<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________.
Commission file number 33-69716
--------
GB PROPERTY FUNDING CORP.
GB HOLDINGS, INC.
GREATE BAY HOTEL AND CASINO, INC.
---------------------------------
(Exact name of each Registrant as specified in its charter)
DELAWARE 75-2502290
DELAWARE 75-2502293
NEW JERSEY 22-2242014
---------- -------------
(States or other jurisdictions of (I.R.S. Employer
incorporation or organization) Identification No.'s)
TWO GALLERIA TOWER, SUITE 2200
13455 NOEL ROAD, LB48
DALLAS, TEXAS 75240
------------------------------ --------------
(Address of principal executive offices) (Zip Code)
(Registrants' telephone number, including area code): (972) 386-9777
--------------
(NOT APPLICABLE)
----------------
(Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether each of the Registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
------ -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
OUTSTANDING AT
REGISTRANT CLASS MAY 12, 1997
- ---------------------------------- ----------------------------- -------------
GB Property Funding Corp. Common stock, $1.00 par value 1,000 shares
GB Holdings, Inc. Common stock, $1.00 par value 1,000 shares
Greate Bay Hotel and Casino, Inc. Common stock, no par value 100 shares
Each of the Registrants meet the conditions set forth in General Instruction
(H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the
reduced disclosure format.
1
<PAGE>
PART I: FINANCIAL INFORMATION
- ------------------------------
INTRODUCTORY NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------
The registered securities consist of 10 7/8% First Mortgage Notes (the "10
7/8% First Mortgage Notes") in the principal amount of $185,000,000 due January
15, 2004 issued by GB Property Funding Corp. ("GB Property Funding") and listed
on the American Stock Exchange. GB Property Funding's obligations are
unconditionally guaranteed by GB Holdings, Inc. ("Holdings"), a Delaware
corporation with principal executive offices at Two Galleria Tower, Suite 2200,
13455 Noel Road, LB48, Dallas, TX 75240 and by Greate Bay Hotel and Casino, Inc.
("GBHC"), a New Jersey corporation and a wholly owned subsidiary of Holdings
with principal offices at 136 South Kentucky Avenue, Atlantic City, New Jersey
08401.
GB Property Funding is wholly owned by Holdings. Holdings is a wholly owned
subsidiary of Pratt Casino Corporation ("PCC"), which is an indirect wholly
owned subsidiary of Greate Bay Casino Corporation ("GBCC"). GBCC is an American
Stock Exchange listed company subject to the reporting requirements of the
Securities Act of 1934.
GB Property Funding was organized during September 1993 as a special purpose
subsidiary of Holdings for the purpose of borrowing funds through the issuance
of the 10 7/8% First Mortgage Notes for the benefit of GBHC.
GBHC owns the Sands Hotel and Casino located in Atlantic City, New Jersey
(the "Sands"). Substantially all of Holdings' assets and operations relate to
the Sands. Historically, the Sands' gaming operations have been highly seasonal
in nature, with the peak activity occurring from May to September. Consequently,
the results of operations for the three month period ended March 31, 1997 are
not necessarily indicative of the operating results to be reported for the full
year.
The financial statements of GB Property Funding and the consolidated
financial statements of Holdings as of March 31, 1997 and for the three month
periods ended March 31, 1997 and 1996 have been prepared without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, their respective financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly their respective financial positions as of March 31, 1997, and
their respective results of operations and their cash flows for the three month
periods ended March 31, 1997 and 1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in GB
Property Funding, Holdings and GBHC's 1996 Annual Report on Form 10-K.
2
<PAGE>
GB PROPERTY FUNDING CORP.
(WHOLLY OWNED BY GB HOLDINGS, INC.)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 1,000 $ 1,000
Interest receivable from affiliate 4,247,000 9,277,000
Due from affiliate 4,000 -
Note receivable from affiliate 5,000,000 2,500,000
------------ ------------
Total current assets 9,252,000 11,778,000
------------ ------------
Note receivable from affiliate 180,000,000 182,500,000
------------ ------------
$189,252,000 $194,278,000
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 5,000,000 $ 2,500,000
Accounts payable 4,000 -
Accrued interest payable 4,247,000 9,277,000
------------ ------------
Total current liabilities 9,251,000 11,777,000
------------ ------------
Long-term debt 180,000,000 182,500,000
------------ ------------
Shareholder's equity (Note 1):
Common stock, $1.00 par value per share,
1,000 shares authorized and outstanding 1,000 1,000
------------ ------------
$189,252,000 $194,278,000
============ ============
</TABLE>
The accompanying introductory notes and notes to financial statements
are an integral part of these balance sheets.
3
<PAGE>
GB PROPERTY FUNDING CORP.
(WHOLLY OWNED BY GB HOLDINGS, INC.)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Interest income $5,030,000 $5,030,000
Expenses:
Interest expense 5,030,000 5,030,000
---------- ----------
Net income $ - $ -
========== ==========
</TABLE>
The accompanying introductory notes and notes to financial statements
are an integral part of these financial statements.
4
<PAGE>
GB PROPERTY FUNDING CORP.
(WHOLLY OWNED BY GB HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ - $ -
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease in interest receivable from affiliate 5,030,000 5,030,000
Decrease in accrued interest payable (5,030,000) (5,030,000)
----------- -----------
Net cash provided by operating activities - -
----------- -----------
Net change in cash - -
Cash at beginning of period 1,000 1,000
----------- -----------
Cash at end of period $ 1,000 $ 1,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to financial statements
are an integral part of these financial statements.
5
<PAGE>
GB PROPERTY FUNDING CORP.
(WHOLLY OWNED BY GB HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND OPERATIONS
GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation,
was incorporated on September 29, 1993. GB Property Funding is a wholly owned
subsidiary of GB Holdings, Inc. ("Holdings"), a Delaware corporation which is an
indirect, wholly owned subsidiary of Greate Bay Casino Corporation ("GBCC").
Holdings was incorporated in September 1993 and, on February 17, 1994, acquired
through capital contributions by its parent, all of the outstanding capital
stock of Greate Bay Hotel and Casino, Inc. ("GBHC"), which owns the Sands Hotel
and Casino in Atlantic City, New Jersey (the "Sands"). GB Property Funding was
formed for the purpose of borrowing $185,000,000 for the benefit of GBHC; such
debt was issued during February 1994 at the rate of 10 7/8% per annum and the
proceeds were loaned to GBHC (see Note 2).
The operation of an Atlantic City casino/hotel is subject to significant
regulatory control. Under provisions of the New Jersey Casino Control Act, GBHC
is required to maintain a nontransferable license to operate a casino in
Atlantic City.
GB Property Funding has no operations and is dependent on the repayment of
its note to GBHC for servicing its debt obligations. Administrative services
for GB Property Funding are provided by other GBCC subsidiaries at no charge.
The cost of such services is not significant.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The financial statements as of March 31, 1997 and for the three month periods
ended March 31, 1997 and 1996 have been prepared by GB Property Funding without
audit. In the opinion of management, these financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of GB Property Funding as of March 31,
1997, and the results of its operations and cash flows for the three month
periods ended March 31, 1997 and 1996.
(2) LONG-TERM DEBT
On February 17, 1994, GB Property Funding issued $185,000,000 of non-recourse
first mortgage notes due January 15, 2004 (the "10 7/8% First Mortgage Notes").
Interest on the notes accrues at the rate of 10 7/8% per annum, payable
semiannually commencing July 15, 1994. Interest only is payable during the
first three years. Commencing on July 15, 1997, semiannual principal payments
of $2,500,000 will become due on each interest payment date with the balance due
at maturity. Such semiannual payments may be made in cash or by tendering to
the trustee 10 7/8% First Mortgage Notes previously
6
<PAGE>
GB PROPERTY FUNDING CORP.
(WHOLLY OWNED BY GB HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
purchased or otherwise acquired by GB Property Funding. GB Property Funding
acquired $2,500,000 face amount of 10 7/8% First Mortgage Notes during May 1997
which it intends to use to make its July 15, 1997 required principal payment.
The indenture for the 10 7/8% First Mortgage Notes contains various
provisions which, among other things, restrict the ability of Holdings and its
subsidiaries to pay dividends to GBCC, to merge, consolidate or sell
substantially all of their assets or to incur additional indebtedness beyond
certain limitations. In addition, the indenture requires the maintenance of
certain cash balances and requires minimum expenditures, as defined in the
indenture, for property and fixture renewals, replacements and betterments at
the Sands. The proceeds of the 10 7/8% First Mortgage Notes were loaned to GBHC
on the same terms and conditions.
Interest paid and received with respect to the 10 7/8% First Mortgage Notes
and the loan to GBHC was $10,060,000 during each of the three month periods
ended March 31, 1997 and 1996.
(3) INCOME TAXES
GB Property Funding is included in the consolidated federal income tax return
of GBCC and, for periods prior to December 31, 1996, was included in the
consolidated federal income tax return of Hollywood Casino Corporation ("HCC"),
GBCC's parent prior to that date. Pursuant to agreements between Holdings and
GBCC, GB Property Funding's provision for federal income taxes is calculated as
if a separate federal return were filed. For the three month periods ended
March 31, 1997 and 1996, no provision or payments were made under the
agreements.
7
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 12,518,000 $ 15,624,000
Accounts receivable, net of allowances
of $14,757,000 and $15,524,000, respectively 9,620,000 10,112,000
Inventories 3,745,000 3,873,000
Due from affiliate 2,411,000 2,382,000
Refundable deposits and other current assets 2,942,000 3,180,000
------------- -------------
Total current assets 31,236,000 35,171,000
------------- -------------
Property and Equipment:
Land 38,093,000 38,093,000
Buildings and improvements 185,508,000 185,508,000
Operating equipment 92,526,000 91,865,000
Construction in progress 1,595,000 1,535,000
------------- -------------
317,722,000 317,001,000
Less - accumulated depreciation and
amortization (164,232,000) (160,987,000)
------------- -------------
Net property and equipment 153,490,000 156,014,000
------------- -------------
Other Assets:
Obligatory investments 6,650,000 6,382,000
Due from affiliate 17,969,000 17,606,000
Deferred financing costs and other assets 9,024,000 9,265,000
------------- -------------
Total other assets 33,643,000 33,253,000
------------- -------------
$ 218,369,000 $ 224,438,000
============= =============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
8
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 5,012,000 $ 2,512,000
Short-term credit facilities - 2,000,000
Short-term borrowings from affiliates 13,000,000 6,500,000
Accounts payable 6,053,000 7,881,000
Accrued liabilities -
Salaries and wages 5,485,000 4,981,000
Interest 6,716,000 10,978,000
Insurance 3,172,000 3,112,000
Other 6,597,000 6,683,000
Due to affiliates 600,000 826,000
Other current liabilities 4,017,000 5,429,000
------------ ------------
Total current liabilities 50,652,000 50,902,000
------------ ------------
Long-Term Debt 190,427,000 192,930,000
------------ ------------
Other Noncurrent Liabilities 1,495,000 1,550,000
------------ ------------
Commitments and Contingencies
Shareholder's Deficit:
Common stock, $1.00 par value per share;
1,000 shares authorized and
outstanding 1,000 1,000
Additional paid-in capital 18,438,000 18,438,000
Accumulated deficit (42,644,000) (39,383,000)
------------ ------------
Total shareholder's deficit (24,205,000) (20,944,000)
------------ ------------
$218,369,000 $224,438,000
============ ============
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated balance sheets.
9
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Revenues:
Casino $58,330,000 $57,605,000
Rooms 2,237,000 2,135,000
Food and beverage 7,920,000 8,524,000
Other 965,000 1,689,000
----------- -----------
69,452,000 69,953,000
Less - promotional allowances (6,255,000) (7,119,000)
----------- -----------
Net revenues 63,197,000 62,834,000
----------- -----------
Expenses:
Casino 49,009,000 54,494,000
Rooms 596,000 533,000
Food and beverage 2,339,000 2,464,000
Other 529,000 538,000
General and administrative 4,660,000 4,633,000
Depreciation and amortization 3,874,000 5,107,000
----------- -----------
Total expenses 61,007,000 67,769,000
----------- -----------
Income (loss) from operations 2,190,000 (4,935,000)
----------- -----------
Non-operating income (expenses):
Interest income 372,000 421,000
Interest expense (5,830,000) (5,468,000)
Gain on disposal of assets 7,000 15,000
----------- -----------
Total non-operating expense, net (5,451,000) (5,032,000)
----------- -----------
Loss before income taxes (3,261,000) (9,967,000)
Income tax benefit - 3,734,000
----------- -----------
Net loss $(3,261,000) $(6,233,000)
=========== ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
10
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(3,261,000) $(6,233,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,874,000 5,107,000
Gain on disposal of assets (7,000) (15,000)
Provision for doubtful accounts 650,000 567,000
Deferred income tax benefit - (329,000)
Increase in accounts receivable (158,000) (420,000)
Decrease in accounts payable and accrued expenses (5,612,000) (3,954,000)
Net change in other current assets and liabilities (1,464,000) (3,424,000)
Net change in other noncurrent assets and liabilities (241,000) (298,000)
----------- -----------
Net cash used in operating activities (6,219,000) (8,999,000)
----------- -----------
INVESTING ACTIVITIES:
Net property and equipment additions (721,000) (1,130,000)
Proceeds from disposition of assets 7,000 15,000
Obligatory investments (670,000) (762,000)
----------- -----------
Net cash used in investing activities (1,384,000) (1,877,000)
----------- -----------
FINANCING ACTIVITIES:
(Repayments) borrowings on credit facilities (2,000,000) 2,000,000
Borrowings from affiliates 6,500,000 -
Repayments of long-term debt (3,000) (3,000)
----------- -----------
Net cash provided by financing activities 4,497,000 1,997,000
----------- -----------
Net decrease in cash and cash equivalents (3,106,000) (8,879,000)
Cash and cash equivalents at beginning of period 15,624,000 21,769,000
----------- -----------
Cash and cash equivalents at end of period $12,518,000 $12,890,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to consolidated financial
statements are an integral part of these consolidated statements.
11
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
GB Holdings, Inc. ("Holdings") is a Delaware corporation and a wholly owned
subsidiary of Pratt Casino Corporation ("PCC"), also a Delaware corporation.
PCC was incorporated during September 1993 and is wholly owned by PPI
Corporation, a New Jersey corporation and a wholly owned subsidiary of Greate
Bay Casino Corporation ("GBCC"). On February 17, 1994, Holdings acquired Greate
Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation, through a capital
contribution by its parent. GBHC's principal business activity is its ownership
of the Sands Hotel and Casino in Atlantic City, New Jersey (the "Sands"). The
Sands is managed by New Jersey Management, Inc. ("NJMI"), also a wholly owned
subsidiary of PCC. GB Property Funding Corp. ("GB Property Funding"), a
Delaware corporation and a wholly owned subsidiary of Holdings, was incorporated
in September 1993 for the purpose of borrowing funds through the issuance of
$185,000,000 of ten-year, nonrecourse first mortgage notes for the benefit of
GBHC; such debt was issued in February 1994 at the rate of 10 7/8% per annum and
the proceeds were loaned to GBHC (see Note 3). Holdings has no operating
activities and its only significant asset is its investment in GBHC. The
accompanying consolidated financial statements include the accounts and
operations of Holdings, GBHC and GB Property Funding; all significant
intercompany balances and transactions have been eliminated.
GBHC estimates that a significant amount of the Sands' revenues are derived
from patrons living in southeastern Pennsylvania, northern New Jersey and
metropolitan New York City. Competition in the Atlantic City gaming market is
intense and management believes that this competition will continue or intensify
in the future.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
GBHC is self insured for a portion of its general liability, certain health
care and other liability exposures. Accrued insurance includes estimates of
such accrued liabilities based on an evaluation of the merits of individual
claims and historical claims experience; accordingly, GBHC's ultimate liability
may differ from the amounts accrued.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets" requires, among other things, that an entity
review its long-lived assets and certain related intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable. As a result of its review, GBHC does not believe
that any material impairment currently exists related to its long-lived assets.
12
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The consolidated financial statements as of March 31, 1997 and for the three
month periods ended March 31, 1997 and 1996 have been prepared by Holdings
without audit. In the opinion of management, these consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the consolidated financial position of
Holdings as of March 31, 1997, and the results of its operations and cash flows
for the three month periods ended March 31, 1997 and 1996.
The accompanying consolidated financial statements have been prepared
assuming Holdings will continue as a going concern. Holdings incurred a net
loss exclusive of management fees of $26,726,000 in 1996 which in turn generated
an operating cash flow deficit of $6,070,000. As a consequence, Holdings has
had to rely on borrowings from affiliates to meet its debt service requirements
and to fund working capital needs during its seasonal low operating periods.
The availability of additional borrowings from GBCC and other subsidiaries of
GBCC during 1997 is limited. Hollywood Casino Corporation ("HCC") which, prior
to December 31, 1996, owned approximately 80% of the outstanding common stock of
GBCC, has loaned $6,500,000 to GBCC for use by the Sands (see Note 5); however,
HCC is subject to certain indenture provisions which restrict its ability to
provide ongoing financial support to an additional $3,500,000.
Holdings' principal and interest requirements during the twelve month period
ending March 31, 1998 amount to $25,038,000. Due to mild winter weather
conditions compared to a year ago and an abatement of the intense marketing
competition for bus customers, operating results for the first quarter of 1997
reflect a substantial improvement over 1996. In the absence of a resumption of
the marketing wars which plagued Atlantic City casinos in 1996 or other
unforeseen events, management believes that its operating plan for 1997 is
attainable and will provide sufficient funds from operating cash flow which,
together with funds available from affiliates, if required, will enable Holdings
to satisfy its debt service requirements through the first quarter of 1998.
(2) SHORT-TERM CREDIT FACILITIES
As of December 31, 1996, GBHC had $2,000,000 outstanding under a bank line
of credit. Borrowings under the line of credit were guaranteed to the extent of
$2,000,000 by PCC, which pledged a certificate of deposit in the face amount of
$2,000,000 as collateral for the line of credit. The line of credit was repaid
upon maturity of the certificate of deposit during January 1997 with proceeds
from affiliate borrowings (see Note 5) and the line of credit was cancelled.
13
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(3) LONG-TERM DEBT AND PLEDGE OF ASSETS
Substantially all of Holdings' and GBHC's assets are pledged in connection
with their long-term indebtedness.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
10 7/8% first mortgage notes, due 2004 (a) $185,000,000 $185,000,000
14 5/8% affiliate loan, due 2005 (b) 10,000,000 10,000,000
Other 439,000 442,000
------------ ------------
Total indebtedness 195,439,000 195,442,000
Less - current maturities (5,012,000) (2,512,000)
------------ ------------
Total long-term debt $190,427,000 $192,930,000
============ ------------
</TABLE>
- --------------------------
(a) On February 17, 1994, the Sands obtained $185,000,000 from GB Property
Funding, which issued $185,000,000 of non-recourse first mortgage notes due
January 15, 2004 (the "10 7/8% First Mortgage Notes"). Interest on the
notes accrues at the rate of 10 7/8% per annum, payable semiannually
commencing July 15, 1994. Interest only is payable during the first three
years. Commencing on July 15, 1997, semiannual principal payments of
$2,500,000 will become due on each interest payment date with the balance
due at maturity. Such semiannual payments may be made in cash or by
tendering 10 7/8% First Mortgage Notes previously purchased or otherwise
acquired by Holdings. Holdings acquired $2,500,000 face amount of 10 7/8%
First Mortgage Notes during May 1997 which it intends to use to make its
July 15, 1997 required principal payment. The 10 7/8% First Mortgage Notes
are redeemable at the option of the issuer, in whole or in part, on or after
January 15, 1999 at stated redemption prices ranging up to 104.08% of par
plus accrued interest.
The indenture for the 10 7/8% First Mortgage Notes contains various
provisions which, among other things, restrict the ability of Holdings and
its subsidiaries to pay dividends to GBCC, to merge, consolidate or sell
substantially all of their assets or to incur additional indebtedness beyond
certain limitations. In addition, the indenture requires the maintenance of
certain cash balances and requires minimum expenditures, as defined in the
indenture, for property and fixture renewals, replacements and betterments
at the Sands.
(b) On February 17, 1994, GBHC issued a $10,000,000 subordinated promissory note
to an affiliate. The note bears interest at the rate of 14 5/8% per annum,
payable semiannually commencing
14
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
August 17, 1994, subject to maintaining average daily cash balances required
by the indenture for the 10 7/8% First Mortgage Notes, with the principal
due in February 2005. As a result of such payment restrictions, interest has
been paid only through February 17, 1996.
Scheduled payments of long-term debt as of March 31, 1997 are set forth
below:
<TABLE>
<CAPTION>
<S> <C>
1997 (nine months) $ 2,509,000
1998 5,013,000
1999 5,014,000
2000 5,016,000
2001 5,017,000
Thereafter 172,870,000
------------
Total $195,439,000
============
</TABLE>
Interest paid amounted to $10,092,000 and $10,849,000, respectively, during
the three month periods ended March 31, 1997 and 1996.
(4) INCOME TAXES
Components of the benefit for income taxes consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
------------ ----------
<S> <C> <C>
Benefit in lieu of federal income taxes:
Current $ 948,000 $2,643,000
Deferred 67,000 254,000
State income tax benefit:
Current 265,000 762,000
Deferred 19,000 75,000
Valuation allowance (1,299,000) -
----------- ----------
$ - $3,734,000
=========== ==========
</TABLE>
Holdings is included in the consolidated federal income tax return of GBCC
and, for periods prior to December 31, 1996, was included in the consolidated
federal income tax return of HCC, GBCC's parent prior to that date. Pursuant to
agreements between Holdings, PCC and GBCC, Holdings' provision for federal
income taxes is based on the amount of tax which would be provided if a separate
federal income tax return were filed. The payment of taxes in accordance with
the tax allocation agreements is subject to the approval of the New Jersey
Casino Control Commission (the "Casino Commission"). Holdings made no federal
or state income tax payments during the three month periods ended March 31,
1997 and 1996.
15
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Federal and state income tax provisions or benefits are based upon estimates
of the results of operations for the current period and reflect the
nondeductibility for income tax purposes of certain items, including certain
amortization, meals and entertainment and other expenses.
Deferred income taxes result primarily from the use of the allowance method
rather than the direct write-off method for doubtful accounts, the use of
accelerated methods of depreciation for federal and state income tax purposes
and differences in the timing of deductions taken between tax and financial
reporting purposes for contributions of and adjustments to the carrying value of
certain investment obligations and for vacation and other accruals.
The components of the deferred tax asset as of March 31, 1997 and December
31, 1996 were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 11,960,000 $ 10,746,000
Allowance for doubtful accounts 6,348,000 6,429,000
Other liabilities and accruals 2,854,000 2,734,000
Other 2,173,000 2,037,000
------------ ------------
Total deferred tax assets 23,335,000 21,946,000
------------ ------------
Deferred tax liabilities:
Depreciation and amortization (8,610,000) (8,520,000)
Other (597,000) (597,000)
------------ ------------
Total deferred tax liabilities (9,207,000) (9,117,000)
------------ ------------
Net deferred tax asset 14,128,000 12,829,000
Valuation allowance (14,128,000) (12,829,000)
------------ ------------
$ - $ -
============ ============
</TABLE>
16
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
At March 31, 1997, Holdings and its subsidiaries have net operating loss
carryforwards ("NOL's") totaling approximately $27 million, none of which expire
before the year 2009 for federal tax purposes and the year 2001 for state tax
purposes. Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109") requires that the tax benefit of NOL's and deferred
tax assets resulting from temporary differences be recorded as an asset and, to
the extent that management can not assess that the utilization of all or a
portion of such NOL's and deferred tax assets is more likely than not, a
valuation allowance should be recorded. Due to the continued availability of
NOL's originating in prior years for federal and state tax purposes and the book
and tax losses sustained in 1997 to date, management is unable to determine that
the realization of such asset is more likely than not and thus, has provided a
valuation allowance for the entire deferred tax asset at both March 31, 1997 and
December 31, 1996.
Sales or purchases of Holdings' common stock could cause a "change of
control", as defined in Section 382 of the Internal Revenue Code of 1986, as
amended, which would limit the ability of Holdings to utilize these loss
carryforwards in later tax periods. Should such a change of control occur, the
amount of annual loss carryforwards available for use would most likely be
substantially reduced. Future treasury regulations, administrative rulings or
court decisions may also effect Holdings' future utilization of its loss
carryforwards.
The Internal Revenue Service is currently examining the consolidated Federal
income tax returns of HCC for the years 1993 and 1994 in which Holdings' was
included. Management believes that the results of such examination will not
have a material adverse effect on the consolidated financial position of
Holdings.
Net receivables from and payables to affiliates representing deferred
federal income taxes in connection with the aforementioned tax allocation
agreements were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- -------------
<S> <C> <C>
Due from affiliate - current $1,752,000 $2,010,000
Due from affiliate - non-current 9,021,000 8,892,000
Due to affiliate - current - (129,000)
</TABLE>
(5) TRANSACTIONS WITH RELATED PARTIES
NJMI, under a management agreement with the Sands, is responsible for the
supervision, direction and control of the day-to-day operations of the Sands.
NJMI is entitled to receive annually (i) a basic consulting fee of 1.5% of
"adjusted gross revenues," as defined, and (ii) incentive compensation of
17
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
between 5% and 7.5% of gross operating profits in excess of certain stated
amounts should annual "gross operating profits," as defined, exceed $5,000,000.
Such fees amounted to $1,305,000 and $984,000 during the three month periods
ended March 31, 1997 and 1996, respectively, and are included in general and
administrative expenses in the accompanying consolidated financial statements.
Management fees payable to NJMI at March 31, 1997 and December 31, 1996 amounted
to $74,000 and $231,000, respectively.
GBHC licenses the trade name "Sands" from GBCC, which licenses the name from
an unaffiliated third party. Amounts payable by the Sands under this agreement
are equal to the amounts paid to the unaffiliated third party. Such charges
amounted to $67,000 and $61,000 for the three month periods ended March 31, 1997
and 1996, respectively.
An advance to a GBCC subsidiary in the amount of $5,672,000 was outstanding
as of March 31, 1997 and December 31, 1996 which accrues interest at the rate of
16.5% per annum. Interest receivable with respect to this advance was
$3,276,000 and $3,042,000 at March 31, 1997 and December 31, 1996, respectively.
The advance and related interest receivable are both included in noncurrent due
from affiliates in the accompanying consolidated balance sheets.
During the third quarter of 1996, GBCC borrowed a total of $6,500,000 from
HCC which it then loaned to GBHC for working capital purposes. Such borrowings
accrue interest at the rate of 13 3/4% per annum payable quarterly commencing
October 1, 1996. During the first quarter of 1997, GBHC borrowed an additional
$1,500,000 from GBCC on similar terms. GBHC also borrowed $5,000,000 from
another subsidiary of GBCC during January 1997 at the rate of 14 5/8% per annum
payable semiannually commencing July 15, 1997. Interest accrued on affiliate
loans in the amount of $827,000 and $410,000 is included in interest payable in
the accompanying consolidated balance sheets at March 31, 1997 and December 31,
1996, respectively. Repayment of such borrowings from GBCC and the payment of
the related interest are subject to approval by the Casino Commission.
Interest income (expense) incurred with respect to affiliate advances and
borrowings is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Net advances $(183,000) $ 234,000
Affiliate loan (Note 3) (365,000) (365,000)
</TABLE>
Interest accrued on the Affiliate loan (Note 3) of $1,641,000 and $1,276,000
is included in interest payable in the accompanying consolidated balance sheets
at March 31, 1997 and December 31, 1996, respectively.
18
<PAGE>
GB HOLDINGS, INC. AND SUBSIDIARIES
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
GBHC performs certain services for other subsidiaries of GBCC and for HCC and
its subsidiaries and invoices those companies for the Sands' cost of providing
those services. Similarly, GBHC is charged for certain legal, accounting and
other expenses incurred by GBCC and HCC and their respective subsidiaries that
relate to the Sands' business. Such affiliate transactions are summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Billings to affiliates $ 355,000 $ 426,000
Charges from affiliates (291,000) (296,000)
</TABLE>
(6) LITIGATION
GBHC is a party in various legal proceedings with respect to the conduct of
casino and hotel operations. Although a possible range of loss can not be
estimated, in the opinion of management, based upon the advice of counsel,
settlement or resolution of these proceedings should not have a material adverse
impact upon the consolidated financial position or results of operations of
Holdings and GBHC. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of the uncertainties
described above.
(7) RECLASSIFICATIONS
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the 1997 consolidated financial statement
presentation. Such reclassifications include the reallocation of certain costs
among the various operating departments and general and administrative expenses
resulting from the completion of a comprehensive internal review during 1996 of
departmental allocations. Management believes that such reclassifications better
reflect the matching of costs with the associated revenues.
19
<PAGE>
GB HOLDINGS, INC.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements about
the business, financial condition and prospects of Holdings. The actual results
could differ materially from those indicated by the forward-looking statements
because of various risks and uncertainties including, among other things,
changes in competition, economic conditions, tax regulations, state regulations
applicable to the gaming industry in general or Holdings in particular, and
other risks indicated in Holdings' filings with the Securities and Exchange
Commission. Such risks and uncertainties are beyond management's ability to
control and, in many cases, can not be predicted by management. When used in
this Quarterly Report on Form 10-Q, the words "believes", "estimates",
"anticipates" and similar expressions as they relate to Holdings or its
management are intended to identify forward-looking statements.
GENERAL
The Sands earned income from operations of $2.2 million during the three
month period ended March 31, 1997 compared to a loss from operations of $4.9
million reported for the three month period ended March 31, 1996. Operating
results during the first quarter of 1997 were favorably impacted by operating
efficiencies and by management's decision to discontinue certain aggressive
marketing programs. Operating results during the first quarter of 1996 were
adversely affected by record winter snowstorms in January, two additional
weekend snowstorms in February and the advent of both unprecedented and highly
aggressive marketing programs instituted by certain other Atlantic City casinos
seeking to increase their market share. Improved weather conditions and a
slight increase in slot hold percentage combined to produce an overall increase
in net revenues (from $62.8 million in 1996 to $63.2 million in 1997). In
addition, marketing and advertising costs decreased by $2.7 million (15.1%)
during the first quarter of 1997 compared to the same period of 1996 as a result
of an easing in competitive pressures.
20
<PAGE>
GB HOLDINGS, INC.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GAMING OPERATIONS
The following table sets forth certain unaudited financial and operating
data relating to the Sands' operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
-------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C>
REVENUES:
Table games $ 19,491 $ 20,175
Slot machines 38,000 36,441
Other (1) 839 989
-------- --------
Total $ 58,330 $ 57,605
======== ========
TABLE GAMES:
Gross Wagering
(Drop) (2) $131,044 $134,388
======== ========
Hold Percentages: (3)
Sands 14.9% 15.0%
Atlantic City Casino
Gaming Industry 15.7% 16.5%
SLOT MACHINES:
Gross Wagering
(Handle) (2) $454,190 $439,380
======== ========
Hold Percentage:(3)
Sands (4) 8.4% 8.3%
</TABLE>
____________________________
(1) Consists of revenues from poker and simulcast horse racing wagering.
(2) Gross wagering consists of the total value of chips purchased for table
games (excluding poker) and keno wagering (collectively, the "drop") and
coins wagered in slot machines ("handle").
(3) Casino revenues consist of the portion of gross wagering that a casino
retains and, as a percentage of gross wagering, is referred to as the "hold
percentage".
(4) The Sands' hold percentage with respect to slot machines is reflected on an
accrual basis. Comparable data for the Atlantic City gaming industry is not
available.
21
<PAGE>
GB HOLDINGS, INC.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Table games drop at the Sands declined $3.3 million (2.5%) during the three
month period ended March 31, 1997 compared with the same period of 1996. The
Sands' decrease compares to an increase of 12.2% in table drop for all other
Atlantic City casinos during the same period. As a result, the Sands' table
game market share (expressed as a percentage of the Atlantic City industry
aggregate table game drop) decreased to 7.2% during the three month period ended
March 31, 1997 from 8.2% during the same period of 1996. The Sands' table game
drop decrease is primarily attributable to declines in patron volume from the
unrated or "mass" segment. Expansions of other Atlantic City casinos resulted
in an increase of over 110,000 square feet of gaming space and 106 tables at
March 31, 1997 compared to March 31, 1996. Such expansions typically result in
intense marketing campaigns which lure the "mass" segment to the new facility.
Gaming space at the Sands has remained virtually unchanged since the first
quarter of 1996 and the number of table games has decreased by 3.1%.
Furthermore, management discontinued certain promotional activities, including
the use of "special odds" offered at table games, which also impacted the Sands'
table drop.
Slot machine handle increased $14.8 million (3.4%) during the three month
period ended March 31, 1997 compared with the same period of 1996. The Sands'
increase in slot machine handle compares with a 5.3% increase in handle for all
other Atlantic City casinos. The Sands' average number of slot machines
decreased by less than 1% during the first quarter of 1997 compared to an
increase of 11.2% for all other Atlantic City casinos. The less than industry-
wide increase experienced by the Sands is a result of the same competitive
pressures resulting from casino expansions and related marketing campaigns at
other properties as discussed above with respect to table games.
REVENUES
Casino revenues at the Sands, including poker and simulcast horse racing
wagering revenues, increased slightly by $725,000 (1.3%) for the three month
period ended March 31, 1997 compared with the same period of 1996. Increases in
slot machine wagering together with an improvement in the slot hold percentage
allowed the Sands to overcome the decline in table game and other casino
revenues.
Rooms revenue increased $102,000 (4.8%) during the three month period ended
March 31, 1997 compared with 1996. Food and beverage revenues decreased
$604,000 (7.1%) for the three month period ended March 31, 1997 compared with
the prior year period as a result of reduced patron volume, the rescheduling of
unit operating hours to increase overall profitability and the reduction of
certain promotional activities. Other revenues decreased $724,000 (42.9%)
during the three month period ended March 31, 1997 compared to the 1996 period
as a result of decreases in theater entertainment.
Promotional allowances represent the estimated value of goods and services
provided free of charge to casino customers under various marketing programs.
As a percentage of rooms, food and beverage and other revenues at the Sands,
these allowances decreased to 56.2% during the three month period ended
22
<PAGE>
GB HOLDINGS, INC.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
March 31, 1997 from 57.7% during the first quarter of 1996. Such decrease is
primarily attributable to reductions in certain marketing programs and other
promotional activities.
DEPARTMENTAL EXPENSES
Casino expenses at the Sands decreased $5.5 million (10.1%) during the three
month period ended March 31, 1997 compared with 1996. During 1996, an
unprecedented and highly aggressive industry-wide attempt to increase market
share resulted in significantly higher costs with respect to coin incentive
packages. The abatement of these competitive pressures during the first quarter
of 1997 together with management's ongoing efforts to create operating
efficiencies, have significantly reduced expenses. Such factors have also
resulted in a reduction in the allocation of rooms, food and beverage and other
expenses to casino expense.
Rooms expense increased $63,000 (11.8%) during the first quarter of 1997
compared to the first quarter of 1996 primarily due to the decreased allocation
of rooms expense to casino expense as a result of rooms previously set aside for
casino marketing activities now being made available for paying guests. Food and
beverage expense decreased by $125,000 (5.1%) during the three month period
ended March 31, 1997 compared to the same period in 1996 primarily as a result
of reductions in food and beverage marketing programs, the costs of which are
allocated to the casino department, and to the decline in food and beverage
revenues as discussed above. Other expenses did not change significantly during
the three month period ended March 31, 1997 compared with 1996 as cost savings
with respect to theater entertainment were realized through reduced allocations
to the casino department.
GENERAL AND ADMINISTRATIVE
General and administrative expenses did not change significantly during the
three month period ended March 31, 1997 as compared to 1996.
DEPRECIATION AND AMORTIZATION
As a result of the revision in estimated useful life of its buildings
effective October 1, 1996 and the completion of amortization with respect to
certain long lived assets, the Sands' depreciation and amortization expense for
the first quarter of 1997 decreased by $1.2 million (24.1%) compared to the same
period during 1996.
INTEREST
Interest income decreased $49,000 (11.6%) during the first quarter of 1997
compared to the same period during 1996 as a result of a reduction in temporary
cash investments. Interest expense increased
23
<PAGE>
GB HOLDINGS, INC.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
$362,000 (6.6%) during the 1997 period compared to the prior year primarily due
to additional interest with respect to GBHC's borrowings from affiliates.
INCOME TAX BENEFIT
Holdings' operations are included in GBCC's consolidated federal income tax
return and, for periods through December 31, 1996, were included in HCC's
consolidated federal income tax return. Pursuant to agreements between Holdings
and GBCC, Holdings' provision for federal income taxes is based on the amount of
tax which would have been provided if a separate return were filed.
As of March 31, 1997, Holdings and its subsidiaries have net operating loss
carryforwards ("NOL's") totaling approximately $27 million, none of which expire
before the year 2009 for federal tax purposes and the year 2001 for state tax
purposes. Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109") requires that the tax benefit of NOL's and deferred
tax assets resulting from temporary differences be recorded as an asset and, to
the extent that management can not assess that the utilization of all or a
portion of such NOL's and deferred tax assets is more likely than not, a
valuation allowance should be recorded. Due to the continued availability of
NOL's originating in prior years for federal and state tax purposes and the book
and tax losses sustained in 1997 to date, management is unable to determine that
the realization of such asset is more likely than not and, thus, has provided a
valuation allowance for the entire deferred tax asset at March 31, 1997.
INFLATION
Management believes that in the near term, modest inflation, together with
increasing competition within the gaming industry for qualified and experienced
personnel, will continue to cause increases in operating expenses, particularly
labor and employee benefits costs.
SEASONALITY
Historically, the Sands' operations have been highly seasonal in nature,
with the peak activity occurring from May to September. Consequently, the
results of Holdings' operations for the first and fourth quarters are
traditionally less profitable than the other quarters of the fiscal year. In
addition, the Sands' operations may fluctuate significantly due to a number of
factors, including chance. Such seasonality and fluctuations may materially
affect Holdings' casino revenues and profitability.
24
<PAGE>
GB HOLDINGS, INC.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Holdings' only operations and resulting sources of liquidity and capital
resources are those of its wholly owned subsidiary, GBHC, whose only operations
in turn are those of the Sands. Prior to 1996, GBHC's earnings before
depreciation, interest, amortization, taxes and intercompany management fees
were sufficient to meet its debt service obligations (other than certain
maturities of principal that have been refinanced) and to fund a substantial
portion of its capital expenditures. GBHC has also used short-term borrowings
to fund seasonal cash needs and for certain capital projects.
OPERATING ACTIVITIES
At March 31, 1997, GBHC had cash and cash equivalents of $12.5 million.
During the three month period ended March 31, 1997, net cash used in operating
activities was $6.2 million compared with $9 million during the 1996 period.
GBHC utilized its existing cash and borrowings from affiliates during the first
quarter of 1997 to meet its operating needs, to repay its $2 million bank line
of credit, to fund capital additions totaling $721,000 and to make obligatory
investments of $670,000.
FINANCING ACTIVITIES
During February 1994, GBHC refinanced virtually all of its outstanding debt
as part of an overall restructuring by GBCC (the "GBCC Recapitalization"). The
refinancing was completed through a public offering of $270 million of debt
securities consisting of $185 million of 10 7/8% First Mortgage Notes due
January 15, 2004 and $85 million of 11 5/8% Senior Notes due April 15, 2004.
Proceeds from the debt offerings were used, in part, to refinance the Sands'
first mortgage and other indebtedness scheduled to mature in 1994 and to provide
partial funding for an expansion of gaming space at the Sands. As part of the
GBCC Recapitalization, a subsidiary of GBCC also issued $15 million of 14 5/8%
junior subordinated notes due in 2005 to HCC; the subsidiary loaned $10 million
of such proceeds to GBHC on the same terms. Interest on this subordinated
affiliate debt is payable semiannually commencing August 17, 1994, with payment
subject to meeting certain tests required by the indenture for the 10 7/8% First
Mortgage Notes. As a result of such payment restrictions, interest has been
paid only through February 17, 1996.
During the third quarter of 1996, GBHC borrowed $6.5 million from GBCC for
working capital purposes with interest at the rate of 13 3/4% per annum payable
quarterly commencing October 1, 1996. During the first quarter of 1997, GBHC
borrowed an additional $1.5 million from GBCC on similar terms and borrowed an
additional $5 million from another subsidiary of GBCC at the rate of 14 5/8% per
annum payable semiannually commencing July 15, 1997. Repayment of such
borrowings and payment of the related accrued interest is subject to regulatory
approval.
GBHC repaid its $2 million bank line of credit during January 1997 with
proceeds from affiliate borrowings and the line of credit was cancelled.
25
<PAGE>
GB HOLDINGS, INC.
(WHOLLY OWNED BY PRATT CASINO CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Commencing in July 1997, semiannual principal payments of $2.5 million will
become due with respect to the 10 7/8% First Mortgage Notes. Such semiannual
payments may be made in cash or by tendering 10 7/8% First Mortgage Notes
previously purchased or otherwise acquired by Holdings. Holdings acquired $2.5
million face amount of 10 7/8% First Mortgage Notes during May 1997 which it
intends to use to make its July 15, 1997 required principal payment. Total
scheduled maturities of long-term debt during the remainder of 1997 are $2.5
million.
CAPITAL EXPENDITURES AND OBLIGATORY INVESTMENTS
Capital expenditures at the Sands during the three month period ended March
31, 1997 amounted to approximately $721,000 and management anticipates capital
expenditures during the remainder of 1997 will be approximately $4.2 million.
Projects currently planned during 1997 include additional upgrades and
improvements to rooms at the Sands, including its higher-end suite product, and
other departmental expenditures.
The Sands is required by the New Jersey Casino Control Act to make certain
investments with the Casino Reinvestment Development Authority, a governmental
agency which administers the statutorily mandated investments made by casino
licensees. Deposit requirements for the first quarter of 1997 totaled $670,000
and are anticipated to be approximately $2.4 million during the remainder of
1997.
SUMMARY
Holdings incurred a net loss exclusive of management fees of $26.7 million
in 1996 which in turn generated an operating cash flow deficit of $6.1 million.
As a consequence Holdings has had to rely on borrowings from affiliates to meet
its debt service requirements and to fund working capital needs during its
seasonal low operating periods. The availability of additional borrowings from
GBCC and other subsidiaries of GBCC during 1997 is limited. HCC, which loaned
$6.5 million to GBCC for use by the Sands, is subject to certain indenture
provisions which restrict its ability to provide ongoing financial support to an
additional $3.5 million.
Holdings' principal and interest requirements during the twelve month period
ending March 31, 1998 amount to $25 million. Due to mild winter weather
conditions compared to a year ago and an abatement of the intense marketing
competition for bus customers, operating results for the first quarter of 1997
reflect a substantial improvement over 1996. In the absence of a resumption of
the marketing wars which plagued Atlantic City casinos in 1996 or other
unforeseen events, management believes that its operating plan for 1997 is
attainable and will provide sufficient funds from operating cash flow which,
together with funds available from affiliates, if required, will enable Holdings
to satisfy its debt service requirements through the first quarter of 1998.
26
<PAGE>
PART II: OTHER INFORMATION
- ---------------------------
The Registrants did not file any reports on Form 8-K during the quarter
ended March 31, 1997. The Registrants filed their Annual Report on Form 10-K for
the year ended December 31, 1996 with the Securities and Exchange Commission on
March 31, 1997.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, each of
the Registrants has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GB HOLDINGS, INC.
GB PROPERTY FUNDING CORP.
-------------------------
Registrants
Date: May 13, 1997 By: /s/ John C. Hull
----------------- -----------------------------
John C. Hull
Principal Accounting Officer
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GB PROPERTY FUNDING CORP. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000912906
<NAME> GB PROPERTY FUNDING CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 9,251
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,252
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 189,252
<CURRENT-LIABILITIES> 9,251
<BONDS> 180,000
0
0
<COMMON> 1
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 189,252
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENT OF GB HOLDINGS, INC. AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000912926
<NAME> GB HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,518
<SECURITIES> 0
<RECEIVABLES> 24,377
<ALLOWANCES> 14,757
<INVENTORY> 3,745
<CURRENT-ASSETS> 31,236
<PP&E> 317,722
<DEPRECIATION> 164,232
<TOTAL-ASSETS> 218,369
<CURRENT-LIABILITIES> 50,652
<BONDS> 190,427
0
0
<COMMON> 1
<OTHER-SE> (24,206)
<TOTAL-LIABILITY-AND-EQUITY> 218,369
<SALES> 0
<TOTAL-REVENUES> 63,197
<CGS> 0
<TOTAL-COSTS> 51,823
<OTHER-EXPENSES> 8,527
<LOSS-PROVISION> 650
<INTEREST-EXPENSE> 5,458
<INCOME-PRETAX> (3,261)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,261)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,261)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENT OF GB HOLDINGS, INC. AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRIETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000912926
<NAME> GB HOLDINGS INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,890
<SECURITIES> 0
<RECEIVABLES> 28,149
<ALLOWANCES> 16,946
<INVENTORY> 4,161
<CURRENT-ASSETS> 42,999
<PP&E> 313,814
<DEPRECIATION> 149,813
<TOTAL-ASSETS> 235,880
<CURRENT-LIABILITIES> 33,753
<BONDS> 195,439
0
0
<COMMON> 1
<OTHER-SE> 4,192
<TOTAL-LIABILITY-AND-EQUITY> 235,880
<SALES> 0
<TOTAL-REVENUES> 62,834
<CGS> 0
<TOTAL-COSTS> 57,462
<OTHER-EXPENSES> 9,725
<LOSS-PROVISION> 567
<INTEREST-EXPENSE> 5,047
<INCOME-PRETAX> (9,967)
<INCOME-TAX> (3,734)
<INCOME-CONTINUING> (6,233)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,233)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
