage Notes American Stock Exchange
due September 29, 2005
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Title of each class Name of exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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 |_|
Registrant Class Outstanding at March 21, 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 Common stock, no par value 100 shares
Casino, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated part or parts of this report.
NONE
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PART I
ITEM 1. BUSINESS
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. 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.
Throughout this document, references to Notes are referring to the Notes
to Consolidated Financial Statements contained herein.
On January 5, 1998, GBHC, Holdings and GB Property Funding (collectively,
the "Debtors") 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") (see Note 2). 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"), and
include disclosure of liabilities subject to compromise (see Note 5). In
addition, as a result of the Confirmation Order and the occurrence of the
Effective Date, and in accordance with SOP 90-7, Holdings' has adopted "fresh
start reporting" in the preparation of the accompanying consolidated financial
statements. Holdings' emergence 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 and are not
comparable to consolidated financial statements presented prior to September 30,
2000. 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
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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 "New Common Stock") were issued and outstanding, and $110,000,000
of 11% First Mortgage Notes due 2005 were issued by GB Property Funding (the
"New Notes"). Holders of the Old Notes received a distribution of their pro rata
shares of (i) the New Notes and (ii) 5,375,000 shares of the New Common Stock
(the "Stock Distribution").
Holdings and GB Property Funding listed the New Common Stock and New
Notes, respectively, on the American Stock Exchange on March 27, 2001.
The Sands
For a description of the Sands' facilities, please refer to "Item 2. -
Properties."
Business Strategy. Traditionally, the Sands' marketing strategy in the
highly competitive Atlantic City market has consisted of seeking higher-value
repeat patrons. In the past, the Sands has been successful in its marketing
efforts towards these premium patrons through its offering of private,
limited-access facilities, related amenities and use of sophisticated
information technology to monitor patron play, control certain casino operating
costs and target marketing efforts toward frequent visitors with above average
gaming budgets. While the Sands strived to maintain market share within this
segment, competition within the industry for both the premium patron (both table
and slot) and to provide a premium facility with amenities for this type of
patron reduced the Sands ability to attract this type of player on a profitable
basis in recent years.
The Sands is determined to introduce the "Value Gaming" concept. The
general concept in "Value Gaming" is to provide the customer with the best
possible gaming experience for the amount of time that the customer is on
property. Whether that experience is enhanced by competitive odds on games, the
ability to find a food outlet that provides an affordable quality food product,
or superior service, the overall experience for the patron has been expanded and
the ability to increase subsequent trips dramatically improved.
With the ongoing upgrades to the property, the Sands will be able to
broaden its appeal to both the higher-value repeat patrons, as well as increase
its marketing effort towards the mid-level and mass segment of the gaming
market. Although the Sands' facility will still not compare in size, rooms and
amenities to other premium properties in Atlantic City, the Sands' strategy to
introduce the concept of "Value Gaming" to the market should appeal to all
segments and provide for a competitive offset to the shortfall in property size.
As part of the Sands capital expenditure program, certain improvements,
additions and enhancements have been made, or are planned to be made, to the
facility, including slot machines and other gaming equipment. These additions
and enhancements will primarily benefit the slot patron and will compliment the
"Value Gaming" marketing strategy.
The Sands uses sophisticated information technology that enables it to
track and rate patrons' play through the use of identification cards, which it
issues to patrons ("casino players' cards"). All Sands' slot machines are
connected with, and information with respect to table games activity can be
input into, a computer network. When patrons insert their casino player's card
into slot machines or present them to supervisors at table games, meaningful
information, including amounts wagered and duration of play, is transmitted in
real-time to a casino management database. The information contained in the
database facilitates the implementation of targeted and cost effective marketing
programs, which appropriately recognize and reward patrons during current and
future visits to the Sands. Certain of these marketing programs allow patrons to
automatically obtain complimentaries based on levels of play. Such
complimentaries include free meals, hotel accommodation, entertainment, retail
merchandise, parking, and
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sweepstakes giveaways. Management believes that its ability to reward its
customers on a "same-visit" basis is valuable in encouraging the loyalty of
repeat visits. The computer systems also allow the Sands to monitor, analyze and
control the granting of gaming credit, promotional expenses and other marketing
costs.
Management primarily focuses its marketing efforts on patrons who have
been identified by its casino management computer system as profitable patrons.
Management believes that its philosophy of encouraging participation in its
casino player's card program, using the information obtained thereby to identify
the relative playing patterns of patrons and tailoring specific marketing
programs and property amenities to this market segment enhances profitability of
the Sands.
The Sands also markets to the "mass" casino patron market through various
form of direct and indirect advertising, and group and bus tour programs. Once
new patrons are introduced to the Sands' "Value Gaming" concept and the casino
player's card program, management uses its information technology capabilities
to directly market to these patrons to encourage repeat patronage.
Competition. The Sands faces intense competition from the eleven other
existing Atlantic City casinos. According to reports of the Commission, the
twelve Atlantic City casinos currently offer approximately 1.2 million square
feet of gaming space. Bally's Park Place opened its "Wild Wild West Casino" in
1997 and a new parking and bus facility adjoining Pacific Avenue in 1998.
Caesars constructed a new entrance to its facility on Pacific Avenue, added
additional casino space and opened a new hotel tower in 1998. After completion
of the acquisition of Caesars by Park Place Entertainment Corp. (PPE), in
December 1999, PPE connected Caesars to Bally's Park Place and added slot
machines in the connecting space. In January 2001, over the objections of the
Sands, the Commission determined that the proposed acquisition of the Claridge
Hotel and Casino ("the Claridge") by PPE, which is located adjacent to the Sands
and with whom the Sands jointly operates the "People Mover" walkway from the
boardwalk, would not violate the Casino Control Act's prohibition against undue
economic concentration. If the Claridge Chapter 11 Plan is confirmed by the
Bankruptcy Court, and if PPE acquires the Claridge, PPE has indicated that it
may connect the Claridge to its Bally's Park Place Casino, which is already
interconnected to the PPE controlled Caesars Hotel and Casino. Upon that
acquisition by PPE, PPE would control four, the Trump Organization would control
three and the Harrah's Organization would control two of the Atlantic City
casinos. PPE also controls the so-called Traymore site located between the
boardwalk and the Sands and has announced that it may develop another
hotel-casino complex on this site but has not announced specific plans at this
time. In addition, several companies have announced plans to build and operate
additional casino/hotels over the next few years. For example, Boyd Gaming
Corporation in partnership with MGM Mirage is currently constructing a 40 story
2,010-room hotel and 120,000 square foot casino in the Marina District of
Atlantic City that is expected to be completed in the summer of 2003. The
Borgata development will be situated on approximately 30 acres and will also
include specialty restaurants, distinct boutiques, a European style spa and
several entertainment venues. In connection with that project, construction is
nearly complete on a tunnel to connect the Atlantic City Expressway with the
Marina District. Other casino companies and individuals have submitted
applications and have been qualified in New Jersey to hold casino licenses.
Tropicana Atlantic City has announced plans to construct a 502-room hotel tower,
a 25-room conference center, a 2,400 space-parking garage and an expanded casino
floor. The plans will also include a 200,000 square foot themed shopping, dining
and entertainment complex called The Quarter. Tropicana intends to break ground
before the end of 2001 and to complete the project in the second half of 2003.
Accordingly, the existing and future competing forces could have a materially
adverse impact on the operations of the Sands.
The Casino Reinvestment Development Authority ("CRDA") is a governmental
agency that administers the statutorily mandated investments required to be
funded by casino licensees. Legislation enacted during 1993 and 1996 allocated
an aggregate of $175 million of CRDA funds and credits to subsidize and
encourage the construction of
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additional hotel rooms by Atlantic City casino licensees. Competitors of the
Sands that have the financial resources to construct hotel rooms can take
advantage of such credits more readily than the Sands. The Sands has an approved
hotel expansion program with the CRDA. Plans have been announced by other casino
operators to complete expansions within the required subsidy period. The
expansion of existing gaming facilities and the addition of new casinos will
continue to increase competition within the Atlantic City market.
In this highly competitive environment, each property's relative success
is affected by a great many factors that relate to its location and facilities.
These include the number of parking spaces and hotel rooms it possesses,
proximity to Pacific Avenue, the Boardwalk and to other casino/hotels and access
to the main expressway entering Atlantic City. GBHC believes that in prior years
its operating strategy enabled the Sands to compete against most other Atlantic
City casino/hotels. However, many of its competitors have greater financial
resources for capital improvements and marketing and promotional activities than
GBHC and, as a result, the Sands' facilities and amenities fell behind many of
the other casinos during its bankruptcy. In order to improve GBHC's competitive
position, GBHC sought the approval of the Bankruptcy Court for a capital
expenditure program to renovate the majority of its hotel rooms and suites and
to purchase approximately 700 slot machines. The Bankruptcy Court approved the
capital expenditure program in the amount of approximately $13.6 million in
March 1998. In addition, the lack of access to Pacific Avenue hampered the
Sands' efforts to expand its "drive-in" patron base. However, in 1999, the Sands
acquired land parcels on Pacific Avenue and demolished the existing structures
and constructed a new front entrance to the Sands' facility on Pacific Avenue,
which opened in June 2000. The Sands is currently engaged in the construction of
a new three story addition to its property, which it expects to complete in
phases in 2001 and which will provide for additional casino space, additional
retail space and meeting rooms, relocate the hotel entrance to Pacific Avenue,
and convert the existing hotel entrance into a bus depot.
In order to enhance its competitive position in the marketplace, the Sands
may determine to incur substantial additional costs and expenses to maintain,
improve and expand its facilities and operations. Those activities may require
Holdings to consider seeking additional financing. In connection with, among
other things, obtaining any such financing, Holdings and its subsidiaries may
seek to amend or supplement the terms of existing financing arrangements.
A significant amount of the Sands' revenues is derived from patrons living
within a 120-mile radius of Atlantic City, New Jersey, particularly northern New
Jersey, southeastern Pennsylvania, and metropolitan New York City. Proposals to
allow casino gaming in certain areas of Pennsylvania and New York have been
defeated within the past three years. If casino gaming were to be legalized in
those areas or in other venues that are more convenient to those areas, it could
have a material adverse effect on the Sands. Gaming is currently conducted on
Indian lands in nearby states, including the Foxwoods and Mohegan Sun Casinos in
Connecticut and the Turning Stone Casino in Oneida, New York near Syracuse. In
addition, slot machines are allowed at racetracks in the State of Delaware and
the allowed number of such machines increased in 1999.
Industry Developments. New Jersey regulators have approved a number of
significant changes to the regulations governing the casino industry in recent
years. Significant deregulation of the industry began in 1995 with the enactment
of legislation amending the New Jersey Casino Control Act (the "Casino Act") and
has continued with additional rule modifications to stimulate industry growth.
Partly as a result of such regulatory changes, industry-wide revenues in New
Jersey have shown steady increases from $4.0 billion in 1998, to $4.1 billion in
1999 and to $4.3 billion in 2000.
Casino/hotel operators have also benefited in recent years from a trend
toward increased slot play as slot machines have become increasingly more
popular than table games particularly with frequent patrons and with
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recreational and other casual visitors. Casino operators have been catering
increasingly to slot patrons through new forms of promotions and incentives such
as slot machines that are linked among the various casinos enabling the pay out
of large pooled jackpots, and through more attractive and entertaining gaming
machines. Slot machines generally produce higher margins and profitability than
table games because they require less labor and have lower operating costs. As a
result, slot machine revenue growth has outpaced table game revenue growth in
recent years. In 2000, according to Commission filings, slot win accounted for
nearly 72% of total Atlantic City gaming win. Table games remain important,
however, to a select segment of gaming patrons and they help create gaming
ambience and a varied gaming experience.
Casino Credit. Casino operations are conducted on both a credit and a cash
basis. Patron gaming debts incurred in accordance with the Casino Act are
enforceable under New Jersey law. For the year ended December 31, 2000, gaming
credit extended to Sands' table game patrons accounted for approximately 25% of
overall table game wagering, and table game wagering accounted for approximately
18.3% of overall casino wagering during the period. At December 31, 2000, gaming
receivables amounted to $19.8 million before an allowance for uncollectible
gaming receivables of $11.2 million. Management believes that such allowance is
adequate.
License Agreement. 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 $66,000 for
the three months ended December 31, 2000 and $215,000, during the nine months
ended September 30, 2000. For the years ended December 31, 1999 and 1998, such
charges amounted to $278,000 and $275,000, respectively.
The Sands Management Contract. Prior to July 8, 1998, New Jersey
Management, Inc. ("NJMI"), also a wholly owned subsidiary of PCC, was
responsible for the operations of the Sands under a management agreement dated
August 19, 1987, as amended, with GBHC (the "Management Agreement"). On May 22,
1998, GBHC filed a motion with the Bankruptcy Court to reject the Management
Agreement (the "Rejection Motion"). GBCC, NJMI, and certain of their affiliates,
on one side, and the Debtors, on the other, entered into an agreement on June
27, 1998, which was approved by the Bankruptcy Court on July 7, 1998, and by the
Commission on July 8, 1998 (the "Settlement Agreement"). Under the Settlement
Agreement, among other things, the Management Agreement was suspended and
replaced with a services agreement until a decision by the Bankruptcy Court on
the Rejection Motion, and GBHC ceded ownership rights to an affiliate of GBCC
in, and obtained a perpetual license for, the software used in its operations
from the same affiliate of GBCC. On September 28, 1998, and as a result of
another settlement agreement, the Bankruptcy Court granted the Rejection Motion
and, in conformity therewith, no further fees will be paid under either the
Management Agreement or the Settlement Agreement.
Employees and Labor Relations. In Atlantic City, all employees, except
certain hotel employees, must be licensed under the Casino Act. Due to the
seasonality of the operations of the Sands, the number of employees varies
during the course of the year. At December 31, 2000, the Sands had approximately
3,000 employees. The Sands has collective bargaining agreements with three
unions that represent approximately 1,100 employees, most of whom are
represented by the Hotel, Restaurant Employees and Bartenders International
Union, AFL-CIO, Local 54. The collective bargaining agreement with Local 54
expires in September 2004. Management considers its labor relations to be good.
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Casino Regulation
Casino gaming is strictly regulated in Atlantic City under the Casino Act
and the regulations of the Commission, which affect virtually all aspects of the
operations of the Sands. The Casino Act and regulations affecting Atlantic City
casino licensees concern primarily the financial stability, integrity and
character of casino operators, their employees, their debt and equity security
holders and others financially interested in casino operations; the nature of
casino/hotel facilities; the operation methods (including rules of games and
credit granting procedures); and financial and accounting practices used in
connection with casino operations. A number of these regulations require
practices that are different from those in casinos in Nevada and elsewhere, and
some of these regulations result in casino operating costs greater than those in
comparable facilities in Nevada and elsewhere.
Casino Licenses. The Casino Act requires that all casino owners and
management contractors be licensed by the Commission and that all employees
(except for certain non-casino related job positions), major shareholders and
other persons or entities financially interested in the casino operation be
either licensed or approved by the Commission. A license is not transferable and
may be revoked or suspended under certain circumstances by the Commission. A
plenary license authorizes the operation of a casino with the games authorized
in an operation certificate issued by the Commission, and the operation
certificate may be issued only on a finding that the casino conforms to the
requirements of the Casino Act and applicable regulations and that the casino is
prepared to entertain the public. Under such determination, GBHC has been issued
a plenary casino license.
The plenary license issued to the Sands was renewed by the Commission in
September, 1996 and extended through September 30, 2000, subject to review of
the Sands' financial stability during 1997 and to the submission of financial
projections in 1998 and 1999 for calendar years 1999 and 2000, respectively. The
1997 review took place and the 1999 and 2000 financial projections were filed
and the Sands license was due for renewal in 2000. At its September 13, 2000
meeting, the Commission approved the renewal of the Sands casino license for a
period of four years.
The Casino Act provides for a casino license fee of not less than $200,000
based upon the cost of the investigation and consideration of the license
application, and a renewal fee of not less than $100,000 or $200,000 for a one
year or four year renewal, respectively, based upon the cost of maintaining
control and regulatory activities. In addition, a licensee must pay annual taxes
of 8% of casino win (as defined in the Casino Act), net of a provision for
uncollectible gaming debts of up to 4% of casino win ("Gross Revenue"). During
the years ended December 31, 2000, 1999 and 1998, the taxes and the license and
other fees incurred by the Sands amounted to $22.7 million, $22.2 million and
$21.5 million, respectively.
The Casino Act also requires casino licensees to pay an investment
alternative tax of 2.5% of Gross Revenue (the "2.5% Tax") or, in lieu thereof,
to make quarterly deposits of 1.25% of quarterly Gross Revenue with the CRDA
(the "Deposits"). The Deposits are then used to purchase bonds at below-market
interest rates from the CRDA or to make qualified investments approved by the
CRDA. The CRDA administers the statutorily mandated investments required to be
funded by casino licensees and is required to expend the monies received by it
for eligible projects as defined in the Casino Act. The Sands has elected to
make the Deposits with the CRDA rather than pay the 2.5% Tax.
The Sands has, from time to time, contributed certain amounts held in
escrow by the CRDA to fund CRDA sponsored projects. During December 2000, the
Sands contributed $3,310,000 of its escrowed funds to a CRDA sponsored project
and will receive a cash refund of $828,000 in consideration for the
contribution. Prior to this, the CRDA had granted the Sands waivers of certain
of its future Deposit obligations in consideration of similar contributions. The
Sands had made such contributions of Deposits during the years ended December
31, 2000, 1999
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and 1998 totaling $142,000, $176,000 and $146,000, respectively, resulting in
waivers granted by the CRDA for those periods totaling $72,000, $90,000 and
$74,000, respectively. Intangible assets aggregating $1,211,000 and $1,413,000,
have been recognized on the accompanying consolidated balance sheets at December
31, 2000 and 1999, respectively, and are being amortized over a period of ten
years commencing with the completion of the projects. Amortization of intangible
assets totaled $202,000, $967,000 and $203,000 for the years ended December 31,
2000, 1999 and 1998, respectively. In 1999, GBHC wrote off an intangible asset
in the amount of $765,000 because the project no longer provided any benefit to
the company.
The Casino Act also imposes certain restrictions upon the ownership of
securities issued by a corporation that holds a casino license or is a holding
company of a corporate licensee. Among other restrictions, the sale, assignment,
transfer, pledge or other disposition of any security issued by a corporate
licensee or holding company is subject to the regulation of the Commission. The
Commission may require divestiture of any security held by a disqualified holder
such as an officer, director or controlling stockholder who is required to be
qualified under the Casino Act.
Note holders are also subject to the qualification provisions of the
Casino Act and may, in the sole discretion of the Commission, be required to
make filings, submit to regulatory proceedings and qualify under the Casino Act.
If an investor is an "Institutional Investor" such as a retirement fund for
governmental employees, a registered investment company or adviser, a collective
investment trust, or an insurance company, then, in the absence of a prima facie
showing by the New Jersey Division of Gaming Enforcement that the "Institutional
Investor" may be found unqualified, the Commission shall grant a waiver of this
qualification requirement with respect to publicly traded debt or equity
securities of parent companies or affiliates if the investor will own (i) less
than 10% of the common stock of the company in question on a fully diluted
basis, or (ii) less than 20% of such company's overall indebtedness provided the
investor owns less than 50% of an outstanding issue of indebtedness of such
company; the Commission, upon a showing of good cause, may, in its sole
discretion, grant a waiver of qualification to an "Institutional Investor" not
satisfying the above percentage criteria. An "Institutional Investor" must also
purchase securities for investment and have no intent to influence the
management or operations of such company. The Commission may, in its sole
discretion, grant a waiver of the qualification requirement to investors not
qualifying as "Institutional Investors" under the Casino Act if such investors
will own less than 5% of the publicly traded common stock of such company on a
fully diluted basis or less than 15% of the publicly traded outstanding
indebtedness of such company.
ITEM 2. PROPERTIES
The Sands is located in Atlantic City, New Jersey on approximately 6.1
acres of land one-half block from the Boardwalk at Brighton Park between Indiana
Avenue and Dr. Martin Luther King, Jr. Boulevard. The Sands facility currently
consists of a casino and simulcasting facility with approximately 77,000 square
feet of gaming space containing approximately 1,987 slot machines and
approximately 92 table games; a hotel with 532 rooms (including 59 suites); six
restaurants; one cocktail lounge; two private lounges for invited guests; an
800-seat cabaret theater; retail space; an adjacent nine-story office building
with approximately 77,000 square feet of office space for its executive,
financial and administrative personnel; the "People Mover", an elevated,
enclosed, one-way moving sidewalk connecting the Sands to the Boardwalk using
air rights granted by an easement from the City of Atlantic City; and a garage
and surface parking for approximately 1,750 vehicles.
Effective September 2, 1998, and as part of a certain settlement
agreement, Lieber obtained the rights to purchase a certain hotel/motel on
Pacific Avenue in Atlantic City, New Jersey (the "Pacific Avenue Hotel"). The
purchase price of the Pacific Avenue Hotel was $10 million. Demolition of the
existing structures was completed in 1999 and construction of the new front
entrance to the Sands' facility on Pacific Avenue was completed in June 2000. In
addition, a nearby building in Atlantic City that houses an auto shop facility
and a warehouse in Mystic Island, New
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Jersey also support the Sands' operations. GBHC's capital expenditure program
includes the ongoing renovation of the majority of its hotel rooms and suites
and the purchase of slot machines.
In April 2000, GBHC entered into an agreement with the entities
controlling the Claridge to acquire the Claridge Administration Building. The
purchase price was $3.5 million, consisting of $1.5 million in cash at closing
and $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 the Claridge. The
present value of the $2.0 million consideration has been recorded in other
current and other noncurrent liabilities sections of the balance sheet.
On December 27, 2000, the Sands, considering the renewal options, entered
into a long-term lease agreement with the Madison House Group, LP to lease the
approximate 210-room Madison House non-casino hotel. 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. In addition, the Sands has two
renewal options which, if exercised, will extend to December 2030. Lease
payments during the two renewal options range from $2.2 million per year to $3.1
million per year. 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. The Madison House is already
physically connected at two floors to the existing casino hotel complex and the
present intention of the Sands is to upgrade and combine the rooms into
approximately 105-125 business suites. The Sands also intends to seek to have
these rooms "qualified" by the Commission, which, if approved, would allow the
Sands to have additional casino square footage for the additional slot machines
contemplated as part of its current 2001 construction project.
ITEM 3. LEGAL PROCEEDINGS
On January 5, 1998, the Debtors filed petitions for relief under Chapter
11 of the Bankruptcy Code in the Bankruptcy Court (see Note 1 and Note 2).
In 1998, GBHC also filed an action in the Bankruptcy Court to recover the
rights to purchase the Pacific Avenue Hotel against GBCC, certain affiliates of
GBCC, and certain former directors of GBHC and to enjoin the use of the Federal
net operating losses (Federal NOL's) of Holdings and its subsidiaries. That
action was settled and, among other things, GBHC recovered the rights to
purchase the Pacific Avenue Hotel, the parties entered into certain general
releases, and Holdings and its subsidiaries agreed to be included in the
consolidated tax return of GBCC for calendar years 1997 and 1998.
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
and 2000. The City of Atlantic City has also appealed the amount of the
assessments for the same years. GBHC expects to file another appeal for 2001.
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,
Holdings does not expect the settlement or resolution of these proceedings to
have a material adverse impact upon the consolidated financial position or
results of operations of Holdings. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
the uncertainties described above.
9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the year ended December 31, 2000, no matter was submitted to a vote
of security holders through the solicitation of proxies or otherwise, except for
voting on the Plan.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
GB Property Funding's common stock, 100 shares with a par value of $1.00
per share, is its sole voting security; all 100 shares are owned by Holdings.
GBHC's common stock, 100 shares with no par value per share, is its sole
voting security; all 100 shares are owned by Holdings.
Prior to the Effective Date, Holdings' common stock, 1,000 shares with a
par value of $1.00 per share, was its sole voting security. All 1,000 shares
were owned by PCC until December 31, 1998. Effective after December 31, 1998,
PCC transferred 21% of its stock ownership in Holdings to PBV. As a result of a
confirmed Plan of Reorganization of PCC and others in October 1999, the
remaining 79% stock interest of PCC in Holdings was transferred to GBLLC. Upon
the Effective Date, the stock of Holdings owned by PBV and GBLLC was cancelled.
As of the Effective Date, an aggregate of 10,000,000 shares of New Common Stock
was issued and outstanding.
Holdings has not paid any dividends in the past and has no plans to pay
any in the future.
The New Common Stock and the New Notes were listed on the American Stock
Exchange on March 27, 2001. To Holdings' knowledge, no significant trading has
occurred since such listing date. As of such date, other than certain of the
shares of the New Common Stock owned by Icahn, substantially all of the shares
of the New Common Stock are held by Cede & Co. as nominee.
ITEM 6. SELECTED FINANCIAL DATA
GB Holdings, Inc. and Subsidiaries
The following table sets forth selected financial information for
Holdings, and is qualified in its entirety by, and should be read in conjunction
with, Holdings' Financial Statements and notes thereto contained elsewhere
herein. The data as of December 31, 2000 and 1999 and for the years ended
December 31, 2000, 1999, and 1998 have been derived from the audited financial
statements of Holdings contained in Item 8 below.
The Company implemented SOP 90-7 and as such, adopted "fresh start
reporting" as of September 30, 2000. The Company's emergence from its Chapter 11
proceedings resulted in a new reporting entity with no retained earnings or
accumulated deficit as of September 30, 2000. Accordingly, the Company's
consolidated financial statements for periods prior to September 30, 2000 are
not comparable to consolidated financial statements presented on or subsequent
to September 30, 2000. Column headings have been included on the accompanying
Consolidated Statements of Operations and Consolidated Balance Sheet to
distinguish between the pre-reorganization and post-reorganization entities.
10
GB HOLDINGS, INC. AND SUBSIDIARIES
(dollars in thousands except income per share and common shares)
Statement of Operations Data:
Post-reorganization Pre-reorganization
------------------- ------------------------------------------
October 1, 2000 January 1, 2000 Year Ended
through through December 31,
December 31, 2000 September 30, 2000 (1) 1999 (1)
----------------- --------------------- -------------------
Net revenues $ 56,569 $ 191,207 $ 246,895
------------ ------------ ------------
Expenses:
Departmental ............................... 55,285 160,729 215,272
General and administrative ................. 2,175 7,663 10,586
Depreciation and amortization .............. 3,834 9,414 16,215
------------ ------------ ------------
Total Expenses ............................ 61,294 177,806 242,073
------------ ------------ ------------
Income (loss) from operations .............. (4,725) 13,401 4,822
------------ ------------ ------------
Non-operating income (expense):
Interest income ............................ 1,338 518 649
Interest expense ........................... (3,133) (366) (295)
Reorganization costs ....................... 34 (2,807) (2,154)
Gain (loss) on disposal of assets .......... (11) (10) 259
------------ ------------ ------------
Total non-operating expense, net .......... (1,772) (2,665) (1,541)
------------ ------------ ------------
Income (loss) before income taxes,
extraordinary and other items .............. (6,497) 10,736 3,281
Valuation provision on affiliate receivables -- -- --
Write off deferred financing costs .......... -- -- --
------------ ------------ ------------
Income (loss) before income taxes,
and extraordinary item ..................... (6,497) 10,736 3,281
Income tax provision ........................ -- -- (133)
------------ ------------ ------------
Income (loss) before extraordinary item ..... (6,497) 10,736 3,148
Extraordinary item - early extinguishment of
debt, net of related tax benefits .......... -- 14,795 --
------------ ------------ ------------
Net inome (loss) ............................ $ (6,497) $ 25,531 $ 3,148
============ ============ ============
Basic income (loss) per common share:
Before extraordinary item .................. $ (0.65) $ 1.07 $ 0.32
Extraordinary item ......................... -- 1.48 --
Net income (loss) per share ................. $ (0.65) $ 2.55 $ 0.32
============ ============ ============
Weighted average common shares (2) (2)
outstanding ................................ 10,000,000 10,000,000 10,000,000
============ ============ ============
Pre-reorganization
----------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998(1) 1997 1996
------------ ------------ ------------
Net revenues $ 237,344 $ 256,255 $ 264,761
------------ ------------ ------------
Expenses:
Departmental ............................... 202,532 215,907 235,285
General and administrative ................. 12,497 17,409 18,486
Depreciation and amortization .............. 12,795 14,062 19,310
------------ ------------ ------------
Total Expenses ............................ 227,824 247,378 273,081
------------ ------------ ------------
Income (loss) from operations .............. 9,520 8,877 (8,320)
------------ ------------ ------------
Non-operating income (expense):
Interest income ............................ 961 1,680 1,590
Interest expense ........................... (313) (23,260) (22,236)
Reorganization costs ....................... (4,069) (505) --
Gain (loss) on disposal of assets .......... 252 59 13
------------ ------------ ------------
Total non-operating expense, net .......... (3,169) (22,026) (20,633)
------------ ------------ ------------
Income (loss) before income taxes,
extraordinary and other items .............. 6,351 (13,149) (28,953)
Valuation provision on affiliate receivables -- (9,650) --
Write off deferred financing costs .......... -- (4,265) --
------------ ------------ ------------
Income (loss) before income taxes,
and extraordinary item ..................... 6,351 (27,064) (28,953)
Income tax provision ........................ -- (10,902) (2,417)
------------ ------------ ------------
Income (loss) before extraordinary item ..... 6,351 (37,966) (31,370)
Extraordinary item - early extinguishment of
debt, net of related tax benefits .......... -- 310 --
------------ ------------ ------------
Net inome (loss) ............................ $ 6,351 $ (37,656) $ (31,370)
============ ============ ============
Basic income (loss) per common share:
Before extraordinary item .................. $ 0.64 $ (3.80) $ (3.14)
Extraordinary item ......................... -- 0.03 --
Net income (loss) per share ................. $ 0.64 $ (3.77) $ (3.14)
============ ============ ============
Weighted average common shares (2) (2) (2)
outstanding ................................ 10,000,000 10,000,000 10,000,000
============ ============ ============
Balance Sheet Data:
Post-reorganization Pre-reorganization
------------------------ --------------------------------------------------------
December 31, September 30, December 31, December 31, December 31, December 31,
2000 2000 1999 1998 1997 1996
--------- --------- --------- --------- --------- ---------
Total assets ......................... $ 264,247 $ 272,676 $ 208,416 $ 199,148 $ 187,728 $ 224,438
Total long-term obligations .......... 110,838 110,858 197,898 198,234 205,932 203,942
Shareholder's equity (deficit) ....... 118,503 125,000 (39,593) (42,741) (58,600) (20,944)
- ----------
(1) On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of New Jersey. The accrual
of interest expense on the First Mortgage Notes, the Subordinated Notes
(as hereafter defined) and other affiliate advances for periods subsequent
to the filing was suspended.
(2) Income (loss) per share information is presented on a pro forma basis for
periods presented prior to the Effective Date.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements about
the business, financial condition and prospects of Holdings, GB Property Funding
and GBHC. 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 Annual Report on
Form 10-K, the words "believes", "estimates", "anticipates", "expects",
"intends" and similar expressions as they relate to Holdings, GB Property
Funding and GBHC 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 would have been required to make the January 15, 1998 principal and
interest payments due on the Old Notes.
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
Debtors. On September 13, 2000, the Commission approved the Plan. On September
29, 2000, the Plan became effective (the "Effective Date") (see Note 2). 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 and include
disclosure of liabilities subject to compromise (see Note 5). In addition, as a
result of the Confirmation order and the occurrence of the Effective Date, and
in accordance with SOP 90-7, Holdings has adopted "fresh start reporting" as of
September 30, 2000. The emergence of Holdings 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 and
are not comparable to consolidated financial statements presented prior to
September 30, 2000. A black line has been drawn on the accompanying consolidated
financial statements to distinguish between the pre-reorganization and
post-reorganization entities.
12
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
"New Common Stock") were issued and outstanding, and $110,000,000 of 11% First
Mortgage Notes due 2005 were issued (the "New Notes"). Holders of the Old Notes
received a distribution of their pro rata shares of (i) the New Notes and (ii)
5,375,000 shares of the New Common Stock (the "Stock Distribution").
Operating Activities
At December 31, 2000, consolidated Holdings had cash and cash equivalents
of $77.9 million. GBHC had cash and cash equivalents of $18.1 million. GBHC
generated cash flow from operations of $11.8 million for the year ended December
31, 2000 compared to $18.6 million for the year ended December 31,1999. GBHC
utilized cash generated by its operations, in part, during 2000 to fund capital
additions of $17.3 million and to make obligatory investments of $2.8 million.
Financing Activities
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 New
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.
New 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 in 2001 are $467,000.
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 $4,000 and $263,000 for the years
ended December 31, 2000 and 1999, respectively, 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 Holdings (i) that such payments were retained by
the Indenture Trustee pursuant to the terms of the Indenture in partial
satisfaction 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.
Investing Activities
Capital expenditures at the Sands during 2000 amounted to approximately
$17.3 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. Holdings may require
additional financing in connection with those activities. In connection with,
among other things, obtaining any such financing, Holdings and its subsidiaries
may seek to amend or supplement the terms of existing financing arrangements.
13
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 the 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. GBHC demolished
the CAB and will incorporate the land as part of its 2001 capital improvement
plan.
The Sands is required by the Casino Act to make certain quarterly deposits
based on gross revenue with the CRDA in lieu of a certain investment alternative
tax. Deposits made in 2000 totaled $2.8 million and are anticipated to be
approximately $3.1 million during 2001. 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
over the next 12 years based on an estimate of certain of the Sands' future CRDA
deposit obligations. Certain CRDA Bonds totaling $441,000 were redeemed during
the year ending December 31, 2000.
Summary
On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief under Chapter 11 of the United States Bankruptcy Code. As a result of
the Chapter 11 filing, the debt service payments due subsequent to January 5,
1998 were not made and the accrual of interest on both the Old Notes and the
Subordinated Notes for periods subsequent to the filing was suspended. On August
14, 2000, the Bankruptcy Court confirmed the Plan and on September 29, 2000 the
Plan became effective. 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.
14
RESULTS OF OPERATIONS
General
The comparison of operating results for the years ended December 31, 2000,
1999 and 1998 is performed by comparing the operating results for the 2000
combined pre and post - reorganization periods to the actual results of 1999 and
1998 since operations have remained similar and such comparisons would not be
misleading.
The Sands income from operations for the year ended December 31, 2000 was
$8.7 million compared to $4.8 million in 1999 and $9.5 million in 1998. Net
Revenues increased slightly in 2000 ($900,000, 0.4%) as compared to 1999, and
operating expenses decreased by $3.0 million (1.2%) for the same period. These
operating expense decreases were due to decreases in depreciation and
amortization of $3.0 million (18.3%), food & beverage $1.3 million (12.6%) and
general and administrative of $800,000 (7.1%) partially offset by an increase in
casino expenses of $2.6 million (1.3%). Operating results during 1999 were
positively impacted by increased table drop and slot handle. The increased
volume of play was slightly offset, however, by decreased table and slot hold
percentages in 1999 compared to 1998. The negative publicity surrounding the
Sands filing for bankruptcy protection on January 5, 1998 affected operating
results for 2000, 1999 and 1998.
15
Gaming Operations
Information contained herein, regarding Atlantic City casinos other than
the Sands, was obtained from reports filed with the Commission.
The following table sets forth certain unaudited financial and operating
data relating to the Sands' and all other Atlantic City casinos' capacities,
volume of play, hold percentages and revenues:
Year Ended December 31,
-----------------------------------------------
2000 1999 1998
----------- ----------- -----------
(Dollars In Thousands)
Units: (at year-end)
Table Games - Sands 92 100 99
- Atlantic City (ex. Sands) 1,238 1,245 1,305
Slot Machines - Sands 1,987 2,001 2,025
- Atlantic City (ex. Sands) 34,291 32,688 33,855
Gross Wagering (1)
Table Games - Sands $ 471,769 $ 461,512 $ 426,343
- Atlantic City (ex. Sands) 7,157,418 7,182,588 7,211,706
Slot Machines - Sands 2,114,444 1,985,311 1,886,901
- Atlantic City (ex. Sands) 35,714,927 33,935,558 31,925,805
Hold Percentages (2)
Table Games - Sands 14.10% 14.60% 15.20%
- Atlantic City (ex. Sands) 15.50% 15.40% 15.40%
Slot Machines - Sands 7.60% 7.90% 8.00%
- Atlantic City (ex. Sands) 8.20% 8.20% 8.40%
Revenues (2)
Table Games - Sands $ 66,456 $ 67,301 $ 64,744
- Atlantic City (ex. Sands) 1,110,512 1,104,835 1,109,111
Slot Machines - Sands 160,223 157,141 151,749
- Atlantic City (ex. Sands) 2,923,224 2,795,221 2,668,533
Other (3) - Sands 3,077 3,033 2,875
- Atlantic City N/A 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.
16
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 at the Sands increased by $10.3 million (2.2%) in 2000
compared to 1999 and by $35.2 million (8.2%) in 1999 compared to 1998. By
comparison, table game drop at all other Atlantic City casinos reflected a
decrease of 0.4% in each year. As a result, the Sands table game market share
(expressed as a percentage of the entire Atlantic City gaming industry (the
"industry") aggregate table game drop) increased to 6.2% during 2000 from 6.0%
in 1999 and from 5.6% in 1998. The Sands table game drop increase in 2000 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"). During 2000, the number of table
games decreased 8.0% at the Sands, compared with a decrease of 0.6% at all other
Atlantic City casinos. Table game drop in 1999 increased due to the volume of
play from rated players. Aggregate gaming space at all other Atlantic City
casinos decreased by approximately 29,000 square feet at December 31, 2000,
compared to December 31, 1999. The amount of gaming space at the Sands remains
virtually unchanged.
Slot machine handle increased $129 million (6.5%) in 2000 compared to 1999
and by $98.4 million (5.2%) in 1999 compared to 1998. By comparison, the
percentage increase in slot machine handle for all other Atlantic City casinos
was 5.2% in 2000 compared to 1999 and 6.3% in 1999 compared to 1998. The Sands'
market share of slot machine handle as a percentage of total industry slot
handle has remained fairly stable at 5.6% in 2000, 5.5% in 1999, and 5.6% in
1998. The increased Sands slot handle during 2000 is primarily attributable to
an increased volume of play from rated players although the volume of unrated
slot play increased as well. The amount of available gaming space did not change
significantly in 2000, but the number of slot machines decreased slightly as
compared to 1999 and 1998. On an industry-wide basis, both total available
gaming space and the number of slot machines decreased in 2000 compared to 1999.
While the number of slot machines decreased slightly at the Sands during 2000,
during the last half of 1998, 1999 and 2000 approximately 800 older, less
popular slot machines were replaced with new and more popular machines as part
of the Sands capital expenditure program.
Revenues
Casino revenues at the Sands increased by $2.3 million (1.0%) in 2000
compared to 1999 and by $8.1 million (3.7%) in 1999 compared to 1998. Increases
in both table game and slot machine wagering were partially offset by decreases
in table game and slot machine hold percentages in 2000 and 1999 compared to the
respective prior year.
Rooms' revenue increased $207,000 (2.2%) in 2000 compared to 1999 and by
$73,000 (0.8%) in 1999 compared to 1998. The increase in 2000 was driven by a
higher average daily room rate partially offset by a decrease in occupancy. The
increase during 1999 was a result of higher occupancy partially offset by a
decrease in the average daily room rate.
Food and beverage revenues increased $453,000 (1.6%) in 2000 compared to
1999 and by $2.5 million (9.8%) in 1999 compared to 1998. The increase in 2000
was due to an increase in the revenue per cover. The growth in 1999 was due to
an increase in both the number of covers and in revenue per cover.
17
Other revenues decreased $1.5 million (24.5%) in 2000 compared to 1999 and
increased $2.2 million (58.2%) in 1999 compared to 1998. The decrease in 2000
compared to 1999 was a result of a reduction in theater entertainment offerings.
The increase in 1999 resulted from an increase in the number of theater
entertainment offerings and the opening of a gift shop.
Promotional Allowances
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 increased to 57.4% in 2000 from 54.9% in 1999 and 53.1% in 1998. The
increase in 2000 is primarily attributable to changes in marketing programs and
other promotional activities aimed at increasing gaming volume from rated
players.
Departmental Expenses
Casino expenses at the Sands increased $2.6 million (1.3%) in 2000
compared to 1999 and by $11.2 million (6.0%) in 1999 compared to 1998.
Continuing efforts to rebuild the patron base resulted in increased expenditures
for marketing and advertising related to the Sands desire to develop programs
and create market awareness for the purpose of driving additional patron volume.
This increase in expenditures and related patron volume activity also resulted
in an increase in the allocation of rooms, food and beverage and other expenses
to casino expenses.
Rooms expense decreased $89,000 (3.1%) in 2000 compared to 1999 and by
$316,000 (10.0%) in 1999 compared to 1998. These decreases resulted from an
increase in the allocation of rooms expense to casino expense due to a higher
percentage of rooms being utilized on a complimentary basis. The 2000 decrease
was partially offset by an increase in payroll and benefits.
Food and beverage expense decreased $1.3 million (12.6%) in 2000 compared
to 1999 and increased $276,000 (2.8%) in 1999 compared to 1998. The decrease in
2000 was due to more expenses being allocated to casino expenses due to the rise
in food and beverage complimentaries. The increase in 1999 was due to increased
food and beverage volume and related variable costs due to increased casino
patronage. This increase was offset by the increase in the allocation of food
and beverage costs to casino expense.
Other expenses decreased $493,000 (11.6%) in 2000 compared to 1999 and
increased by $1.6 million (62.9%) in 1999 compared to1998. The decrease in 2000
was due to cost savings with respect to reduced theater entertainment. The 1999
increase resulted from increased costs associated with increased theater
entertainment and additional costs of goods relating to merchandise sold by a
new gift shop. These increases were offset by the increase in the allocation of
other expenses to casino expense.
General and Administrative Expenses
General and administrative expenses decreased $748,000 (7.1%) in 2000
compared to 1999 and by $1.9 million (15.3%) in 1999 compared to 1998. The
decrease in 2000 was a result of reduced expenses in general insurance and
electricity line items. In 1999 compared to 1998, management fees incurred by
the Sands decreased by $2.4 million as a result of the filing of the Rejection
Motion and the Settlement Agreement and
18
Second Settlement Agreement. There were no management fees incurred in 2000. The
decrease in 1999 was partially offset by increased wages and benefits,
particularly in the Facilities department, due to deferred maintenance in recent
years.
Depreciation and Amortization
Depreciation and amortization expense decreased by $3.0 million (18.3%) in
2000 compared to 1999 and increased by $3.4 million (26.7%) in 1999 compared to
1998. The decrease in 2000 was due to a smaller contribution liability to the
CRDA compared to 1999 and the redemption of bonds. The increase in 1999 was due
to the expense associated with the recognition of the present value of a future
donation liability to the CRDA for $2.7 million and the write-off of a deferred
asset related to a previous CRDA donation in the amount of $765,000.
Interest Income and Expense
Interest income increased by $1.2 million (186.0%) in 2000 compared to
1999 and decreased by $312,000 (32.5%) in 1999 compared to 1998. The increase in
2000 was a result of interest earnings on the $65 million cash received on the
Effective Date. The decrease in 1999 was because interest earned in 1998
included a one-time interest payment on an obligatory investment. Interest
earned on cash balances accumulated as a result of the Chapter 11 filing (i.e.,
from not making debt service payments) is reflected in the accompanying
consolidated financial statements as a reduction of reorganization costs while
in reorganization.
Interest expense increased $3.2 million (1086.0%) in 2000 compared to 1999
and decreased by $18,000 (5.8%) in 1999 compared to 1998. The increase in 2000
was a result of the issuance of the New Notes on the Effective Date. As a result
of the Chapter 11 filing, the accrual of interest expense on the Old Notes, the
Subordinated Notes (as hereafter defined) and other affiliate advances for
periods subsequent to the filing were suspended.
Non-recurring Items
At December 31, 1997, GBHC reserved as uncollectible the balance of an
advance to an affiliated company in the amount of $5.7 million together with
interest amounting to $4.0 million. The $5.7 million advance as well as accrued
interest amounting to $6.4 million along with the corresponding reserve was
fully written off with the implementation of fresh start accounting in
September, 2000.
Income Tax Provision
Prior to 1997, Holdings was included in the consolidated federal income
tax return of Hollywood Casino Corporation ("HCC"). Holdings' 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 Holdings 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 Holdings from the GBCC group for federal
income tax purposes (the "Deconsolidation"). Accordingly, beginning in 1999,
Holdings' provision for federal income taxes is calculated and paid on a
consolidated basis with GB Property Funding and GBHC.
19
At December 31, 2000, Holdings and its subsidiaries have 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 credit carryforwards, if not utilized,
will begin to expire each year through 2004. The remaining credit carryforwards
expire through the year 2019. In addition, as part of a certain settlement
agreement, GBCC may utilize Federal net operating losses ("Federal NOL's") of
Holdings and its subsidiaries through December 31, 1998 to offset federal
taxable income of GBCC and other members of its consolidated tax group.
Subsequent to the Deconsolidation, Holdings had approximately $2.8 million in
Federal NOL's, which were all utilized in the 1999 consolidated federal tax
return of Holdings. 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. As a result of book and tax losses incurred in 1997 and the
filing under Chapter 11 by Holdings in January 1998, management is unable to
determine that realization of Holdings' deferred tax asset is more likely than
not and, thus, has provided a valuation allowance for the entire amount at
December 31, 2000.
The Internal Revenue Service has completed an examination of the
consolidated federal income tax returns of HCC for the years 1993 and 1994 in
which Holdings was included. The results of this examination resulted in a
reduction of Federal NOL's of Holdings prior to the Deconsolidation. However,
since the Federal NOL's were fully reserved for as required by SFAS 109, this
reduction did not impact Holdings statement of operations for the period as
reported. The Internal Revenue Service is continuing to examine 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 Holdings' 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.
Holdings 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 NOL's. Any such use of these NOL's, by
either HCC and GBCC, are subject to the terms of a certain settlement agreement.
As a result of the Confirmation Order and the occurrence of the Effective
Date and under the terms of the Plan, Holdings outstanding debt was discharged
(see Note 2). 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. Management currently estimates that
approximately $14.3 million of Holdings tax attributes relating to the tax bases
of noncurrent assets will be reduced as of January 1, 2001. Holdings also had a
change of ownership as defined under Internal Revenue Code Section 382 upon the
effective date of the plan. Management currently estimates there will be no
significant limitations on the ability of the company to use its tax credit
carryforwards on a post confirmation basis as a result of this change of
ownership.
20
Extraordinary Item
Holdings recorded an extraordinary gain of $14.8 million during 2000 as a
result of the discharge of debt and satisfaction of claims associated with the
company's emergence from Chapter 11 (see Note 2).
Reorganization and Other Related Costs
Reorganization and other related costs include costs associated with
Holdings' reorganization under Chapter 11, including, among other things,
professional fees, costs associated with the termination of agreements, and
other administrative costs. As noted previously, interest income on cash
accumulated during the reorganization was reflected as a reduction to
reorganization and other related costs.
Reorganization cost increased $619,000 (28.7%) in 2000 compared to 1999
and decreased $1.9 million (47.1%) in 1999 compared to 1998. This increase is
attributed to expenses associated with the fees that were required to be paid
under the Plan.
Inflation
Management believes that in the near term, modest inflation, together with
increasing competition within the gaming industry for qualified and experienced
personnel, will continue to cause increases in operating expenses, particularly
labor and employee benefits costs.
Seasonality
Historically, the Sands' operations have been highly seasonal in nature,
with the peak activity occurring from May to September. Consequently, the
results of operations for the first and fourth quarters are traditionally less
profitable than the other quarters of the fiscal year. In addition, the Sands'
operations may fluctuate significantly due to a number of factors, including
chance. Such seasonality and fluctuations may materially affect casino revenues
and profitability.
Private Securities Litigation Reform Act
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-K 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
21
fluctuations in interest rates), domestic or global economic conditions, 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 7A. 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. Holdings, GB
Property Funding and GBHC do not have securities subject to interest rate
fluctuations and have not invested in derivative-based financial instruments.
22
ITEM 8. INDEX TO FINANCIAL STATEMENTS
Page
----
GB Holdings, Inc. and Subsidiaries
Report of Independent Public Accountants .................................................... 24
Consolidated Balance Sheets of GB Holdings, Inc.
and Subsidiaries as of December 31, 2000 (Post-reorganization),
September 30, 2000 (Post-reorganization) and December 31, 1999 (Pre-reorganization) ........ 25
Consolidated Statements of Operations of GB Holdings, Inc.
and Subsidiaries for the Period October 1, 2000 through December 31, 2000
(Post-reorganization), January 1, 2000 through September 30, 2000
(Pre-reorganization) and the Years Ended December 31, 1999 and 1998
(Pre-reorganization) ........................................................................ 27
Consolidated Statement of Changes in Shareholder's Equity (Deficit)
of GB Holdings, Inc. and Subsidiaries for the Period October 1, 2000 through
December 31, 2000 (Post-reorganization), January 1, 2000 through September 30,
2000 (Pre-reorganization) and the Years Ended December 31,
1999 and 1998 (Pre-reorganization) .......................................................... 28
Consolidated Statements of Cash Flows of GB Holdings, Inc.
and Subsidiaries for the Period October 1, 2000 through December 31, 2000
(Post-reorganization), January 1, 2000 through September 30, 2000
(Pre-reorganization) and the Years Ended December 31, 1999 and 1998
(Pre-reorganization) ........................................................................ 29
Notes to Consolidated Financial Statements of GB Holdings, Inc.
and Subsidiaries ............................................................................ 30
23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GB Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of GB Holdings,
Inc. and subsidiaries (the Company, a Delaware corporation) as of December 31,
2000 (post-reorganization), September 30, 2000 (post-reorganization) and
December 31, 1999 (pre-reorganization), and the related consolidated statements
of operations, shareholders' equity (deficit) and cash flows for the periods
from October 1, 2000 through December 31, 2000 (post-reorganization), January 1,
2000 through September 30, 2000 (pre-reorganization) and the two years in the
period ended December 31, 1999 (pre-reorganization). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GB Holdings, Inc.
and subsidiaries as of December 31, 2000 (post-reorganization), September 30,
2000 (post-reorganization) and December 31, 1999 (pre-organization), and the
results of their operations and their cash flows for periods from October 1,
2000 through December 31, 2000 (post-reorganization), January 1, 2000 through
September 30, 2000 (pre-reorganization), and the two years in the period ended
December 31, 1999 (pre-reorganization) in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 16, 2001
24
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Post-reorganization Pre-reorganization
-------------------------------------- -----------------
December 31, 2000 September 30, 2000 December 31, 1999
----------------- ------------------ -----------------
Current Assets:
Cash and cash equivalents $ 77,903,000 $ 85,678,000 $ 20,897,000
Accounts receivable, net of allowances
of $11,408,000, $10,366,000 and
$11,413,000, respectively 10,972,000 8,411,000 9,864,000
Inventories 2,851,000 2,590,000 3,784,000
Deferred income taxes and income tax receivable 1,159,000 1,159,000 3,478,000
Prepaid expenses and other current assets 3,687,000 2,563,000 2,502,000
------------- ------------- -------------
Total current assets 96,572,000 100,401,000 40,525,000
------------- ------------- -------------
Property and Equipment:
Land 54,814,000 54,654,000 50,777,000
Buildings and improvements 81,203,000 79,631,000 185,508,000
Equipment 18,252,000 16,795,000 108,260,000
Construction in progress 6,763,000 3,252,000 2,295,000
------------- ------------- -------------
161,032,000 154,332,000 346,840,000
Less - accumulated depreciation and
amortization (2,706,000) -- (189,805,000)
------------- ------------- -------------
Property and equipment, net 158,326,000 154,332,000 157,035,000
------------- ------------- -------------
Other Assets:
Obligatory investments, net of allowances
of $8,418,000, $9,806,000 and
$9,122,000, respectively 7,918,000 9,286,000 8,386,000
Other assets 1,431,000 1,460,000 2,470,000
------------- ------------- -------------
Total other assets 9,349,000 10,746,000 10,856,000
------------- ------------- -------------
$ 264,247,000 $ 265,479,000 $ 208,416,000
============= ============= =============
The accompanying notes are an
integral part of these consolidated financial statements.
25
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Post-reorganization Pre-reorganization
-------------------------------------- -----------------
December 31, 2000 September 30, 2000 December 31, 1999
----------------- ------------------ -----------------
Current Liabilities Not Subject to Compromise:
Current maturities of long-term debt $ 467,000 $ 483,000 $ 79,000
Accounts payable 9,822,000 6,026,000 4,849,000
Accrued liabilities -
Salaries and wages 4,424,000 4,151,000 3,458,000
Interest 3,092,000 67,000 --
Reorganization costs 1,280,000 2,385,000 1,843,000
Insurance 2,411,000 2,335,000 1,872,000
Other 5,336,000 6,067,000 5,879,000
Due to affiliates -- 290,000 1,099,000
Other current liabilities 4,283,000 3,957,000 4,322,000
------------- ------------- -------------
Total current liabilities 31,115,000 25,761,000 23,401,000
------------- ------------- -------------
Liabilities Subject to Compromise -- -- 217,028,000
------------- ------------- -------------
Long-Term Debt 110,371,000 110,375,000 839,000
------------- ------------- -------------
Deferred Taxes and Other Noncurrent Liabilities 4,258,000 4,343,000 6,741,000
------------- ------------- -------------
Commitments and Contingencies
Shareholders' Equity (Deficit):
New preferred stock, $.01 par value per share;
5,000,000 shares authorized; 0 shares outstanding -- -- --
New common stock, $.01 par value per share;
20,000,000 shares authorized;
10,000,000 shares outstanding 100,000 100,000 --
Old common stock, $1.00 par value per share;
1,000 shares authorized and outstanding -- -- 1,000
Additional paid-in capital 124,900,000 124,900,000 27,946,000
Accumulated deficit (6,497,000) -- (67,540,000)
------------- ------------- -------------
Total shareholders' equity (deficit) 118,503,000 125,000,000 (39,593,000)
------------- ------------- -------------
$ 264,247,000 $ 265,479,000 $ 208,416,000
============= ============= =============
The accompanying notes are an
integral part of these consolidated financial statements.
26
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Post-reorganization Pre-reorganization
------------------- -------------------------------------------------------
October 1, 2000 January 1, 2000 Year Ended Year Ended
through through December 31, December 31,
December 31, 2000 September 30, 2000 1999 1998
----------------- ------------------ ------------- -------------
Revenues:
Casino $ 52,026,000 $ 177,731,000 $ 227,475,000 $ 219,368,000
Rooms 2,307,000 7,173,000 9,273,000 9,200,000
Food and beverage 7,201,000 21,122,000 27,870,000 25,381,000
Other 951,000 3,549,000 5,960,000 3,767,000
------------- ------------- ------------- -------------
62,485,000 209,575,000 270,578,000 257,716,000
Less - promotional allowances (5,916,000) (18,368,000) (23,683,000) (20,372,000)
------------- ------------- ------------- -------------
Net revenues 56,569,000 191,207,000 246,895,000 237,344,000
------------- ------------- ------------- -------------
Expenses:
Casino 51,439,000 149,087,000 197,906,000 186,761,000
Rooms 664,000 2,106,000 2,858,000 3,174,000
Food and beverage 2,292,000 6,685,000 10,274,000 9,998,000
Other 890,000 2,851,000 4,234,000 2,599,000
General and administrative 2,175,000 7,663,000 10,586,000 12,497,000
Depreciation and amortization, including
write off of net CRDA obligations 3,834,000 9,414,000 16,215,000 12,795,000
------------- ------------- ------------- -------------
Total expenses 61,294,000 177,806,000 242,073,000 227,824,000
------------- ------------- ------------- -------------
Income (loss) from operations (4,725,000) 13,401,000 4,822,000 9,520,000
------------- ------------- ------------- -------------
Non-operating income (expense):
Interest income 1,338,000 518,000 649,000 961,000
Interest expense (contractual interest of
$16,545,000 for the nine months
ended September 30, 2000 and
$22,079,000 and $22,106,000
in 1999 and 1998, respectively) (3,133,000) (366,000) (295,000) (313,000)
Reorganization and other related costs 34,000 (2,807,000) (2,154,000) (4,069,000)
Gain (loss) on disposal of assets (11,000) (10,000) 259,000 252,000
------------- ------------- ------------- -------------
Total non-operating expense, net (1,772,000) (2,665,000) (1,541,000) (3,169,000)
------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary item (6,497,000) 10,736,000 3,281,000 6,351,000
Income tax provision -- -- (133,000) --
------------- ------------- ------------- -------------
Income (loss) before extraordinary item (6,497,000) 10,736,000 3,148,000 6,351,000
Extraordinary gain on pre-petition
debt discharge -- 14,795,000 -- --
------------- ------------- ------------- -------------
Net income (loss) $ (6,497,000) $ 25,531,000 $ 3,148,000 $ 6,351,000
============= ============= ============= =============
Basic income (loss) per common share: $ (0.65)
=============
Weighted average common shares
outstanding 10,000,000
=============
The accompanying notes are an
integral part of these consolidated financial statements.
27
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Period October 1, 2000 through December 31, 2000 (Post-reorganization),
January 1, 2000 through September 30, 2000 (Pre-reorganization)
and the years Ended December 31, 1999 and 1998 (Pre-reorganization)
Common Stock Additional
----------------------------- Paid-in Accumulated
Shares Amount Capital Deficit
---------- ------------- ------------- -------------
BALANCE, January 1, 1998 (Pre-reorganization) 1,000 $ 1,000 $ 18,438,000 $ (77,039,000)
Capital contribution -- -- 9,508,000 --
Net income -- -- -- 6,351,000
---------- ------------- ------------- -------------
BALANCE, December 31, 1998 (Pre-reorganization) 1,000 1,000 27,946,000 (70,688,000)
Net income -- -- -- 3,148,000
---------- ------------- ------------- -------------
BALANCE, December 31, 1999 (Pre-reorganization) 1,000 1,000 27,946,000 (67,540,000)
Net income pre-reorganization 25,531,000
Cancellation of old common stock
pursuant to the plan for reorganization (1,000) (1,000) 1,000 --
Issuance of new common stock pursuant
to the plan for reorganization 10,000,000 100,000 64,954,000 --
Elimination of accumulated deficit
pursuant to the plan of reorganization -- -- (42,009,000) 42,009,000
Additional paid in capital pursuant to the
plan of reorganization -- -- 74,008,000 --
---------- ------------- ------------- -------------
BALANCE, September 30, 2000 (Post-reorganization) 10,000,000 100,000 124,900,000 --
Net loss post-reorganization -- -- -- (6,497,000)
---------- ------------- ------------- -------------
BALANCE, December 31, 2000 (Post-reorganization) 10,000,000 $ 100,000 $ 124,900,000 $ (6,497,000)
========== ============= ============= =============
The accompanying notes are an
integral part of these consolidated financial statements.
28
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Post-reorganization Pre-reorganization
------------------- -------------------------------------------------
October 1, 2000 January 1, 2000 Year Ended Year Ended
through through December 31, December 31,
December 31, 2000 September 30, 2000 1999 1998
----------------- ------------------ ------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ (6,497,000) $ 25,531,000 $ 3,148,000 $ 6,351,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary gain on prepetition debt discharge -- (14,795,000) -- --
Write off of reorganization related costs -- -- 262,000 942,000
Depreciation and amortization, including
write off of CRDA obligations 3,834,000 9,414,000 16,215,000 12,795,000
(Gain) Loss on disposal of assets 11,000 10,000 (259,000) (252,000)
Provision for doubtful accounts 1,423,000 1,637,000 2,418,000 1,667,000
Deferred income tax provision (benefit) -- -- (133,000) 0
Increase in accounts receivable (3,157,000) (184,000) (4,854,000) (1,301,000)
Increase in accounts payable and accrued expenses 1,266,000 2,975,000 1,096,000 3,505,000
Net change in other current assets and liabilities (907,000) 1,239,000 872,000 (44,000)
Net change in other noncurrent assets and liabilities (102,000) (9,889,000) (175,000) (2,800,000)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities (4,129,000) 15,938,000 18,590,000 20,863,000
------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (2,934,000) (14,422,000) (18,676,000) (7,972,000)
Purchase of Lieber Check Cashing (net of cash acquired) -- -- -- (245,000)
Proceeds from disposition of assets -- 13,000 259,000 259,000
Proceeds from sale of investments 111,000 330,000 2,000 177,000
Obligatory investments (803,000) (2,014,000) (2,786,000) (2,820,000)
------------ ------------ ------------ ------------
Net cash used in investing activities (3,626,000) (16,093,000) (21,201,000) (10,601,000)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 65,000,000 -- --
Repayment of long-term debt (20,000) (64,000) (336,000) (289,000)
Borrowings from affiliates -- -- -- --
------------ ------------ ------------ ------------
Net cash (used in) provided by financing activities (20,000) 64,936,000 (336,000) (289,000)
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (7,775,000) 64,781,000 (2,947,000) 9,973,000
Cash and cash equivalents at beginning of period 85,678,000 20,897,000 23,844,000 13,871,000
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 77,903,000 $ 85,678,000 $ 20,897,000 $ 23,844,000
============ ============ ============ ============
29
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 asset is its investment in GBHC, and as of the
Effective Date, defined below, $59.3 million in cash (see Note 2). 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.
On January 5, 1998, GBHC, Holdings and GB Property Funding (collectively,
the "Debtors") 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") (see Note 2). 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"), and
include disclosure of liabilities subject to compromise (see Note 5). In