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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the annual period ended December 31, 2002
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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)
(Registrants' telephone number, including area code): (609) 441-4517
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(Not Applicable)
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(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether each of the Registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer"s classes
of common stock, as of the last practicable date.
Registrant Class Outstanding at March 24, 2003
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GB Property Funding Corp. Common stock, $1.00 par value 100 shares
GB Holdings, Inc. Common stock, $.01 par value 10,000,000 shares
Greate Bay Hotel and Casino, Inc. Common stock, no par value 100 shares
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. Holdings has no operating activities
and its only source of income is interest on cash equivalent investments.
Holdings' only significant assets are its investment in GBHC and its cash
balance at December 31, 2002 of $31.8 million.
The accompanying consolidated financial statements include the accounts
and operations of Holdings and its subsidiaries (Holdings, GBHC and GB Property
Funding, collectively, the "Company"). All significant intercompany balances and
transactions have been eliminated. Throughout this document, references to Notes
are referring to the Notes to Consolidated Financial Statements contained
herein.
On January 5, 1998, the Company filed petitions for relief under Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court").
On August 14, 2000, the Bankruptcy Court entered an order (the "Confirmation
Order") confirming the Modified Fifth Amended Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code Proposed by the Official Committee of
Unsecured Creditors and High River Limited Partnership and its affiliates (the
"Plan") for the Company. High River Limited Partnership ("High River") is an
entity controlled by Carl C. Icahn. On September 13, 2000, the New Jersey Casino
Control Commission (the "Commission") approved the Plan. On September 29, 2000,
the Plan became effective (the "Effective Date") (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"). In addition, as a result of the Confirmation Order and the
occurrence of the Effective Date, and in accordance with SOP 90-7, the Company
has adopted "fresh start reporting" in the preparation of the accompanying
consolidated financial statements. The Company's 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.
2
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% 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."
The Sands has segregated its gaming customers into three broad
categories:
The Premium Categories - Those customers who have a high potential loss
per trip. This category has the lowest profit margin percentage per customer.
The Middle Categories - Those customers who have a high repeat trip
frequency along with a potential loss per trip that equates to a high annual
potential loss per customer.
The Mass Categories - Those customers who have a low casino loyalty and a
low potential loss per trip. This category has the highest profit margin
percentage per customer.
Business Strategy. Traditionally, the Sands' marketing strategy in the highly
competitive Atlantic City market has consisted of seeking premium category
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 category, competition within
the industry for the premium category (both table and slot) reduced the Sands
ability to attract this type of player on a profitable basis.
In 2001, the Sands focused on 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 intent is to provide all categories with an expanded and improved
entertainment experience that would lead to an increase in subsequent trips.
As part of its commitment to make the "Value Gaming" concept a reality
for its customers, the Sands continued to provide the "loosest" slots in the
Atlantic City market during 2001 and through the first quarter of 2002. That is,
the Sands provided the best overall odds for winning at slots of any casino in
Atlantic City, according to monthly data filed with the Commission.
Additionally in 2001, the Sands invested approximately $4.6 million in
new slot machines, gaming equipment and casino renovations. The Boardwalk Buffet
reopened after renovations in the summer of 2001, providing guests with an
expanded buffet outlet featuring a wide variety of culinary choices at an
affordable price in a nostalgic Atlantic City atmosphere.
3
In the second quarter of 2002, under the direction of newly appointed
President Herbert Wolfe, the Sands changed its marketing strategy to reduce its
focus on the lower profit margin table games business and focus almost
exclusively on the slot machine business. In the process the Sands reduced the
number of table games from 69 to 26 and increased its number of slot machines by
400. The Sands began to market its product predominantly to the mass slot player
categories. As part of this strategy, the Sands, in keeping with its "Value
Gaming" concept, increased the number of lower denomination slot machines, thus
making the product more available to this mass category. However the increase in
the number of lower denomination slot machines created a more competitive slot
machine hold percentage and as a result caused the Sands to move away from its
"loosest" slots in Atlantic City. The "Value Gaming" concept continued to be
reinforced through the availability of slot machines, discounted food product,
and availability of hotel rooms to the mass category.
At the end of the third quarter of 2002, Herbert Wolfe resigned as
President. Shortly thereafter Richard Brown was appointed Chief Executive
Officer of the Company. By this time, it also had become apparent that the gain
in slot machine revenue could not offset the loss of table game revenue. In
addition the volume required from the mass slot player categories, to make up
the loss of the middle to premium slot player categories, could not be
accommodated in a property with the physical constraints of the Sands.
Subsequent review of marketing data revealed that the loss in table game play
had a direct effect on the loss in some slot machine play, as many slot patrons
who frequented the Sands with family and friends were forced to patronize
competitors to find the variety of gaming experience they desired. As a result,
by the end of the fourth quarter of 2002, the Sands had added fourteen table
games to bring the total number of table games to forty, and changed its
marketing strategy to focus more on the middle to premium categories of slot
players.
During 2002, the Sands continued to invest in improvements and upgrades
to the casino hotel complex. These improvements included the new slot machines,
renovations to the first floor casino and hotel room renovations to both the
Sands and the Madison House Hotel (see Properties). With the ongoing upgrades to
the property, the Sands will be able to broaden its appeal to both the premium
category, as well as increase its marketing effort towards the middle and mass
categories of the gaming market.
The Sands has also introduced a new comprehensive customer service
program that includes customer service training for new employees, customer
service monitoring for operations and customer service recovery programs.
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, other gaming equipment and physical plant
renovations. These additions and enhancements will primarily benefit guests in a
variety of services 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 players' 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 accommodations, entertainment, retail
merchandise, parking, and 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. Sands Management believes this is a
unique benefit and strategy in the Atlantic City market providing a marketing
edge over its competitors. The computer systems also allow the Sands to monitor,
analyze and control the granting of gaming credit, promotional expenses and
other marketing costs.
4
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 players' 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 category enhances profitability
of the Sands.
The Sands also markets to the mass casino patron market through various
forms 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
players' 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. 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. As a result of
the confirmation of the Claridge Chapter 11 Plan by the Bankruptcy Court, PPE
acquired the Claridge, and PPE constructed a connection between the Claridge and
Bally's Park Place Casino, which was already interconnected to the PPE
controlled Caesars Hotel and Casino. With the addition of the Claridge, PPE
controls four casinos, the Trump Organization controls three and the Harrah's
Organization controls two of the twelve Atlantic City casinos. PPE also controls
the so-called Traymore site located between the boardwalk and the Sands and has
acquired a lot contiguous to the Sands parking garage that formerly contained
the Continental Motel property. PPE 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 (the "Borgata") 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 complete on a tunnel connecting 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 started 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 complete the
project in the second quarter 2004. Showboat and Resorts are currently
constructing hotel room additions of approximately 400 - 500 rooms each and are
set to open in the second quarter of 2003 and the second quarter of 2004,
respectively. Accordingly, the existing and future competing forces could have a
materially adverse impact on the operations of the Sands.
5
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 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 and a
retail entertainment development project. 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, close
proximity to Pacific Avenue, the Boardwalk and to other casino/hotels and access
to the main expressway entering Atlantic City. The Company believes that, in
prior years, its operating strategy enabled the Sands to compete against most
other Atlantic City casino/hotels. In the past, many of its competitors had
greater financial resources for capital improvements and marketing and
promotional activities than the Company and, as a result, the Sands' facilities
and amenities fell behind many of the other casinos. In order to improve the
Company's competitive position, the Company 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.
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.
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 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, New
York State passed legislation that was signed by the Governor in October 2001 to
allow slot machines at racetracks and six (6) Indian owned casinos within the
State of New York. The legislation also allows the State to join the multi state
Powerball lottery. The gaming portion of the legislation may face legal
challenge including a challenge based on the New York State Constitution.
Therefore, it is not possible to determine the timing or financial impact of
this legislation on Atlantic City at this time.
The tragic events of September 11, 2001 had an immediate negative impact
on hotel and casino business volume. The Sands hotel occupancy was down
approximately ten percentage points during the week that followed the terrorist
attacks. Bus passenger volume for the Sands was lower than normal, especially
for those bus tours originating from the New York metropolitan area. There were
approximately 17,500 fewer, or 22.5% less bus passengers at the Sands during
September 2001 than during the same month in the prior year.
6
During the fourth quarter 2001, bus ridership remained approximately 11%
lower than during the same prior year period. However, the Sands slot handle and
slot handle per unit during the fourth quarter 2001 exceeded their respective
levels compared to the same prior year period (up 7.8% and 3.6%, respectively).
By comparison, Atlantic City casinos, other than the Sands, experienced a 6.3%
increase in slot handle and a 2.9% increase in handle per unit for the same
periods. Net slot revenue for the Sands only increased $149,000 when comparing
the fourth quarter of 2001 to the same prior year period. The increase in volume
was largely offset by a decrease of .44% in hold percentage. Total coin
incentives also decreased approximately $2.8 million or 28.9%, comparing the
fourth quarter 2001 to the same prior year period.
The Sands table game drop decreased $18.4 million during the fourth
quarter 2001 compared to the same prior year period, although drop per unit
increased approximately 13.4%. It is difficult to discern how much of the
decline in table game volume is due to the tragic events of September 2001, the
decrease in the number of table games, changes in table game marketing or the
struggling economy.
Industry Developments. In a budget proposed to the New Jersey Legislature
in 2003, Governor McGreevey announced a proposed tax on complementaries, an
increase in gross revenue tax from 8% to 10%, and an increase in tax on rooms as
part of his fiscal 2004 budget proposal. The Company, at this time, cannot
assess whether these proposals will be passed by the New Jersey Legislature. If
passed, this proposal would cost the Sands approximately $4-6 million annually
in additional expenses.
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
remained steady at $4.3 billion in 2002, 2001 and 2000, despite the adverse
market conditions. However, the general economic uncertainties may continue to
have an adverse impact on the results of the Sands.
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
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 2002, according to Commission filings, slot win accounted for
approximately 75.0% of total Atlantic City gaming win. However, table games
remain important to a select category of gaming patrons. Management believes the
availability of table games provides a varied gaming experience that benefits
both slot and table game revenues.
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, 2002, gaming
credit extended to Sands' table game patrons accounted for approximately 18.6%
of overall table game wagering, and table game wagering accounted for
approximately 9.8% of overall casino wagering during the period. At December
31, 2002, gaming receivables amounted to $15.3 million before an allowance for
uncollectible gaming receivables of $11.0 million. Management believes that such
allowance is adequate.
7
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. For the year ended December 31, 2002,
the license fee amounted to $272,000. For the year ended December 31, 2001, such
charges amounted to $268,000.
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, 2002, the Sands had approximately
2,500 employees. The Sands has collective bargaining agreements with three
unions that represent approximately 1,000 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. The collective bargaining agreements with the
Carpenters, Local 623 and Entertainment Workers, Local 68 expire in April and
July 2005, respectively. Management considers its labor relations to be good.
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 2000 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, 2002, 2001 and 2000, the taxes
and the license and other fees incurred by the Sands amounted to $21.3 million,
$23.0 million and $22.7 million, respectively.
8
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 2002, the Sands
contributed $925,000 of its escrowed funds to CRDA sponsored projects and
received $116,000 in a cash refund. In 2001, the Sands contributed $322,000 of
its escrowed funds to CRDA sponsored projects and received $80,000 in a cash
refund and $84,000 in waivers of certain future Deposit obligations. During the
three months ended December 31, 2000, the Sands contributed $3,310,000 of its
escrowed funds to a CRDA sponsored project and received 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 nine months ended September 30, 2000, totaling $142,000,
resulting in waivers granted by the CRDA totaling $72,000. Intangible assets
aggregating $811,000 and $1,010,000, respectively, have been recognized on the
accompanying consolidated balance sheets in other assets at December 31, 2002
and 2001, and are being amortized over a period of ten years commencing with the
completion of the projects. Amortization of other assets totaled $199,000,
$202,000, $51,000 and $151,000 for the years ended December 31, 2002 and 2001,
the three months ended December 31, 2000 and the nine months ended September 30,
2000, respectively.
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.
9
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 79,000 square
feet of gaming space containing approximately 2,322 slot machines and
approximately 40 table games; a hotel with 637 rooms (including 57 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.
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.
The Sands entered into a long-term lease of the Madison House Hotel (the
"Madison House"). The initial lease period is from December 2000 to December
2012 with lease payments ranging from $1.8 million per year to $2.2 million per
year. The Madison House is physically connected at two floors to the existing
Sands casino-hotel complex. The Sands recently completed renovations to upgrade
and combine the rooms of the Madison House into a total of 113 suites and 13
single rooms. It is the intention of the Sands to maintain and operate the
Madison House at the same quality level as the Sands.
ITEM 3. LEGAL PROCEEDINGS
The Company filed tax appeals with the New Jersey Tax Court (the "NJ Tax
Court") challenging the amount of its real property assessment for calendar
years 1996 through 2001, inclusive, and filed an appeal for calendar year 2002
with the Atlantic County Tax Board ("AC Tax Board"). The City of Atlantic City
also appealed the amount of assessments for the years 1996 through 2001,
inclusive, and filed a cross-petition with the Atlantic County Tax Board for
calendar year 2002. The AC Tax Board declined to hear the appeal and therefore
the appeal and cross-petition for calendar year 2002 is now pending before the
NJ Tax Court. The Sands has also filed a tax appeal for calendar year 2003 with
the New Jersey Tax Court.
The Company discovered certain failures relating to currency transaction
reporting and self-reported the situation to the applicable regulatory agencies.
The Company conducted an internal examination of the matter and the New Jersey
Division of Gaming Enforcement conducted a separate review. The Company has
revised internal control processes and taken other measures to address the
situation. The Company may be subjected to regulatory sanctions, which may
include cash penalties. However, the potential cash penalties cannot be
estimated at this time.
10
The Company is a party in various legal proceedings with respect to the
conduct of casino and hotel operations and has received employment related
claims. Although a possible range of losses cannot be estimated, in the opinion
of management, based upon the advice of counsel, the Company does not expect
settlement or resolution of these proceedings or claims to have a material
adverse impact upon the consolidated financial position or results of operations
of the Company, but the outcome of litigation and the resolution of claims is
subject to uncertainties and no assurances can be given. The accompanying
consolidated financial statements do not include any adjustments that might
result from these uncertainties.
On February 26, 2003, the Sands received a letter from counsel for Mr.
Frederick H. Kraus, Executive Vice President, General Counsel and Secretary,
indicating that he had been retained to represent Mr. Kraus "in regards to a
constructive discharge, breach of contract, severance pay" and other claims.
This matter has been referred to legal counsel for evaluation. Management has
not yet determined whether or not the claims made by Mr. Kraus would, if
adversely determined, materially impact the financial position or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 19, 2002, the annual meeting of shareholders was held to elect
the Board of Directors and the appointment of new independent auditors. Proxies
were solicited for the annual meeting under Regulation 14A.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
GB Property Funding's voting securities consist of 100 shares of common
stock with a par value of $1.00 per share, all of which are owned by Holdings.
GBHC's voting securities consist of 100 shares of common stock with no
par value per share, all of which are owned by Holdings.
Prior to the Effective Date, Holdings' voting securities consisted of
1,000 shares of common stock with a par value of $1.00 per share. 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
were issued and outstanding.
The Company has not paid any dividends in the past and has no plans to
pay any in the future.
The New Common Stock (trading symbol "GBH") and the New Notes were listed
and commenced trading on the American Stock Exchange ("AMEX") on March 27, 2001.
To Holdings' knowledge, other than certain of the shares of the New Common Stock
owned by Icahn (77.49%), and Merrill Lynch (20.68%), substantially all of the
shares of the New Common Stock are held by Cede & Co. as nominee.
11
The range of high and low market prices for the New Common Stock on the
American Stock Exchange Composite Tape from March 27, 2001 through December 31,
2002 is as follows:
Quarter Ended: High Low
------------- ---- ---
June 30, 2001 $12.12 $3.25
September 30, 2001 $ 3.25 $1.66
December 31, 2001 $ 2.93 $1.50
March 31, 2002 $ 3.11 $2.48
June 30, 2002 $ 3.15 $2.22
September 30, 2002 $ 3.16 $2.25
December 31, 2002 $ 3.19 $2.62
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, 2002 and 2001 and for the years ended
December 31, 2002, 2001, the three months ended December 31, 2000 and the nine
months ended September 30, 2000 have been derived from the audited financial
statements of Holdings contained in Item 8 below.
The Company implemented SOP 90-7 and, therefore, 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 Statement of Operations Data and Consolidated Balance Sheet Data to
distinguish between the pre-reorganization and post-reorganization entities. A
black line has been drawn on the accompanying consolidated financial statements
data to distinguish between the pre-reorganization and post-reorganization
entities.
12
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 Year Ended through through Year Ended Year Ended
December 31, December 31, December 31, September 30, December 31, December 31,
2002 2001 2000 2000 (1) 1999 (1) 1998 (1)
-------------- -------------- -------------- -------------- -------------- --------------
Net revenues ....................... $ 193,473 $ 215,749 $ 46,711 $ 162,463 $ 209,811 $ 199,918
-------------- -------------- -------------- -------------- -------------- --------------
Expenses:
Departmental ................. 159,714 185,255 45,427 131,985 178,188 165,106
General and administrative ... 12,799 11,512 2,175 7,663 10,586 12,497
Depreciation and
amortization................ 15,457 12,133 3,834 9,414 16,215 12,795
Loss on impairment of
assets ..................... 1,282 -- -- -- -- --
Loss (gain) on disposal of
assets ..................... 185 20 11 10 (259) (252)
-------------- -------------- -------------- -------------- -------------- --------------
Total Expenses ........... 189,437 208,920 51,447 149,072 204,730 190,146
-------------- -------------- -------------- -------------- -------------- --------------
Income (loss) from
operations................. 4,036 6,829 (4,736) 13,391 5,081 9,772
-------------- -------------- -------------- -------------- -------------- --------------
Non-operating income (expense):
Interest income .............. 1,067 2,671 1,338 518 649 961
Interest expense ............. (11,640) (11,279) (3,133) (366) (295) (313)
Reorganization costs ......... -- -- 34 (2,807) (2,154) (4,069)
-------------- -------------- -------------- -------------- -------------- --------------
Total non-operating
expense, net .......... (10,573) (8,608) (1,761) (2,655) (1,800) (3,421)
-------------- -------------- -------------- -------------- -------------- --------------
Income (loss) before income taxes
and extraordinary item ....... (6,537) (1,779) (6,497) 10,736 3,281 6,351
Income tax provision ............... (784) (55) -- -- (133) --
-------------- -------------- -------------- -------------- -------------- --------------
Income (loss) before extraordinary
item ............................ (7,321) (1,834) (6,497) 10,736 3,148 6,351
Extraordinary gain on prepetition
debt discharge ............... -- -- -- 14,795 -- --
-------------- -------------- -------------- -------------- -------------- --------------
Net income (loss) .................. $ (7,321) $ (1,834) $ (6,497) $ 25,531 $ 3,148 $ 6,351
============== ============== ============== ============== ============== ==============
Basic/diluted income (loss) per
common share:
Before extraordinary item .... $ (0.73) $ (0.18) $ (0.65) $ 1.07 $ 0.32 $ 0.64
Extraordinary item ........... -- -- -- 1.48 -- --
Net income (loss) per common
share ........................... $ (0.73) $ (0.18) $ (0.65) $ 2.55 $ 0.32 $ 0.64
============== ============== ============== ============== ============== ==============
Weighted avaerage common
shares ..................... (2) (2) (2)
outstanding .............. 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
============== ============== ============== ============== ============== ==============
Balance Sheet Data: Post-reorganization Pre-reorganization
---------------------------------------------- ----------------------------------------------
December 31, December 31, December 31, September 30, December 31, December 31,
2002 2001 2000 2000 1999 1998
-------------- -------------- -------------- -------------- -------------- --------------
Total assets ....................... $ 244,712 $ 255,922 $ 264,247 $ 272,676 $ 208,416 $ 199,148
Total long-term debt ............... 110,000 110,371 110,838 110,858 197,898 198,234
Shareholder's equity (deficit) ..... 109,348 116,669 118,503 125,000 (39,593) (42,741)
- ----------
(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.
13
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
Operating Activities
At December 31, 2002, the Company had cash and cash equivalents of $50.6
million. The Company generated $9.7 million of net cash from operations during
the year ended December 31, 2002 compared to $5.7 million during the same prior
year period. Despite a net loss in 2002, depreciation and amortization expense
of $15.5 million and a decrease in accounts receivables of $2.4 million
contributed to the positive cash flow from operations. During 2002, based upon a
periodic review of long-lived assets for impairment in conjunction with a review
of the Company's marketing programs and product mix, certain expenditures
incurred for property expansion plans, that were included in construction in
progress, were determined to be unusable and resulted in a loss on asset
impairment in the amount of $1.3 million.
Investing Activities
Capital expenditures at the Sands for the year ended December 31, 2002
amounted to approximately $14.1 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. Management anticipates that capital expenditures for 2003 will
be approximately $14.9 million. The Company may require additional financing in
connection with those activities.
The Sands is required by the Casino Act to make certain quarterly
deposits based on gross revenue with the Casino Reinvestment Development
Authority ("CRDA") in lieu of a certain investment alternative tax. Deposits for
the year ended December 31, 2002 amounted to $2.5 million. 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 $6.9 million, which will
be paid through 2011 based on an estimate of certain of the Sands' future CRDA
deposit obligations. As of December 31, 2002, the Sands had satisfied $2.0
million of this obligation.
Financing Activities
During 2002, the Company repaid $371,000 in long-term debt. There were
no other financing activities during the year ended December 31, 2002.
14
As of December 31, 2002 the only scheduled payment of long-term debt is
the $110 million for New Notes, due September 29, 2005.
Summary
Management believes that cash flows generated from operations during
2002, as well as available cash reserves, will be sufficient to meet its
operating plan and provide for scheduled capital expenditures. However, any
significant other capital expenditures may require additional financing.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its results of operations and
financial condition are based upon its consolidated financial statements that
have been prepared in accordance with accounting principles generally accepted
in the United States of America ("US GAAP"). The preparation of financial
statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and the disclosure of contingent assets and liabilities. Estimates
and assumptions are evaluated on an ongoing basis and are based on historical
and other factors believed to be reasonable under the circumstances. The results
of these estimates may form the basis of the carrying value of certain assets
and liabilities and may not be readily apparent from other sources. Actual
results, under conditions and circumstances different from those assumed, may
differ from estimates. The impact and any associated risks related to estimates,
assumptions, and accounting policies are discussed within Management's
Discussion and Analysis of Results of Operations and Financial Condition, as
well as in the Notes to the Consolidated Financial Statements, if applicable,
where such estimates, assumptions, and accounting policies affect the Company's
reported and expected financial results.
The Company believes the following accounting policies are critical to
its business operations and the understanding of results of operations and
affect the more significant judgments and estimates used in the preparation of
its consolidated financial statements:
Allowance for Doubtful Accounts - The Company maintains accounts
receivable allowances for estimated losses resulting from the inability of its
customers to make required payments. The adequacy of the allowance is determined
by management based on a periodic review of the receivable portfolio. Additional
allowances may be required if the financial condition of the Company's customers
deteriorates.
Commitments and Contingencies - Litigation - On an ongoing basis, the
Company assesses the potential liabilities related to any lawsuits or claims
brought against the Company. While it is typically very difficult to determine
the timing and ultimate outcome of such actions, the Company uses its best
judgment to determine if it is probable that it will incur an expense related to
the settlement or final adjudication of such matters and whether a reasonable
estimation of such probable loss, if any, can be made. In assessing probable
losses, the Company makes estimates of the amount of insurance recoveries, if
any. The Company accrues a liability when it believes a loss is probable and the
amount of loss can be reasonably estimated. Due to the inherent uncertainties
related to the eventual outcome of litigation and potential insurance recovery,
it is possible that certain matters may be resolved for amounts materially
different from any provisions or disclosures that the Company has previously
made.
15
Impairment of Long-Lived Assets - The Company periodically reviews
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Assumptions and estimates used in the determination of impairment losses, such
as future cash flows and disposition costs, may affect the carrying value of
long-lived assets and possible impairment expense in the Company's consolidated
financial statements.
Self-Insurance - The Company retains the obligation for certain losses
related to customer's claims of personal injuries incurred while on the Company
property. The Company accrues for outstanding reported claims, claims that have
been incurred but not reported and projected claims based upon management's
estimates of the aggregate liability for uninsured claims using historical
experience, an adjusting company's estimates and the estimated trends in claim
values. Although management believes it has the ability to adequately project
and record estimated claim payments, it is possible that actual results could
differ significantly from the recorded liabilities.
Allowance for Obligatory Investments - The Company maintains obligatory
investment allowances for its investments made in satisfaction of its CRDA
obligation. The obligatory investments may ultimately take the form of CRDA
issued bonds, which bear interest at below market rates, direct investments or
donations. CRDA bonds bear interest at approximately one-third below market
rates. Management bases its reserves on the type of investments the obligation
has taken or is expected to take. Donations of the Sands' quarterly deposits to
the CRDA have historically yielded a 51% future credit or refund of obligations.
Therefore, management has reserved the predominant balance of its obligatory
investments at between 33% and 49%.
16
RESULTS OF OPERATIONS
Gaming Operations
Information contained herein, regarding Atlantic City casinos other than
the Sands, was obtained from reports filed with the Commission.
The following table sets forth certain unaudited financial and operating
data relating to the Sands' and all other Atlantic City casinos' capacities,
volumes of play, hold percentages and revenues:
Year Ended December 31,
-------------------------------------------------------
2002 2001 2000
--------------- --------------- ---------------
(Dollars In Thousands)
Units: (at year-end)
Table Games - Sands 40 69 92
- Atlantic City (ex. Sands) 1,167 1,061 1,238
Slot Machines - Sands 2,322 2,060 1,987
- Atlantic City (ex. Sands) 35,795 35,423 34,291
Gross Wagering (1)
Table Games - Sands $ 242,731 $ 457,992 $ 471,769
- Atlantic City (ex. Sands) 6,684,168 6,773,640 7,157,418
Slot Machines - Sands 2,227,830 2,348,180 2,114,444
- Atlantic City (ex. Sands) 38,237,932 36,772,969 35,714,927
Hold Percentages (2)
Table Games - Sands 15.00% 14.92% 14.09%
- Atlantic City (ex. Sands) 15.73% 15.65% 15.52%
Slot Machines - Sands 7.57% 6.87% 7.58%
- Atlantic City (ex. Sands) 8.08% 8.09% 8.18%
Revenues (2)
Table Games - Sands $ 36,401 $ 68,351 $ 66,456
- Atlantic City (ex. Sands) 1,051,103 1,059,881 1,110,512
Slot Machines - Sands 168,697 161,503 160,224
- Atlantic City (ex. Sands) 3,089,067 2,974,610 2,923,224
Other (3) - Sands 1,319 2,515 3,077
- Atlantic City (ex. Sands) 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 (the "Handle").
(2) Casino revenues consist of the portion of gross wagering that a casino
retains and, as a percentage of gross wagering, is referred to as the
"hold percentage." The Sands' hold percentages and revenues are
reflected on an accrual basis. Comparable accrual basis data for the
remainder of the Atlantic City gaming industry as a whole is not
available; consequently, industry hold percentages and revenues are
based on information available from the Commission.
(3) Consists of revenues from poker and simulcast horse racing wagering.
Comparable information for the remainder of the Atlantic City gaming
industry is not available.
17
Patron Gaming Volume
Information contained herein, regarding Atlantic City casinos other than
the Sands, was obtained from reports filed with the Commission.
Table game drop decreased by $215.3 million (47.0%) during 2002 compared
with 2001 and by $13.8 million (2.9%) in 2001 compared to 2000. By comparison,
according to Commission reports, table game drop at all other Atlantic City
casinos during the same periods decreased 1.3% and 5.4%, respectively. The
decrease in table game drop is attributable to the reduction of the number of
table games from 69 in 2001 to 40 by the end of 2002. The decrease in the number
of table games was the result of a change in business strategy, begun in the
second quarter of 2002 by newly appointed President, Herbert Wolfe, to reduce
the table game business and increase the slot machine business. Historically the
table game business has a lower profit margin percentage than the slot machine
business. The strategy was to focus specifically on the higher profit margin
mass slot player business. The original strategy reduced the number of table
games from 69 to 26. By late in the third quarter of 2002, it became apparent
that this strategy, among other things, could not generate an increase in slot
revenue sufficient to overcome the loss in table revenue. Mr. Wolfe resigned on
September 30, 2002, and Richard Brown was appointed Chief Executive Officer on
October 9, 2002. The Company strategy shifted to, among other things, increase
the number of table games to 40 by the end of 2002. During the second quarter of
2002, there was considerable disruption of the casino floor related to the
removal of table games and their replacement with slot machines. For the year
ended December 31, 2002, the table game hold percentage decreased 0.08
percentage points to 15.0% compared to the same prior year period. The 2001
decrease in table game drop was due to a 25.0% decrease in the number of table
games compared to 2000.
Slot machine handle decreased $120.4 million (5.1%) during 2002,
compared with 2001 and increased by $234 million (11.1%) in 2001 compared to
2000. By comparison, according to Commission reports, the percentage increase in
slot machine handle for all other Atlantic City casinos for the same periods was
4.0% and 3.0%, respectively. The decreased Sands slot handle during 2002 can be
attributed to the strategic change in the denominational mix of slot machines
from higher denomination, lower hold percentage machines, toward lower
denomination, higher hold percentage machines, which caused the hold percentage
to increase to 7.6% in 2002 from 6.9% in 2001. The number of slot machines
increased 12.7% at the Sands to 2,322 at December 31, 2002 compared to December
31, 2001. On an industry-wide basis, the number of slot machines increased 1.1%
in 2002 compared to 2001.
Aggregate gaming space at all other Atlantic City casinos increased by
approximately 35,000 square feet (3.0%) at December 31, 2002 compared to
December 31, 2001. The amount of gaming space at the Sands decreased
approximately 209 square feet (0.3%) between periods.
Revenues
Casino revenues at the Sands decreased by $26.0 million (11.2%) in 2002
compared to 2001 and increased by $2.6 million (1.1%) in 2001 compared to 2000.
The 2002 decrease was due to the $32.1 million decline in table game revenues,
which was a result of the $215.3 million (47.0%) decrease in table game drop.
The decrease in table game drop was primarily due to fewer table games available
during the peak third quarter. Slot revenues increased during 2002 as result of
increased hold percentage despite a decrease in handle of $120.4 million. The
increase in slot machine revenue was not enough to offset the decrease in table
game revenue. As a result, the Company, by the end of 2002, had replaced 14 of
the table games removed in the second quarter of 2002 and shifted its marketing
strategy to focus on the middle to premium slot player business. The increase in
2001 was attributed to increased revenue in both table games and slots. Slot win
increased due to higher handle, despite a lower hold percentage. Table game win
increased due to a higher hold percentage, despite lower drop. The 2001 slot
results were due to a 5.8% increase in the number of slot machines and the
"loosest" slots strategy in effect at that time. The 2001 table game results
were due to a marketing focus that attracted profitable customer categories and
offset the impact of fewer table games.
18
Room revenues decreased by $430,000 (3.7%) in 2002 compared to 2001 and
increased by $2.1 million (22.0%) in 2001 compared to 2000. The 2002 decrease is
due to a decrease in occupied room nights and a slightly lower average daily
room rate. The decrease in 2002, occupied room nights is due to a decrease in
complimentary rooms. The increase in 2001 was a result of increased occupied
room nights and a higher average daily room rate. The increase in 2001 occupied
room nights was due to the increase in rooms inventory related to the Madison
House addition.
Food and beverage revenues decreased $6.1 million (20.8%) in 2002
compared to 2001 and increased by $1.1 million (3.8%) in 2001 compared to 2000.
The 2002 decrease was due to a decrease in the average check of $6.89 (25.6%) as
a result of fewer complimentaries to premium outlets. The increase in 2001 was a
result of an increase in the number of patrons by 42,000 (3.2%).
Other revenues decreased $944,000 (20.2%) in 2002 compared to 2001 and
increased by $183,000 (4.1%) in 2001 compared to 2000. The 2002 decrease is
predominantly due to the decline in entertainment revenues, $470,000 (47.9%)
which was primarily a result of discontinuation of review shows in 2002. The
increase in 2001 was due to more entertainment revenue offset by a reduction in
parking revenue.
Promotional Allowances
Promotional allowances are comprised of (i) the estimated retail value
of goods and services provided free of charge to casino customers under various
marketing programs, (ii) the cash value of redeemable points earned under a
customer loyalty program based on the amount of slot play and (iii) coin and
cash coupons and discounts. As a percentage of casino revenues, promotional
allowances decreased to 24.8% during 2002 compared to 26.8% during 2001 and
27.4% in 2000. The decrease is primarily attributable to the elimination of
marketing programs and other promotional activities that were deemed less
profitable and a continued focus on, and development of, the segments of play
that created more volume with less expense.
Departmental Expenses
Casino expenses at the Sands decreased by $25.5 million (15.1%) in 2002
compared to 2001 and increased by $6.3 million in 2001 compared to 2000. The
decrease in casino expenses is primarily due to the reduction of complimentary
costs associated with food and beverage provided free of charge. Casino payroll
expenses decreased due to the reduction in table games. The decrease in the
provision for doubtful accounts expense was caused by a reduction in credit
issuance due to lower table game activity. Lower costs for customer
transportation were a result of reduced volume in air travel and ground
transportation. Reductions in advertising expense and gaming revenue tax also
contributed significantly to the decreases in casino expenses in 2002. The
increase in 2001 was due to increased television advertising and complimentary
expenses.
Rooms expenses decreased by $406,000 (12.0%) in 2002 compared to 2001
and increased $1.6 million in 2001 compared to 2000. The 2002 decreases were due
to a decrease in housekeeping supplies expense, amenity package costs, linen and
uniform usage, which resulted from fewer occupied room nights and also outside
maintenance contracts. The 2001 increase was due to costs associated with
operating the Madison House, which had no similar costs in 2000.
19
Food and beverage expenses increased by $1.1 million (11.2%) in 2002
compared to 2001 and by $837,000 in 2001 compared to 2000. The increases were
due to a smaller share of costs allocated to casino expense as a result of a
decrease in food and beverage complimentaries generated by casino operations.
These were offset slightly by decreases in payroll, benefits and food and
beverage cost of sales as a result of the lower volume. The 2001 increase was
due to higher volume of business offset by a greater allocation of costs to
casino expense.
Other expenses decreased by $749,000 (22.2%) in 2002 compared to 2001
and by $367,000 in 2001 compared to 2000. The decrease in 2002 is primarily due
to savings resulting from discontinuation of review shows in the theatre. The
2001 decrease was due to promoter fees for special events in 2000 that had no
similar costs in 2001.
General and Administrative Expenses
General and administrative expenses increased by $1.3 million (11.2%) in
2002 compared to 2001 and by $1.7 million in 2001 compared to 2000. The 2002
increase was due to costs arising from severance packages and higher costs for
insurance, property taxes and utilities. The increase in 2001 was due to costs
associated with the attempted acquisition of the Claridge Hotel Casino and
severance packages.
Depreciation and Amortization
Depreciation and amortization expense increased by $3.3 million (27.4%)
in 2002 compared to 2001 and decreased by $1.1 million in 2001 compared to 2000.
The 2002 increase is a result of the continued investment in and renovation of
the casino, hotel and administrative complex at the Sands. The 2001 decrease was
a result of depreciation expense being impacted by the asset valuation reduction
associated with "fresh start reporting" implemented in September 2000.
Interest Income and Expense
Interest income decreased by $1.6 million (60.1%) in 2002 compared to
2001 and increased by $815,000 (43.9%) in 2001 compared to 2002. The decrease in
2002 was due to earnings on decreased cash reserves and lower interest rates.
Interest expense increased by $361,000 (3.2%) in 2002 compared to 2001
and $7.8 million (222.3%) in 2001 compared to 2000. The 2002 increase is due to
a lower amount of capitalized interest partially offset by the elimination of
debt. The increase in 2001 is due to a full year of interest expense associated
with the New Notes.
Income Tax Provision
On July 2, 2002, the Business Tax Reform Act (BTR) was signed into law.
The BTR revises and updates the New Jersey corporation business tax and
establishes filing fees for certain returns. Included in the BTR is a deferral
on the use of State NOL's until tax year 2005. Those State NOL's that would have
been utilized in tax years 2002 and 2003 will be granted a two year extension of
their expiration period. Additionally, the BTR imposes an alternative minimum
assessment ("AMA") based on gross receipts or gross profits. The taxpayer pays
the greater of the AMA or the regular corporate business tax ("CBT") and to the
extent AMA exceeds CBT, an AMA tax credit is generated. The AMA provision is
discontinued for tax years beginning after June 30, 2006 and any remaining AMA
tax credit is allowed as a non-expiring future tax credit carryforward. Due to
various uncertainties, management is unable to determine that realization of the
future tax credit carryforward is more likely than not and, thus, has provided a
valuation allowance for the entire amount at December 31, 2002 and 2001.
20
The State income tax provision of $784,000 for the year ended December
31, 2002 includes $774,000 of AMA for GBHC and $10,000 of CBT for GBH.
Contractual Obligations
The following table sets forth the contractual obligations of the
Company at December 31, 2002:
Payments Due By Period
-----------------------------------------------------------------------------------------------
More
Less than 1-3 3-5 Than
Contractual Obligations Total 1 year years years 5 years
- ----------------------- --------------- --------------- --------------- --------------- ---------------
Long-Term Debt $ 110,000,000 $ -- $ 110,000,000 $ -- $ --
Operating Leases:
Madison House 19,826,000 1,800,000 5,598,000 3,996,000 8,432,000
Equipment 688,000 336,000 352,000 -- --
--------------- --------------- --------------- --------------- ---------------
Total Contractual Obligations $ 130,514,000 $ 2,136,000 $ 115,950,000 $ 3,996,000 $ 8,432,000
=============== =============== =============== =============== ===============
Inflation
Management believes that, in the near term, modest inflation and
increased 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.
New Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("Interpretation No. 45"). Interpretation
No. 45 requires the disclosure of certain guarantees existing at December 31,
2002. The Company had no guarantees meeting the requirements of Interpretation
No. 45 at December 31, 2002. In addition, Interpretation No. 45 requires the
recognition of a liability for the fair value of the obligation of qualifying
guarantee activities that are initiated or modified after December 31, 2002.
Accordingly, the Company will apply the recognition provisions of Interpretation
No. 45 prospectively to applicable guarantee activities initiated after December
31, 2002.
21
On January 1, 2003, the Company will adopt FAS No. 143, "Asset
Retirement Obligations" ("SFAS No. 143"), which provides the accounting
requirements for retirement obligations associated with tangible long-lived
assets. This statement requires entities to record the fair value of a liability
for an asset retirement obligation in the period in which it is incurred. The
adoption of FAS No. 143 is not expected to have a material impact on the
Company's consolidated financial statements.
22
In June 2002, FASB issued FAS Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("FAS 146"). FAS 146 nullifies EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)" ("EITF 94-3") and requires that a liability for a cost
associated with an exit or disposal activity be recognized and measured
initially at fair value in the period in which the liability is incurred. Under
EITF 94-3, a liability for an exit cost was recognized at the date of an
entity's commitment to an exit plan. The adoption of FAS 146 is expected to
result in delayed recognition for certain types of costs as compared to the
provisions of EITF 94-3. FAS 146 is effective for new exit or disposal
activities that are initiated after December 31, 2002. FAS 146 will affect the
types and timing of costs included in future restructuring programs, if any, but
is not expected to have a material impact on the Company's financial position or
results of operations.
On January 1, 2003, the Company will adopt FAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("FAS No. 148"), which
provides alternative methods of transition for companies that choose to switch
to the fair value method of accounting for stock options. SFAS No. 148 also
makes changes in the disclosure requirements for stock-based compensation,
regardless of which method of accounting is chosen. The adoption of SFAS No. 148
is not expected to have any impact on the Company's consolidated financial
statements.
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 future expansion plans, future construction costs and other business
development activities including other capital spending, economic conditions,
financing sources, competition and the effects of tax regulation and state
regulations applicable to the gaming industry in general or Holdings, GB
Property Funding and GBHC in particular. Such forward-looking information
involves important risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made by or on behalf of
Holdings, GB Property Funding or GBHC. These risks and uncertainties include,
but are not limited to, those relating to development and construction
activities, dependence on existing management, leverage and debt service
(including sensitivity to fluctuations in interest rates), domestic or global
economic conditions, activities of competitors and the presence of new or
additional competition, fluctuations and changes in customer preference and
attitudes, changes in federal or state tax laws or the administration of such
laws and changes in gaming laws or regulations (including the legalization of
gaming in certain jurisdictions).
23
Common Stock Listing
During the second quarter 2002, the Company was contacted orally by a
representative of the American Stock Exchange (the "Exchange") regarding the
continued listing of its common stock. The Exchange representative initially
advised that the Company might fail to meet the minimum requirements for
continued listing on the Exchange. A representative of the Exchange later
advised the Company in another call that the Exchange would not move to delist
the Company's securities at this time.
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. The Company
does not have securities subject to interest rate fluctuations and has not
invested in derivative-based financial instruments.
24
ITEM 8. INDEX TO FINANCIAL STATEMENTS
Page
GB Holdings, Inc. and Subsidiaries
Reports of Independent Public Accountants............................................................ 26 - 27
................................................................................................. and 61
Consolidated Balance Sheets of GB Holdings, Inc.
and Subsidiaries as of December 31, 2002 and 2001 ................................................. 28 - 29
Consolidated Statements of Operations of GB Holdings, Inc.
and Subsidiaries for the Years Ended December 31, 2002 and 2001 (Post-reorganization),
the Period October 1, 2000 through December 31, 2000 (Post-reorganization),
the Period January 1, 2000 through September 30, 2000 (Pre-reorganization)......................... 30
Consolidated Statement of Changes in Shareholder's Equity (Deficit) of GB
Holdings, Inc. and Subsidiaries for the Years Ended December 31, 2002 and
2001 (Post-reorganization), Period October 1, 2000 through December 31,
2000 (Post-reorganization), the Period January 1, 2000
through September 30, 2000 (Pre-reorganization) ................................................... 31
Consolidated Statements of Cash Flows of GB Holdings, Inc.
and Subsidiaries for the Years Ended December 31, 2002 and 2001, the Period October 1,
2000 through December 31, 2000 (Post-reorganization), the Period January 1,
2000 through September 30, 2000 (Pre-reorganization)............................................... 32
Notes to Consolidated Financial Statements of GB Holdings, Inc.
and Subsidiaries .................................................................................. 33
Schedule II, Valuation and Qualifying Accounts of GB Holdings, Inc. .
and Subsidiaries for the Years Ended December 31, 2002 and 2001 (Post-reorganization),
Period October 1, 2000 through December 31, 2000 (Post-reorganization), the Period
January 1, 2000 through September 30, 2000 (Pre-reorganization) ................................... 62
25
Independent Auditors' Report
To the Shareholders of GB Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of GB Holdings, Inc.
and subsidiaries as of December 31, 2002 and the related consolidated statements
of operation, shareholders' equity, and cash flows for the year then ended, as
listed in the accompanying index. In connection with our audit of the 2002
consolidated financial statements, we also have audited the 2002 consolidated
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements and consolidated financial
statement schedule based on our audit. The 2001 and 2000 consolidated financial
statements of GB Holdings, Inc. and subsidiaries as listed in the accompanying
index were audited by other auditors who have ceased operations. Those auditors
expressed an unqualified opinion on those consolidated financial statements,
before the revision related to the adoption of Emerging Issues Task Force 01-09
"Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)" ("EITF 01-09"), described in Note 3 to the
consolidated financial statements, in their report dated March 8, 2002.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
GB Holdings, Inc. and subsidiaries as of December 31, 2002, and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, the related 2002 consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note 3 to the consolidated financial statements, the company
adopted EITF 01-09, as of January 1, 2002.
As discussed above, the 2001 and 2000 consolidated financial statements of GB
Holdings, Inc. and subsidiaries as listed in the accompanying index were audited
by other auditors who have ceased operations. As described in Note 3, these
consolidated financial statements have been revised to include application of
EITF 01-09, which was adopted by the company as of January 1, 2002. In our
opinion, the disclosures required by EITF 01-09 for 2001 and 2000 as discussed
in Note 3 are appropriate. However, we were not engaged to audit, review, or
apply any procedures to the 2001 and 2000 consolidated financial statements of
GB Holdings, Inc. and subsidiaries other than with respect to such disclosures
and, accordingly, we do not express an opinion or any other form of assurance on
the 2001 and 2000 consolidated financial statements taken as a whole.
/s/ KPMG LLP
Short Hills, New Jersey
February 20, 2003
26
INFORMATION REGARDING PREDECESSOR INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
THE FOLLOWING REPORT IS A COPY OF A PREVIOUSLY ISSUED REPORT BY ARTHUR ANDERSEN
LLP ("ANDERSEN"). THE REPORT HAS NOT BEEN REISSUED BY ANDERSEN NOR HAS ANDERSEN
CONSENTED TO ITS INCLUSION IN THIS ANNUAL REPORT ON FORM 10-K. THE ANDERSEN
REPORT REFERS TO THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2000 AND THE
CONSOLIDATED STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY/DEFICIT AND CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 (PRE-REORGANIZATION) WHICH ARE NO LONGER
INCLUDED IN THE ACCOMPANYING FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of 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,
2001 and 2000, and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the period ended December 31,
2001 (post-reorganization), the periods from October 1, 2000 through December
31, 2000 (post-reorganization), January 1, 2000 through September 30, 2000
(pre-reorganization) and 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, 2001 and 2000, and the results of their
operations and their cash flows for the period ended December 31, 2001
(post-reorganization), the periods from October 1, 2000 through December 31,
2000 (post-reorganization), January 1, 2000 through September 30, 2000
(pre-reorganization), and 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
March 8, 2002
27
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Post-reorganization)
ASSETS
December 31, December 31,
2002 2001
--------------- ---------------
Current Assets:
Cash and cash equivalents $ 50,645,000 $ 57,369,000
Accounts receivable, net of allowances
of $11,301,000 and $14,406,000, respectively 4,976,000 8,911,000
Inventories 1,857,000 2,431,000
Income tax deposits 1,359,000 759,000
Prepaid expenses and other current assets 3,067,000 2,266,000
--------------- ---------------
Total current assets 61,904,000 71,736,000
--------------- ---------------
Property and Equipment:
Land 54,344,000 54,814,000
Buildings and improvements 91,657,000 84,890,000
Equipment 46,119,000 27,321,000
Construction in progress 3,597,000 17,003,000
--------------- ---------------
195,717,000 184,028,000
Less - accumulated depreciation and
amortization (26,095,000) (13,016,000)
--------------- ---------------
Property and equipment, net 169,622,000 171,012,000
--------------- ---------------
Other Assets:
Obligatory investments, net of allowances of
$10,028,000 and $9,290,000, respectively 10,069,000 9,302,000
Other assets 3,117,000 3,872,000
--------------- ---------------
Total other assets 13,186,000 13,174,000
--------------- ---------------
$ 244,712,000 $ 255,922,000
=============== ===============
The accompanying notes to consolidated financial
statements are an integral part of these consolidated financial statements.
28
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Post-reorganization)
LIABILITIES AND SHAREHOLDER'S EQUITY
December 31, December 31,
2002 2001
--------------- ---------------
Current Liabilities
Current maturities of long-term debt $ -- $ 19,000
Accounts payable 5,598,000 6,843,000
Accrued liabilities -
Salaries and wages 3,717,000 4,144,000
Interest 3,092,000 3,092,000
Gaming obligations 3,752,000 4,692,000
Insurance 1,805,000 1,670,000
Other 3,955,000 4,602,000
--------------- ---------------
Total current liabilities 21,919,000 25,062,000
--------------- ---------------
Long-Term Debt, net of current maturities 110,000,000 110,352,000
--------------- ---------------
Other Noncurrent Liabilities 3,445,000 3,839,000
--------------- ---------------
Commitments and Contingencies
Shareholder's Equity:
Preferred stock, $.01 par value per share;
20,000,000 shares authorized; 0 shares outstanding -- --
Common Stock, $.01 par value per share;
20,000,000 shares authorized;
10,000,000 shares issued and outstanding 100,000 100,000
Additional paid-in capital 124,900,000 124,900,000
Accumulated deficit (15,652,000) (8,331,000)
--------------- ---------------
Total shareholder's equity 109,348,000 116,669,000
--------------- ---------------
$ 244,712,000 $ 255,922,000
=============== ===============
The accompanying notes to consolidated financial
statements are an integral part of these consolidated financial statements.
29
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Post-reorganization Pre-reorganization
------------------------------------------------------- ---------------
Year Ended Year Ended October 1, 2000 January 1, 2000
December 31, December 31 through through
2002 2001 December 31, 2000 September 30, 2000
--------------- --------------- --------------- ---------------
Revenues:
Casino $ 206,417,000 $ 232,369,000 $ 52,026,000 $ 177,731,000
Rooms 11,140,000 11,570,000 2,307,000 7,173,000
Food and beverage 23,305,000 29,408,000 7,201,000 21,122,000
Other 3,739,000 4,683,000 951,000 3,549,000
--------------- --------------- --------------- ---------------
244,601,000 278,030,000 62,485,000 209,575,000
Less - promotional allowances (51,128,000) (62,281,000) (15,774,000) (47,112,000)
--------------- --------------- --------------- ---------------
Net revenues 193,473,000 215,749,000 46,711,000 162,463,000
--------------- --------------- --------------- ---------------
Expenses:
Casino 143,189,000 168,676,000 41,581,000 120,343,000
Rooms 2,985,000 3,391,000 664,000 2,106,000
Food and beverage 10,915,000 9,814,000 2,292,000 6,685,000
Other 2,625,000 3,374,000 890,000 2,851,000
General and administrative 12,799,000 11,512,000 2,175,000 7,663,000
Depreciation and amortization 15,457,000 12,133,000 3,834,000 9,414,000
Loss on impairment of fixed assets 1,282,000 -- -- --
Loss on disposal of assets 185,000 20,000 11,000 10,000
--------------- --------------- --------------- ---------------
Total expenses 189,437,000 208,920,000 51,447,000 149,072,000
--------------- --------------- --------------- ---------------
Income (loss) from operations 4,036,000 6,829,000 (4,736,000) 13,391,000
--------------- --------------- --------------- ---------------
Non-operating income (expense):
Interest income 1,067,000 2,671,000 1,338,000 518,000
Interest expense (contractual interest
of $16,545,000 for the nine months
ended September 30, 2000) (11,640,000) (11,279,000) (3,133,000) (366,000)
Reorganization and other related costs -- -- 34,000 (2,807,000)
--------------- --------------- --------------- ---------------
Total non-operating expense, net (10,573,000) (8,608,000) (1,761,000) (2,655,000)
--------------- --------------- --------------- ---------------
Income (loss) before income taxes,
and extraordinary items (6,537,000) (1,779,000) (6,497,000) 10,736,000
Income tax provision (784,000) (55,000) -- --
--------------- --------------- --------------- ---------------
Income (loss) before extraordinary items (7,321,000) (1,834,000) (6,497,000) 10,736,000
Extraordinary gain on prepetition debt
discharge -- -- -- 14,795,000
--------------- --------------- --------------- ---------------
Net income (loss) $ (7,321,000) $ (1,834,000) $ (6,497,000) $ 25,531,000
=============== =============== =============== ===============
Basic/diluted loss per common share $ (0.73) $ (0.18) $ (0.65)
=============== =============== ===============
Weighted average common shares outstanding 10,000,000 10,000,000 10,000,000
=============== =============== ===============
The accompanying notes to consolidated financial
statements are an integral part of these consolidated financial statements.
30
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDER'S EQUITY (DEFICIT)
For the Year ended December 31, 2002 and 2001 (Post-reorganization),
For the Period October 1, 2000 through December 31, 2000 (Post-reorganization),
January 1, 2000 through September 30, 2000 (Pre-reorganization)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
--------------- --------------- --------------- ---------------
BALANCE, January 1, 2000 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 10,000,000 100,000 124,900,000 --
Net Loss Post-reorganization -- -- -- (6,497,000)
--------------- --------------- --------------- ---------------
BALANCE, December 31, 2000 10,000,000 100,000 124,900,000 (6,497,000)
Net Loss Post-reorganization -- -- -- (1,834,000)
--------------- --------------- --------------- ---------------
BALANCE, December 31, 2001 10,000,000 $ 100,000 $ 124,900,000 $ (8,331,000)
Net Loss Post-reorganization -- -- -- (7,321,000)
--------------- --------------- --------------- ---------------
BALANCE, December 31, 2002 10,000,000 $ 100,000 $ 124,900,000 $ (15,652,000)
=============== =============== =============== ===============
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
31
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Post-reorganization Pre-reorganization
------------------------------------------------------- ---------------
Year Ended Year Ended October 1, 2000 January 1, 2000
December 31, December 31, through through
2002 2001 December 31, 2000 September 30, 2000
--------------- --------------- --------------- ---------------
OPERATING ACTIVITIES:
Net income (loss) $ (7,321,000) $ (1,834,000) $ (6,497,000) $ 25,531,000
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 15,457,000 12,133,000 3,834,000 9,414,000
Loss on impairment of fixed assets 1,282,000 -- -- --
Loss on disposal of assets 185,000 20,000 11,000 10,000
Provision for doubtful accounts, net 1,547,000 4,991,000 1,423,000 1,637,000
Deferred income tax (provision) benefit (682,000) 292,000 -- --
Decrease (increase) in accounts receivable 2,349,000 (2,930,000) (3,157,000) (184,000)
(Decrease) increase in accounts payable
and accrued expenses (3,125) (5,605) 5,370,000 1,956
Net change in other current assets and
liabilities (1,026) 27,000 (405,000) 3,452
Net change in other noncurrent assets and
liabilities 285,000 (2,580) (4,708,000) (11,083)
Extraordinary gain on prepetition debt
discharge -- -- -- (14,795,000)
--------------- --------------- --------------- ---------------
Net cash (used in) provided by
operating activities 9,673 5,748,000 (4,129,000) 15,938,000
--------------- --------------- --------------- ---------------
INVESTING ACTIVITIES:
Purchase of property and equipment (14,058) (23,095,000) (2,934,000) (14,422,000)
Proceeds from disposition of assets 320,000 4,000 -- 13,000
Proceeds from sale of obligatory investments 208,000 114,000 111,000 330,000
Purchase of obligatory investments (2,496,000) (2,838,000) (803,000) (2,014,000)
--------------- --------------- --------------- ---------------
Net cash used in investing activities (16,026,000) (25,815,000) (3,626,000) (16,093,000)
--------------- --------------- --------------- ---------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- -- -- 65,000,000
Repayments of long-term debt (371,000) (467,000) (20,000) (64,000)
--------------- --------------- --------------- ---------------
Net cash (used in) provided by financing
activities (371,000) (467,000) (20,000) 64,936,000
--------------- --------------- --------------- ---------------
Net (decrease) increase in cash and cash