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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 33-69716
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GB PROPERTY FUNDING CORP.
GB HOLDINGS, INC.
GREATE BAY HOTEL AND CASINO, INC.
- -------------------------------------------------------------------------------
(Exact name of each Registrant as specified in its charter)
DELAWARE 75-2502290
DELAWARE 75-2502293
NEW JERSEY 22-2242014
- ---------------------------------- --------------------
(States or other jurisdictions of (I.R.S. Employer
incorporation or organization) Identification No.'s)
c/o Sands Hotel & Casino
Indiana Avenue & Brighton Park
Atlantic City, New Jersey 08401
- ---------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(Registrants' telephone number, including area code): (609) 441-4633
------------------
(Not Applicable)
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal
year, if changed since last report.)
Indicate by check mark whether each of the Registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------ -------
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Registrant Class Outstanding at August 13, 2003
- --------------------------------------- --------------------------------- -------------------------------
GB Property Funding Corp. Common stock, $1.00 par value 100 shares
GB Holdings, Inc. Common stock, $.01 par value 10,000,000 shares
Greate Bay Hotel and Casino, Inc. Common stock, no par value 100 shares
1
GB HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
2003 2002
------------- -------------
Current Assets:
Cash and cash equivalents $ 46,502,000 $ 50,645,000
Accounts receivable, net of allowances
of $8,833,000 and $11,301,000, respectively 4,637,000 4,976,000
Inventories 2,031,000 1,857,000
Income tax deposits 1,363,000 1,359,000
Prepaid expenses and other current assets 2,705,000 3,067,000
------------- -------------
Total current assets 57,238,000 61,904,000
------------- -------------
Property and Equipment:
Land 54,344,000 54,344,000
Buildings and improvements 92,132,000 91,657,000
Equipment 49,925,000 46,119,000
Construction in progress 5,760,000 3,597,000
------------- -------------
202,161,000 195,717,000
Less - accumulated depreciation and
amortization (32,687,000) (26,095,000)
------------- -------------
Property and equipment, net 169,474,000 169,622,000
------------- -------------
Other Assets:
Obligatory investments, net of allowances of
$10,511,000 and $10,028,000, respectively 10,601,000 10,069,000
Other assets 2,747,000 3,117,000
------------- -------------
Total other assets 13,348,000 13,186,000
------------- -------------
$ 240,060,000 $ 244,712,000
============= =============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated financial statements.
2
GB HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
June 30, December 31,
2003 2002
------------- -------------
Current Liabilities
Accounts payable $ 5,685,000 $ 5,598,000
Accrued liabilities -
Salaries and wages 3,847,000 3,717,000
Interest 3,092,000 3,092,000
Gaming obligations 2,618,000 3,752,000
Self-insurance 2,193,000 1,805,000
Other 4,599,000 3,955,000
------------- -------------
Total current liabilities 22,034,000 21,919,000
------------- -------------
Long-Term Debt, net of current maturities 110,000,000 110,000,000
------------- -------------
Other Noncurrent Liabilities 3,586,000 3,445,000
------------- -------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.01 par value per share;
20,000,000 shares authorized; 0 shares outstanding -- --
Common Stock, $.01 par value per share;
20,000,000 shares authorized;
10,000,000 shares issued and outstanding 100,000 100,000
Additional paid-in capital 124,900,000 124,900,000
Accumulated deficit (20,560,000) (15,652,000)
------------- -------------
Total shareholders' equity 104,440,000 109,348,000
------------- -------------
$ 240,060,000 $ 244,712,000
============= =============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated financial statements.
3
GB HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
----------------------------
2003 2002
------------ ------------
Revenues:
Casino $ 49,647,000 $ 51,854,000
Rooms 2,956,000 3,049,000
Food and beverage 5,511,000 5,752,000
Other 1,080,000 1,050,000
------------ ------------
59,194,000 61,705,000
Less - promotional allowances (13,164,000) (12,123,000)
------------ ------------
Net revenues 46,030,000 49,582,000
------------ ------------
Expenses:
Casino 33,072,000 35,303,000
Rooms 596,000 1,016,000
Food and beverage 2,425,000 2,822,000
Other 784,000 675,000
General and administrative 2,739,000 4,032,000
Depreciation and amortization,
including provision
for obligatory investments 3,947,000 3,622,000
Loss on impairment of fixed assets -- 1,282,000
Gain on disposal of assets (1,000) (37,000)
------------ ------------
Total expenses 43,562,000 48,715,000
------------ ------------
Income from operations 2,468,000 867,000
------------ ------------
Non-operating income (expense):
Interest income 172,000 240,000
Interest expense (2,963,000) (2,953,000)
------------ ------------
Total non-operating expense, net (2,791,000) (2,713,000)
------------ ------------
Loss before income tax (provision) benefit (323,000) (1,846,000)
Income tax (provision) benefit (184,000) 628,000
------------ ------------
Net loss $ (507,000) $ (1,218,000)
============ ============
Basic/diluted loss per common share $ (0.05) $ (0.12)
============ ============
Basic/diluted weighted average
common shares outstanding 10,000,000 10,000,000
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated financial statements.
4
GB HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30,
------------------------------
2003 2002
------------- -------------
Revenues:
Casino $ 93,286,000 $ 107,524,000
Rooms 5,415,000 5,795,000
Food and beverage 10,175,000 12,217,000
Other 1,963,000 1,978,000
------------- -------------
110,839,000 127,514,000
Less - promotional allowances (25,008,000) (24,688,000)
------------- -------------
Net revenues 85,831,000 102,826,000
------------- -------------
Expenses:
Casino 64,958,000 72,123,000
Rooms 1,030,000 2,120,000
Food and beverage 4,481,000 5,312,000
Other 1,388,000 1,408,000
General and administrative 5,261,000 6,944,000
Depreciation and amortization,
including provision
for obligatory investments 7,678,000 6,865,000
Loss on impairment of fixed assets -- 1,282,000
Loss (gain) on disposal of assets 3,000 (52,000)
------------- -------------
Total expenses 84,799,000 96,002,000
------------- -------------
Income from operations 1,032,000 6,824,000
------------- -------------
Non-operating income (expense):
Interest income 361,000 530,000
Interest expense (5,958,000) (5,682,000)
------------- -------------
Total non-operating expense, net (5,597,000) (5,152,000)
------------- -------------
Income (loss) before income taxes (4,565,000) 1,672,000
Income tax provision (343,000) (632,000)
------------- -------------
Net income (loss) $ (4,908,000) $ 1,040,000
============= =============
Basic/diluted income (loss) per common share $ (0.49) $ 0.10
============= =============
Weighted average common shares outstanding 10,000,000 10,000,000
============= =============
The accompanying notes to condensed consolidated financial statements
are an integral part of these consolidated financial statements.
5
GB HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------------
2003 2002
------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ (4,908,000) $ 1,040,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization, including provision
for obligatory investments 7,678,000 6,865,000
Loss on impairment of fixed assets -- 1,282,000
Loss (gain) on disposal of assets 3,000 (52,000)
Provision for doubtful accounts 688,000 912,000
(Increase) decrease in income tax deposits (4,000) 318,000
(Decrease) increase in accounts receivable (349,000) 1,470,000
Increase (decrease) in accounts payable
and accrued liabilities 63,000 (1,634,000)
Decrease (increase) in other current assets 182,000 (1,481,000)
Decrease in other noncurrent assets and liabilities 176,000 131,000
------------ ------------
Net cash provided by operating activities 3,529,000 8,851,000
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (6,576,000) (9,696,000)
Proceeds from disposition of assets 2,000 52,000
Purchase of obligatory investments (1,098,000) (1,281,000)
------------ ------------
Net cash used in investing activities (7,672,000) (10,925,000)
------------ ------------
FINANCING ACTIVITIES:
Repayments of long-term debt -- (10,000)
------------ ------------
Net cash used in financing activities -- (10,000)
------------ ------------
Net decrease in cash and cash equivalents (4,143,000) (2,084,000)
Cash and cash equivalents at beginning of period 50,645,000 57,369,000
------------ ------------
Cash and cash equivalents at end of period $ 46,502,000 $ 55,285,000
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated financial statements.
6
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization, Business and Basis of Presentation
The condensed consolidated financial statements include the accounts of
GB Holdings, Inc. and subsidiaries ("Holdings" or the "Company"). All
significant intercompany transactions and balances have been eliminated in
consolidation. In management's opinion, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the condensed
consolidated financial position as of June 30, 2003 and the condensed
consolidated results of operations for the three and six months ended June 30,
2003 and 2002 have been made. The results set forth in the condensed
consolidated statement of operations for the six months ended June 30, 2003 are
not necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements were prepared following
the requirements of the Securities and Exchange Commission (SEC) for interim
reporting. As permitted under those rules, certain footnotes or other financial
information that are normally required by GAAP (accounting principles generally
accepted in the United States of America) can be condensed or omitted.
The Company is responsible for the unaudited financial statements
included in this document. As these are condensed financial statements, they
should be read in conjunction with the consolidated financial statements and
notes included in the Company's latest Form 10-K.
(2) Income Taxes
The components of the provision for income taxes are as follows:
Six Months Ending June 30,
---------------------------
2003 2002
--------- ---------
Federal income tax provision:
Current $ -- $(632,000)
Deferred -- --
State income tax provision:
Current (343,000) --
Deferred -- --
--------- ---------
$(343,000) $(632,000)
========= =========
Federal and State income tax benefits or provisions are based upon the
results of operations for the current period and the estimated adjustments for
income tax purposes of certain nondeductible expenses.
Due to recurring losses, the Company has not recorded a Federal income
tax benefit for the six months ended June 30, 2003. Management is unable to
determine that realization of the Company's deferred tax assets are more likely
than not, and, thus has provided a valuation allowance for the entire amount.
7
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The State income tax provision of $343,000 for the six months ended June
30, 2003 is a result of applying the statutory Alternative Minimum Assessment
rate of 0.4% to gross receipts, as defined in the Business Tax Reform Act.
(3) Transactions with Related Parties
Greate Bay Hotel and Casino, Inc.'s ("GBHC") rights to the trade name
"Sands" (the "Trade Name") were derived from a license agreement between Greate
Bay Casino Corporation and an unaffiliated third party. Amounts payable by GBHC
for these rights were equal to the amounts paid to the unaffiliated third party.
GBHC was assigned by High River Limited Partnership ("High River") the rights
under a certain agreement with the owner of the Trade Name to use the Trade Name
as of September 29, 2000 through May 19, 2086 subject to termination rights for
a fee after a certain minimum term. High River is an entity controlled by Carl
C. Icahn. High River received no payments for its assignment of these rights.
Payment is made directly to the owner of the Trade Name. Such charges amounted
to $130,000 and $144,000, respectively, for the six months ended June 30, 2003
and 2002.
The Stratosphere Casino Hotel & Tower (the "Stratosphere"), an entity
controlled by Carl C. Icahn, allocates a portion of certain executive salaries,
including Richard P. Brown, as well as other charges for tax preparation, legal
fees, travel and entertainment to GBHC. Charges incurred from the Stratosphere
for the six months ended June 30, 2003 were $108,000. There were no similar
charges for the six months ended June 30, 2002.
On February 28, 2003, GBHC entered into a two year agreement with XO
New Jersey, Inc., a long-distance phone carrier controlled by Carl C. Icahn. The
agreement can be extended beyond the two year term on a month-to-month basis.
Charges incurred for the six months ended June 30, 2003 were $26,000.
(4) Legal Proceedings
Tax appeals on behalf of the Company and the City of Atlantic City
challenging the amount of the Company's real property assessments for tax years
1996 through 2003 are pending before the NJ Tax Court.
The Company discovered certain failures relating to currency transaction
reporting and self-reported the situation to the applicable regulatory agencies.
The Company conducted an internal examination of the matter and the New Jersey
Division of Gaming Enforcement conducted a separate review. The Company has
revised internal control processes and taken other measures to address the
situation. The Company was advised by the Department of the Treasury that it
will not pursue a civil penalty.
The Company is a party in various legal proceedings with respect to the
conduct of casino and hotel operations and has received employment related
claims. Although a possible range of losses cannot be estimated, in the opinion
of management, based upon the advice of counsel, the Company does not expect
settlement or resolution of these proceedings or claims to have a material
adverse impact upon the consolidated financial position or results of operations
of the Company, but the outcome of litigation and the resolution of claims is
subject to uncertainties and no assurances can be given. The accompanying
condensed consolidated financial statements do not include any adjustments that
might result from these uncertainties.
8
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
On February 26, 2003, the Company received a letter from counsel for
Mr. Frederick H. Kraus, Executive Vice President, General Counsel and Secretary,
indicating that he had been retained to represent Mr. Kraus "in regards to a
constructive discharge, breach of contract, severance pay" and other claims.
This matter has been amicably resolved.
(5) Income (Loss) Per Share
Statement of Financial Accounting Standards No. 128: "Earnings Per
Share", requires, among other things, the disclosure of basic and diluted
earnings per share for public companies. Since the capital structure of the
Company is simple, in that no potentially dilutive securities were outstanding
during the periods presented, basic and diluted income (loss) per share are the
same. Basic and diluted income (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding.
(6) Supplemental Cash Flow Information
Cash paid for interest and income taxes during the six months ended June
30, 2003 and 2002 are set forth below:
Six Months Ended
June 30,
------------------------------
2003 2002
---------- ----------
Interest paid $6,050,000 $6,068,000
========== ==========
Interest capitalized $ 211,000 $ 532,000
========== ==========
Income taxes paid $ 376,000 $1,006,000
========== ==========
(7) New Accounting Pronouncement
On January 1, 2003, the Company adopted FAS No. 143, "Asset Retirement
Obligations" ("SFAS No. 143"), which provides the accounting requirements for
retirement obligations associated with tangible long-lived assets. This
statement requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. The adoption of FAS
No. 143 did not have a material impact on the Company's condensed consolidated
financial statements.
9
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(8) Subsequent Event
On July 14, 2003, a Form 8-K was filed with the Securities and Exchange
Commission reporting that a committee of the independent directors of the
Company approved a proposed restructuring of the Company's $110 million notes
due September 29, 2005 that bear interest at 11% (the Existing Notes") together
with various other corporate changes to be accomplished in connection with the
proposed restructuring and issued a press release describing the restructuring
and other aspects of the proposed transaction. The proposed transaction would
involve the following:
o The amendment of the Existing Indenture to remove certain
provisions and covenants and the release of the lien on the
Company's assets which is the collateral for the Existing
Notes, thereby allowing the transfer of the Company's assets
to a newly formed wholly-owned indirect subsidiary of the
Company ("Licensee") free and clear of all liens and all
obligations under the Existing Indenture. Licensee will
guarantee the obligations of a new subsidiary of the Company
formed to own Licensee ("Newco") under a new indenture.
o The solicitation of the exchange (the "Notes Exchange") of the
Existing Notes, dollar for dollar, for up to $110 million of
notes (the "New Notes") due September 2008 (the "New Maturity
Date") which will bear interest at 3% per annum, payable at
maturity. The New Notes will be secured by a first lien on the
assets of Newco and Licensee. Newco will undertake to provide
the funds to the Company to meet scheduled interest payments
on the Notes through their scheduled maturity.
o The payment of $100 by the Company to the holders of the
Existing Notes for each $1,000 in principal amount exchanged
together with all interest accrued on such Existing Notes
through the date of such exchange.
o The distribution to the Company's common stockholders of
warrants exercisable (following the occurrence of certain
events) for 27.5% of the common stock of Newco (on a fully
diluted basis) (the "Newco Warrants").
o The holders of a majority of the principal amount of the New
Notes have the option at any time prior to the New Maturity
Date to cause the entire class of New Notes to simultaneously
convert into shares of Newco Stock. Shares of Newco Stock
issued upon such conversion of the New Notes will represent
72.5% of the Newco Stock if all of the Existing Notes
participate in the Note Exchange. If less than all of the
Existing Notes participate in the Note Exchange, then in the
event of a conversion of the New Notes into shares of Newco
Stock, such shares would be equal on a fully diluted basis,
after giving effect to the exercise of the Newco Warrants and
the conversion of the New Notes, the product of (a) 72.5% and
(b) a fraction, the numerator of which is the principal amount
of the New Notes and the denominator of which is the total
principal amount of the Existing Notes immediately prior to
the Exchange Officer.
10
GB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
o At the election of the holders of a majority of the principal
amount of the New Notes, the holders of the New Notes may be
given the ability to convert the New Notes at their option.
o If all the Existing Notes do not participate in the Note
Exchange, the proposed transaction will result in the Company
owning shares of Newco Stock which would represent on a fully
diluted basis (after giving effect to the exercise of the
Newco Warrants and the conversion of the New Notes) a
percentage of the Newco Stock equal to the product of (a)
72.5% and (b) a fraction, the numerator of which is the
principal amount of the Existing Notes that are not exchanged
for New Notes and the denominator of which is the total
principal amount of the Existing Notes immediately prior to
the Exchange Offer.
This proposed transaction is subject to the consent of the holders of a
majority of the Existing Notes, the exchange of a majority in principal amount
of the Existing Notes, the approval of stockholders owning a majority of the
common stock of the Company, the effectiveness of all required filing under
applicable securities law, and the receipt of all required governmental and
third party approvals.
11
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
about the business, financial condition and prospects of the Company. The actual
results could differ materially from those indicated by the forward-looking
statements because of various risks and uncertainties. Such risks and
uncertainties are beyond management's ability to control and, in many cases,
cannot be predicted by management. When used in this Quarterly Report on Form
10-Q, the words "believes", "estimates", "anticipates", "expects", "intends" and
similar expressions as they relate to the Company or its management are intended
to identify forward-looking statements (see "Private Securities Litigation
Reform Act" below).
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
At June 30, 2003, the Company had cash and cash equivalents of $46.5
million. The Company provided $3.5 million of net cash from operations during
the six months ended June 30, 2003 compared to generating $8.9 million during
the same prior year period.
On July 1, 2003, the State of New Jersey enacted certain legislation
that established a 7.5% tax on a casino's calendar year 2002 adjusted net
income, as defined in the legislation (the "Casino Income Tax"). The Casino
Income Tax is payable annually at a minimum of $350,000 per casino through June
2006. Since the Great Bay Hotel and Casino, Inc. ("GBHC") operated at an
adjusted net loss in 2002, it is subject to the minimum annual Casino Income
Tax. This tax is payable in equal quarterly installments of $87,500. Casinos can
receive a portion of this amount in the form of a distribution from the CRDA for
approved capital construction projects. Eligible projects include expansions
that "increase the square footage of retail space, parking spaces, or hotel
rooms or to create a significant physical amenity or improvement."
Also enacted on July 1, 2003, was legislation to tax complimentaries at
a rate of 4.25%. The minimum complimentary tax each casino will have to pay is
equivalent to the tax it would have paid in calendar year 2002 if this tax were
already in existence. No tax on complimentaries is imposed on the value of any
service or property upon which a sales or use tax has been paid by the casino
licensee. In addition, parking fees payable to the State of New Jersey increased
from $1.50 per vehicle to $3.00 per vehicle. The legislation also disallows
deduction of uncollectible gaming receivables in calculating the gross revenue
tax on gambling winnings. Management estimates the impact of these new taxes,
fees and calculations to be approximately $725,000 over the next four quarters.
The incremental cost of the new taxes, fees and calculations includes $350,000
for the Casino Income tax, approximately $260,000 for taxes on complimentaries
and increased parking fees and approximately $115,000 attributable to the
disallowance of deducting uncollectible gaming receivables for gross revenue tax
purposes.
Investing Activities
Capital expenditures at the Sands for the six months ended June 30, 2003
amounted to approximately $6.6 million. These expenditures included but were not
limited to renovations to the new 'Swingers' Lounge, Pacific Avenue bus center,
the Platinum Club players lounge and the new bus patron lobby. In order to
enhance its competitive position in the market place, the Sands may determine to
incur additional substantial costs and expenses to maintain, improve and expand
its facilities and operations. The Company may require additional financing in
connection with those activities.
12
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The Sands is required by the Casino Act to make certain quarterly
deposits based on gross revenue with the Casino Reinvestment Development
Authority ("CRDA") in lieu of a certain investment alternative tax. Deposits for
the six months ended June 30, 2003 amounted to $1.1 million.
Financing Activities
There were no financing activities during the six months ended June 30,
2003. As of June 30, 2003, the only scheduled payment of long-term debt is the
$110 million for notes due September 29, 2005 that bear interest at the rate of
11% ("the Existing Notes").
On July 14, 2003, a Form 8-K was filed with the Securities and Exchange
Commission reporting that a committee of the independent directors of the
Company approved a proposed restructuring of the Company's Existing Notes
together with various other corporate changes to be accomplished in connection
with the proposed restructuring and issued a press release describing the
restructuring and other aspects of the proposed transaction. The proposed
transaction would involve the following:
o The amendment of the Existing Indenture to remove certain
provisions and covenants and the release of the lien on the
Company's assets which is the collateral for the Existing
Notes, thereby allowing the transfer of the Company's assets
to a newly formed wholly-owned indirect subsidiary of the
Company ("Licensee") free and clear of all liens and all
obligations under the Existing Indenture. Licensee will
guarantee the obligations of a new subsidiary of the Company
formed to own Licensee ("Newco") under a new indenture.
o The solicitation of the exchange (the "Notes Exchange") of the
Existing Notes, dollar for dollar, for up to $110 million of
notes (the "New Notes") due September 2008 (the "New Maturity
Date") which will bear interest at 3% per annum, payable at
maturity. The New Notes will be secured by a first lien on the
assets of Newco and Licensee. Newco will undertake to provide
the funds to the Company to meet scheduled interest payments
on the Notes through their scheduled maturity.
o The payment of $100 by the Company to the holders of the
Existing Notes for each $1,000 in principal amount exchanged
together with all interest accrued on such Existing Notes
through the date of such exchange.
o The distribution to the Company's common stockholders of
warrants exercisable (following the occurrence of certain
events) for 27.5% of the common stock of Newco (on a fully
diluted basis). ("Newco Warrants")
o The holders of a majority of the principal amount of the New
Notes have the option at any time prior to the New Maturity
Date to cause the entire class of New Notes to simultaneously
convert into shares of Newco Stock. Shares of Newco Stock
issued upon such conversion of the New Notes will represent
72.5% of the Newco Stock if all of the Existing Notes
participate in the Note Exchange. If less than all of the
Existing Notes participate in the Note Exchange, then in the
event of a conversion of the New Notes into shares of Newco
Stock, such shares would be equal on a fully diluted basis,
after giving effect to the exercise of the Newco Warrants and
the conversion of the New Notes, the product of (a) 72.5% and
(b) a fraction, the numerator of which is the principal amount
of the New Notes and the denominator of which is the total
principal amount of the Existing Notes immediately prior to
the Exchange Officer.
13
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
o At the election of the holders of a majority of the principal
amount of the New Notes, the holders of the New Notes may be
given the ability to convert the New Notes at their option.
o If all the Existing Notes do not participate in the Note
Exchange, the proposed transaction will result in the Company
owning shares of Newco Stock which would represent on a fully
diluted basis (after giving effect to the exercise of the
Newco Warrants and the conversion of the New Notes) a
percentage of the Newco Stock equal to the product of (a)
72.5% and (b) a fraction, the numerator of which is the
principal amount of the Existing Notes that are not exchanged
for New Notes and the denominator of which is the total
principal amount of the Existing Notes immediately prior to
the Exchange Offer.
This proposed transaction is subject to the consent of the holders of a
majority of the Existing Notes, the exchange of a majority in principal amount
of the Existing Notes, the approval of stockholders owning a majority of the
common stock of the Company, the effectiveness of all required filing under
applicable securities law, and the receipt of all required governmental and
third party approvals.
Summary
Management believes that cash flows to be generated from operations
during 2003, as well as available cash reserves, will be sufficient to meet its
operating plan and provide for scheduled capital expenditures of approximately
$7.5 million for the remaining six months of 2003. However, any significant
other capital expenditures may require additional financing.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its results of operations and
financial condition are based upon its condensed consolidated financial
statements that have been prepared in accordance with generally accepted
accounting principles in the United States of America ("US GAAP"). The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosure of contingent
assets and liabilities. Estimates and assumptions are evaluated on an ongoing
basis and are based on historical and other factors believed to be reasonable
under the circumstances. The results of these estimates may form the basis of
the carrying value of certain assets and liabilities and may not be readily
apparent from other sources. Actual results, under conditions and circumstances
different from those assumed, may differ from estimates. The impact and any
associated risks related to estimates, assumptions, and accounting policies are
discussed within Management's Discussion and Analysis of Results of Operations
and Financial Condition, as well as in the Notes to the Condensed Consolidated
Financial Statements, if applicable, where such estimates, assumptions, and
accounting policies affect the Company's reported and expected financial
results.
14
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company believes the following accounting policies are critical to
its business operations and the understanding of results of operations and
affect the more significant judgments and estimates used in the preparation of
its condensed consolidated financial statements:
Allowance for Doubtful Accounts - The Company maintains accounts
receivable allowances for estimated losses resulting from the inability of its
customers to make required payments. Additional allowances may be required if
the financial condition of the Company's customers deteriorates.
Commitments and Contingencies - Litigation - On an ongoing basis, the
Company assesses the potential liabilities related to any lawsuits or claims
brought against the Company. While it is typically very difficult to determine
the timing and ultimate outcome of such actions, the Company uses its best
judgment to determine if it is probable that it will incur an expense related to
the settlement or final adjudication of such matters and whether a reasonable
estimation of such probable loss, if any, can be made. In assessing probable
losses, the Company makes estimates of the amount of insurance recoveries, if
any. The Company accrues a liability when it believes a loss is probable and the
amount of loss can be reasonably estimated. Due to the inherent uncertainties
related to the eventual outcome of litigation and potential insurance recovery,
it is possible that certain matters may be resolved for amounts materially
different from any provisions or disclosures that the Company has previously
made.
Impairment of Long-Lived Assets - The Company periodically reviews
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Assumptions and estimates used in the determination of impairment losses, such
as future cash flows and disposition costs, may affect the carrying value of
long-lived assets and possible impairment expense in the Company's condensed
consolidated financial statements.
Self-Insurance - The Company retains the obligation for certain losses
related to customer's claims of personal injuries incurred while on the Company
property as well as major-medical and dental claims for non-union employees in
2003. The Company accrues for outstanding reported claims, claims that have been
incurred but not reported and projected claims based upon management's estimates
of the aggregate liability for uninsured claims using historical experience, an
adjusting company's estimates and the estimated trends in claim values. Although
management believes it has the ability to adequately project and record
estimated claim payments, it is possible that actual results could differ
significantly from the recorded liabilities.
Allowance for Obligatory Investments - The Company maintains obligatory
investment allowances for its investments made in satisfaction of its CRDA
obligation. The obligatory investments may ultimately take the form of CRDA
issued bonds, which bear a below market rate of interest, direct investments or
donations. Management bases its reserves on the type of investments the
obligation has taken or is expected to take. CRDA bonds bear interest at
approximately one-third below market rates. Donations of the Sands' quarterly
deposits to the CRDA have historically yielded a 51% future credit or refund of
obligations. Therefore, management has reserved the predominant balance of its
obligatory investments at between 33% and 49%.
15
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
Gaming Operations
Information contained herein, regarding Atlantic City casinos other than
the Sands, was obtained from reports filed with the Casino Control Commission.
The following table sets forth certain unaudited financial and operating
data relating to the Sands' and all other Atlantic City casinos' capacities,
volumes of play, hold percentages and revenues:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ------------------------------
2003 2002 2003 2002
--------------- --------------- -------------- --------------
(Dollars in Thousands) (Dollars in Thousands)
Units: (at end of period)
Table Games - Sands 61 38 61 38
- Atlantic City (ex. Sands) 1,154 1,181 1,154 1,181
Slot Machines - Sands 2,171 2,438 2,171 2,438
- Atlantic City (ex. Sands) 36,034 35,441 36,034 35,441
Gross Wagering (1)
Table Games - Sands $ 53,144 $ 64,332 $ 98,315 $ 159,349
- Atlantic City (ex. Sands) 1,610,605 1,636,075 3,130,602 3,223,664
Slot Machines - Sands 514,630 558,029 993,880 1,140,582
- Atlantic City (ex. Sands) 9,787,048 9,662,430 18,502,770 18,694,900
Hold Percentages (2)
Table Games - Sands 15.2% 14.1% 14.7% 15.0%
- Atlantic City (ex. Sands) 16.4% 15.9% 16.5% 16.1%
Slot Machines - Sands 8.0% 7.6% 7.9% 7.2%
- Atlantic City (ex. Sands) 8.1% 8.2% 8.1% 8.1%
Revenues (2)
Table Games - Sands $ 8,085 $ 9,072 $ 14,404 $ 23,925
- Atlantic City (ex. Sands) 264,049 259,370 517,194 517,416
Slot Machines - Sands 41,259 42,360 78,421 82,586
- Atlantic City (ex. Sands) 797,265 788,324 1,496,331 1,516,526
Other (3) - Sands 303 422 461 1,013
- Atlantic City (ex. Sands) N/A N/A N/A N/A
- -------------------------------
(1) Gross wagering consists of the total value of chips purchased for table
games (excluding poker) and keno wagering (the "Drop") and coins wagered
in slot machines (the "Handle").
16
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
(2) Casino revenues consist of the portion of gross wagering that a casino
retains and, as a percentage of gross wagering, is referred to as the
"hold percentage." The Sands' hold percentages and revenues are
reflected on an accrual basis. Comparable accrual basis data for the
remainder of the Atlantic City gaming industry as a whole is not
available; consequently, industry hold percentages and revenues are
based on information available from the Commission.
(3) Consists of revenues from poker and simulcast horse racing wagering.
Comparable information for the remainder of the Atlantic City gaming
industry is not available.
Patron Gaming Volume
Information contained herein, regarding Atlantic City casinos other than
the Sands, was obtained from reports filed with the Commission.
For the three and six months ended June 30, 2003 the table game drop
decreased $11.2 million (17.4)% and $61.0 million (38.3%) compared to the
comparable periods in 2002. These results are compared to the Atlantic City
Industry table drop results of a decrease of $25.4 million (1.6%) and $93
million (2.9%) for the three months and six months ended June 30, 2003
respectively compared to the same periods in 2002. During this 2003 period, the
Company reestablished its table games to 61 units compared to 38 units in the
prior year. It was during May of 2002 that the Company reduced its table games
and related business for the purpose of focusing entirely on the mass slot
customer business. The Company changed its business strategy in late 2002 to
refocus on the mid to high-end slot customer along with a balanced table game
business. It should be noted that marketing adjustments regarding target
audience refocus take time to come to fruition. The number of slot machine units
as of the end of June 2003 was 2,171 compared to 2,438 at the same time in
2002.Table game hold percentage for the Company increased by 1.1 percentage
points to 15.2% and declined 0.3 percentage points to 14.7% for the three and
six month periods ended June 30, 2003 respectively compared to the same periods
in 2002.
Slot machine handle for the Company decreased $43.4 million (7.8%), and
$146.7 (12.9%) million for the three and six month periods ended June 30, 2003
respectively compared to the same periods in 2002. By comparison, the percentage
change in slot machine handle for all other Atlantic City casinos during these
periods in 2003 compared to the same periods in 2002 was 1.3% increase for the
three month period and a 1.0% decrease for the six month period. The Company's
2003 decrease in handle is attributed to (i) reduced hotel room occupancy from
the tour and travel groups during mid-week, a carryover effect from the focus on
mass slot play during the first three months of 2003; and (ii) the heavy
weighting of lower denomination slot machines remaining from the 2002 mass
customer strategy, and (iii) the change in strategy from early 2002 of a "Lowest
Slot Hold Percentage" to a more competitive hold percentage in 2003. During June
2003, the Company shifted its weighting of denomination of slot machine units
back toward the mid to high end levels. This decrease in slot machine handle was
offset by an increase in the hold percentage of 0.4 percentage points to 8.0%
and 0.7 percentage points to 7.9% for the three and six month periods ended June
30, 2003 compared to the same periods in 2002. This positive variance in hold
percentage was not enough to offset the decrease in slot machine handle and
resulted in a decrease in Slot revenue of $1.1 million (2.6%) and $4.2 million
(5%) for the three and six-month periods ended June 30, 2003 respectively
compared to the periods in 2002. The number of slot machine units as of the end
of June 2003 was 2,171 compared to 2,438 at the same time in 2002. On an
industry-wide basis, the number of slot machines increased 1.6% at June 30, 2003
compared to the same time period in 2002.
17
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The following table sets forth the changes in operating revenues and
expenses (unaudited) for the three month and six month periods ended June 30,
2003 and 2002:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------------- ---------------------------------------------
Increase (Decrease) Increase (Decrease)
2003 2002 $ % 2003 2002 $ %
--------- --------- --------- ------ --------- --------- --------- ------
(Dollars In Thousands)
Revenues:
Casino $ 49,647 $ 51,854 $ (2,207) (4.26) $ 93,286 $ 107,524 $ (14,238) (13.24)
Rooms 2,956 3,049 (93) (3.05) 5,415 5,795 (380) (6.56)
Food and Beverage 5,511 5,752 (241) (4.19) 10,175 12,217 (2,042) (16.71)
Other 1,080 1,050 30 2.86 1,963 1,978 (15) (0.76)
Promotional Allowances 13,164 12,123 (1,041) (8.59) 25,008 24,688 (320) (1.30)
Expenses:
Casino 33,072 35,303 (2,231) (6.32) 64,958 72,123 (7,165) (9.93)
Rooms 596 1,016 (420) (41.34) 1,030 2,120 (1,090) (51.42)
Food and Beverage 2,425 2,822 (397) (14.07) 4,481 5,312 (831) (15.64)
Other 784 675 109 16.15 1,388 1,408 (20) (1.42)
General and Administrative 2,739 4,032 (1,293) (32.07) 5,261 6,944 (1,683) (24.24)
Depreciation and Amortization 3,947 3,622 325 8.97 7,678 6,865 813 11.84
Loss on impairment of fixed assets -- 1,282 (1,282) (100.00) -- 1,282 (1,282) (100.00)
Loss (gain) on disposal of assets (1) (37) 36 (97.30) 3 (52) 55 (105.77)
Income from Operations 2,468 867 1,601 184.66 1,032 6,824 (5,792) (84.88)
Non-operating expense, net (2,791) (2,713) (78) (2.88) (5,597) (5,152) (445) (8.64)
Income Tax (Provision) Benefit (184) 628 (812) (129.30) (343) (632) 289 45.73
Net income (loss) (507) (1,218) 711 58.37 (4,908) 1,040 (5,948) (571.94)
Revenues
Overall casino revenues decreased $2.2 million (4.3%) and $14.2 million
(13.2%) for the three and six-month periods ended June 30, 2003 respectively
compared to the same periods in 2002. The decreases in casino revenues are
attributable to the decreases in table game drop and slot machine handle as
described above, along with the related changes in hold percentage.
18
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Room revenue decreased $93,000 (3.0%) and $380,000 (6.6%) for the three
and six-month periods ended June 30, 2003, respectively, compared to the same
period in 2002. The decreases in room revenue is directly attributable to the
decrease in average room rate for the three months ended June 30, 2003 compared
to the same period in 2002 and a decrease in occupancy percentage along with a
decrease in average room rate for the six months ended June 30, 2003 compared to
the same period in 2002. The decreases are attributable to less tour and travel
business, as described above, than 2002 which was replaced by more, lower priced
complimentary rooms during the three months ended June 30, 2003 as the Company
moved to reinvest more in its customer in its attempts to recapture market share
with its increased table game presence and emphasis on mid to high end slots.
Food and Beverage revenues decreased $241,000 (4.2%) and $2.0 million
(16.7%) for the three and six-month periods ended June 30, 2003 respectively
compared to the same periods in 2002. These decreases are directly attributable
to the decrease in gaming volume and hotel occupancy primarily in the first
three months of 2003.
Other revenues increased $30,000 (2.9%) and decreased $15,000 (0.8%) for
the three and six-month periods ended June 30, 2003 respectively compared to the
same periods in 2002. The increase during the three-month period is primarily
attributable to more entertainment shows in the Copa Room, while the decrease
for the six-month period is due to a reduction in commissions ($207,000), offset
by increases in entertainment ($101,000) and parking revenues ($97,000).
Promotional Allowances
Promotional allowances are comprised of (i) the estimated retail value
of goods and services provided free of charge to casino customers under various
marketing programs, (ii) the cash value of redeemable points earned under a
customer loyalty program based on the amount of slot play and (iii) coin and
cash coupons and discounts. The dollar amount of promotional allowances
increased $1.0 million (8.6%) and $320,000 (1.3%) for the three and six-month
periods ended June 30, 2003, respectively, compared to the same periods in 2002.
As a percentage of casino revenues, promotional allowances increased to 26.5%
from 23.4% and 26.8 % from 23% for the three and six-month periods ended June
30, 2003, respectively, compared to the same periods in 2002. The increase in
this ratio is directly attributable to the Company's focus on recapture of lost
market share related to its table game enhancement and refocus on the mid to
high end slots.
Departmental Expenses
Casino expenses at the Sands decreased by $2.2 million and $7.2 million,
respectively, for the three and six months ended June 30, 2003 compared to the
same prior year period. The decrease in casino expenses is primarily due to the
reduction of payroll expenses ($828,000 and $2.6 million for the three and six
months ended June 30, 2003, respectively) due to the reduction in table games.
Also, the lower complimentary costs associated with amenities provided free of
charge contributed to the favorable variance ($672,000 and $1.8 million for the
three and six months ended June 30, 2003, respectively). Expenses allocated to
the casino department were lower by $330,000 and $1.1 million for the three and
six months ended June 30, 2003, respectively, as a result of overall cost
reductions in other operating departments. Gaming revenue tax was reduced by
$163,000 and $1.1 million for the three and six months ended June 30, 2003,
respectively, as a result of lower casino revenues. Direct mail and radio
advertising increased by $668,000 and $966,000 for the three and six months
ended June 30, 2003, respectively, due to a marketing campaign aimed at
spreading the new Sands "All The Way" image to key markets.
19
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Rooms expenses decreased $420,000 and $1.1 million for the three and six
months ended June 30, 2003 compared to the same prior year period. Rooms payroll
and benefits decreased $280,000 and $547,000 for the three and six months ended
June 30, 2003, respectively, due to a reorganization of management. Also
contributing to the favorable variance were reduced costs for linen usage
($18,000 and $64,000 for the three and six months ended June 30, 2003,
respectively) and outside laundry expense ($10,000 and $37,000 for the three and
six months ended June 30, 2003, respectively). The decreases were also due to a
larger share of costs allocated to casino expenses ($206,000 for the six months
ended June 30, 2003) as a result of increased room complimentaries generated by
casino operations. Total complimentary room nights increased by 15,584 or 24.4%
for the six months ended June 30, 2003 over the same prior year period.
Food and beverage expenses decreased $397,000 and $831,000,
respectively, for the three and six months ended June 30, 2003 compared to the
same prior year period. The decreases were due to reductions in payroll and
benefits ($1.0 million and $2.5 million for the three and six months ended June
30, 2003, respectively) and food and beverage cost of sales ($346,000 and $1.2
million for the three and six months ended June 30, 2003, respectively), which
were a result of a reorganization of management, a reduction in unproductive
operating hours in certain outlets and closing the employee cafeteria production
kitchen. Food and beverage costs allocated to Casino expense declined $439,000
and $1.8 million for the three and six months ended June 30, 2003, respectively
compared to the same prior year periods as a result of a combination of lower
complimentary food and beverage activity and lower food and beverage production
costs.
Other expenses increased $109,000 for the three months ended June 30,
2003, compared to the same prior year period as a result of an increase in
entertainment costs ($44,000) and the allocation of entertainment
complimentaries by casino operations ($170,000) due to more shows. These costs
were offset by favorable variances in limousine rentals ($76,000) and payroll
($68,000).
General and Administrative Expenses
General and administrative expenses decreased $1.3 million and $1.7
million, respectively, for the three and six months ended June 30, 2003,
compared to the same prior year periods. The decreases were due to lower payroll
and benefits as a result of a reduction in workforce at the beginning of 2003
($516,000 and $1.3 million for the three and six months ended June 30, 2003,
respectively) and the cost of a 2002 severance package ($1.0 million) that had
no comparable cost in 2003. These were offset by increases in insurance
($310,000 and $628,000 for the three and six months ended June 30, 2003,
respectively), property taxes ($222,000 and $446,000 for the three and six
months ended June 30, 2003, respectively) and trash removal ($239,000 and
$240,000 for the three and six months ended June 30, 2003, respectively),
compared to the same prior year periods.
Depreciation and Amortization, including Provision for Obligatory
Investments
Depreciation and amortization expense increased $325,000 and $813,000,
respectively, for the three and six month periods ended June 30, 2003, compared
to the same prior year periods due to an increase in depreciation expense
($179,000 and $794,000 for the three and six months ended June 30, 2003,
respectively) as a result of the continued investment in infrastructure and
equipment during the current and preceding year. These were offset by lower
amortization of CRDA losses ($41,000 and $27,000 for the three and six months
ended June 30, 2003, respectively) as a result of reduced casino revenues.
20
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Interest Income and Expense
Interest income decreased by $68,000 and $169,000, respectively, during
the three and six month period ended June 30, 2003, compared to the same prior
year periods. The decrease was due to smaller earnings on decreased cash
reserves and lower interest rates.
Interest expense increased $10,000 and $276,000, respectively, during
the three and six month period ended June 30, 2003, compared to the same periods
in 2002. The increase is due to a larger accrual of capitalized interest in 2002
($532,000) compared to 2003 ($211,000). It is the Company's policy to capitalize
interest on construction projects in excess of $250,000.
Income Tax (Provision) Benefit
Federal and State income tax benefits or provisions are based upon the
results of operations for the current period and the estimated adjustments for
income tax purposes of certain nondeductible expenses.
Due to recurring losses, the Company has not recorded Federal income tax
for the six months ended June 30, 2003.
The State income tax provision of $184,000 and $343,000, respectively,
for the three and six months ended June 30, 2003 is a result of applying the
statutory Alternative Minimum Assessment rate of 0.4% to gross receipts, as
defined in the Business Tax Reform Act.
Inflation
Management believes that, in the near term, modest inflation and
increased competition within the gaming industry for qualified and experienced
personnel will continue to cause increases in operating expenses, particularly
labor and employee benefits costs.
Seasonality
Historically, the Sands' operations have been highly seasonal in nature,
with the peak activity occurring from May to September. Consequently, the
results of operations for the first and fourth quarters are traditionally less
profitable than the other quarters of the fiscal year. In addition, the Sands'
operations may fluctuate significantly due to a number of factors, including
chance. Such seasonality and fluctuations may materially affect casino revenues
and profitability.
21
GB HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Private Securities Litigation Reform Act
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q and other materials filed or to be filed by Holdings, GB Property
Funding or GBHC with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made by such
companies) contains statements that are forward-looking, such as statements
relating to future expansion plans, future construction costs and other business
development activities including other capital spending, economic conditions,
financing sources, competition and the effects of tax regulation and state
regulations applicable to the gaming industry in general or Holdings, GB
Property Funding and GBHC in particular. Such forward-looking information
involves important risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made by or on behalf of
Holdings, GB Property Funding or GBHC. These risks and uncertainties include,
but are not limited to, those relating to development and construction
activities, dependence on existing management, leverage and debt service
(including sensitivity to fluctuations in interest rates), domestic or global
economic conditions, activities of competitors and the presence of new or
additional competition, fluctuations and changes in customer preference and
attitudes, changes in federal or state tax laws or the administration of such
laws and changes in gaming laws or regulations (including the legalization of
gaming in certain jurisdictions).
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from changes in market rates and
prices, such as interest rates and foreign currency exchange rates. The Company
does not have securities subject to interest rate fluctuations and has not
invested in derivative-based financial instruments.
Item 4. Controls and Procedures
Within the 90 days prior to the filing of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-15 of the
Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
22
PART II: OTHER INFORMATION
Item 6.(a) Exhibits
31.1 Certification of Chief Executive Officer Pursuant to 13a-14 of
the Securities Exchange Act of 1934, as amended
31.2 Certification of Chief Financial Officer Pursuant to 13a-14 of
the Securities Exchange Act of 1934, as amended
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
Item 6.(b) Reports on Form 8-K
During the quarter ended June 30, 2003 the Registrants did not file any
reports on form 8-K:
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Atlantic City, State of New Jersey on August 14, 2003.
GB HOLDINGS, INC.
GB PROPERTY FUNDING CORP.
GREATE BAY HOTEL AND CASINO, INC.
--------------------------------
Registrants
Date: August 14, 2003 By: /s/ Timothy A. Ebling
-------------------------------- --------------------------------
Timothy A. Ebling
Chief Financial Officer
23