ITEM 1. BUSINESS
GB Holdings, Inc. ("Holdings") is a Delaware corporation and was a wholly owned subsidiary of Pratt Casino Corporation ("PCC") through December 31, 1998. PCC, a Delaware corporation, was incorporated in September 1993 and was wholly owned by PPI Corporation ("PPI"), a New Jersey corporation and a wholly owned subsidiary of Greate Bay Casino Corporation ("GBCC"). Effective after December 31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV, Inc. ("PBV"), a newly formed entity controlled by certain stockholders of GBCC. As a result of a certain confirmed plan of reorganization of PCC and others in October 1999, the remaining 79% stock interest of PCC in Holdings was transferred to Greate Bay Holdings, LLC ("GBLLC"), whose sole member as a result of the same reorganization was PPI. In February 1994, Holdings acquired Greate Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation, through a capital contribution by its then parent. GBHC's principal business activity is its ownership of the Sands Hotel and Casino located in Atlantic City, New Jersey (the "Sands"). GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation and a wholly owned subsidiary of Holdings, was incorporated in September 1993 as a special purpose subsidiary of Holdings for the purpose of borrowing funds for the benefit of GBHC. Effective September 2, 1998, GBHC acquired the membership interests in Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company that owned a land parcel adjacent to GBHC.
Throughout this document, references to Notes are referring to the Notes to Consolidated Financial Statements contained herein.
On January 5, 1998, GBHC, Holdings and GB Property Funding (collectively, the "Debtors") filed petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). On August 14, 2000, the Bankruptcy Court entered an order (the "Confirmation Order") confirming the Modified Fifth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code Proposed by the Official Committee of Unsecured Creditors and High River Limited Partnership and its affiliates (the "Plan") for the Debtors. High River Limited Partnership ("High River") is an entity controlled by Carl C. Icahn. On September 13, 2000, the New Jersey Casino Control Commission (the "Commission") approved the Plan. On September 29, 2000, the Plan became effective (the "Effective Date") (see Note 2). All material conditions precedent to the Plan becoming effective were satisfied on or before September 29, 2000. Accordingly, the accompanying consolidated financial statements have been prepared in accordance with Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"), and include disclosure of liabilities subject to compromise (see Note 5). In addition, as a result of the Confirmation Order and the occurrence of the Effective Date, and in accordance with SOP 90-7, Holdings' has adopted "fresh start reporting" in the preparation of the accompanying consolidated financial statements. Holdings' emergence from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit as of September 30, 2000. As a result, the consolidated financial statements for the periods subsequent to September 30, 2000 reflect the new basis of accounting and are not comparable to consolidated financial statements presented prior to September 30, 2000. A black line has been drawn on the accompanying consolidated financial statements to distinguish between the pre-reorganization and post-reorganization entities.
On the Effective Date, GB Property Funding's existing debt securities, consisting of its 10 7/8% First Mortgage Notes due January 15, 2004 (the "Old Notes") and all of Holdings' issued and outstanding shares of common stock
owned by PBV and GBLLC (the "Old Common Stock") were cancelled. As of the Effective Date, an aggregate of 10,000,000 shares of new common stock of Holdings (the "New Common Stock") were issued and outstanding, and $110,000,000 of 11% First Mortgage Notes due 2005 were issued by GB Property Funding (the "New Notes"). Holders of the Old Notes received a distribution of their pro rata shares of (i) the New Notes and (ii) 5,375,000 shares of the New Common Stock (the "Stock Distribution").
Holdings and GB Property Funding listed the New Common Stock and New Notes, respectively, on the American Stock Exchange on March 27, 2001.
The Sands
For a description of the Sands' facilities, please refer to "Item 2.
ITEM 2. PROPERTIES
The Sands is located in Atlantic City, New Jersey on approximately 6.1 acres of land one-half block from the Boardwalk at Brighton Park between Indiana Avenue and Dr. Martin Luther King, Jr. Boulevard. The Sands facility currently consists of a casino and simulcasting facility with approximately 77,000 square feet of gaming space containing approximately 1,987 slot machines and approximately 92 table games; a hotel with 532 rooms (including 59 suites); six restaurants; one cocktail lounge; two private lounges for invited guests; an 800-seat cabaret theater; retail space; an adjacent nine-story office building with approximately 77,000 square feet of office space for its executive, financial and administrative personnel; the "People Mover", an elevated, enclosed, one-way moving sidewalk connecting the Sands to the Boardwalk using air rights granted by an easement from the City of Atlantic City; and a garage and surface parking for approximately 1,750 vehicles.
Effective September 2, 1998, and as part of a certain settlement agreement, Lieber obtained the rights to purchase a certain hotel/motel on Pacific Avenue in Atlantic City, New Jersey (the "Pacific Avenue Hotel"). The purchase price of the Pacific Avenue Hotel was $10 million. Demolition of the existing structures was completed in 1999 and construction of the new front entrance to the Sands' facility on Pacific Avenue was completed in June 2000. In addition, a nearby building in Atlantic City that houses an auto shop facility and a warehouse in Mystic Island, New
Jersey also support the Sands' operations. GBHC's capital expenditure program includes the ongoing renovation of the majority of its hotel rooms and suites and the purchase of slot machines.
In April 2000, GBHC entered into an agreement with the entities controlling the Claridge to acquire the Claridge Administration Building. The purchase price was $3.5 million, consisting of $1.5 million in cash at closing and $2.0 million consideration tendered through the elimination for 40 months of a $50,000 monthly license fee paid by the Claridge to GBHC, under an agreement between the Claridge and GBHC governing the development and operation of the "People Mover" leading from the Boardwalk to the Sands and the Claridge. The present value of the $2.0 million consideration has been recorded in other current and other noncurrent liabilities sections of the balance sheet.
On December 27, 2000, the Sands, considering the renewal options, entered into a long-term lease agreement with the Madison House Group, LP to lease the approximate 210-room Madison House non-casino hotel. The initial lease period is from December 2000 to December 2012 with lease payments ranging from $1.8 million per year to $2.2 million per year. In addition, the Sands has two renewal options which, if exercised, will extend to December 2030. Lease payments during the two renewal options range from $2.2 million per year to $3.1 million per year. It is the intention of the Sands to maintain and operate the Madison House in the same quality as the Sands, making those rooms available to Sands casino customers and the general public. The Madison House is already physically connected at two floors to the existing casino hotel complex and the present intention of the Sands is to upgrade and combine the rooms into approximately 105-125 business suites. The Sands also intends to seek to have these rooms "qualified" by the Commission, which, if approved, would allow the Sands to have additional casino square footage for the additional slot machines contemplated as part of its current 2001 construction project.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On January 5, 1998, the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (see Note 1 and Note 2).
In 1998, GBHC also filed an action in the Bankruptcy Court to recover the rights to purchase the Pacific Avenue Hotel against GBCC, certain affiliates of GBCC, and certain former directors of GBHC and to enjoin the use of the Federal net operating losses (Federal NOL's) of Holdings and its subsidiaries. That action was settled and, among other things, GBHC recovered the rights to purchase the Pacific Avenue Hotel, the parties entered into certain general releases, and Holdings and its subsidiaries agreed to be included in the consolidated tax return of GBCC for calendar years 1997 and 1998.
GBHC has filed tax appeals with the New Jersey Tax Court challenging the amount of its real property assessment for calendar years 1996, 1997, 1998, 1999 and 2000. The City of Atlantic City has also appealed the amount of the assessments for the same years. GBHC expects to file another appeal for 2001.
GBHC is a party in various legal proceedings with respect to the conduct of casino and hotel operations. Although a possible range of losses cannot be estimated, in the opinion of management, based upon the advice of counsel, Holdings does not expect the settlement or resolution of these proceedings to have a material adverse impact upon the consolidated financial position or results of operations of Holdings. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainties described above.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the year ended December 31, 2000, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise, except for voting on the Plan.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
GB Property Funding's common stock, 100 shares with a par value of $1.00 per share, is its sole voting security; all 100 shares are owned by Holdings.
GBHC's common stock, 100 shares with no par value per share, is its sole voting security; all 100 shares are owned by Holdings.
Prior to the Effective Date, Holdings' common stock, 1,000 shares with a par value of $1.00 per share, was its sole voting security. All 1,000 shares were owned by PCC until December 31, 1998. Effective after December 31, 1998, PCC transferred 21% of its stock ownership in Holdings to PBV. As a result of a confirmed Plan of Reorganization of PCC and others in October 1999, the remaining 79% stock interest of PCC in Holdings was transferred to GBLLC. Upon the Effective Date, the stock of Holdings owned by PBV and GBLLC was cancelled. As of the Effective Date, an aggregate of 10,000,000 shares of New Common Stock was issued and outstanding.
Holdings has not paid any dividends in the past and has no plans to pay any in the future.
The New Common Stock and the New Notes were listed on the American Stock Exchange on March 27, 2001. To Holdings' knowledge, no significant trading has occurred since such listing date. As of such date, other than certain of the shares of the New Common Stock owned by Icahn, substantially all of the shares of the New Common Stock are held by Cede & Co. as nominee.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
GB Holdings, Inc. and Subsidiaries
The following table sets forth selected financial information for Holdings, and is qualified in its entirety by, and should be read in conjunction with, Holdings' Financial Statements and notes thereto contained elsewhere herein. The data as of December 31, 2000 and 1999 and for the years ended December 31, 2000, 1999, and 1998 have been derived from the audited financial statements of Holdings contained in Item 8 below.
The Company implemented SOP 90-7 and as such, adopted "fresh start reporting" as of September 30, 2000. The Company's emergence from its Chapter 11 proceedings resulted in a new reporting entity with no retained earnings or accumulated deficit as of September 30, 2000. Accordingly, the Company's consolidated financial statements for periods prior to September 30, 2000 are not comparable to consolidated financial statements presented on or subsequent to September 30, 2000. Column headings have been included on the accompanying Consolidated Statements of Operations and Consolidated Balance Sheet to distinguish between the pre-reorganization and post-reorganization entities.
GB HOLDINGS, INC. AND SUBSIDIARIES (dollars in thousands except income per share and common shares)
Statement of Operations Data:
Balance Sheet Data:
- ---------- (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.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements about the business, financial condition and prospects of Holdings, GB Property Funding and GBHC. The actual results could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties. Such risks and uncertainties are beyond management's ability to control and, in many cases, cannot be predicted by management. When used in this Annual Report on Form 10-K, the words "believes", "estimates", "anticipates", "expects", "intends" and similar expressions as they relate to Holdings, GB Property Funding and GBHC or its management are intended to identify forward-looking statements (see "Private Securities Litigation Reform Act" below).
LIQUIDITY AND CAPITAL RESOURCES
Holdings owns GBHC, which owns the Sands Hotel and Casino in Atlantic City (the "Sands"). Prior to 1996, the Sands' cash flow from operations was sufficient to meet debt service obligations and to fund a substantial portion of annual maintenance capital expenditures. In addition, the Sands used short-term borrowings as necessary to fund seasonal cash needs and for certain capital projects. After 1995, however, the competitive position of the Sands became impaired, which was due, in part, to insufficient capital expenditures particularly compared to certain competing Atlantic City casinos. In 1996, due to adverse weather in the first quarter, a decline in both table games and slot hold percentages and increased industry competition resulting in higher marketing expenditures, the Sands cash flow decreased significantly compared to prior years. While cash flow improved in 1997, it remained significantly below historical levels. These declines in operating cash flow at the Sands resulted in the need for periodic financial assistance from PCC and GBCC in order for GBHC to meet its debt service obligations. Substantial additional financial assistance would have been required to make the January 15, 1998 principal and interest payments due on the Old Notes.
GBHC was unable to obtain additional borrowings from affiliates or other sources and, accordingly, on January 5, 1998, the Debtors filed petitions for relief under the Bankruptcy Code in the Bankruptcy Court. On August 14, 2000, the Bankruptcy Court entered the Confirmation Order confirming the Plan for the Debtors. On September 13, 2000, the Commission approved the Plan. On September 29, 2000, the Plan became effective (the "Effective Date") (see Note 2). All material conditions precedent to the Plan becoming effective were satisfied on or before September 29, 2000. Accordingly, the accompanying consolidated financial statements have been prepared in accordance with SOP 90-7 and include disclosure of liabilities subject to compromise (see Note 5). In addition, as a result of the Confirmation order and the occurrence of the Effective Date, and in accordance with SOP 90-7, Holdings has adopted "fresh start reporting" as of September 30, 2000. The emergence of Holdings from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit as of September 30, 2000. As a result, the consolidated financial statements for the periods subsequent to September 30, 2000 reflect the new basis of accounting and are not comparable to consolidated financial statements presented prior to September 30, 2000. A black line has been drawn on the accompanying consolidated financial statements to distinguish between the pre-reorganization and post-reorganization entities.
On the Effective Date, GB Property Funding's existing debt securities, consisting of its 10 7/8% First Mortgage Notes due January 15, 2004 (the "Old Notes") and all of Holdings' issued and outstanding shares of common stock owned by PBV and GBLLC (the "Old Common Stock") were cancelled. As of the Effective Date, an aggregate of 10,000,000 shares of new common stock of Holdings (the "New Common Stock") were issued and outstanding, and $110,000,000 of 11% First Mortgage Notes due 2005 were issued (the "New Notes"). Holders of the Old Notes received a distribution of their pro rata shares of (i) the New Notes and (ii) 5,375,000 shares of the New Common Stock (the "Stock Distribution").
Operating Activities
At December 31, 2000, consolidated Holdings had cash and cash equivalents of $77.9 million. GBHC had cash and cash equivalents of $18.1 million. GBHC generated cash flow from operations of $11.8 million for the year ended December 31, 2000 compared to $18.6 million for the year ended December 31,1999. GBHC utilized cash generated by its operations, in part, during 2000 to fund capital additions of $17.3 million and to make obligatory investments of $2.8 million.
Financing Activities
On the Effective Date, GB Property Funding's existing debt securities, consisting of the Old Notes, and all of Holdings' Old Common Stock owned by PBV and GBLLC were cancelled. Also, on the Effective Date, 10,000,000 shares of New Common Stock were issued and outstanding. Of the 10,000,000 shares, 5,375,000 shares were distributed to the holders of the Old Notes in a pro rata distribution, and 4,625,000 shares were purchased by High River for $65 million. New Notes in the amount of $110,000,000 were issued and distributed to the holders of the Old Notes in a pro rata distribution. Total scheduled maturities of long term debt in 2001 are $467,000.
Under an order of the Bankruptcy Court, permitting the disposition of furniture and equipment in the ordinary course of business, any payments received by GBHC for the sale of such assets prior to the Effective Date, which were part of the security for the Old Notes, were remitted to the Indenture Trustee as reductions to the outstanding principal of the Old Notes. Proceeds from the sale of such assets, amounting to $4,000 and $263,000 for the years ended December 31, 2000 and 1999, respectively, were remitted to the Indenture Trustee. Although the payments were remitted to the Indenture Trustee as reductions on principal in accordance with the Order of the Bankruptcy Court, the Indenture Trustee advised Holdings (i) that such payments were retained by the Indenture Trustee pursuant to the terms of the Indenture in partial satisfaction of the fees and expenses incurred by the Indentured Trustee in the Chapter 11 proceeding and (ii) that the Indenture Trustee included the amount of such payments in its fee application before the Bankruptcy Court for the benefit of the holders of the Old Notes.
Investing Activities
Capital expenditures at the Sands during 2000 amounted to approximately $17.3 million. In order to enhance its competitive position in the market place, the Sands may determine to incur additional substantial costs and expenses to maintain, improve and expand its facilities and operations. Holdings may require additional financing in connection with those activities. In connection with, among other things, obtaining any such financing, Holdings and its subsidiaries may seek to amend or supplement the terms of existing financing arrangements.
In 1998, and as part of a certain settlement agreement, GBHC acquired the membership interests in Lieber from affiliates of GBCC for $251,000. GBHC also caused Lieber to acquire the rights to purchase a certain hotel/motel on Pacific Avenue in Atlantic City, New Jersey (the "Pacific Avenue Hotel") from another affiliate of GBCC for payment of $1.3 million and a payment of $500,000 on the Effective Date. The purchase price of the Pacific Avenue Hotel was $10 million. With Bankruptcy Court approval, Lieber closed on that purchase with funds advanced by GBHC in 1999. Demolition of the Pacific Avenue Hotel was completed in 1999 and construction of the new front entrance to the Sands' facility was completed in June 2000.
GBHC also entered into an agreement with the entities controlling the Claridge, subject to Bankruptcy Court approval, to acquire the Claridge Administration Building ("CAB"), which was situated between GBHC's existing main entrance and the new Pacific Avenue entrance. The purchase price was $3.5 million, consisting of $1.5 million in cash at closing with the remaining $2.0 million consideration tendered through the elimination for 40 months of a $50,000 monthly license fee paid by the Claridge to GBHC under an agreement between the Claridge and GBHC governing the development and operation of the "People Mover" leading from the Boardwalk to the Sands and Claridge (the "PM Agreement"). GBHC and the Claridge also obtained Bankruptcy Court approval of the assumption of the PM Agreement, as modified above and by the reduction of the monthly license fee to $20,000 a month after the 40 months elimination of the license fee. In April 2000, closing took place on the CAB. GBHC demolished the CAB and will incorporate the land as part of its 2001 capital improvement plan.
The Sands is required by the Casino Act to make certain quarterly deposits based on gross revenue with the CRDA in lieu of a certain investment alternative tax. Deposits made in 2000 totaled $2.8 million and are anticipated to be approximately $3.1 million during 2001. The Sands has agreed to contribute certain of its future investment obligations to the CRDA in connection with the renovation related to the Atlantic City Boardwalk Convention Center. The projected total contribution will amount to $7.0 million, which will be paid over the next 12 years based on an estimate of certain of the Sands' future CRDA deposit obligations. Certain CRDA Bonds totaling $441,000 were redeemed during the year ending December 31, 2000.
Summary
On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. As a result of the Chapter 11 filing, the debt service payments due subsequent to January 5, 1998 were not made and the accrual of interest on both the Old Notes and the Subordinated Notes for periods subsequent to the filing was suspended. On August 14, 2000, the Bankruptcy Court confirmed the Plan and on September 29, 2000 the Plan became effective. Continuation of the business thereafter is dependent on GBHC's ability to achieve successful future operations. Management believes that cash flows generated from operations during 2001, as well as available cash reserves, will be sufficient to meet its operating plan and provide for scheduled capital expenditures.
RESULTS OF OPERATIONS
General
The comparison of operating results for the years ended December 31, 2000, 1999 and 1998 is performed by comparing the operating results for the 2000 combined pre and post - reorganization periods to the actual results of 1999 and 1998 since operations have remained similar and such comparisons would not be misleading.
The Sands income from operations for the year ended December 31, 2000 was $8.7 million compared to $4.8 million in 1999 and $9.5 million in 1998. Net Revenues increased slightly in 2000 ($900,000, 0.4%) as compared to 1999, and operating expenses decreased by $3.0 million (1.2%) for the same period. These operating expense decreases were due to decreases in depreciation and amortization of $3.0 million (18.3%), food & beverage $1.3 million (12.6%) and general and administrative of $800,000 (7.1%) partially offset by an increase in casino expenses of $2.6 million (1.3%). Operating results during 1999 were positively impacted by increased table drop and slot handle. The increased volume of play was slightly offset, however, by decreased table and slot hold percentages in 1999 compared to 1998. The negative publicity surrounding the Sands filing for bankruptcy protection on January 5, 1998 affected operating results for 2000, 1999 and 1998.
Gaming Operations
Information contained herein, regarding Atlantic City casinos other than the Sands, was obtained from reports filed with the Commission.
The following table sets forth certain unaudited financial and operating data relating to the Sands' and all other Atlantic City casinos' capacities, volume of play, hold percentages and revenues:
(1) Gross wagering consists of the total value of chips purchased for table games (excluding poker) and keno wagering (the "Drop") and coins wagered in slot machines ("Handle").
(2) Casino revenues consist of the portion of gross wagering that a casino retains and, as a percentage of gross wagering, is referred to as the "hold percentage." The Sands' hold percentages and revenues are reflected on an accrual basis. Comparable accrual basis data for the remainder of the Atlantic City gaming industry as a whole is not available; consequently, industry hold percentages and revenues are based on information available from the Commission and are possibly higher than if computed on the accrual basis.
(3) Consists of revenues from poker and simulcast horse racing wagering. Comparable information for the remainder of the Atlantic City gaming industry is not available.
Patron Gaming Volume
Information contained herein, regarding Atlantic City casinos other than the Sands, was obtained from reports filed with the Commission.
Table game drop at the Sands increased by $10.3 million (2.2%) in 2000 compared to 1999 and by $35.2 million (8.2%) in 1999 compared to 1998. By comparison, table game drop at all other Atlantic City casinos reflected a decrease of 0.4% in each year. As a result, the Sands table game market share (expressed as a percentage of the entire Atlantic City gaming industry (the "industry") aggregate table game drop) increased to 6.2% during 2000 from 6.0% in 1999 and from 5.6% in 1998. The Sands table game drop increase in 2000 is attributable to an increased volume of play from patrons whose wagering is tracked and whose level of play generally entitles them to a varying level of rewards, including cash and/or complimentary rooms, food, beverage, entertainment and gifts ("rated players"). During 2000, the number of table games decreased 8.0% at the Sands, compared with a decrease of 0.6% at all other Atlantic City casinos. Table game drop in 1999 increased due to the volume of play from rated players. Aggregate gaming space at all other Atlantic City casinos decreased by approximately 29,000 square feet at December 31, 2000, compared to December 31, 1999. The amount of gaming space at the Sands remains virtually unchanged.
Slot machine handle increased $129 million (6.5%) in 2000 compared to 1999 and by $98.4 million (5.2%) in 1999 compared to 1998. By comparison, the percentage increase in slot machine handle for all other Atlantic City casinos was 5.2% in 2000 compared to 1999 and 6.3% in 1999 compared to 1998. The Sands' market share of slot machine handle as a percentage of total industry slot handle has remained fairly stable at 5.6% in 2000, 5.5% in 1999, and 5.6% in 1998. The increased Sands slot handle during 2000 is primarily attributable to an increased volume of play from rated players although the volume of unrated slot play increased as well. The amount of available gaming space did not change significantly in 2000, but the number of slot machines decreased slightly as compared to 1999 and 1998. On an industry-wide basis, both total available gaming space and the number of slot machines decreased in 2000 compared to 1999. While the number of slot machines decreased slightly at the Sands during 2000, during the last half of 1998, 1999 and 2000 approximately 800 older, less popular slot machines were replaced with new and more popular machines as part of the Sands capital expenditure program.
Revenues
Casino revenues at the Sands increased by $2.3 million (1.0%) in 2000 compared to 1999 and by $8.1 million (3.7%) in 1999 compared to 1998. Increases in both table game and slot machine wagering were partially offset by decreases in table game and slot machine hold percentages in 2000 and 1999 compared to the respective prior year.
Rooms' revenue increased $207,000 (2.2%) in 2000 compared to 1999 and by $73,000 (0.8%) in 1999 compared to 1998. The increase in 2000 was driven by a higher average daily room rate partially offset by a decrease in occupancy. The increase during 1999 was a result of higher occupancy partially offset by a decrease in the average daily room rate.
Food and beverage revenues increased $453,000 (1.6%) in 2000 compared to 1999 and by $2.5 million (9.8%) in 1999 compared to 1998. The increase in 2000 was due to an increase in the revenue per cover. The growth in 1999 was due to an increase in both the number of covers and in revenue per cover.
Other revenues decreased $1.5 million (24.5%) in 2000 compared to 1999 and increased $2.2 million (58.2%) in 1999 compared to 1998. The decrease in 2000 compared to 1999 was a result of a reduction in theater entertainment offerings. The increase in 1999 resulted from an increase in the number of theater entertainment offerings and the opening of a gift shop.
Promotional Allowances
Promotional allowances represent the estimated value of goods and services provided free of charge to casino customers under various marketing programs. As a percentage of rooms, food and beverage and other revenues at the Sands, these allowances increased to 57.4% in 2000 from 54.9% in 1999 and 53.1% in 1998. The increase in 2000 is primarily attributable to changes in marketing programs and other promotional activities aimed at increasing gaming volume from rated players.
Departmental Expenses
Casino expenses at the Sands increased $2.6 million (1.3%) in 2000 compared to 1999 and by $11.2 million (6.0%) in 1999 compared to 1998. Continuing efforts to rebuild the patron base resulted in increased expenditures for marketing and advertising related to the Sands desire to develop programs and create market awareness for the purpose of driving additional patron volume. This increase in expenditures and related patron volume activity also resulted in an increase in the allocation of rooms, food and beverage and other expenses to casino expenses.
Rooms expense decreased $89,000 (3.1%) in 2000 compared to 1999 and by $316,000 (10.0%) in 1999 compared to 1998. These decreases resulted from an increase in the allocation of rooms expense to casino expense due to a higher percentage of rooms being utilized on a complimentary basis. The 2000 decrease was partially offset by an increase in payroll and benefits.
Food and beverage expense decreased $1.3 million (12.6%) in 2000 compared to 1999 and increased $276,000 (2.8%) in 1999 compared to 1998. The decrease in 2000 was due to more expenses being allocated to casino expenses due to the rise in food and beverage complimentaries. The increase in 1999 was due to increased food and beverage volume and related variable costs due to increased casino patronage. This increase was offset by the increase in the allocation of food and beverage costs to casino expense.
Other expenses decreased $493,000 (11.6%) in 2000 compared to 1999 and increased by $1.6 million (62.9%) in 1999 compared to1998. The decrease in 2000 was due to cost savings with respect to reduced theater entertainment. The 1999 increase resulted from increased costs associated with increased theater entertainment and additional costs of goods relating to merchandise sold by a new gift shop. These increases were offset by the increase in the allocation of other expenses to casino expense.
General and Administrative Expenses
General and administrative expenses decreased $748,000 (7.1%) in 2000 compared to 1999 and by $1.9 million (15.3%) in 1999 compared to 1998. The decrease in 2000 was a result of reduced expenses in general insurance and electricity line items. In 1999 compared to 1998, management fees incurred by the Sands decreased by $2.4 million as a result of the filing of the Rejection Motion and the Settlement Agreement and
Second Settlement Agreement. There were no management fees incurred in 2000. The decrease in 1999 was partially offset by increased wages and benefits, particularly in the Facilities department, due to deferred maintenance in recent years.
Depreciation and Amortization
Depreciation and amortization expense decreased by $3.0 million (18.3%) in 2000 compared to 1999 and increased by $3.4 million (26.7%) in 1999 compared to 1998. The decrease in 2000 was due to a smaller contribution liability to the CRDA compared to 1999 and the redemption of bonds. The increase in 1999 was due to the expense associated with the recognition of the present value of a future donation liability to the CRDA for $2.7 million and the write-off of a deferred asset related to a previous CRDA donation in the amount of $765,000.
Interest Income and Expense
Interest income increased by $1.2 million (186.0%) in 2000 compared to 1999 and decreased by $312,000 (32.5%) in 1999 compared to 1998. The increase in 2000 was a result of interest earnings on the $65 million cash received on the Effective Date. The decrease in 1999 was because interest earned in 1998 included a one-time interest payment on an obligatory investment. Interest earned on cash balances accumulated as a result of the Chapter 11 filing (i.e., from not making debt service payments) is reflected in the accompanying consolidated financial statements as a reduction of reorganization costs while in reorganization.
Interest expense increased $3.2 million (1086.0%) in 2000 compared to 1999 and decreased by $18,000 (5.8%) in 1999 compared to 1998. The increase in 2000 was a result of the issuance of the New Notes on the Effective Date. As a result of the Chapter 11 filing, the accrual of interest expense on the Old Notes, the Subordinated Notes (as hereafter defined) and other affiliate advances for periods subsequent to the filing were suspended.
Non-recurring Items
At December 31, 1997, GBHC reserved as uncollectible the balance of an advance to an affiliated company in the amount of $5.7 million together with interest amounting to $4.0 million. The $5.7 million advance as well as accrued interest amounting to $6.4 million along with the corresponding reserve was fully written off with the implementation of fresh start accounting in September, 2000.
Income Tax Provision
Prior to 1997, Holdings was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"). Holdings' operations were included in GBCC's consolidated federal income tax returns for the years ended December 31, 1998 and 1997 but GBCC agreed to allow Holdings to become deconsolidated from the GBCC group effective after December 31, 1998. In accordance therewith, PCC transferred 21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of Holdings from the GBCC group for federal income tax purposes (the "Deconsolidation"). Accordingly, beginning in 1999, Holdings' provision for federal income taxes is calculated and paid on a consolidated basis with GB Property Funding and GBHC.
At December 31, 2000, Holdings and its subsidiaries have deferred tax assets including State net operating losses and Federal credit carryforwards. The State net operating losses ("State NOL's") begin to expire in the year 2003 for state tax purposes. A portion of the credit carryforwards, if not utilized, will begin to expire each year through 2004. The remaining credit carryforwards expire through the year 2019. In addition, as part of a certain settlement agreement, GBCC may utilize Federal net operating losses ("Federal NOL's") of Holdings and its subsidiaries through December 31, 1998 to offset federal taxable income of GBCC and other members of its consolidated tax group. Subsequent to the Deconsolidation, Holdings had approximately $2.8 million in Federal NOL's, which were all utilized in the 1999 consolidated federal tax return of Holdings. Statement of Financial Accounting Standards No. 109 ("SFAS 109") requires that the tax benefit of NOL's and deferred tax assets resulting from temporary differences be recorded as an asset and, to the extent that management can not assess that the utilization of all or a portion of such NOL's and deferred tax assets is more likely than not, requires the recording of a valuation allowance. As a result of book and tax losses incurred in 1997 and the filing under Chapter 11 by Holdings in January 1998, management is unable to determine that realization of Holdings' deferred tax asset is more likely than not and, thus, has provided a valuation allowance for the entire amount at December 31, 2000.
The Internal Revenue Service has completed an examination of the consolidated federal income tax returns of HCC for the years 1993 and 1994 in which Holdings was included. The results of this examination resulted in a reduction of Federal NOL's of Holdings prior to the Deconsolidation. However, since the Federal NOL's were fully reserved for as required by SFAS 109, this reduction did not impact Holdings statement of operations for the period as reported. The Internal Revenue Service is continuing to examine the consolidated federal income tax returns of HCC for the years 1995 and 1996 and the consolidated federal income tax returns for GBCC for the years 1997 and 1998 in which Holdings' was included (the "Audit"). As a result of such Audit, GBCC management has disclosed in its annual SEC Form 10-K, filed for the year ended December 31, 2000, that it is presently unable to estimate the impact of the Audit on the consolidated financial position or results of operations of GBCC. Holdings is dependent upon receipt of information from HCC and GBCC as to the operations of their affiliates and the impact of those operations on the former HCC and GBCC consolidated groups' Federal NOL's. Any such use of these NOL's, by either HCC and GBCC, are subject to the terms of a certain settlement agreement.
As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, Holdings outstanding debt was discharged (see Note 2). Pursuant to the Internal Revenue Code, debt that is cancelled or discharged under the Bankruptcy Code does not generate taxable income in the current period to the debtor. Instead, certain tax attributes otherwise available to the debtor are reduced. This attribute reduction is effective for tax purposes beginning January 1, 2001. Management currently estimates that approximately $14.3 million of Holdings tax attributes relating to the tax bases of noncurrent assets will be reduced as of January 1, 2001. Holdings also had a change of ownership as defined under Internal Revenue Code Section 382 upon the effective date of the plan. Management currently estimates there will be no significant limitations on the ability of the company to use its tax credit carryforwards on a post confirmation basis as a result of this change of ownership.
Extraordinary Item
Holdings recorded an extraordinary gain of $14.8 million during 2000 as a result of the discharge of debt and satisfaction of claims associated with the company's emergence from Chapter 11 (see Note 2).
Reorganization and Other Related Costs
Reorganization and other related costs include costs associated with Holdings' reorganization under Chapter 11, including, among other things, professional fees, costs associated with the termination of agreements, and other administrative costs. As noted previously, interest income on cash accumulated during the reorganization was reflected as a reduction to reorganization and other related costs.
Reorganization cost increased $619,000 (28.7%) in 2000 compared to 1999 and decreased $1.9 million (47.1%) in 1999 compared to 1998. This increase is attributed to expenses associated with the fees that were required to be paid under the Plan.
Inflation
Management believes that in the near term, modest inflation, together with increasing competition within the gaming industry for qualified and experienced personnel, will continue to cause increases in operating expenses, particularly labor and employee benefits costs.
Seasonality
Historically, the Sands' operations have been highly seasonal in nature, with the peak activity occurring from May to September. Consequently, the results of operations for the first and fourth quarters are traditionally less profitable than the other quarters of the fiscal year. In addition, the Sands' operations may fluctuate significantly due to a number of factors, including chance. Such seasonality and fluctuations may materially affect casino revenues and profitability.
Private Securities Litigation Reform Act
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Form 10-K and other materials filed or to be filed by Holdings, GB Property Funding or GBHC with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made by such companies) contains statements that are forward-looking, such as statements relating to plans for future expansion, future construction costs and other business development activities as well as other capital spending, economic conditions, financing sources, competition and the effects of tax regulation and state regulations applicable to the gaming industry in general or Holdings, GB Property Funding and GBHC in particular. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of Holdings, GB Property Funding or GBHC. These risks and uncertainties include, but are not limited to, those relating to development and construction activities, dependence on existing management, leverage and debt service (including sensitivity to
fluctuations in interest rates), domestic or global economic conditions, changes in federal or state tax laws or the administration of such laws and changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions).
Item 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from changes in market rates and prices, such as interest rates and foreign currency exchange rates. Holdings, GB Property Funding and GBHC do not have securities subject to interest rate fluctuations and have not invested in derivative-based financial instruments.
ITEM 8.
ITEM 8. INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GB Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of GB Holdings, Inc. and subsidiaries (the Company, a Delaware corporation) as of December 31, 2000 (post-reorganization), September 30, 2000 (post-reorganization) and December 31, 1999 (pre-reorganization), and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the periods from October 1, 2000 through December 31, 2000 (post-reorganization), January 1, 2000 through September 30, 2000 (pre-reorganization) and the two years in the period ended December 31, 1999 (pre-reorganization). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GB Holdings, Inc. and subsidiaries as of December 31, 2000 (post-reorganization), September 30, 2000 (post-reorganization) and December 31, 1999 (pre-organization), and the results of their operations and their cash flows for periods from October 1, 2000 through December 31, 2000 (post-reorganization), January 1, 2000 through September 30, 2000 (pre-reorganization), and the two years in the period ended December 31, 1999 (pre-reorganization) in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Roseland, New Jersey February 16, 2001
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
The accompanying notes are an integral part of these consolidated financial statements.
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
The accompanying notes are an integral part of these consolidated financial statements.
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements.
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Period October 1, 2000 through December 31, 2000 (Post-reorganization), January 1, 2000 through September 30, 2000 (Pre-reorganization) and the years Ended December 31, 1999 and 1998 (Pre-reorganization)
The accompanying notes are an integral part of these consolidated financial statements.
GB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization, Business and Basis of Presentation
GB Holdings, Inc. ("Holdings") is a Delaware corporation and was a wholly owned subsidiary of Pratt Casino Corporation ("PCC") through December 31, 1998. PCC, a Delaware corporation, was incorporated in September 1993 and was wholly owned by PPI Corporation ("PPI"), a New Jersey corporation and a wholly owned subsidiary of Greate Bay Casino Corporation ("GBCC"). Effective after December 31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV, Inc. ("PBV"), a newly formed entity controlled by certain stockholders of GBCC. As a result of a certain confirmed plan of reorganization of PCC and others in October 1999, the remaining 79% stock interest of PCC in Holdings was transferred to Greate Bay Holdings, LLC ("GBLLC"), whose sole member as a result of the same reorganization was PPI. In February 1994, Holdings acquired Greate Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation, through a capital contribution by its then parent. GBHC's principal business activity is its ownership of the Sands Hotel and Casino located in Atlantic City, New Jersey (the "Sands"). GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation and a wholly owned subsidiary of Holdings, was incorporated in September 1993 as a special purpose subsidiary of Holdings for the purpose of borrowing funds for the benefit of GBHC. Holdings has no operating activities and its only significant asset is its investment in GBHC, and as of the Effective Date, defined below, $59.3 million in cash (see Note 2). Effective September 2, 1998, GBHC acquired the membership interests in Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company that owned a land parcel adjacent to GBHC.
On January 5, 1998, GBHC, Holdings and GB Property Funding (collectively, the "Debtors") filed petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). On August 14, 2000, the Bankruptcy Court entered an order (the "Confirmation Order") confirming the Modified Fifth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code Proposed by the Official Committee of Unsecured Creditors and High River Limited Partnership and its affiliates (the "Plan") for the Debtors. High River Limited Partnership ("High River") is an entity controlled by Carl C. Icahn. On September 13, 2000, the New Jersey Casino Control Commission (the "Commission") approved the Plan. On September 29, 2000, the Plan became effective (the "Effective Date") (see Note 2). All material conditions precedent to the Plan becoming effective were satisfied on or before September 29, 2000. Accordingly, the accompanying consolidated financial statements have been prepared in accordance with Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"), and include disclosure of liabilities subject to compromise (see Note 5). In addition, as a result of the Confirmation Order and the occurrence of the Effective Date, and in accordance with SOP 90-7, Holdings has adopted "fresh start reporting" in the preparation of the accompanying December 31, 2000 consolidated financial statements. The emergence of Holdings from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit as of September 30, 2000. As a result, the consolidated financial statements for the periods subsequent to September 30, 2000 reflect the new basis of accounting and are not comparable to consolidated financial statements presented prior to September 30, 2000. A black line has been drawn on the accompanying consolidated financial statements to distinguish between the pre-reorganization and post-reorganization entities.
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The accompanying consolidated financial statements include the accounts and operations of Holdings, GBHC, GB Property Funding and Lieber. All significant intercompany balances and transactions have been eliminated.
A significant amount of the Sands' revenues are derived from patrons living in northern New Jersey, southeastern Pennsylvania and metropolitan New York City. Competition in the Atlantic City gaming market is intense and management believes that this competition will continue or intensify in the future.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(2) Financial Reorganization
On the Effective Date, GB Property Funding's existing debt securities, consisting of its 10 7/8% First Mortgage Notes due January 15, 2004 (the "Old Notes") and all of Holdings' issued and outstanding shares of common stock owned by PBV and GBLLC (the "Old Common Stock") were cancelled. As of the Effective Date, an aggregate of 10,000,000 shares of new common stock of Holdings (the "New Common Stock") were issued and outstanding, and $110,000,000 of 11% First Mortgage Notes due 2005 were issued 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"). In addition, $65,000,000 in cash was obtained from affiliates of the majority shareholder.
Pursuant to SOP 90-7, "fresh start reporting" has been reflected as of September 30, 2000 in the accompanying consolidated financial statements because: (i) the sum of the allowed claims, plus postpetition liabilities, exceeded the reorganization value of the preconfirmation assets of the emerging entity and (ii) Holdings experienced a change of control (as defined in SOP 90-7). SOP 90-7 requires under these circumstances the creation of a new reporting entity and the recordation of assets and liabilities at their fair values. In support of the restructuring process, the Debtors retained an independent third party to determine, among other things, the value of the equity of Holdings. This independent third party set the value of the equity between a range of $11 and $14 per share. The Bankruptcy Court, considering the testimony of that third party and others offered at the confirmation hearing on the Plan, accepted this range and used the mid-point of $12.50 per share for the purpose of determining the value of the unsecured portion of the claim of the holders of the Old Notes. For these reasons, Holdings has set the value of the post confirmation assets of the reorganized entity based upon that value of the equity and the New Notes and by the post petition liabilities assumed. The resulting difference between the equity, New Notes and post petition liability assumed and the liabilities subject to compromise and equity eliminated has been allocated to long term assets based upon a pro rata determination of their fair values, as required by SOP 90-7.
The discharge of debt and "fresh start reporting" have been reflected in the accompanying September 30, 2000 consolidated financial statements. Holdings' post confirmation consolidated balance sheet as of
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000 reflects the adoption of "fresh start reporting" and becomes the opening balance sheet for the "reorganized" corporation. The gain from the discharge of debt has been reflected as an extraordinary item.
The effect of the adoption of "fresh start reporting" on the consolidated balance sheet as of September 30, 2000 is reflected in the following table:
Adjustments to Record the Plan of Reorganization (Dollars In Thousands)
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assuming the reorganization had been effective January 1, 2000, depreciation and amortization expense would have decreased an estimated $1,100,000 and interest expense would have increased an estimated $9,008,000 for the year ended December 31, 2000. On a pro forma basis, reorganization costs of $2,773,000 and the extraordinary gain on pre-petition debt discharge of $14,795,000 would not have been reported in 2000.
(3) Summary of Significant Accounting Policies
The significant accounting policies followed in the preparation of the accompanying consolidated financial statements are discussed below. 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.
Casino revenues, promotional allowances and departmental expenses -
The Sands recognizes the net win from gaming activities (the difference between gaming wins and losses) as casino revenues. Casino revenues are net of accruals for anticipated payouts of progressive and certain other slot machine jackpots and certain progressive table game payouts. Such anticipated jackpots and payouts are reflected as current liabilities on the accompanying consolidated balance sheets.
The estimated value of rooms, food and beverage and other items that were provided to customers without charge has been included in revenues and a corresponding amount has been deducted as promotional allowances. The costs of such complimentaries have been included in casino expenses on the accompanying consolidated statements of operations. Costs of complimentaries allocated from the rooms, food and beverage and other operating departments to the casino department were as follows:
Cash and cash equivalents -
Cash and cash equivalents are generally comprised of cash and investments with original maturities of three months or less, such as commercial paper, certificates of deposit and fixed repurchase agreements.
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Allowance for doubtful accounts -
The allowance for doubtful accounts is maintained at a level considered adequate to provide for possible future losses. Provisions for doubtful accounts amounting to $1,423,000 for the period October 1, 2000 through December 31, 2000 and $1,637,000 for the period January 1, 2000 through September 30, 2000 were recorded in the accompanying consolidated statements of operations. Provisions for doubtful accounts amounting to $2,418,000 and $1,667,000 were recorded in the accompanying consolidated statements of operations for the years ended December 31, 1999 and 1998, respectively.
Inventories -
Inventories are stated at the lower of cost (on a first-in, first-out basis) or market.
Property and equipment -
Property and equipment have been recorded at cost and are being depreciated utilizing the straight-line method over their estimated useful lives as follows:
Buildings and improvements 25-40 years Operating equipment 3-7 years
Interest costs related to property and equipment acquisitions are capitalized during the acquisition period and are being amortized over the useful lives of the related assets.
Deferred financing costs -
The costs of issuing long-term debt, including all underwriting, legal and accounting fees, were capitalized and are being amortized over the term of the related debt issue. Deferred financing costs of $180,000 were incurred in connection with Holdings' offering of $110,000,000 11% First Mortgage Notes. For the three months ended December 31, 2000, $10,000 of deferred financing costs were amortized. There was no amortization of deferred financing costs for the nine months ended September 30, 2000 and the years ended December 31, 1999 and 1998.
Long-lived assets -
Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" 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 of September 30, 2000, assets were valued in accordance with SOP 90-7 (see Note 2). As a result of its review, Holdings does not believe that any material impairment currently exists related to its long-lived assets.
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accrued insurance -
GBHC is self insured for a portion of its general liability, certain health care and other liability exposures. A third party insures losses over prescribed levels. 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.
Income taxes -
Prior to 1997, Holdings was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"). Holdings' operations were included in GBCC's consolidated federal income tax returns for the years ended December 31, 1998 and 1997 but GBCC agreed to allow Holdings to become deconsolidated from the GBCC group effective after December 31, 1998. In accordance therewith, PCC transferred 21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of Holdings from the GBCC group for federal income tax purposes (the "Deconsolidation"). Accordingly, beginning in 1999, Holdings' provision for federal income taxes is calculated and paid on a consolidated basis with GB Property Funding and GBHC (see Note 6).
Income (Loss) Per Share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), requires, among other things, the disclosure of basic earnings per share for public companies. Since the capital structure of Holdings is simple, in that no potentially dilutive securities were outstanding during the periods presented, only basic income (loss) per share disclosure is required. Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding.
Additionally, SFAS 128 requires among other things, the income (loss) per share effect of extraordinary items and is computed by dividing the extraordinary item by the weighted average number of common shares outstanding.
On a pro forma basis, for periods presented prior to the Effective Date, the income per share would have been as follows:
New Accounting Pronouncement -
In June 1999, the Financial Accounting Standards Board adopted SFAS 137, which deferred for one year the effective date for Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities.," (SFAS No. 133) which is now required to be adopted in years beginning after June 15, 2000. SFAS No. 133 permits early adoption as of the beginning of any fiscal quarter after its issuance. SFAS No. 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The adoption of SFAS No. 133 will have no impact on the Company's consolidated results of operations, financial position or cash flows.
Reclassifications -
Certain reclassifications have been made to prior years' consolidated financial statements to conform to the 2000 consolidated financial statement presentations.
(4) Long-Term Debt
Long-term debt is comprised of the following:
(a) On February 17, 1994, GBHC obtained the net proceeds from the sale by GB Property Funding of $185,000,000 of Old Notes. Interest on the Old Notes accrued at the rate of 10 7/8% per annum, payable semiannually. Interest only was payable during the first three years. Thereafter, semiannual principal payments of $2,500,000 were due on each interest payment date with the balance due at maturity. Holdings acquired $2,500,000 face amount of Old Notes at a discount during May 1997, which it used during June
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1997 to make its July 15, 1997 required principal payment. As a result of the filing under Chapter 11, the debt service payments due subsequent to January 5, 1998 were not made. The accrual of interest on the Old Notes for periods subsequent to the filing was suspended. As a result of the Confirmation Order and the occurrence of the Effective Date, the Old Notes have been satisfied and discharged.
Under an order of the Bankruptcy Court, permitting the disposition of furniture and equipment in the ordinary course of business, any payments received by GBHC for the sale of such assets prior to the Effective Date, which were part of the security for the Old Notes, had to be remitted to the Indenture Trustee as reductions to the outstanding principal of the Old Notes. Proceeds from the sale of such assets amounting to $4,000, $263,000 and $257,000, for the nine months ended September 30, 2000 and years ending December 31, 1999 and 1998, respectively, were remitted to the Indenture Trustee. Although the payments were remitted to the Indenture Trustee as reduction in principal in accordance with the Order of the Bankruptcy Court, the Indenture Trustee advised Holdings (i) that such payments were retained by the Indenture Trustee pursuant to the terms of the indenture for the Old Notes in partial satisfaction of the fees and expenses incurred by the Indenture Trustee in the Chapter 11 proceeding and (ii) that the Indenture Trustee included the amount of such payments in its fee application before the Bankruptcy Court for the benefit of the holders of the Old Notes.
(b) On February 17, 1994, PRT Funding Corp. ("PRT"), then an affiliate, loaned GBHC $10,000,000 under a promissory note (the "PRT Subordinated Note"), which was subordinated to the Old Notes. The PRT Subordinated Note was due on February 17, 2005 and bore interest at the rate of 14 5/8% per annum, payable semiannually. Interest was paid only through February 17, 1996. The accrual of interest on the PRT Subordinated Note for periods subsequent to the filing under Chapter 11 was suspended. As a result of the confirmation of a certain plan of reorganization of PRT Funding Corp. in October 1999, the PRT Subordinated Note was transferred to GBLLC, whose sole member was PPI. As a result of the Confirmation Order and the occurrence of the Effective Date, the PRT Subordinated Note was satisfied and discharged.
(c) As result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, the Old Notes were cancelled and replaced with $110,000,000 of 11% first mortgage notes due 2005. Interest on the New Notes is payable on March 29 and September 29, beginning March 29, 2001. The outstanding principle is due on September 29, 2005. The New Notes are unconditionally guaranteed, on a joint and several basis, by both Holdings and GBHC, and are secured by substantially all of the assets, as of the Effective Date, other than cash and gaming receivables of Holdings and GBHC.
The indenture for the New Notes contains various provisions, which, among other things, restrict the ability of Holdings, and GBHC to incur certain senior secured indebtedness beyond certain limitations, and contain certain other limitations on the ability to merge, consolidate, or sell substantially all of their assets, to make certain restricted payments, to incur certain additional senior liens, and to enter into certain sale-leaseback transactions.
(d) On September 2, 1998, GBHC acquired the membership interests in Lieber which owned a certain parcel of land on Pacific Avenue in Atlantic City until transferring it to GBHC in September 2000. Principal
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
mortgage indebtedness at the time of acquisition was $591,000 and bears interest at the rate of 7% per annum. Principal and interest are paid monthly based on a ten-year amortization schedule. The balance of the note is due in July 2001.
Scheduled payments of long-term debt as of December 31, 2000 are set forth below:
2001 $ 467,000 2002 19,000 2003 21,000 2004 23,000 2005 110,026,000 Thereafter 282,000 ------------ Total $110,838,000 ============
Interest paid amounted to $18,000 for the three months ended December 31, 2000 and $57,000 for the nine months ended September 30, 2000. Interest paid amounted to $79,000 and $56,000, respectively, for the years ended December 31, 1999 and 1998. At December 31, 2000 and September 30, 2000, accrued interest on the New Notes was $3,025,000 and $67,000, respectively. At December 31, 1999, accrued interest on the Old Notes in the amount of $9,373,000 is included with liabilities subject to compromise on the accompanying consolidated balance sheets.
(5) Liabilities Subject to Compromise
As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, liabilities subject to compromise were discharged as of the Effective Date (see Note 2).
Liabilities subject to compromise consisted of the following at December 31, 1999:
Accounts payable and accrued liabilities $ 6,811,000 Old Notes (Note 4) 181,980,000 PRT Subordinated Note (Note 4) 10,000,000 Borrowings from affiliate (Note 7) 5,000,000 Accrued interest (Notes 4 and 7) 12,855,000 Due to affiliates 382,000 ------------
Total $217,028,000 ============
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Income Taxes
The components of the provision (benefit) for income taxes are as follows:
Prior to 1997, Holdings was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"). Holdings' operations were included in GBCC's consolidated federal income tax returns for the years ended December 31, 1998 and 1997 but GBCC agreed to allow Holdings to become deconsolidated from the GBCC group effective after December 31, 1998. In accordance therewith, PCC transferred 21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of Holdings from the GBCC group for federal income tax purposes (the "Deconsolidation"). Accordingly, beginning in 1999, Holdings' provision for federal income taxes is calculated and paid on a consolidated basis with GB Property Funding and GBHC.
At December 31, 2000, Holdings and its subsidiaries have deferred tax assets including State net operating losses and Federal credit carryforwards. The State net operating losses ("State NOL's") begin to expire in the year 2003 for state tax purposes. A portion of the credit carryforwards, if not utilized, will begin to expire each year through 2004. The remaining credit carryforwards expire through the year 2019. In addition, as part of a certain settlement agreement, GBCC may utilize Federal net operating losses ("Federal NOL's") of Holdings and its subsidiaries through December 31, 1998 to offset federal taxable income of GBCC and other members of its consolidated tax group. Subsequent to the Deconsolidation, Holdings had approximately $2.8 million in Federal NOL's, which were all utilized in the 1999 consolidated federal tax return of Holdings. Statement of Financial Accounting Standards No. 109 ("SFAS 109") requires that the tax benefit of NOL's and deferred tax assets resulting from temporary differences be recorded as an asset and, to the extent that management can not assess that the utilization of all or a portion of such NOL's and deferred tax assets is more likely than not, requires the recording of a valuation allowance. As a result of book and tax losses incurred in 1997 and the filing under
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Chapter 11 by Holdings in January 1998, management is unable to determine that realization of Holdings' deferred tax asset is more likely than not and, thus, has provided a valuation allowance for the entire amount at December 31, 2000.
The Internal Revenue Service has completed an examination of the consolidated federal income tax returns of HCC for the years 1993 and 1994 in which Holdings was included. The results of this examination resulted in a reduction of Federal NOL's of Holdings prior to the Deconsolidation. However, since the Federal NOL's were fully reserved for as required by SFAS 109, this reduction did not impact Holdings statement of operations for the period as reported. The Internal Revenue Service is continuing to examine the consolidated federal income tax returns of HCC for the years 1995 and 1996 and the consolidated federal income tax returns for GBCC for the years 1997 and 1998 in which Holdings' was included (the "Audit"). As a result of such Audit, GBCC management has disclosed in its annual SEC Form 10-K, filed for the year ended December 31, 2000, that it is presently unable to estimate the impact of the Audit on the consolidated financial position or results of operations of GBCC. Holdings is dependent upon receipt of information from HCC and GBCC as to the operations of their affiliates and the impact of those operations on the former HCC and GBCC consolidated groups' Federal NOL's. Any such use of these NOL's, by either HCC and GBCC, are subject to the terms of a certain settlement agreement.
As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, Holdings outstanding debt was discharged (see Note 2). Pursuant to the Internal Revenue Code, debt that is cancelled or discharged under the Bankruptcy Code does not generate taxable income in the current period to the debtor. Instead, certain tax attributes otherwise available to the debtor are reduced. This attribute reduction is effective for tax purposes beginning January 1, 2001. Management currently estimates that approximately $14.3 million of Holdings tax attributes relating to the tax bases of noncurrent assets will be reduced as of January 1, 2001. Holdings also had a change of ownership as defined under Internal Revenue Code Section 382 upon the effective date of the plan. Management currently estimates there will be no significant limitations on the ability of the company to use its tax credit carryforwards on a post confirmation basis as a result of this change of ownership.
(7) Transactions with related parties
Prior to July 8, 1998, an indirect subsidiary of GBCC was responsible for the operations of GBHC under a management agreement. Under the agreement, the indirect subsidiary was entitled to receive certain fees determined by gross operating profit. Effective May 1 and through September 28, 1998, as a result of certain legal proceedings in the Bankruptcy Court, the agreement was suspended and replaced with a certain fixed fee agreement under which GBHC agreed to pay a monthly fee of $165,000, consisting of a current fee of $122,000 and a deferred fee of $43,000. The management agreement was later terminated during the Chapter
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
proceedings without further liability. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan (see Note 2), the deferred fees in the amount of $211,000 were paid on the Effective Date.
GBHC's rights to the trade name "Sands" (the "Trade Name") were derived from a license agreement between GBCC and an unaffiliated third party. Amounts payable by the Sands for these rights were equal to the amounts paid to the unaffiliated third party. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan, GBHC was assigned by High River the rights under a certain agreement with the owner of the Trade Name to use the Trade Name as of the Effective Date. High River received no payments for its assignment of these rights. Payment is made directly to the owner of the Trade Name. The calculation of the license fee is the same as under the previous agreement. Such charges amounted to $66,000 for the three months ended December 31, 2000 and $215,000, during the nine months ended September 30, 2000. For the years ended December 31, 1999 and 1998, such charges amounted to $278,000 and $275,000, respectively.
As a result of a certain settlement agreement and the occurrence of the Effective Date, an advance from GBHC to another GBCC subsidiary in the amount of $5,672,000 became uncollectible and was written off. As the advance, together with interest amounting to $6,474,000 at September 30, 2000 and $5,850,000 at December 31, 1999, were fully reserved, this write-off did not impact Holdings consolidated statement of operations for the period.
GBHC also borrowed $5,000,000 from another subsidiary of GBCC during January, 1997 at the stated rate of 14 5/8% per annum payable semiannually commencing July 15, 1997 and, as set forth in the terms of the corresponding note, the loan was subordinated to the Old Notes and payment was subject to certain conditions (the "PCC Subordinated Note"). Interest accrued on the PCC Subordinated Note amounted to $728,000 at December 31, 1999, and is included in liabilities subject to compromise on the accompanying consolidated balance sheets. The accrual of interest on the PCC Subordinated Note for periods subsequent to the filing under Chapter 11 was suspended. As a result of the confirmation of a certain plan of reorganization of PCC in October 1999, the PCC Subordinated Note was transferred to GBLLC. As a result of the Confirmation Order and the occurrence of the Effective Date and under the terms of the Plan (see Note 2), the PCC Subordinated Note was satisfied and discharged.
There was no interest expense incurred with respect to affiliate advances and borrowings for the three months ended December 31, 2000, the nine months ended September 30, 2000 and the year ended December 31, 1999. For the year ended December 31, 1998, net interest expense incurred with respect to affiliate advances and borrowings was $36,000.
Effective September 2, 1998 and as part of a certain settlement agreement, Lieber obtained the rights to purchase a certain hotel/motel on Pacific Avenue in Atlantic City, N.J. (the "Pacific Avenue Hotel"). The assignment of the rights required a payment of $500,000 to be paid to a designated affiliate of GBCC at the Effective Date. This obligation was transferred to GBLLC by GBCC and was paid on the Effective Date.
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GBHC previously performed certain services for other subsidiaries of GBCC and for HCC and its subsidiaries and invoiced those companies for the Sands' cost of providing those services. Similarly, GBHC previously was charged for certain equipment and other expenses incurred by GBCC and HCC and their respective subsidiaries that related to GBHC's business. Such affiliate transactions are summarized below:
(8) New Jersey Regulations and Obligatory Investments
The Sands conducts gaming operations in Atlantic City, New Jersey and operates a hotel and several restaurants, as well as related support facilities. The operation of an Atlantic City casino/hotel is subject to significant regulatory control. Under the New Jersey Casino Control Act (the "Casino Act"), GBHC was required to obtain and is required to periodically renew its operating license. A casino license is not transferable and, after the initial licensing and two one-year renewal periods, is issued for a term of up to four years. The plenary license issued to the Sands was renewed by the Commission in September, 1996 and extended through September 30, 2000, subject to review of the Sands' financial stability during 1997 and to the submission of financial projections in 1998 and 1999 for calendar years 1999 and 2000, respectively. The 1997 review took place and the 1999 and the 2000 financial projections were filed. The Sands license was renewed by the Commission in September 2000 and extended through September 2004. The Commission may reopen licensing hearings at any time. If it were determined that gaming laws were violated by a licensee, the gaming license could be conditioned, suspended or revoked. In addition, the licensee and other persons involved could be subject to substantial fines.
The Casino Act 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 made 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.
As of December 31, 2000, September 30, 2000 and December 31, 1999, the Sands had purchased bonds totaling $6,894,000, $6,733,000 and $7,001,000, respectively. In addition, the Sands had remaining funds on deposit and held in escrow by the CRDA at December 31, 2000, September 30, 2000 and December 31, 1999 of $9,442,000, $12,359,000 and $10,507,000, respectively. The bonds purchased and the amounts on deposit and
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
held in escrow are collectively referred to as "obligatory investments" on the accompanying consolidated financial statements.
Obligatory investments at December 31, 2000, September 30, 2000 and December 31, 1999 are net of accumulated valuation allowances of $8,418,000, $9,806,000 and $9,122,000, respectively, based upon the estimated realizable values of the investments. Provisions for valuation allowances for the three months ended December 31, 2000 and the nine months ended September 30, 2000 amounted to $243,000 and $1,044,000, respectively. Provisions for valuation allowances during the years ended December 31, 1999 and 1998 amounted to $1,478,000 and $2,724,000, respectively. In 1999, the Sands expensed $3,490,000 associated with the recognition of a future contribution liability to the CRDA in connection with renovation related to the Atlantic City Boardwalk Convention Center. The liability represents the present value of the future cash contributions committed to the CRDA.
The Sands has, from time to time, contributed certain amounts held in escrow by the CRDA to fund CRDA sponsored projects. During the three months ended December 31, 2000, the Sands contributed $3,310,000 of its escrowed funds to a CRDA sponsored project and will receive a cash refund of $828,000 in consideration for the contribution. Prior to this, the CRDA had granted the Sands waivers of certain of its future Deposit obligations in consideration of similar contributions. The Sands had made such contributions of Deposits during the nine months ended September 30, 2000 and the years ended December 31, 1999 and 1998 totaling $142,000, $176,000 and $146,000, respectively, resulting in waivers granted by the CRDA for those periods totaling $72,000, $90,000 and $74,000, respectively. Intangible assets aggregating $1,211,000, $1,262,000 and $1,413,000, respectively, have been recognized on the accompanying consolidated balance sheets at December 31, 2000, September 30, 2000 and December 31, 1999, and are being amortized over a period of ten years commencing with the completion of the projects. Amortization of intangible assets totaled $51,000, $151,000, $967,000 and $203,000 for the three months ended December 31, 2000, the nine months ended September 30, 2000 and the years ended December 31, 1999 and 1998, respectively. In 1999, GBHC wrote off an intangible asset in the amount of $765,000 because the project no longer provided any benefit to the company.
(9) Legal Proceedings
On January 5, 1998, the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (see Note 1 and Note 2).
In 1998, GBHC also filed an action in the Bankruptcy Court to recover the rights to purchase the Pacific Avenue Hotel against GBCC, certain affiliates of GBCC, and certain former directors of GBHC and to enjoin the use of the Federal NOL's of Holdings and its subsidiaries. That action was settled and, among other things, GBHC recovered the rights to purchase the Pacific Avenue Hotel, the parties entered into certain general releases, and Holdings and its subsidiaries agreed to be included in the consolidated tax return of GBCC for calendar years 1997 and 1998.
GBHC has filed tax appeals with the New Jersey Tax Court challenging the amount of its real property assessment for calendar years 1996, 1997, 1998, 1999 and 2000. The City of Atlantic City has also appealed the amount of the assessments for the same years. GBHC expects to file an appeal for 2001.
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GBHC is a party in various legal proceedings with respect to the conduct of casino and hotel operations. Although a possible range of losses cannot be estimated, in the opinion of management, based upon the advice of counsel, GBHC does not expect the settlement or resolution of these proceedings to have a material adverse impact upon the consolidated financial position or results of operations of Holdings and GBHC. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainties described above.
(10) Acquisition of Lieber Check Cashing and the Agreement for the Option Parcels
As part of a certain settlement agreement described in Note 7, GBHC acquired the membership interests in Lieber from affiliates of GBCC for $251,000. GBHC also caused Lieber to acquire the rights to purchase the Pacific Avenue Hotel for a payment of $1.3 million and a payment of $500,000 at the Effective Date of a plan of reorganization. The purchase price of the Pacific Avenue Hotel was $10 million. With Bankruptcy Court approval, Lieber closed on that purchase with funds advanced by GBHC in 1999. In September 1999, title to the land underlying the former Pacific Avenue Hotel was transferred to GBHC. Demolition of the existing structures was completed in 1999 and construction of the new front entrance to the Sands' facility on Pacific Avenue was completed in June 2000. The $500,000 due under the settlement agreement was paid on the Effective Date.
(11) Acquisition of Claridge Administration Building
In April, 2000, GBHC entered into an agreement with the entities controlling the Claridge Hotel and Casino (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.
(12) Supplemental Cash Flow Information
As part of a certain settlement agreement, GBHC settled certain intercompany obligations on a noncash basis. Loans to GBHC from GBCC, totaling $8,000,000 along with accrued interest totaling $1,508,000, and a deferred federal tax asset of GBHC's, totaling $10,902,000, representing a claim against an affiliate for the overpayment of federal income taxes under a previously existing tax sharing agreement, were mutually released. As the deferred federal tax asset had been previously fully reserved, as required by SFAS 109, this mutual release resulted in the recording of a capital contribution in the amount of $9,508,000 on the accompanying consolidated balance sheet at December 31, 1998. The effects of this settlement have been excluded from the accompanying statement of cash flows as noncash transactions.
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interest and Income Taxes paid during the periods presented are set forth below:
(13) Disclosures about Fair Value of Financial Instruments
Disclosure of the estimated fair value of financial instruments is required under SFAS No 107, "Disclosure About Fair Value of Financial Instruments." The fair value estimates are made at discrete points in time based on relevant market information and information about the financial instruments. These estimates may be subjective in nature and involve uncertainties and significant judgment and therefore cannot be determined with precision.
Cash and cash equivalents are valued at the carrying amount. Such amount approximates the fair value of cash equivalents because of the short maturity of these instruments.
Obligatory investments are valued at a carrying amount which includes an allowance reflecting the below market interest rate associated with such investments.
Other debt obligations with a short remaining maturity are valued at the carrying amount.
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The estimated carrying amounts and fair values of Holdings' financial instruments at December 31, 2000 and 1999 are as follows:
(14) Selected Quarterly Financial Data (Unaudited)
(a) Net income for the Third Quarter of 2000 was impacted by the extraordinary gain on pre-petition debt discharge of $14,795,000.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None of the Registrants had disagreements with its independent accountants to report under this item.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
The Board of Directors of Holdings consists of: Carl C. Icahn, Michael L. Ashner, Martin Hirsch, Alfred J. Luciani and John P. Saldarelli. The Board of Directors of GB Property Funding consists of: Carl C. Icahn, Michael C. Ashner, Martin Hirsch, Alfred J. Luciani and John P. Saldarelli. The Board of Directors of GBHC consists of: Carl C. Icahn, Martin Hirsch, Alfred J. Luciani and John P. Saldarelli and, subject to qualification by the Commission, Michael L. Ashner. Messers. Harold First and Auguste E. Rimpel, Jr. were elected to the Boards of Directors and to the Audit committee, as independent members, of Holdings, GB Property Funding and GBHC, subject to qualification by the Commission.
No family relationships exist between any directors or executive officers of GB Property Funding, Holdings or GBHC.
Directors and Officers
Certain information is set forth below concerning the directors and executive officers of each of GB Property Funding, Holdings and GBHC.
Name Age Position - --------------------- --- ------------------------------
Carl C. Icahn (1) 65 Chairman of the Board
Robert J. Mitchell (2) 54 Director
Martin Hirsch (3) 46 Director
John P. Saldarelli (4) 59 Director
Michael L. Ashner (5) 48 Director
Harold First (6) 64 Director
Auguste E. Rimpel, Jr. (7) 61 Director
Alfred J. Luciani (8) 54 President, Chief Executive Officer and Director
Frederick H. Kraus (9) 51 Executive Vice President, General Counsel
Timothy A. Ebling (10) 42 Executive Vice President, Chief Financial Officer, Principal Accounting Officer
- ----------
(1) Carl C. Icahn has served as Chairman of the Board and a Director of Starfire Holding Corporation (formerly Icahn Holding Corporation), a privately-held holding company, and Chairman of the Board and a Director of various subsidiaries of Starfire's, including ACF Industries, Incorporated, a privately-held railcar leasing and manufacturing company, since 1984. He has also been Chairman of the Board and President of Icahn & Co., Inc., a registered broker-dealer and a member of the National Association of Securities Dealers, since 1968. Since November 1990, Mr. Icahn has been Chairman of the Board of American Property Investors, Inc., the general partner of American Real Estate Partners, L.P., a public limited partnership that invests in real estate. Mr. Icahn has been a Director of Cadus Pharmaceutical Corporation, a firm which holds various biotechnology patents, since 1993. Since August 1998 he has also served as Chairman of the Board of Lowestfare.com, LLC, an internet travel reservations company. From October 1998, Mr. Icahn has been the President and a Director of Stratosphere Corporation which operates the Stratosphere Hotel and Casino. Mr. Icahn received his B.A. from Princeton University. Since September 29, 2000, Mr. Icahn has served as the Chairman of the Board of GB Holdings, Inc., GB Property Funding, Inc. and Greate Bay Hotel & Casino, Inc. which owns and operates the Sands Hotel in Atlantic City, NJ.
(2) Robert J. Mitchell has been the Senior Vice President-Finance of ACF Industries, Incorporated, a privately-held railcar leasing and manufacturing company, since March 1995 and was Treasurer of ACF from December 1984 to March 1995. Mr. Mitchell has also served as President and Treasurer of ACF Industries Holding Corp., a privately-held holding company for ACF, since August 1993. Mr. Mitchell is a Director of National Energy Group, Inc., a public company involved in the exploration of oil and gas reserves, since August 1996. Mr. Mitchell also serves as a Director of Stratosphere Corporation, which operates the Stratosphere Hotel and Casino, since October 14, 1998. Mr. Mitchell received his BS Degree in Business Administration from St. Francis College. Mr. Mitchell has served as a Director of Holdings since September 29, 2000 until his resignation effective February 28, 2001.
(3) Martin Hirsch has served as a Vice President of American Property Investors, Inc. since March 18, 1991, where he is involved in investing, managing and disposing of real estate properties and securities. Mr. Hirsch was elected as Executive Vice President and Director of Acquisitions of American Property Investors, Inc. in 2000. From January 1986 to January 1991, he was at Integrated Resources, Inc. as a Vice President where he was involved in the acquisition of commercial real estate properties and asset management. From 1985-1986, he was a Vice President of Hall Financial Group where he acquired and financed commercial and residential properties. Mr. Hirsch currently serves on the Board of Directors of Stratosphere Corp. He received his MBA from The Emory University Graduate School of Business. Mr. Hirsch has served as a Director of Holdings and GB Property Funding since September 29, 2000 and as a Director of GBHC since February 28, 2001.
(4) John P. Saldarelli has served as Vice President, Secretary and Treasurer of American Property Investors, Inc. (general partner of American Real Estate Partners) since March 18, 1991. Mr. Saldarelli was also
President of Bayswater Realty Brokerage Corp. from June 1987 until November 19, 1993, and Vice President of Bayswater Realty & Capital Corp. from September 1979 until April 15, 1993. In October 1998, Mr. Saldarelli was appointed to the Board of Directors of Stratosphere and in June, 2000, Mr. Saldarelli was given the additional title of Chief Financial Officer. Mr. Saldarelli has served as a Director of Holdings, GB Property Funding and GBHC since February 28, 2001.
(5) Michael L. Ashner has served as Chairman, President and CEO of Winthrop Associates, a real estate consulting firm, since 1995. Mr. Ashner has also served as General Partner of Cecil Associates, a limited liability company which owns twenty Comfort Inns, since 1996. Mr. Ashner has been CEO of Newkirk Associates, a limited liability company which owns and manages more than 40 million square feet of office and retail space, since 1997. Mr. Ashner has also been Managing Director of AP-USX, LLC, a limited liability company which owns a 28 million square foot office tower, since 1998. Since 1999, Mr. Ashner has served as President and CEO of Presidio Capital Corporation, an investment banking firm. Mr. Ashner has been President and CEO since 2000 of GFB-AP Fort, LLC, a limited liability company involved in independent and assisted living communities. Mr. Ashner has been President and Sole Shareholder since 1981 of Exeter Capital Corporation, which provides real estate consulting to real estate investors. Mr. Ashner currently serves as a director of the following publicly traded companies: Nexthealth, Inc., NBTY, Inc., Interstate Hotel Corporation and Burnham Pacific Properties. Mr. Ashner has served as a Director of Holdings and GB Property Funding since September 29, 2000. Mr. Ashner was elected as a member of the Board of Directors of GBHC on September 29, 2000, subject to qualification by the Commission.
(6) Harold First has been a financial consultant since 1993. From December 1990 through January 1993, Mr. First served as Chief Financial Officer of Icahn Holding Corp., a privately held holding company. He has served as a director of Taj Mahal Holding Corporation, a public casino and gaming corporation, Trump Taj Mahal Realty Corporation, a privately held real estate company, Memorex Telex N.V., a public technology company, Trans World Airlines, Inc., a public airline company, ACF Industries, Inc., a privately held railcar leasing and manufacturing company, Cadus Pharmaceutical Corporation, a biotech research company, Talk.com, a public long distance telephone service company, Marvel Entertainment Group, Inc., a public entertainment company, Toy Biz, Inc., a public toy company and vice chairman of the board of directors of American Property Investors, Inc., the general partner of American Real Estate Partners, L.P., a public limited partnership that invests in real estate. Mr. First currently serves on the boards of directors of Panaco Inc., an oil and gas drilling company, and Philip Services Corporation, a leading integrated provider of industrial and metals services. He is a Certified Public Accountant and holds a B.S. from Brooklyn College. He has been elected to serve on the Audit Committee and Boards of Directors of Holdings, GB Property Funding and GBHC subject to qualification by the Commission.
(7) Auguste E. Rimpel, Jr. has been a retired partner of PricewaterhouseCoopers LLP (PwC) since 2000. He was with PwC and its predecessor firm, Price Waterhouse, since 1983, most recently as Managing Partner of International Consulting Services for the Washington Consulting Practice of the firm. Prior to his tenure at PwC, he served as a Partner with Booz Allen & Hamilton, Inc. and as a Vice President of Arthur D. Little International, Inc. Dr. Rimpel currently serves as Chairman of the Board of Trustees of the University of the Virgin Islands. He has been elected to serve on the Audit Committee and Boards of Directors of Holdings, GB Property Funding and GBHC subject to qualification by the Commission.
(8) Alfred J. Luciani, was elected as a member of the Board and President and Chief Executive Officer of Holdings on October 3, 2000. Mr. Luciani was elected as a member of the Board of GBHC on February 28, 2001 and has served as President and Chief Executive Officer of GBHC since November 5, 1999. Mr. Luciani had operated his own consulting company, Luciani & Associates for the prior four years. Prior to that, he served as President and Chief Executive Officer and Director of Development of the Mashantucket Pequot Gaming Enterprise (Foxwoods). Mr. Luciani was a director for Gold River Hotel and Casino Corporation when it filed for reorganization under Chapter 11 of the United States Bankruptcy Code, as amended, in February 1996.
(9) Frederick H. Kraus has served as Executive Vice President, General Counsel and Secretary of each of the companies since 1998. Mr. Kraus also served as a Director of each of the companies from January 1998 to October 3, 2000 for Holdings and February 28, 2001 for GBHC and GB Property Funding. Prior to 1998, Mr. Kraus served as Vice President, Corporate Counsel and Secretary since 1994.
(10) Timothy A. Ebling has served as Executive Vice President, Chief Financial Officer of each of the companies since 1998. Mr. Ebling also served as a Director of each of the companies from January 1998 to October 3, 2000 for Holdings and February 28, 2001 for GBHC and GB Property Funding. Prior to 1998, Mr. Ebling served as Vice President of Finance since 1994.
Section 16(A) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires Holdings' officers and directors, and persons who own more than ten percent of a registered class of Holdings' equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "SEC") and the American Stock Exchange. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish Holdings with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished by the Company, or written representations that no Forms 5 were required, Holdings believes that during the fiscal year ended December 31, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten-percent beneficial owners were satisfied.
Other Matters
On January 5, 2001, Reliance Group Holdings, Inc. ("Reliance") commenced an action in the United States District Court for the Southern District of New York against Carl C. Icahn, Icahn Associates Corp. and High River alleging that High River's tender offer for Reliance 9% senior notes violated Section 14(e) of the Exchange Act of 1934. Reliance sought a temporary restraining order and preliminary and permanent injunctive relief to prevent defendants from purchasing the notes. The Court initially imposed a temporary restraining order. Defendants then supplemented the tender offer disclosures. The Court conducted a hearing on the disclosures and other matters raised by Reliance. The Court then denied Reliance's motion for a preliminary injunction and ordered dissolution of the temporary restraining order following dissemination of the supplement. Reliance took an immediate appeal to the United States Court of Appeals for the Second Circuit and sought a stay to restrain defendants from purchasing notes during the pendency of the appeal. On January 30, 2001, the Court of Appeals denied plaintiffs' stay application. On January 30, Reliance also sought a further temporary restraining order from the District Court. The Court considered the matter and reimposed its original restraint until noon the next day, at which time the restraint against Mr. Icahn and his affiliates was dissolved. On March 22, 2001, the Court of Appeals ruled in favor of Mr. Icahn by affirming the judgment of the District Court.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
Neither Holdings nor GB Property Funding pays any compensation to any employee, executive officer or director, other than independent directors (see "Compensation of Directors" below). The following table provides certain summary information concerning compensation paid or accrued by GBHC, to or on behalf of (i) GBHC's Chief Executive Officer; (ii) each of the other executive officers of GBHC determined as of the end of the last fiscal year; and (iii) additional individuals who would have qualified as among the executive officers of GBHC but for the fact that the individual was not serving as an executive officer at the end of the last year (hereafter referred to as the named executive officers), for the years ended December 31, 2000, 1999 and 1998.
(1) Includes matching contributions by GBHC to The Sands Retirement Savings Plan on behalf of the named executive officer.
(2) William Cooney has served as Executive Director of Slot Operations/Slot Hosts, Vice President of Marketing and Vice President of Casino Marketing during 2000. Prior to 2000, Mr. Cooney served as Vice President of Player Development since 1999. Prior to 1999, Mr. Cooney served as Executive Director of Player Development/Table Games since 1998. Prior to 1998, Mr. Cooney served as Director of Player Development for both slots and table games since 1994.
(3) Signe C. Huff served as Senior Vice President of Hotel Operations since 1995. From 1989 to 1995 Ms. Huff served as Vice President of Hotel Operations. Prior to 1989, Ms. Huff held various senior hotel operating positions with GBHC.
(4) Represents payment of a Bankruptcy Court approved bonus for certain management employees as an incentive for them to stay through the bankruptcy proceedings (Stay Bonus).
Option Grants in Last Fiscal Year
None of the Companies has a stock option plan.
Employment Contracts
Frederick H. Kraus, Executive Vice President, General Counsel and Secretary of GBHC, is under an employment agreement, amended as of March 11, 1998, in such capacities continuing through December 31, 2001. The terms of the agreement provide for an annual base salary of $225,000, subject to annual increases on each anniversary date of the agreement equal to no less than the change in the Consumer Price Index, as defined, and no more than five percent.
Timothy A. Ebling, Executive Vice President and Chief Financial Officer of GBHC, is under an employment agreement, amended as of March 11, 1998, in such capacities continuing through November 30, 2001. The terms of the agreement provide for an annual base salary of $190,000, subject to annual increases on each anniversary date of the agreement equal to no less than the change in the Consumer Price Index, as defined, and no more than five percent.
Signe C. Huff, Senior Vice President of Hotel Operations, is under an employment agreement, amended as of March 11, 1998, in such capacity through November 30, 2001. The terms of the agreement provide for an annual base salary of $165,000, subject to annual increases on each anniversary date of the agreement equal to no less than the change in the Consumer Price Index, as defined, and no more than five percent.
In addition, the Bankruptcy Court approved a Stay Bonus and Severance Plan for certain management employees, including Mr. Kraus and Mr. Ebling. Under the Stay Bonus Plan, Mr. Kraus and Mr. Ebling received a bonus equal to 75% of their base salary. Under the Severance Plan, if the Reorganized Entity, as defined in the Severance Plan, terminated the employment of Mr. Kraus or Mr. Ebling without cause, as defined in their employment agreements, Mr. Kraus and Mr. Ebling would be entitled to a lump sum payment equal to the greater of two years of their base salary or the remaining term of their employment agreements.
The employment agreements of Messrs. Kraus and Ebling and Ms. Huff were approved by the Bankruptcy Court, which modified the amount of annual salary increases from five percent to the terms set forth above and which reduced the period to a maximum of two years over which periodic payments of salary would be made upon a termination without cause that was not covered by the Severance Plan.
Employee Retirement Savings Plan
GBHC participated in the Hollywood Casino Corporation and Subsidiaries Retirement Savings Plan (the "Savings Plan"), a qualified defined contribution plan for the benefit of all of GBHC's employees who satisfy certain eligibility requirements through December 31, 1998. The Savings Plan is qualified under the requirements of Section 401(k) of the Internal Revenue Code allowing participating employees to benefit from the tax deferral opportunities provided therein. All employees of GBHC who have completed one year of service, as defined, and who have attained the age of 21, are eligible to participate in the Savings Plan.
Effective January 1, 1999, GBHC administers and participates in the Sands Retirement Plan, a qualified defined contribution plan for the benefit of all of GBHC's employees with the same requirements and benefits of the predecessor plan. Except for the change in name, this plan remains substantially unchanged.
The Savings Plan provides for a matching contribution by GBHC based upon certain criteria, including levels of participation by GBHC's employees. GBHC incurred matching contributions totaling approximately $753,000 for the year ended December 31, 2000.
Compensation of Directors
Prior to the Effective Date, independent Directors of Holdings, GB Property Funding and GBHC received an annual fee of $10,000 for service on the Boards of Directors and a fee of $500 for each meeting attended. As of the Effective Date, independent directors of the Board of Directors of Holdings are entitled to receive an annual fee of $22,500. The Board of Directors of Holdings held 9 meetings either in person or by unanimous consent during the year ended December 31, 2000. All directors attended at least 75% of all meetings of the Board of Directors and committees thereof for which they were eligible to serve.
The Board of Directors of Holdings also has an Audit Committee. Prior to the Effective Date, the external members of the Audit Committee received an annual fee of $5,000 for service on the committee and a fee of $500 for each meeting attended. As of the Effective Date, compensation for members of the Audit Committee is included in the compensation described above.
Compensation Committee Interlocks and Insider Participation
On October 3, 2000, Holdings established a Compensation Committee consisting of Messers. Hirsch and Ashner.
Mr. Icahn (including certain related entities) is actively involved in the gaming industry and currently owns 72.55% of Holdings' New Common Stock (see Item I). Casinos owned or managed by Mr. Icahn may directly or indirectly compete with Holdings. In addition, the potential for conflicts of interest exists among Holdings and Mr. Icahn for future business opportunities. Mr. Icahn may intend to pursue other business opportunities and there is no agreement requiring that such additional business opportunities be presented to Holdings.
Audit Committee.
The Audit Committee has the duty to (i) review the engagement and performance of the independent auditors, including the remuneration to be paid; (ii) recommend annually to the Board of Directors the independent public accountants to be engaged to audit the books, records and accounts of the companies for the ensuing year; (iii) review with the companies' independent auditors, as well as the companies' management, the companies' system of internal control including the programs and policies of the companies designed to ensure compliance with applicable laws and regulations as well as monitoring results of these compliance efforts; (iv) review with financial management and the independent auditors of the companies' annual financial statements and any financial reports or other financial information submitted to any governmental body or the public by either the companies or its independent auditors and the review of the Forms 10-Q and 10-K prepared by the financial management and the independent auditors of the companies prior to their filing and release; discuss any
significant changes to the companies' accounting principles; (v) review of any significant disagreement among management of the companies and the independent auditors in connection with the preparation of the financial reports of the companies and prior to releasing the year-end earnings, discuss with the independent auditors matters required to be communicated to audit committees in accordance with SAS 61 and (vi) make such reports and recommendations to the Board of Directors in connection with the foregoing as it shall deem appropriate or as the Board of Directors may request, and take such action thereon as the Board of Directors may direct it to take. During 2000, the Audit Committee was comprised of Mr. Frederick H. Kraus (until October 3, 2000) and Ms. Barbara Lang. As of the Effective Date, Mr. Michael L. Ashner became a member of the Audit Committee. Mr. Ashner does not receive any additional compensation for his participation on the Audit Committee. Effective February 28, 2001, Holdings adopted a charter for the Audit Committee conforming to the listing requirements of the American Stock Exchange. On February 28, 2001, Messers. Harold First and Auguste E. Rimpel, Jr. were elected to the Board of Directors and to the Audit committee, as independent members, of Holdings, subject to qualification by the Commission.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As a result of the stock purchase under the High River Stock Purchase Agreement (as defined in the Plan) and the Stock Distribution, entities controlled by Carl C. Icahn received approximately 64.76% of the New Common Stock and 34.4% of the New Notes. As reported to Holdings in a Security and Exchange Commission Form 13D filed by Carl C. Icahn and certain entities controlled by Carl C. Icahn (collectively "Icahn") in February 2001, as a result of a transaction with PPE, Icahn acquired an additional $15,959,000 principal amount of New Notes and an additional 779,861 shares of New Common Stock, resulting in an aggregate beneficial ownership by Icahn of approximately 72.55% of the New Common Stock and 49% of the New Notes. In a Security and Exchange Commission Form 4 filed by Icahn in March 2001, Icahn reported that a third party has the right to put to Icahn certain principal amount of New Notes and an aggregate of 493,222 shares of New Common Stock.
The following table sets forth as of March 21, 2001, certain information regarding the beneficial ownership of shares of New Common Stock by each director of the Company, each of the executive officers listed in the Summary Compensation Table, each person known to the Company to be the beneficial owner of more than 5% of the outstanding shares and all directors and executive officers as a group. Except as otherwise indicated, each stockholder has sole voting and investment power with respect to the shares beneficially owned.
Number Name of Shares Percent - ---- --------- ------- Carl C. Icahn 7,255,422 72.55% Robert J. Mitchell -- -- Martin Hirsch -- -- John P. Saldarelli -- -- Michael L. Ashner -- -- Harold First -- -- Auguste E. Rimpel, Jr. -- -- Alfred J. Luciani -- --
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Effective Date, 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 prior to the Effective Date were $215,000, which equaled the amounts payable to the unaffiliated third party. As a result of the Confirmation Order and the occurrence of the Effective Date and under 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. Amounts payable after the Effective Date are calculated in the same manner as they were prior to the Effective Date. Amounts payable by the Sands subsequent to the Effective Date were $66,000, which equaled the amounts payable to the unaffiliated third party. High River received no payments for its assignment of these rights.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements
The financial statements filed as part of this report are listed on the Index to Financial Statements on page 23.
2. Financial Statement Schedule
-- Report of Independent Public Accountants
-- Schedule II; Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions and are inapplicable and therefore have been omitted.
3. Exhibits
+++2.1 -- Order Confirming 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 +3.1 -- Restated Certificate of Incorporation of GB Property Funding. 3.2 -- Restated Certificate of Incorporation, of GBHC. ++3.3 -- Restated Certificate of Incorporation of Holdings. +3.4 -- Amended and Restated Bylaws of GB Property Funding. 3.5 -- Amended and Restated Bylaws of GBHC. ++3.6 -- Amended and Restated Bylaws of Holdings. +++++3.12 -- Amended License Agreement by and between Hughes Properties, Inc. and Pratt Hotel Corporation (now known as GBCC) dated May 19, 1987.
++++++3.13 -- First and Second Amendments to Employment Agreement dated as of January 1, 1998 and March 11, 1998, respectively, between GBHC and Frederick H. Kraus. ++++++3.14 -- First and Second Amendments to Employment Agreement dated as of January 1, 1998 and March 11, 1998, respectively, between GBHC and Timothy A. Ebling. ++++4.1 -- Indenture, dated as of September 29, 2000, among GB Property Funding, as Issuer, Holdings and GBHC, as Guarantors, and Wells Fargo Bank Minnesota, N.A., as Trustee. 4.2 -- Mortgage, Fixture Filing and Security Agreement dated September 29, 2000, by GBHC in favor of Wells Fargo Bank Minnesota, N.A., as Mortgagee. 4.3 -- Security Agreement dated September 29, 2000, made by GB Property Funding Corp., GBHC, and GB Holdings, Inc., to Wells Fargo Bank Minnesota, N.A., as Trustee. 4.4 -- Collateral Assignment of Leases dated as of September 29, 2000, by GBHC, in favor of Wells Fargo Bank Minnesota, N.A., as Assignee.
- -------------------------
+ Filed as an exhibit to GB Property Funding's Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on March 23, 2001, and incorporated herein by reference.
++ Filed as an exhibit to Holdings' Registration Statement on Form 8-A filed with the Securities and Exchange Commission on September 29, 2000, and incorporated herein by reference.
+++ Filed as an exhibit to Holdings' Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 21, 2000, and incorporated herein by reference.
++++ Filed as an exhibit to GB Property Funding's Amended Current Report on Form 8-K/A, filed with the Securities and Exchange Commission on October 2, 2000, and incorporated herein by reference.
+++++ Filed as an exhibit to Hollywood Casino Corporation's Registration Statement on Form S-1 (Registration No. 33-58732), filed with the Securities and Exchange Commission on February 26, 1993, and incorporated herein by reference.
++++++ Filed as an exhibit to GB Property Funding's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
(b) Reports on Form 8-K
During the quarter ended December 31, 2000, the Registrants filed the following reports on Form 8-K:
Items Listed Dates Filed ------------ -----------
3, 7, 7(c) October 2, 2000 3, 7(c) October 5, 2000 5, 7(c) October 20, 2000 3, 7(c) November 29, 2000
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlantic City, State of New Jersey on March 30, 2001.
GB HOLDINGS, INC. GB PROPERTY FUNDING CORP. GREATE BAY HOTEL AND CASINO, INC.
By: /s/ Timothy A. Ebling -------------------------------- Timothy A. Ebling Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated:
Signature Title Date --------- ----- ----
/s/ Carl C. Icahn Chairman of the Board of, March 30, 2001 - ------------------------ GB Holdings, Inc. -------------- Carl C. Icahn GB Property Funding Corp. and Greate Bay Hotel and Casino, Inc.
/s/ Martin Hirsch Director of March 30, 2001 - ------------------------ GB Holdings, Inc. -------------- Martin Hirsch GB Property Funding Corp. and Greate Bay Hotel and Casino, Inc.
/s/ John P. Saldarelli Director of March 30, 2001 - ------------------------ GB Holdings, Inc. ------------- John P. Saldarelli GB Property Funding Corp. and Greate Bay Hotel and Casino, Inc.
/s/ Michael L. Ashner Director of March 30, 2001 - ------------------------ GB Holdings, Inc. and -------------- Michael L. Ashner GB Property Funding Corp.
/s/ Alfred J. Luciani President, Chief Executive March 30, 2001 - ------------------------ Officer and Director of -------------- Alfred J. Luciani GB Holdings, Inc., GB Property Funding and Greate Bay Hotel and Casino, Inc.
Messers. First and Rimpel, Jr. have been omitted from the above signatures as their respective elections to the Boards of Directors is subject to qualification by the Commission.
INDEX TO FINANCIAL STATEMENT SCHEDULE
GB Holdings, Inc. And Subsidiaries
- Report of Independent Public Accountants
- Schedule II; Valuation and Qualifying Accounts
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GB Holdings, Inc.:
We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of GB Holdings, Inc. and subsidiaries included in this Form 10-K and have issued our report thereon dated February 16, 2001. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statement schedule is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey February 16, 2001
SCHEDULE II
GB HOLDINGS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
- ---------- (1) Represents net write-offs of uncollectible accounts. (2) Represents write-off of affiliated receivables. (3) Represents write-offs of obligatory investments in connection with the contribution of certain obligatory investments to CRDA approved projects.