S-4
As filed with the Securities and Exchange Commission on
June 21, 2005
Registration
No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICAN REAL ESTATE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
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Delaware |
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6512 |
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13-3398766 |
(State or other jurisdiction of
incorporation or organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
AMERICAN REAL ESTATE FINANCE CORP.
(Exact name of registrant as specified in its charter)
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Delaware |
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6512 |
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20-1059842 |
(State or other jurisdiction of
incorporation or organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
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Delaware |
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6512 |
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13-3398767 |
(State or other jurisdiction of
incorporation or organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
100 South Bedford Road
Mt. Kisco, New York 10549
(Address, including zip code, and telephone number,
including area code, of registrants principal executive
offices)
John P. Saldarelli
Vice President and Chief Financial Officer
100 South Bedford Road
Mt. Kisco, New York 10549
Telephone: (914) 242-7700
Facsimile: (914) 242-9282
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Steven L. Wasserman, Esq.
James T. Seery, Esq.
DLA Piper Rudnick Gray Cary US LLP
1251 Avenue of the Americas
New York, New York 10020
Telephone: (212) 835-6000
Facsimile: (212) 835-6001
Approximate
date of commencement of the proposed sale to the public: As
soon as practicable after the effective date of this
Registration Statement.
If the
securities being registered on this form are being offered in
connection with the formation of a holding company and there is
compliance with General Instruction G, check the following
box. o
If this form is
filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering. o
If this form is
a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Title of Each Class of |
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Amount to be |
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Offering Price |
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Aggregate |
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Amount of |
Securities to be Registered |
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Registered(1) |
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Per Unit(1) |
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Offering Price(1) |
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Registration Fee(2) |
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71/8% Senior
Notes due 2013
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$480,000,000 |
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100% |
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$480,000,000 |
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$56,496 |
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Guarantees(3)
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(1) |
Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457 under the Securities Act of 1933,
as amended. |
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(2) |
Pursuant to Rule 457(f)(2) of the Securities Act of 1933,
as amended, the registration fee has been estimated based on the
book value of the securities to be received by the registrant in
exchange for the securities to be issued hereunder in the
exchange offer described herein. |
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(3) |
Pursuant to Rule 457(n) under the Securities Act, no
separate fee is payable with respect to the guarantees. |
The
Registrants hereby amend this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrants shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The information in
this Preliminary Prospectus is not complete and may be changed.
We may not exchange these securities until the Registration
Statement filed with the Securities and Exchange Commission is
effective. This Preliminary Prospectus is not an offer to
exchange these securities and is not soliciting offers to
exchange these securities in any State where the exchange is not
permitted.
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SUBJECT TO COMPLETION DATED
JUNE 21, 2005
PROSPECTUS
$480,000,000
AMERICAN REAL ESTATE PARTNERS, L.P.
AMERICAN REAL ESTATE FINANCE CORP.
OFFER TO EXCHANGE OUR
71/8%
SENIOR NOTES DUE 2013, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, FOR ANY AND ALL OF OUR OUTSTANDING
71/8% SENIOR
NOTES DUE 2013
MATERIAL TERMS OF THE EXCHANGE OFFER
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The terms of the new notes are substantially identical to the
outstanding notes, except that the transfer restrictions and
registration rights relating to the outstanding notes will not
apply to the new notes and the new notes will not provide for
the payment of liquidated damages under circumstances related to
the timing and completion of the exchange offer. |
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Expires 5:00 p.m., New York City time,
on ,
2005, unless extended. |
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We will exchange your validly tendered unregistered notes for an
equal principal amount of a new series of notes which have been
registered under the Securities Act of 1933. |
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The exchange offer is not subject to any condition other than
that the exchange offer not violate applicable law or any
applicable interpretation of the staff of the Securities and
Exchange Commission and other customary conditions. |
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You may withdraw your tender of notes at any time before the
exchange offer expires. |
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The exchange of notes should not be a taxable exchange for
U.S. federal income tax purposes. |
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We will not receive any proceeds from the exchange offer. |
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The new notes will not be traded on any national securities
exchange and, therefore, we do not anticipate that an active
public market in the new notes will develop. |
Please refer to Risk Factors beginning on
page 12 of this document for certain important
information.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the notes
to be issued in the exchange offer or passed upon the adequacy
or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
The date of this
prospectus ,
2005
TABLE OF CONTENTS
We have not authorized any dealer, salesperson or other person
to give any information or to make any representations to you
other than the information contained in this prospectus. You
must not rely on any information or representations not
contained in this prospectus as if we had authorized it. This
prospectus does not offer to sell or solicit any offer to buy
any securities other than the registered notes to which it
relates, nor does it offer to buy any of these notes in any
jurisdiction from any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction.
The information contained in this prospectus is current only as
of the date on the cover page of this prospectus, and may change
after that date. We do not imply that there has been no change
in the information contained in this prospectus or in our
affairs since that date by delivering this prospectus.
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PROSPECTUS
You should read the entire prospectus, including Risk
Factors and the financial statements and related notes,
before making an investment decision. Unless the context
indicates otherwise, all references to American Real
Estate Partners, L.P., AREP, we,
our, ours and us refer to
American Real Estate Partners, L.P. and, unless the context
otherwise indicates, include our subsidiaries. Our general
partner is American Property Investors, Inc., or API.
American Real Estate Partners, L.P. is a diversified holding
company engaged in a variety of businesses. Our primary business
strategy is to continue to grow our core businesses, including
real estate, gaming and entertainment, and oil and gas. Our
businesses currently include rental real estate; real estate
development; hotel and resort operations; hotel and casino
operations; oil and gas exploration and production; and
investments in equity and debt securities. In addition, we seek
to acquire undervalued assets and companies that are distressed
or in out of favor industries. We may also seek opportunities in
other sectors, including energy, industrial manufacturing and
insurance and asset management.
Our general partner is American Property Investors, Inc., a
Delaware corporation, which is a wholly owned subsidiary of
Beckton Corp., a Delaware corporation. All of the outstanding
capital stock of Beckton Corp. is owned by Carl C. Icahn.
Substantially all of our businesses are conducted and our assets
held through a subsidiary limited partnership, American Real
Estate Holdings Limited Partnership, or AREH, in which we own a
99% limited partnership interest. API also acts as the general
partner for AREH. API has a 1% general partnership interest in
each of us and AREH. As of May 1, 2005, affiliates of
Mr. Icahn beneficially owned 39,896,836 units
representing AREP limited partner interests, or the depositary
units, representing approximately 86.5% of the outstanding
depositary units, and 9,346,044 cumulative pay-in-kind
redeemable preferred units, representing AREP limited partner
interests, or the preferred units, representing approximately
86.5% of the outstanding preferred units.
The Acquisitions
In continuation of our strategy to grow our core businesses, we
have recently acquired, and have entered into agreements to
acquire, additional gaming and entertainment and oil and gas
assets from affiliates of Mr. Icahn. The completed or
pending acquisitions are described as the
Acquisitions.
Recently Completed Acquisition
On April 6, 2005, we acquired TransTexas Gas Corporation,
or TransTexas, pursuant to a merger agreement dated
January 21, 2005, for a purchase price of
$180.0 million in cash. TransTexas was owned by Highcrest
Investors Corp., or Highcrest, an entity indirectly wholly-owned
by Mr. Icahn.
TransTexas and its wholly-owned subsidiaries, Galveston Bay
Pipeline Company, or Galveston Bay Pipeline, and Galveston Bay
Processing Company, or Galveston Bay Processing, are engaged in
the exploration, production and transmission of natural gas and
oil, primarily in South Texas, including the Eagle Bay field in
Galveston Bay and the Southwest Bonus field in Wharton County.
Its exploration and production activities consist of geological
and geophysical evaluation of current and prospective
properties, the acquisition of mineral interests in prospects
and the drilling, development and operation of leased properties
for the production and sale of natural gas, condensate and crude
oil. TransTexas operates substantially all of its producing
properties.
Pending Acquisitions
The following describes the terms of the agreements for the
acquisitions of NEG Holding LLC, or NEG Holding, Panaco, Inc.,
or Panaco, and GB Holding, Inc., or GB Holding, which
acquisitions have not been completed.
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On January 21, 2005, we entered into a membership interest
purchase agreement, or the NEG purchase agreement, with Gascon
Partners, or Gascon, Cigas Corp., or Cigas, and Astral Gas
Corp., or Astral, pursuant to which we will purchase
Gascons managing membership interest in NEG Holding for a
purchase price of up to 11,344,828 of our depositary units,
valued at $29.00 per unit, or an aggregate of up to
$329.0 million. Gascon, Cigas and Astral are all directly
or indirectly wholly owned by Mr. Icahn. The number of
depositary units to be issued was based on NEG Holdings
estimates of its and its subsidiaries oil and gas
reserves. The reserve estimates are subject to confirmation by
independent oil and gas reserve engineers, and the number of
depositary units to be issued is subject to reduction, but not
an increase, in accordance with the reserves determined by the
engineers. The other member of NEG Holding is National Energy
Group, Inc., or NEG, of which we own 50.01% of the common stock.
NEG Holding is developing and exploiting existing properties by
drilling development and exploratory wells, and recompleting and
reworking existing wells. NEG Holding anticipates that it will
continue its drilling operations on existing properties and will
selectively participate in drilling opportunities generated by
third parties. NEG Holding also seeks to acquire existing
producing properties or interests in them.
On January 21, 2005, we and National Offshore LP, or
National Offshore, the 1% general partnership interest of which
and the 99% limited partnership interest of which are owned,
respectively, by two limited liability companies, each of which
is a wholly-owned subsidiary of AREP, entered into an agreement
and plan of merger with Highcrest, Arnos Corp., or Arnos, and
Panaco, or the Panaco merger agreement, pursuant to which Panaco
will merge with and into National Offshore, all of the common
stock of Panaco will be canceled and cease to exist, and
Highcrest and Arnos will be paid merger consideration of up to
4,310,345 depositary units, valued at $29.00 per unit, or
an aggregate of up to $125.0 million. Highcrest and Arnos
are indirectly wholly-owned by Mr. Icahn. The number of
depositary units to be issued was based on Panacos
estimates of its oil and gas reserves. The reserve estimates are
subject to confirmation by independent oil and gas reserve
engineers, and the number of depositary units to be issued is
subject to reduction, but not an increase, in accordance with
the reserves determined by the engineers.
Panaco is an oil and gas exploration and production company
focused primarily on opportunities in the Gulf Coast Region and
offshore opportunities in the Gulf of Mexico. Panaco is in the
business of selling oil and gas produced on properties it
leases, to third party purchasers. It obtains reserves of crude
oil and gas by either buying them from others or drilling
developmental and exploratory wells on acquired properties. It
acquires producing properties with a view toward further
exploitation and development, capitalizing on 3-D seismic and
advanced directional drilling technology to recover reserves
that were bypassed or previously overlooked.
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GB Holdings, Inc. (The Sands) |
On January 21, 2005, we entered into a purchase agreement,
or the Sands purchase agreement, with Cyprus, LLC, or Cyprus
pursuant to which we will purchase 4,121,033 shares of
common stock of GB Holdings and 1,133,284 shares of common
stock of Atlantic Coast Entertainment Holdings, Inc., or
Atlantic Holdings. Cyprus is indirectly wholly-owned by
Mr. Icahn. The purchase price to be paid for these
securities is 413,793 depositary units, valued at
$29.00 per unit, or an aggregate of $12.0 million,
plus up to an additional 206,897 depositary units, valued at
$29.00 per unit, or an aggregate of $6.0 million, to
be paid after closing if Atlantic Holdings meets certain
earnings targets during 2005 and 2006.
GB Holdings has no operating activities. Its significant asset
is approximately 2,882,937 shares of common stock of
Atlantic Holdings, representing approximately 41.7% of the
currently outstanding Atlantic Holdings common stock and 28.8%
of the Atlantic Holdings common stock on a fully diluted basis.
Atlantic Holdings is the parent company of ACE Gaming LLC. The
principal business activity of ACE Gaming is its ownership and
operation of The Sands Hotel and Casino. The Sands Hotel and
Casino is located in Atlantic City, New Jersey, on approximately
6.1 acres of land one-half block from the Boardwalk at
Brighton Park
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between Indiana Avenue and Dr. Martin Luther King, Jr.
Boulevard. The Sands Hotel and Casino facility currently
consists of: a casino and simulcasting facility with
approximately 78,000 square feet of gaming space containing
approximately 2,200 slot machines and 73 table games;
two hotels with a total of 620 rooms, including
170 suites; five restaurants; two cocktail lounges; 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 Hotel and Casino to the Boardwalk
using air rights granted by an easement from the City of
Atlantic City and garage and surface parking for approximately
1,750 vehicles.
Under the rules of the New York Stock Exchange, on which our
depositary and preferred units are listed, the issuance of
depositary units pursuant to the NEG purchase agreement, the
Panaco merger agreement and the Sands purchase agreement
requires the approval of the holders of our depositary units.
The solicitation of consent of holders of our depositary units
expires at 5 p.m. Eastern Standard Time on June 28,
2005. The written consent of affiliates of Mr. Icahn, as record
owners of more than a majority of the depositary units, is
sufficient to approve the issuance of the depositary units in
connection with the Acquisitions. Mr. Icahn intends to have
consents executed and delivered that approve the issuance of the
depositary units.
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Summary of the Exchange Offer
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The Offering of the Private Notes |
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On February 7, 2005, we issued $480 million aggregate
principal amount of our private notes in an offering not
registered under the Securities Act of 1933. At the time we
issued the private notes, we entered into a registration rights
agreement in which we agreed to offer to exchange the private
notes for new notes which have been registered under the
Securities Act of 1933. This exchange offer is intended to
satisfy that obligation. |
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The Exchange Offer |
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We are offering to exchange the new notes which have been
registered under the Securities Act of 1933 for the private
notes. As of this date, there is $480 million aggregate
principal amount of private notes outstanding. |
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Required Representations |
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In order to participate in this exchange offer, you will be
required to make certain representations to us in a letter of
transmittal, including that: |
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any new notes will be acquired by you in the
ordinary course of your business; |
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you have not engaged in, do not intend to engage in,
and do not have an arrangement or understanding with any person
to participate in a distribution of the new notes; and |
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you are not an affiliate of our company. |
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Resale of New Notes |
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We believe that, subject to limited exceptions, the new notes
may be freely traded by you without compliance with the
registration and prospectus delivery provisions of the
Securities Act of 1933, provided that: |
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you are acquiring new notes in the ordinary course
of your business; |
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you are not participating, do not intend to
participate and have no arrangement or understanding with any
person to participate in the distribution of the new
notes; and |
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you are not an affiliate of our company. |
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If our belief is inaccurate and you transfer any new note issued
to you in the exchange offer without delivering a prospectus
meeting the requirements of the Securities Act of 1933 or
without an exemption from registration of your new notes from
such requirements, you may incur liability under the Securities
Act of 1933. We do not assume, or indemnify you against, such
liability. |
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Each broker-dealer that is issued new notes for its own account
in exchange for private notes which were acquired by such
broker-dealer as a result of market-making or other trading
activities also must acknowledge that it has not entered into
any arrangement or understanding with us or any of our
affiliates to distribute the new notes and will deliver a
prospectus meeting the requirements of the Securities Act of
1933 in connection with any resale of the new notes issued in
the exchange offer. |
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We have agreed in the registration rights agreement that a
broker-dealer may use this prospectus for an offer to resell,
resale or other retransfer of the new notes issued to it in the
exchange offer. |
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Expiration Date |
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The exchange offer will expire at 5:00 p.m., New York City
time,
on ,
2005, unless extended, in which case the term expiration
date shall mean the latest date and time to which we
extend the exchange offer. |
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Conditions to the Exchange Offer |
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The exchange offer is subject to certain customary conditions,
which may be waived by us. The exchange offer is not conditioned
upon any minimum principal amount of private notes being
tendered. |
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Procedures for Tendering Private Notes |
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If you wish to tender your private notes for exchange, you must
transmit to Wilmington Trust Company, as exchange agent, at the
address set forth in this prospectus under the heading The
Exchange Offer Exchange Agent, and on the
front cover of the letter of transmittal, on or before the
expiration date, a properly completed and duly executed letter
of transmittal, which accompanies this prospectus, or a
facsimile of the letter of transmittal and either: |
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the private notes and any other required
documentation, to the exchange agent; or |
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a computer generated message transmitted by means of
The Depository Trust Companys Automated Tender Offer
Program system and received by the exchange agent and forming a
part of a confirmation of book entry transfer in which you
acknowledge and agree to be bound by the terms of the letter of
transmittal. |
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If either of these procedures cannot be satisfied on a timely
basis, then you should comply with the guaranteed delivery
procedures described below. By executing the letter of
transmittal, each holder of private notes will make certain
representations to us described under The Exchange
Offer Procedures for Tendering. |
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Special Procedures for Beneficial Owners |
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If you are a beneficial owner whose private notes are registered
in the name of a broker, dealer, commercial bank, trust company
or other nominee and you wish to tender your private notes in
the exchange offer, you should contact such registered holder
promptly and instruct such registered holder to tender on your
behalf. If you wish to tender on your own behalf, you must,
prior to completing and executing the letter of transmittal and
delivering your private notes, either make appropriate
arrangements to register ownership of the private notes in your
name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to
the expiration date. |
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Guaranteed Delivery Procedures |
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If you wish to tender private notes and time will not permit the
documents required by the letter of transmittal to reach the
exchange agent prior to the expiration date, or the procedure
for book-entry transfer cannot be completed on a timely basis,
you |
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must tender your private notes according to the guaranteed
delivery procedures described under The Exchange
Offer Guaranteed Delivery Procedures. |
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Acceptance of Private Notes and Delivery of New Notes |
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Subject to the conditions described under The Exchange
Offer Conditions, we will accept for exchange
any and all private notes which are validly tendered in the
exchange offer and not withdrawn, prior to 5:00 p.m., New
York City time, on the expiration date. |
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Withdrawal Rights |
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You may withdraw your tender of private notes at any time prior
to 5:00 p.m., New York City time, on the expiration date,
subject to compliance with the procedures for withdrawal
described in this prospectus under heading The Exchange
Offer Withdrawal of Tenders. |
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Federal Income Tax Consequences |
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For a discussion of the material federal income tax
considerations relating to the exchange of private notes for the
new notes as well as the ownership of the new notes, see
Certain U.S. Federal Income Tax Consequences. |
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Exchange Agent |
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The Wilmington Trust Company is serving as the exchange agent.
The address, telephone number and facsimile number of the
exchange agent are set forth in this prospectus under the
heading The Exchange Offer Exchange
Agent. |
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Consequences of Failure to Exchange Private Notes |
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If you do not exchange private notes for new notes, you will
continue to be subject to the restrictions on transfer provided
in the private notes and in the indenture governing the private
notes. In general, the unregistered private notes may not be
offered or sold, unless they are registered under the Securities
Act of 1933, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act of 1933 and
applicable state securities laws. |
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The New Notes
The terms of the new notes we are issuing in this exchange offer
and the private notes that are outstanding are identical in all
material respects except:
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The new notes will be registered under the Securities Act of
1933; |
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The new notes will not contain transfer restrictions and
registration rights that relate to the private notes. |
The new notes will evidence the same debt as the old notes and
will be governed by the same indenture. References to notes
include both private notes and new notes.
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Issuer |
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AREP is a holding company. Its operations are conducted through
its subsidiaries and substantially all of its assets consist of
a 99% limited partnership interest in its subsidiary, American
Real Estate Holdings Limited Partnership, or AREH, which is a
holding company for its operating subsidiaries and investments.
The new notes will be guaranteed by AREH. |
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Co-Issuer |
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American Real Estate Finance Corp., or AREP Finance, is a
wholly-owned subsidiary of AREP. It was formed solely for the
purpose of serving as a co-issuer of debt securities of AREP in
order to facilitate offerings of the debt securities. Other than
as a co-issuer of the notes, AREP Finance does not and will not
have any operations or assets and will not have any revenues. As
a result, holders of the notes should not expect AREP Finance to
participate in servicing any obligations on the new notes. |
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Notes Offered |
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$480.0 million in aggregate principal amount of
71/8% senior
notes due 2013. |
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Maturity |
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February 15, 2013. |
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Interest Payment Dates |
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February 15 and August 15 of each year, commencing
August 15, 2005. |
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Ranking |
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The new notes and the guarantee will rank equally with all of
our and the guarantors existing and future senior
unsecured indebtedness, and will rank senior to all of our and
the guarantors existing and future subordinated
indebtedness. The new notes and the guarantee will be
effectively subordinated to all of our and the guarantors
existing and future secured indebtedness, to the extent of the
collateral securing such indebtedness. The new notes and the
guarantee also will be effectively subordinated to all
indebtedness and other liabilities, including trade payables, of
all our subsidiaries other than AREH. As of March 31, 2005,
the new notes and the guarantee would have been effectively
subordinated to an aggregate of $295.2 million of
AREHs secured debt and our subsidiaries debt,
excluding trade payables. |
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Guarantee |
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If we cannot make payments on the new notes when they are due,
AREH must make them instead. Other than AREH, none of our
subsidiaries will guarantee payments on the new notes. |
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Optional Redemption |
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We may, at our option, redeem some or all of the new notes at
any time on or after February 15, 2009, at the redemption
prices listed under Description of Notes
Optional Redemption. |
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In addition, prior to February 15, 2008, we may, at our
option, redeem up to 35% of the new notes with the proceeds of
certain sales of our equity at the redemption price listed under
Description of Notes Optional
Redemption. We may make the redemption only if, after the
redemption, at least 65% of the aggregate principal amount of
the notes issued remains outstanding. |
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Redemption Based on Gaming Laws |
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The new notes are subject to mandatory disposition and
redemption requirements following certain determinations by
applicable gaming authorities. |
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Certain Covenants |
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We will issue the new notes under an indenture with AREH and
Wilmington Trust Company, as trustee acting on your behalf. The
indenture will, among other things, restrict our and AREHs
ability to: |
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Incur additional debt; |
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Pay dividends and make distributions; |
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Repurchase equity securities; |
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Create liens; |
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Enter into transactions with affiliates; and |
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Merge or consolidate. |
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Our subsidiaries other than AREH will not be restricted in their
ability to incur debt, create liens or merge or consolidate. |
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Absence of Established Market for Notes |
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The new notes will be new securities for which there is
currently no market. We cannot assure you that a liquid market
for the new notes will develop or be maintained. |
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AREP, AREH and AREP Finance Information
AREP is a publicly traded master limited partnership formed in
Delaware on February 17, 1987. Mr. Icahn, through
affiliates, owns approximately 86.5% of our depositary units and
preferred units. Our general partner is American Property
Investors, Inc., or API, a Delaware corporation, which is a
wholly-owned subsidiary of Beckton Corp., a Delaware
corporation. All of the outstanding capital stock of Beckton is
owned by Mr. Icahn. Affiliates of Mr. Icahn acquired
API in 1990. Substantially all of our businesses are conducted
and assets are held through a Delaware limited partnership,
AREH, formed on February 17, 1987, in which we own a 99%
limited partnership interest. API also acts as the general
partner for AREH. API has a 1% general partnership interest in
each of us and AREH. Our, AREHs and APIs principal
business address is 100 South Bedford Road, Mt. Kisco,
New York 10549, and our, AREHs and APIs telephone
number is (914) 242-7700.
Substantially all of our businesses and assets are held through
AREH, in which we own a 99% limited partnership interest. For
that reason, no separate disclosure information for AREH is
provided, unless otherwise indicated.
AREP Finance, a Delaware corporation, is a wholly-owned
subsidiary of AREP. AREP Finance was incorporated on
April 19, 2004 and was formed solely for the purpose of
serving as a co-issuer of debt securities of AREP in order to
facilitate offerings of the debt securities. Other than as a
co-issuer of the notes, AREP Finance does not have any
operations or assets and does not have any revenues. As a
result, prospective holders of the notes should not expect AREP
Finance to participate in servicing any obligations on the
notes. AREP Finances principal business address is
100 South Bedford Road, Mt. Kisco, New York 10549 and its
telephone number is (914) 242-7700.
9
Structure Chart
The following is a chart of our ownership and the structure of
the entities through which we conduct our operations, giving
effect to the Acquisitions.
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(1) |
Our partnership units consist of depositary units, representing
limited partnership interests, and preferred units, representing
preferred limited partnership interests. As of March 31,
2005, there were 46,098,284 depositary units outstanding and
10,800,397 preferred units outstanding. As consideration for the
acquisition of the other managing membership interest in NEG
Holding, of Panaco and of GB Holdings and Atlantic Holdings
common stock, affiliates of Mr. Icahn will receive up to
16,068,966 depositary units. If all such units were issued,
there would be 62,374,147 depositary units outstanding and
10,800,397 preferred units outstanding and Mr. Icahn would
be the beneficial owner of 46,172,699 depositary units
representing approximately 90.1% of the depositary units. The
number of depositary units to be issued does not include up to
an additional 206,897 depositary units which may be issued to
affiliates of Mr. Icahn if Atlantic Holdings meets certain
earnings targets during 2005 and 2006. |
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(2) |
Substantially all of our marketable debt and equity securities
and rental real estate properties are owned, directly or
indirectly, by AREH. |
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(3) |
We anticipate that AREH will contribute its 50.01% interest in
NEG to its wholly-owned subsidiary, AREP Oil & Gas. NEG
is a publicly held company, the stock of which currently trades
on the OTC Bulletin Board. NEG owns a membership interest
in NEG Holding. Upon completion of the Acquisitions, AREP
Oil & Gas will, directly or indirectly, own the other
membership interest in NEG Holding and 100% of the equity of
TransTexas and Panaco. |
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(4) |
AREH, through direct and indirect wholly-owned subsidiaries, is
engaged in real estate investment, management and development,
focused primarily on the acquisition, development, construction
and sale |
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of single-family homes, custom-built homes, multi-family homes
and lots in subdivisions and planned communities. |
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(5) |
AREH, through direct and indirect wholly-owned subsidiaries,
owns Grand Harbor and Oak Harbor, waterfront communities located
in Vero Beach, Florida. |
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(6) |
AREH, through direct and indirect wholly-owned subsidiaries,
owns a 381 acre resort community in Cape Cod, Massachusetts. |
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(7) |
American Entertainment Properties Corp., through American
Casino & Entertainment Properties LLC, or ACEP, and its
indirect subsidiaries, owns three Las Vegas hotels and casinos. |
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(8) |
AREP Sands owns approximately 36.3% of the outstanding common
stock of GB Holdings, 41.9% of the outstanding common stock
of Atlantic Coast Entertainment Holdings, Inc. and approximately
$35.0 million principal amount of the Atlantic Holdings
3% notes due 2008, or the Atlantic Holdings Notes, or
approximately 93.5% of the outstanding principal amount of the
notes. Upon completion of the Acquisitions, AREP Sands will own
approximately 77.5% of the outstanding GB Holdings common stock,
approximately 58.3% of the outstanding Atlantic Holdings common
stock and approximately $35.0 million principal amount of
the Atlantic Holdings Notes. If all outstanding Atlantic
Holdings notes were converted and warrants exercised, AREP Sands
would own approximately 63.4% of Atlantic Holdings common stock,
GB Holdings would own approximately 28.8% of the Atlantic
Holdings common stock and the remaining shares would be owned by
the public. |
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(9) |
NEG and Gascon each owns a membership interest in NEG Holding.
We have agreed to purchase from Gascon its membership interest
in NEG Holding. Pursuant to the NEG Holding operating agreement,
NEG is required to be paid guaranteed payments, calculated at an
annual interest rate of 10.75% on the outstanding priority
amount, which includes all outstanding debt owed to entities
owned or controlled by Mr. Icahn, including the amount of
the NEG Notes. As of March 31, 2005, the priority amount
was $148.6 million. The NEG Holding operating agreement
provides that the priority amount is required to be paid to NEG
by November 6, 2006. After NEG is paid the guaranteed
payments and the priority amount, Gascon is paid an amount equal
to the guaranteed payments and the priority amount plus
interest. After these distributions have been made, any
additional distributions will be made in accordance with the
ratio of NEGs and Gascons respective capital
accounts, as defined in the operating agreement. |
11
RISK FACTORS
You should consider carefully each of the following risks and
all other information contained in this prospectus before
deciding to invest in the notes.
Risks Relating to the Exchange Offer
Holders who fail to exchange their private notes will
continue to be subject to restrictions on transfer.
If you do not exchange your private notes for new notes in the
exchange offer, you will continue to be subject to the
restrictions on transfer of your private notes described in the
legend on your private notes. The restrictions on transfer of
your private notes arise because we issued the private notes
under exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act of 1933 and
applicable state securities laws. In general, you may only offer
or sell the private notes if they are registered under the
Securities Act and applicable state securities laws, or are
offered and sold under an exemption from these requirements. We
do not plan to register the private notes under the Securities
Act.
Broker-dealers or holders of notes may become subject to
the registration and prospectus delivery requirements of the
Securities Act.
Any broker-dealer that:
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exchanges its private notes in the exchange offer for the
purpose of participating in a distribution of the new
notes, or |
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resells new notes that were received by it for its own account
in the exchange offer, |
may be deemed to have received restricted securities and may be
required to comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 in connection with
any resale transaction by that broker-dealer. Any profit on the
resale of the new notes and any commission or concessions
received by a broker-dealer may be deemed to be underwriting
compensation under the Securities Act. In addition to
broker-dealers, any holder of notes that exchanges its private
notes in the exchange offer for the purpose of participating in
a distribution of the new notes may be deemed to have received
restricted securities and may be required to comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction by that
holder.
We cannot guarantee that there will be a trading market
for the new notes.
The new notes are a new issue of securities and currently there
is no market for them. We do not intend to apply to have the new
notes listed or quoted on any exchange or quotation system.
Accordingly, we cannot assure you that a liquid market will
develop for the new notes.
The liquidity of any market for the new notes will depend on a
variety of factors, including:
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the number of holders of the new notes; |
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our performance; and |
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the market for similar securities and the interest of securities
dealers in making a market in the new notes. |
A liquid trading market may not develop for the new notes.
Historically, the market for non-investment grade debt has been
subject to disruptions that have caused substantial volatility
in the prices of securities similar to the new notes. The
market, if any, for the new notes may experience similar
disruptions that may adversely affect the prices at which you
may sell your new notes. If an active trading market does not
develop or is not maintained, the market price and liquidity of
the new notes may be adversely affected.
To the extent private notes are tendered and accepted in the
exchange offer, the trading market, if any, for the private
notes that are not so tendered would be adversely affected.
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Risks Relating to Our Structure and Indebtedness
We and AREH are holding companies and will depend on the
businesses of our subsidiaries to satisfy our obligations under
the notes.
We and AREH are holding companies. In addition to cash and cash
equivalents, U.S. government and agency obligations,
marketable equity and debt securities and rental real estate
properties, our assets consist primarily of investments in our
subsidiaries. Moreover, if we make significant investments in
operating businesses, it is likely that we will reduce the
liquid assets at AREP and AREH in order to fund those
investments and their ongoing operations. Consequently, our cash
flow and our ability to meet our debt service obligations likely
will depend on the cash flow of our subsidiaries and the payment
of funds to us by our subsidiaries in the form of loans,
dividends, distributions or otherwise. If we invest our cash, we
may become dependent on our subsidiaries to provide cash to us
to service our debt.
The operating results of our subsidiaries may not be sufficient
to make distributions to us. In addition, our subsidiaries are
not obligated to make funds available to us for payment on the
notes or otherwise, and distributions and intercompany transfers
from our subsidiaries to us may be restricted by applicable law
or covenants contained in debt agreements and other agreements
to which these subsidiaries may be subject or enter into in the
future. The terms of any borrowings of our subsidiaries or other
entities in which we own equity may restrict dividends,
distributions or loans to us. For example, the notes issued by
ACEP, an indirect wholly-owned subsidiary of AREH, contain
restrictions on dividends and distributions and loans to us, as
well as other transactions with us. ACEP also has a credit
agreement which contains financial covenants that have the
effect of restricting dividends or distributions. The operating
subsidiary of NEG Holding, of which we have agreed to acquire a
membership interest, has a credit agreement which contains
financial covenants that have the effect of restricting
dividends or distributions. These likely will preclude our
receiving payments from the operations of our hotel and casino
and certain of our oil and gas properties. To the degree any
distributions and transfers are impaired or prohibited, our
ability to make payments on the notes will be limited.
We, AREH or our subsidiaries may be able to incur
substantially more debt.
We, AREH or our subsidiaries may be able to incur substantial
additional indebtedness in the future. The terms of the
indenture do not prohibit us or our subsidiaries from doing so.
We and AREH may incur additional indebtedness if we comply with
certain financial tests contained in the indenture. As of
March 31, 2005, based upon these tests, we and AREH could
have incurred up to approximately $1.5 billion of
additional indebtedness ($1.4 billion on a pro forma basis
after giving effect to the Acquisitions). Our subsidiaries other
than AREH are not subject to any of the covenants contained in
the indenture, including the covenant restricting debt
incurrence. If new debt is added to our, AREHs and our
subsidiaries current debt levels, the related risks that
we, AREH and they now face could intensify. In addition, certain
important events, such as leveraged recapitalizations that would
increase the level of our indebtedness, would not constitute a
Change of Control under the indenture.
The notes will be effectively subordinated to any secured
indebtedness, and all the indebtedness and liabilities of our
subsidiaries other than AREH.
The notes will be effectively subordinated to our and
AREHs existing and future secured indebtedness to the
extent of the collateral securing such indebtedness. We and AREH
may be able to incur substantial additional secured indebtedness
in the future. The terms of the indenture permit us and AREH to
do so. The notes will be effectively subordinated to our and
AREHs existing and future secured indebtedness to the
extent of the collateral securing such indebtedness. The notes
will also be effectively subordinated to all the indebtedness
and liabilities, including trade payables, of all of our
subsidiaries, other than AREH. In the event of a bankruptcy,
liquidation or reorganization of any of our subsidiaries, other
than AREH, holders of their indebtedness and their trade
creditors will generally be entitled to payment of their claims
from the assets of those subsidiaries before any assets are made
available for distribution to us. Assuming we had completed the
Acquisitions on March 31, 2005, the notes and the guarantee
would have been effectively subordinated to an aggregate of
$295.2 million of AREHs secured debt and our
subsidiaries debt, excluding trade payables.
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Our subsidiaries, other than AREH, will not be subject to
any of the covenants in the indenture for the notes and only
AREH will guarantee the notes. We may not be able to rely on the
cash flow or assets of our subsidiaries to pay our
indebtedness.
Our subsidiaries, other than AREH, will not be subject to the
covenants under the indenture for the notes. We may form
additional subsidiaries in the future which will not be subject
to the covenants under the indenture for the notes. Of our
existing and future subsidiaries, only AREH is required to
guarantee the notes. Our existing and future non-guarantor
subsidiaries may enter into financing arrangements that limit
their ability to make dividends, distributions, loans or other
payments to fund payments in respect of the notes. Accordingly,
we may not be able to rely on the cash flow or assets of our
subsidiaries to pay the notes.
Risks Relating to the Notes
Our failure to comply with the covenants contained under
one of our debt instruments or the indenture governing the
notes, including our failure as a result of events beyond our
control, could result in an event of default which would
materially and adversely affect our financial condition.
If there were an event of default under one of our debt
instruments, the holders of the defaulted debt could cause all
outstanding amounts of that debt to be due and payable
immediately. In addition, any event of default or declaration of
acceleration under one debt instrument could result in an event
of default under one or more of our other debt instruments,
including the notes. It is possible that, if the defaulted debt
is accelerated, our assets and cash flow may not be sufficient
to fully repay borrowings under our outstanding debt instruments
and we cannot assure you that we would be able to refinance or
restructure the payments on those debt securities.
To service our indebtedness, we will require a significant
amount of cash. Our ability to maintain our current cash
position or generate cash depends on many factors beyond our
control.
Our ability to make payments on and to refinance our
indebtedness, including the notes, and to fund operations will
depend on existing cash balances and our ability to generate
cash in the future. This, to a certain extent, is subject to
general economic, financial, competitive, regulatory and other
factors that are beyond our control.
The businesses or assets we acquire may not generate sufficient
cash to service our debt, including the notes. In addition, we
may not generate sufficient cash flow from operations or
investments and future borrowings may not be available to us in
an amount sufficient to enable us to service our indebtedness,
including the notes, or to fund our other liquidity needs. We
may need to refinance all or a portion of our indebtedness,
including the notes, on or before maturity. We cannot assure you
that we will be able to refinance any of our indebtedness,
including the notes, on commercially reasonable terms or at all.
The indenture does not restrict our ability to change our
lines of business or invest the proceeds of asset sales and
allows for the sale of all or substantially all of our and
AREHs assets without the notes being assumed by the
acquirers.
The indenture does not restrict in any way the businesses in
which we may engage and if we were to change our current lines
of business, in whole or in part, you would not be entitled to
accelerated repayment of the notes. We also are not required to
offer to purchase notes with the proceeds from asset sales,
including in the event of the sale of all or substantially all
of our assets or AREHs assets, and we may reinvest the
proceeds without the approval of noteholders. In addition, we
and AREH may sell all or substantially all of our and its assets
without the notes being assumed by the acquirers.
We may not have sufficient funds necessary to finance the
change of control offer required by the indenture.
Upon the occurrence of certain specific kinds of change of
control events, we will be required to offer to repurchase all
outstanding notes at 101% of their principal amount plus accrued
and unpaid interest and
14
liquidated damages, if any, to the date of repurchase.
Mr. Icahn, through affiliates, currently owns 100% of API
and approximately 86.5% of our outstanding depositary units and
preferred units, and will own approximately 90.1% of our
depositary units if all of the Acquisitions are completed
(assuming no reduction in the number of Depositary Units issued
in connection with the acquisitions of the NEG Holding
membership interest and Panaco and assuming no additional
Depositary Units are issued in connection with the acquisition
of GB Holdings common stock and Atlantic Holdings common stock).
If he were to sell or otherwise transfer some or all of his
interests in us to unrelated parties, a change of control could
be deemed to have occurred under the terms of the indenture
governing the notes. However, it is possible that we will not
have sufficient funds at the time of the change of control to
make the required repurchase of notes.
Federal and state statutes allow courts, under specific
circumstances, to void guarantees and require noteholders to
return payments received from the guarantor.
Under the federal bankruptcy law and comparable provisions of
state fraudulent transfer laws, a guarantee could be voided, or
claims in respect of a guarantee could be subordinated to all
other debts of that guarantor if, among other things, the
guarantor, at the time it incurred the indebtedness evidenced by
its guarantee:
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received less than reasonably equivalent value or fair
consideration for the incurrence of such guarantee; and |
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was insolvent or rendered insolvent by reason of such
incurrence; or |
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was engaged in a business or transaction for which the
guarantors remaining assets constituted unreasonably small
capital; or |
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intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they mature. |
In addition, any payment by that guarantor pursuant to its
guarantee could be voided and required to be returned to the
guarantor, or to a fund for the benefit of the creditors of the
guarantor.
The measures of insolvency for purposes of these fraudulent
transfer laws will vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a guarantor would be considered
insolvent if:
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the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its
assets; or |
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the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they
become absolute and mature; or |
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it could not pay its debts as they become due. |
On the basis of historical financial information, recent
operating history and other factors, we believe that AREH, after
giving effect to its guarantee of these notes, will not be
insolvent, will not have unreasonably small capital for the
businesses in which it is engaged and will not have incurred
debts beyond its ability to pay such debts as they mature. We
cannot assure you, however, as to what standard a court would
apply in making these determinations or that a court would agree
with our conclusions in this regard.
As a noteholder you may be required to comply with
licensing, qualification or other requirements under gaming laws
and could be required to dispose of the notes.
Currently, we and AREH indirectly own the equity of subsidiaries
that hold the licenses for three hotels and casinos in Nevada.
We and AREH indirectly own Stratosphere Corporation, which owns
Stratosphere Gaming Corp. Stratosphere Gaming holds the gaming
license for the Stratosphere. We and AREH also indirectly own
the equity of subsidiaries that hold the licenses for the two
Arizona Charlies hotels and casinos. We and AREH also
indirectly own approximately 41.9% of the outstanding common
stock of Atlantic
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Holdings which indirectly owns The Sands Hotel and Casino.
Following the completion of the Acquisitions, we will indirectly
own approximately 58.3% of such common stock.
We may be required to disclose the identities of the holders of
the notes to the New Jersey and Nevada gaming authorities upon
request. The New Jersey Casino Control Act, or NJCCA, imposes
substantial restrictions on the ownership of our securities and
our subsidiaries. A holder of the notes may be required to meet
the qualification provisions of the NJCCA relating to financial
sources and/or security holders. The indenture governing the
notes provide that if the New Jersey Casino Control Commission,
or New Jersey Commission, requires a holder of the notes
(whether the record or beneficial owner) to qualify under the
NJCCA and the holder does not so qualify, then the holder must
dispose of his interest in the notes within 30 days after
receipt by us of notice of the finding that the holder does not
so qualify, or we may redeem the notes at the lower of the
outstanding principal amount or the notes value calculated
as if the investment had been made on the date of
disqualification of the holder (or such lesser amount as may be
required by the New Jersey Commission). If a holder is found
unqualified by the New Jersey Commission, it is unlawful for the
holder:
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to exercise, directly or through any trustee or nominee, any
right conferred by such securities, or |
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to receive any dividends or interest upon such securities or any
remuneration, in any form, from its affiliated casino licensee
for services rendered or otherwise. |
The Nevada Gaming Commission may, in its discretion, require a
holder of the notes to file an application, be investigated and
be found suitable to hold the notes. In addition, the Nevada
Gaming Commission may, in its discretion, require the holder of
any debt security of a company registered by the Nevada Gaming
Commission as a publicly-traded corporation to file an
application, be investigated and be found suitable to own such
debt security.
If a record or beneficial holder of a note is required by the
Nevada Gaming Commission to be found suitable, such owner will
be required to apply for a finding of suitability within
30 days after request of such gaming authority or within
such earlier time prescribed by such gaming authority. The
applicant for a finding of suitability must pay all costs of the
application and investigation for such finding of suitability.
If the Nevada Gaming Commission determines that a person is
unsuitable to own such security, then, pursuant to the Nevada
Gaming Control Act, we can be sanctioned, including the loss of
our approvals, if, without the prior approval of the Nevada
Gaming Commission, we:
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pay to the unsuitable person any dividend, interest, or any
distribution whatsoever; |
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recognize any voting right of the unsuitable person with respect
to such securities; |
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pay the unsuitable person remuneration in any form; or |
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make any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar
transaction. |
Each holder of the notes will be deemed to have agreed, to the
extent permitted by law, that if the Nevada gaming authorities
determine that a holder or beneficial owner of the notes must be
found suitable, and if that holder or beneficial owner either
refuses to file an application or is found unsuitable, that
holder shall, upon our request, dispose of its notes within
30 days after receipt of our request, or earlier as may be
ordered by the Nevada gaming authorities. We will also have the
right to call for the redemption of notes of any holder at any
time to prevent the loss or material impairment of a gaming
license or an application for a gaming license at a redemption
price equal to:
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the lesser of the cost paid by the holder or the fair market
value of the notes, in each case, plus accrued and unpaid
interest and liquidated damages, if any, to the earlier of the
date of redemption, or earlier as may be required by the Nevada
gaming authorities or the finding of unsuitability by the Nevada
gaming authorities; or |
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such other lesser amount as may be ordered by the Nevada gaming
authorities. |
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We will notify the trustee under the indenture in writing of any
redemption as soon as practicable. We will not be responsible
for any costs or expenses you may incur in connection with your
application for a license, qualification or a finding of
suitability, or your compliance with any other requirement of a
gaming authority. The indenture also provides that as soon as a
gaming authority requires you to sell your notes, you will, to
the extent required by applicable gaming laws, have no further
right:
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to exercise, directly or indirectly, any right conferred by the
notes or the indenture; or |
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to receive from us any interest, dividends or any other
distributions or payments, or any remuneration in any form,
relating to the notes, except the redemption price we refer to
above. |
Our general partner and its control person could exercise
their influence over us to your detriment.
Mr. Icahn, through affiliates, currently owns 100% of API,
our general partner, and approximately 86.5% of our outstanding
Depositary Units and preferred units, and will own approximately
90.0% of our Depositary Units if all of the Acquisitions are
completed (assuming no reduction in the number of Depositary
Units issued in connection with the acquisitions of the NEG
Holding membership interest and Panaco and assuming no
additional Depositary Units are issued in connection with the
acquisition of GB Holdings and Atlantic Holdings common stock)
and, as a result, has and will have the ability to influence
many aspects of our operations and affairs. API also is the
general partner of AREH.
We have agreed to acquire the other membership interest in NEG
Holding, the equity of Panaco, and the common stock of GB
Holdings and of Atlantic Holdings owned by affiliates of
Mr. Icahn. Upon completion of these acquisitions, all of
Mr. Icahns and his affiliates interests in each
of NEG Holding, TransTexas, Panaco, GB Holdings and Atlantic
Holdings will be owned through AREP.
We may invest in entities in which Mr. Icahn also invests
or purchase investments from him or his affiliates. Although API
has never received fees in connection with our investments, our
partnership agreement allows for the payment of these fees.
Mr. Icahn may pursue other business opportunities in which
we compete and there is no requirement that any additional
business opportunities be presented to us.
The interests of Mr. Icahn, including his interests in
entities in which he and we have invested or may invest in the
future, may differ from your interests as a noteholder and, as
such, he may take actions that may not be in your interest. For
example, if we encounter financial difficulties or are unable to
pay our debts as they mature, Mr. Icahns interests
might conflict with your interests as a noteholder.
In addition, if Mr. Icahn were to sell, or otherwise
transfer, some or all of his interests in us to an unrelated
party or group, a change of control could be deemed to have
occurred under the terms of the indenture governing the notes
which would require us to offer to repurchase all outstanding
notes at 101% of their principal amount plus accrued and unpaid
interest and liquidated damages, if any, to the date of
repurchase. However, it is possible that we will not have
sufficient funds at the time of the change of control to make
the required repurchase of notes.
Certain of our management are committed to the management
of other businesses.
Certain of the individuals who conduct the affairs of API,
including our chairman, Mr. Icahn, and our chief executive
officer, Keith A. Meister, are, and will in the future be,
committed to the management of other businesses owned or
controlled by Mr. Icahn and his affiliates. Accordingly,
these individuals will not be devoting all of their professional
time to the management of us, and conflicts may arise between
our interests and the other entities or business activities in
which such individuals are involved. Conflicts of interest may
arise in the future as such affiliates and we may compete for
the same assets, purchasers and sellers of assets or financings.
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Since we are a limited partnership, you may not be able to
pursue legal claims against us in U.S. federal
courts.
We are a limited partnership organized under the laws of the
state of Delaware. Under the rules of federal civil procedure,
you may not be able to sue us in federal court on claims other
than those based solely on federal law, because of lack of
complete diversity. Case law applying diversity jurisdiction
deems us to have the citizenship of each of our limited
partners. Because we are a publicly traded limited partnership,
it may not be possible for you to sue us in a federal court
because we have citizenship in all 50 U.S. states and
operations in many states. Accordingly, you will be limited to
bringing any claims in state court. Furthermore, AREP Finance,
our corporate co-issuer for the notes, has only nominal assets
and no operations. While you may be able to sue the corporate
co-issuer in federal court, you are not likely to be able to
realize on any judgment rendered against it.
We may be subject to the pension liabilities of our
affiliates.
Mr. Icahn, through certain affiliates, currently owns 100%
of API and approximately 86.5% of our outstanding Depositary
Units and preferred units. Applicable pension and tax laws make
each member of a controlled group of entities,
generally defined as entities in which there is at least an 80%
common ownership interest, jointly and severally liable for
certain pension plan obligations of any member of the controlled
group. These pension obligations include ongoing contributions
to fund the plan, as well as liability for any unfunded
liabilities that may exist at the time the plan is terminated.
In addition, the failure to pay these pension obligations when
due may result in the creation of liens in favor of the pension
plan or the Pension Benefit Guaranty Corporation, or the PBGC,
against the assets of each member of the controlled group.
As a result of the more than 80% ownership interest in us by
Mr. Icahns affiliates, we and our subsidiaries, are
subject to the pension liabilities of all entities in which
Mr. Icahn has a direct or indirect ownership interest of at
least 80%. One such entity, ACF Industries LLC, is the
sponsor of several pension plans which are underfunded by a
total of approximately $23.7 million on an ongoing
actuarial basis and $175.4 million if those plans were
terminated, as most recently reported by the plans
actuaries. These liabilities could increase or decrease,
depending on a number of factors, including future changes in
promised benefits, investment returns, and the assumptions used
to calculate the liability. As members of the controlled group,
we would be liable for any failure of ACF to make ongoing
pension contributions or to pay the unfunded liabilities upon a
termination of the ACF pension plans. In addition, other
entities now or in the future within the controlled group that
includes us may have pension plan obligations that are, or may
become, underfunded and we would be liable for any failure of
such entities to make ongoing pension contributions or to pay
the unfunded liabilities upon a termination of such plans.
The current underfunded status of the ACF pension plans
requires ACF to notify the PBGC of certain reportable
events, such as if we cease to be a member of the
ACF controlled group, or if we make certain extraordinary
dividends or stock redemptions. The obligation to report could
cause us to seek to delay or reconsider the occurrence of such
reportable events.
Starfire Holding Corporation, which is 100% owned by
Mr. Icahn, has undertaken to indemnify us and our
subsidiaries from losses resulting from any imposition of
pension funding or termination liabilities that may be imposed
on us and our subsidiaries or our assets as a result of being a
member of the Icahn controlled group. The Starfire indemnity
provides, among other things, that so long as such contingent
liabilities exist and could be imposed on us, Starfire will not
make any distributions to its stockholders that would reduce its
net worth to below $250.0 million. Nonetheless, Starfire
may not be able to fund its indemnification obligations to us.
We are subject to the risk of possibly becoming an
investment company.
Because we are a holding company and a significant portion of
our assets consists of investments in companies in which we own
less than a 50% interest, we run the risk of inadvertently
becoming an investment company that is required to register
under the Investment Company Act of 1940. Registered investment
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companies are subject to extensive, restrictive and potentially
adverse regulation relating to, among other things, operating
methods, management, capital structure, dividends and
transactions with affiliates. Registered investment companies
are not permitted to operate their business in the manner in
which we operate our business, nor are registered investment
companies permitted to have many of the relationships that we
have with our affiliated companies.
To avoid regulation under the Investment Company Act, we monitor
the value of our investments and structure transactions with an
eye toward the Investment Company Act. As a result, we may
structure transactions in a less advantageous manner than if we
did not have Investment Company Act concerns, or we may avoid
otherwise economically desirable transactions due to those
concerns. In addition, events beyond our control, including
significant appreciation or depreciation in the market value of
certain of our publicly traded holdings, could result in our
inadvertently becoming an investment company.
If it were established that we were an investment company, there
would be a risk, among other material adverse consequences, that
we could become subject to monetary penalties or injunctive
relief, or both, in an action brought by the SEC, that we would
be unable to enforce contracts with third parties or that third
parties could seek to obtain rescission of transactions with us
undertaken during the period it was established that we were an
unregistered investment company.
We may become taxable as a corporation.
We operate as a partnership for federal income tax purposes.
This allows us to pass through our income and deductions to our
partners. We believe that we have been and are properly treated
as a partnership for federal income tax purposes. However, the
Internal Revenue Service, or IRS, could challenge our
partnership status and we could fail to qualify as a partnership
for past years as well as future years. Qualification as a
partnership involves the application of highly technical and
complex provisions of the Internal Revenue Code of 1986, as
amended. For example, a publicly traded partnership is generally
taxable as a corporation unless 90% or more of its gross income
is qualifying income, which includes interest,
dividends, real property rents, gains from the sale or other
disposition of real property, gain from the sale or other
disposition of capital assets held for the production of
interest or dividends, and certain other items. We believe that
in all prior years of our existence at least 90% of our gross
income was qualifying income and we intend to structure our
business in a manner such that at least 90% of our gross income
will constitute qualifying income this year and in the future.
However, there can be no assurance that such structuring will be
effective in all events to avoid the receipt of more than 10% of
non-qualifying income. If less than 90% of our gross income
constitutes qualifying income, we may be subject to corporate
tax on our net income at regular corporate tax rates. Further,
if less than 90% of our gross income constituted qualifying
income for past years, we may be subject to corporate level tax
plus interest and possibly penalties. In addition, if we
register under the Investment Company Act of 1940, it is likely
that we would be treated as a corporation for U.S. federal
income tax purposes and subject to corporate tax on our net
income at regular corporate tax rates. The cost of paying
federal and possibly state income tax, either for past years or
going forward, would be a significant liability and would reduce
our funds available to make interest and principal payments on
the notes.
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Risks Relating to Our Business
Real Estate Operations
Our investment in property development may be more costly
than anticipated.
We have invested and expect to continue to invest in unentitled
land, undeveloped land and distressed development properties.
These properties involve more risk than properties on which
development has been completed. Unentitled land may not be
approved for development. Undeveloped land and distressed
development properties do not generate any operating revenue,
while costs are incurred to develop the properties. In addition,
undeveloped land and development properties incur expenditures
prior to completion, including property taxes and development
costs. Also, construction may not be completed within budget or
as scheduled and projected rental levels or sales prices may not
be achieved and other unpredictable contingencies beyond our
control could occur. We will not be able to recoup any of such
costs until such time as these properties, or parcels thereof,
are either disposed of or developed into income-producing assets.
Competition for acquisitions could adversely affect us and
new acquisitions may fail to perform as expected.
We seek to acquire investments that are undervalued. Acquisition
opportunities in the real estate market for value-added
investors have become competitive to source and the increased
competition may negatively impact the spreads and the ability to
find quality assets that provide returns that we seek. These
investments may not be readily financeable and may not generate
immediate positive cash flow for us. There can be no assurance
that any asset we acquire, whether in the real estate sector or
otherwise, will increase in value or generate positive cash flow.
We may not be able to sell our rental properties, which
would reduce cash available for other purposes.
We are currently marketing for sale our rental real estate
portfolio. As of March 31, 2005, we owned 67 rental
real estate properties with a book value of approximately
$164.8 million, individually encumbered by mortgage debt
which aggregated approximately $80.2 million. As of
March 31, 2005, we had entered into conditional sales
contracts or letters of intent for 11 rental real estate
properties. Selling prices for the properties covered by the
contracts or letters of intent would total approximately
$45.5 million. These properties are encumbered by mortgage
debt of approximately $25.3 million. Generally, these
contracts and letters of intent may be terminated by the buyer
with little or no penalty. We may not be successful in obtaining
purchase offers for our remaining properties at acceptable
prices and sales may not be consummated. Many of our properties
are net-leased to single corporate tenants, and it may be
difficult to sell those properties that existing tenants decline
to re-let. Our attempt to market the real estate portfolio may
not be successful. Even if our efforts are successful, we cannot
be certain that the proceeds from the sales can be used to
acquire businesses and investments at prices or at projected
returns which are deemed favorable. From April 1, through
May 31, we sold five of these rental real estate properties
for approximately $3.1 million. These properties were
unencumbered by mortgage debt.
We face potential adverse effects from tenant bankruptcies
or insolvencies.
The bankruptcy or insolvency of our tenants may adversely affect
the income produced by our properties. If a tenant defaults, we
may experience delays and incur substantial costs in enforcing
our rights as landlord. If a tenant files for bankruptcy, we
cannot evict the tenant solely because of such bankruptcy. A
court, however, may authorize a tenant to reject or terminate
its lease with us.
We may be subject to environmental liability as an owner
or operator of development and rental real estate.
Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain
hazardous substances, pollutants and contaminants released on,
under, in or from its property. These laws often impose
liability without regard
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to whether the owner or operator knew of, or was responsible
for, the release of such substances. To the extent any such
substances are found in or on any property invested in by us, we
could be exposed to liability and be required to incur
substantial remediation costs. The presence of such substances
or the failure to undertake proper remediation may adversely
affect the ability to finance, refinance or dispose of such
property. We generally conduct a Phase I environmental site
assessment on properties in which we are considering investing.
A Phase I environmental site assessment involves record
review, visual site assessment and personnel interviews, but
does not typically include invasive testing procedures such as
air, soil or groundwater sampling or other tests performed as
part of a Phase II environmental site assessment.
Accordingly, there can be no assurance that these assessments
will disclose all potential liabilities or that future property
uses or conditions or changes in applicable environmental laws
and regulations or activities at nearby properties will not
result in the creation of environmental liabilities with respect
to a property.
Hotel and Casino Operations
The gaming industry is highly regulated. The gaming
authorities and state and municipal licensing authorities have
significant control over our operations.
Our properties currently conduct licensed gaming operations in
Nevada. In addition, we have entered into an agreement to
acquire shares of GB Holdings and shares of Atlantic Holdings,
that together with the shares we currently own, will result in
our owning approximately 77.5% of the common stock of GB
Holdings and approximately 58.3% of the stock of Atlantic
Holdings. Atlantic Holdings through its wholly-owned subsidiary
owns and operates The Sands Hotel and Casino. Various regulatory
authorities, including the Nevada State Gaming Control Board,
Nevada Gaming Commission and the New Jersey Casino Control
Commission, require our properties and The Sands Hotel and
Casino to hold various licenses and registrations, findings of
suitability, permits and approvals to engage in gaming
operations and to meet requirements of suitability. These gaming
authorities also control approval of ownership interests in
gaming operations. These gaming authorities may deny, limit,
condition, suspend or revoke our gaming licenses, registrations,
findings of suitability or the approval of any of our ownership
interests in any of the licensed gaming operations conducted in
Nevada and New Jersey, any of which could have a significant
adverse effect on our business, financial condition and results
of operations, for any cause they may deem reasonable. If we
violate gaming laws or regulations that are applicable to us, we
may have to pay substantial fines or forfeit assets. If, in the
future, we operate or have an ownership interest in casino
gaming facilities located outside of Nevada or New Jersey, we
may also be subject to the gaming laws and regulations of those
other jurisdictions.
The sale of alcoholic beverages at our Nevada properties is
subject to licensing and regulation by the City of
Las Vegas and Clark County, Nevada. The City of
Las Vegas and Clark County have full power to limit,
condition, suspend or revoke any such license, and any such
disciplinary action may, and revocation would, reduce the number
of visitors to our Nevada casinos to the extent the availability
of alcoholic beverages is important to them. If our alcohol
licenses become in any way impaired, it would reduce the number
of visitors. Any reduction in our number of visitors will reduce
our revenue and cash flow.
Rising operating costs for our gaming and entertainment
properties could have a negative impact on our
profitability.
The operating expenses associated with our gaming and
entertainment properties could increase due to some of the
following factors:
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potential changes in the tax or regulatory environment which
impose additional restrictions or increase operating costs; |
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our properties use significant amounts of electricity, natural
gas and other forms of energy, and energy price increases may
reduce our working capital; |
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our Nevada properties use significant amounts of water and a
water shortage may adversely affect our operations; |
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an increase in the cost of health care benefits for our
employees could have a negative impact on our profitability; |
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some of our employees are covered by collective bargaining
agreements and we may incur higher costs or work slow-downs or
stoppages due to union activities; |
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our reliance on slot machine revenues and the concentration of
manufacturing of slot machines in certain companies could impose
additional costs on us; and |
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our insurance coverage may not be adequate to cover all possible
losses and our insurance costs may increase. |
We face substantial competition in the hotel and casino
industry.
The hotel and casino industry in general, and the markets in
which we compete in particular, are highly competitive.
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we compete with many world class destination resorts with
greater name recognition, different attractions, amenities and
entertainment options; |
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we compete with the continued growth of gaming on Native
American tribal lands; |
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the existence of legalized gambling in other jurisdictions may
reduce the number of visitors to our properties; |
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certain states have legalized, and others may legalize, casino
gaming in specific venues, including race tracks and/or in
specific areas, including metropolitan areas from which we
traditionally attract customers; and |
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our properties also compete and will in the future compete with
all forms of legalized gambling. |
Many of our competitors have greater financial, selling and
marketing, technical and other resources than we do. We may not
be able to compete effectively with our competitors and we may
lose market share, which could reduce our revenue and cash flow.
Economic downturns, terrorism and the uncertainty of war,
as well as other factors affecting discretionary consumer
spending, could reduce the number of our visitors or the amount
of money visitors spend at our casinos.
The strength and profitability of our business depends on
consumer demand for hotel-casino resorts and gaming in general
and for the type of amenities we offer. Changes in consumer
preferences or discretionary consumer spending could harm our
business.
During periods of economic contraction, our revenues may
decrease while some of our costs remain fixed, resulting in
decreased earnings, because the gaming and other leisure
activities we offer at our properties are discretionary
expenditures, and participation in these activities may decline
during economic downturns because consumers have less disposable
income. Even an uncertain economic outlook may adversely affect
consumer spending in our gaming operations and related
facilities, as consumers spend less in anticipation of a
potential economic downturn. Additionally, rising gas prices
could deter non-local visitors from traveling to our properties.
The terrorist attacks which occurred on September 11, 2001,
the potential for future terrorist attacks and wars in
Afghanistan and Iraq have had a negative impact on travel and
leisure expenditures, including lodging, gaming and tourism.
Leisure and business travel, especially travel by air, remain
particularly susceptible to global geopolitical events. Many of
the customers of our properties travel by air, and the cost and
availability of air service can affect our business.
Furthermore, insurance coverage against loss or business
interruption resulting from war and some forms of terrorism may
be unavailable or not available on terms that we consider
reasonable. We cannot predict the extent to which war, future
security alerts or additional terrorist attacks may interfere
with our operations.
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Our hotels and casinos may need to increase capital
expenditures to compete effectively.
Capital expenditures, such as room refurbishments, amenity
upgrades and new gaming equipment, may be necessary from time to
time to preserve the competitiveness of our hotels and casinos.
The gaming industry market is very competitive and is expected
to become more competitive in the future. If cash from
operations is insufficient to provide for needed levels of
capital expenditures, the competitive position of our hotels and
casinos could deteriorate if our hotels and casinos are unable
to raise funds for such purposes.
Increased state taxation of gaming and hospitality
revenues could adversely affect our hotel and casinos
results of operations.
The casino industry represents a significant source of tax
revenues to the various jurisdictions in which casinos operate.
Gaming companies are currently subject to significant state and
local taxes and fees in addition to normal federal and state
corporate income taxes. For example, casinos in Atlantic City
pay for licenses as well as special taxes to the city and state,
including taxes on annual gaming revenues, an annual investment
alternative tax on annual gaming revenues, on casino
complimentaries and on casino service industry multi-casino
progressive slot machine revenue, a daily fee on each hotel room
in a casino hotel facility that is occupied by a guest for
consideration or as a complimentary item and a hotel parking
charge.
Future changes in state taxation of casino gaming companies
cannot be predicted and any such changes could adversely affect
the operating results of our hotels and casino.
GB Holdings may be unable to pay the interest or principal
on its 11% notes due 2005 at maturity.
GB Holdings ability to pay (1) interest on its notes is
dependent upon it receiving payments from Atlantic Holdings,
which payments are subject to a number of conditions, including
that payments by Atlantic Holdings may be made only in respect
of interest due on the Atlantic Holdings Notes prior to the
maturity date of the GB Holdings notes and that, at the time of
any payment and after giving effect to it, no event of default
exists and no event that could result in an event of default has
occurred or is incipient under the indenture for the Atlantic
Holdings Notes and (2) the interest and principal amount of the
GB Holdings Notes at maturity in September 2005 will depend upon
its ability to refinance such notes on favorable terms or at all
or to derive sufficient funds from the sale of its Atlantic
Holdings common stock or otherwise. If GB Holdings does not pay
its notes at maturity, it could result in, among other things,
GB Holdings seeking bankruptcy protection.
The Sands Hotel and Casinos operating results are
subject to seasonality.
The Sands Hotel and Casinos quarterly operating results
are highly volatile and subject to unpredictable fluctuations.
The Sands historically experienced greater revenues in the
summer. Future results may be more or less seasonal than
historical results. The Sands Hotel and Casinos operating
results for any given quarter may not meet expectations or
conform to the operating results of The Sands Hotel and
Casinos local, regional or national competitors.
Conversely, favorable operating results in any given quarter may
be followed by an unexpected downturn in subsequent quarters.
The Sands is exposed to certain risks related to the
creditworthiness of its patrons.
Historically, The Sands Hotel and Casino has extended credit on
a discretionary basis to certain qualified patrons. For the year
ended December 31, 2004, gaming credit extended to The
Sands Hotel and Casinos table game patrons accounted for
approximately 21.8% of overall table game wagering, and table
game wagering accounted for approximately 12.1% of overall
casino wagering during the period. At December 31, 2004,
gaming receivables amounted to $7.8 million before an
allowance for uncollectible gaming receivables of
$3.5 million. There can be no assurance that defaults in
the repayment of credit by patrons of The Sands Hotel and Casino
would not have a material adverse effect on the results of
operations of The Sands Hotel and Casino.
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Oil and Gas
We face substantial risks in the oil and gas
industry.
The exploration for and production of oil and gas involves
numerous risks. The cost of drilling, completing and operating
wells for oil or gas is often uncertain, and a number of factors
can delay or prevent drilling operations or production,
including:
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unexpected drilling conditions; |
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pressure or irregularities in formation; |
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equipment failures or repairs; |
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fires or other accidents; |
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adverse weather conditions; |
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pipeline ruptures or spills; and |
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shortages or delays in the availability of drilling rigs and the
delivery of equipment. |
The oil and gas industry is subject to environmental
regulation by state and federal agencies.
Our existing operations and the operations that we expect to
acquire are affected by extensive regulation through various
federal, state and local laws and regulations relating to the
exploration for and development, production, gathering and
marketing of oil and gas. Matters subject to regulation include
discharge permits for drilling operations, drilling and
abandonment bonds or other financial responsibility
requirements, reports concerning operations, the spacing of
wells, unitization and pooling of properties, and taxation. From
time to time, regulatory agencies have imposed price controls
and limitations on production by restricting the rate of flow of
oil and gas wells below actual production capacity in order to
conserve supplies of oil and gas.
Our operations are also subject to numerous environmental laws,
including but not limited to, those governing management of
waste, protection of water, air quality, the discharge of
materials into the environment, and preservation of natural
resources. Non-compliance with environmental laws and the
discharge of oil, natural gas, or other materials into the air,
soil or water may give rise to liabilities to the government and
third parties, including civil and criminal penalties, and may
require us to incur costs to remedy the discharge. Oil and gas
may be discharged in many ways, including from a well or
drilling equipment at a drill site, leakage from pipelines or
other gathering and transportation facilities, leakage from
storage tanks, and sudden discharges from oil and gas wells or
explosion at processing plants. Hydrocarbons tend to degrade
slowly in soil and water, which makes remediation costly, and
discharged hydrocarbons may migrate through soil and water
supplies or adjoining property, giving rise to additional
liabilities. Laws and regulations protecting the environment
have become more stringent in recent years, and may in certain
circumstances impose retroactive, strict, and joint and several
liabilities rendering entities liable for environmental damage
without regard to negligence or fault. In the past, we have
agreed to indemnify sellers of producing properties against
certain liabilities for environmental claims associated with
those properties. We cannot assure you that new laws or
regulations, or modifications of or new interpretations of
existing laws and regulations, will not substantially increase
the cost of compliance or otherwise adversely affect our oil and
gas operations and financial condition or that material
indemnity claims will not arise with respect to properties that
we acquire. While we do not anticipate incurring material costs
in connection with environmental compliance and remediation, we
cannot guarantee that material costs will not be incurred.
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We may experience difficulty finding and acquiring
additional reserves and be unable to compensate for the
depletion of our proved reserves. |
Our future success and growth depends upon the ability to find
or acquire additional oil and gas reserves that are economically
recoverable. Except to the extent that we conduct successful
exploration or development activities or acquire properties
containing proved reserves, our proved reserves will generally
decline as they are produced. The decline rate varies depending
upon reservoir characteristics and other factors. Our future oil
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and gas reserves and production, and, therefore, cash flow and
income are highly dependent upon the level of success in
exploiting our current reserves and acquiring or finding
additional reserves. The business of exploring for, developing
or acquiring reserves is capital intensive. To the extent cash
flow from operations is reduced and external sources of capital
become limited or unavailable, our ability to make the necessary
capital investments to maintain or expand this asset base of oil
and gas reserves could be impaired. Development projects and
acquisition activities may not result in additional reserves. We
may not have success drilling productive wells at economic
returns sufficient to replace our current and future production.
We may acquire reserves which contain undetected problems or
issues that did not initially appear to be significant to us.
Reservoir engineering is a subjective process of estimating the
volumes of underground accumulations of oil and gas which cannot
be measured precisely. The accuracy of any reserve estimates is
a function of the quality of available data and of engineering
and geological interpretation and judgment. Reserve estimates
prepared by other engineers might differ from the estimates
contained herein. Results of drilling, testing, and production
subsequent to the date of the estimate may justify revision of
such estimate. Future prices received for the sale of oil and
gas may be different from those used in preparing these reports.
The amounts and timing of future operating and development costs
may also differ from those used. Accordingly, reserve estimates
are often different from the quantities of oil and gas that are
ultimately recovered.
Proved reserves are the estimated quantities of natural gas,
condensate and oil that geological and engineering data
demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved
reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. The
estimation of reserves requires substantial judgment on the part
of petroleum engineers, resulting in imprecise determinations,
particularly with respect to recent discoveries. The accuracy of
any reserve estimate depends on the quality of available data
and engineering and geological interpretation and judgment.
Results of drilling, testing and production after the date of
the estimate may result in revisions of the estimate.
Accordingly, estimates of reserves are often materially
different from the quantities of natural gas, condensate and oil
that are ultimately recovered, and these estimates will change
as future production and development information becomes
available. The reserve data represent estimates only and should
not be construed as being exact.
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Difficulties in exploration and development could
adversely affect our financial condition. |
The costs of drilling all types of wells are uncertain, as are
the quantity of reserves to be found, the prices that NEG
Holding, TransTexas or Panaco will receive for the oil or
natural gas and the costs of operating each well. While each of
NEG Holding, TransTexas and Panaco has successfully drilled
wells, you should know that there are inherent risks in doing
so, and those difficulties could materially affect our financial
condition and results of operations. Also, just because we
complete a well and begin producing oil or natural gas, we
cannot assure you that we will recover our investment or make a
profit.
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Oil and gas prices are likely to be volatile. |
Our revenues, profitability and the carrying value of oil and
gas properties are substantially dependent upon prevailing
prices of, and demand for, oil and gas and the costs of
acquiring, finding, developing and producing reserves.
Historically, the markets for oil and gas have been volatile.
Markets for oil and gas likely will continue to be volatile in
the future. Prices for oil and gas are subject to wide
fluctuations in response to: (1) relatively minor changes
in the supply of, and demand for, oil and gas; (2) market
uncertainty; and (3) a variety of additional factors, all
of which are beyond our control. These factors include, among
others: domestic and foreign political conditions; the price and
availability of domestic and imported oil and gas; the level of
consumer and industrial demand; weather, domestic and foreign
government relations; and the price and availability of
alternative fuels and overall economic conditions. Our
production is weighted toward natural gas, making earnings and
cash flow more sensitive to natural gas price fluctuations.
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There is inherent uncertainty in estimates of reserves
which may affect future net cash flows. |
The basis for the success and long-term prospects for our oil
and gas business is the price that we receive for our oil and
gas. These prices are the primary factors for all aspects of our
business including reserve values, future net cash flows,
borrowing availability and results of operations. The reserve
valuations are prepared annually by independent petroleum
consultants, including the Pretax PV-10 values included
elsewhere in this prospectus. However, there are many
uncertainties inherent in preparing these reports and the third
party consultants rely on information we provide them. The
Pretax PV-10 calculations assume constant oil and gas prices,
operating expenses and capital expenditures over the lives of
the reserves. They also assume certain timing for completion of
projects and that we will have the financial ability to conduct
operations and capital expenditures without regard to factors
independent of the reserve report. The actual results realized
by the operations we propose to acquire may have historically
varied from these reports and may do so in the future. The
volumes estimated in these reports may also vary due to a
variety of reasons including incorrect assumptions, unsuccessful
drilling and the actual oil and gas prices that we receive.
You should not assume that the Pretax PV-10 values of reserves
represent the market value for those reserves. These values are
prepared in accordance with strict guidelines imposed by the
SEC. These valuations are the estimated discounted future net
cash flows from our proved reserves. These estimates use prices
that the operations we propose to acquire received or would have
received on December 31, 2004 and use costs for operating
and capital expenditures in effect at that date. These
assumptions are then used to calculate a future cash flow stream
that is discounted at a rate of 10%.
The base prices used for the Pretax PV-10 calculation were
public spot prices on December 31, 2004 adjusted by
differentials to those spot market prices. These price
adjustments were done on a property-by-property basis for the
quality of the oil and gas and for transportation to the
appropriate location.
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Operating hazards and uninsured risks are inherent to the
oil and gas industry. |
Our oil and gas business involves a variety of operating risks,
including, but not limited to, unexpected formations or
pressures, uncontrollable flows of oil, natural gas, brine or
well fluids into the environment (including groundwater
contamination), blowouts, fires, explosions, pollution and other
risks, any of which could result in personal injuries, loss of
life, damage to properties and substantial losses. Although we
carry insurance at levels we believe are reasonable, we are not
fully insured against all risks. Losses and liabilities arising
from uninsured or under-insured events could have a material
adverse effect on our financial condition and operations.
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Our use of hedging arrangements could reduce our
income. |
NEG Holding and TransTexas typically hedge a portion of oil and
gas production during periods when market prices for products
are higher than historical average prices. During 2004, NEG
Holding and TransTexas hedged 61% and 57%, respectively, of
annual natural gas production and 96% and 81%, respectively, of
annual oil production.
Typically, NEG Holding, TransTexas and Panaco have used swaps,
cost-free collars and options to put products to a purchaser at
a specified price, or floor. In these transactions, NEG Holding,
TransTexas and Panaco will usually have the option to receive
from the counterparty to the hedge a specified price or the
excess of a specified price over a floating market price. If the
floating price exceeds the fixed price, the hedging party is
required to pay the counterparty all or a portion of this
difference multiplied by the quantity hedged.
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Government regulations impose costs on abandoning oil and
gas facilities. |
Government regulations and lease terms require all oil and gas
producers to plug and abandon platforms and production
facilities at the end of the properties lives. The reserve
valuations for NEG Holding, TransTexas and Panaco do not include
the estimated costs of plugging the wells and abandoning the
platforms and equipment on their properties, less any cash
deposited in escrow accounts for these obligations. These costs
are usually higher on offshore properties, as are most
expenditures on offshore properties. As of
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December 31, 2004, the total estimated abandonment costs,
net of $23.5 million already in escrow, were approximately
$33.1 million. Those future liabilities are accounted for
by accruing for them in depreciation, depletion and amortization
expense over the lives of each propertys total proved
reserves.
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The oil and gas industry is highly competitive. |
There are many companies and individuals engaged in the
exploration for and development of oil and gas properties.
Competition is particularly intense with respect to the
acquisition of oil and gas producing properties and securing
experienced personnel. We encounter competition from various oil
and gas companies in raising capital and in acquiring producing
properties. Many of our competitors have financial and other
resources considerably larger than ours.
Investments
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We may not be able to identify suitable investments, and
our investments may not result in favorable returns or may
result in losses. |
Our partnership agreement allows us to take advantage of
investment opportunities we believe exist outside of the real
estate market. The equity securities in which we may invest
include common stocks, preferred stocks and securities
convertible into common stocks, as well as warrants to purchase
these securities. The debt securities in which we may invest
include bonds, debentures, notes, or non-rated mortgage-related
securities, municipal obligations, bank debt and mezzanine
loans. Certain of these securities may include lower rated or
non-rated securities which may provide the potential for higher
yields and therefore may entail higher risk and may include the
securities of bankrupt or distressed companies. In addition, we
may engage in various investment techniques, including
derivatives, options and futures transactions, foreign currency
transactions, short sales and leveraging for either
hedging or other purposes. We may concentrate our activities by
owning one or a few businesses or holdings, which would increase
our risk. We may not be successful in finding suitable
opportunities to invest our cash and our strategy of investing
in undervalued assets may expose us to numerous risks.
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Our investments may be subject to significant
uncertainties. |
Our investments may not be successful for many reasons
including, but not limited to:
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fluctuation of interest rates; |
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lack of control in minority investments; |
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worsening of general economic and market conditions; |
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lack of diversification; |
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inexperience with non-real estate areas; |
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fluctuation of U.S. dollar exchange rates; and |
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adverse legal and regulatory developments that may affect
particular businesses. |
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FORWARD-LOOKING STATEMENTS
Some statements in this prospectus and the documents
incorporated by reference are known as forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may
relate to, among other things, future performance generally,
business development activities, future capital expenditures,
financing sources and availability and the effects of regulation
and competition.
When we use the words believe, intend,
expect, may, will,
should, anticipate, could,
estimate, plan, predict,
project, or their negatives, or other similar
expressions, the statements which include those words are
usually forward-looking statements. When we describe strategy
that involves risks or uncertainties, we are making
forward-looking statements.
We warn you that forward-looking statements are only
predictions. Actual events or results may differ as a result of
risks that we face, including those set forth in the section of
this prospectus called Risk Factors. Those risks are
representative of factors that could affect the outcome of the
forward-looking statements. These and the other factors
discussed elsewhere in this prospectus and the documents
incorporated by reference herein are not necessarily all of the
important factors that could cause our results to differ
materially from those expressed in our forward-looking
statements. Forward-looking statements speak only as of the date
they were made and we undertake no obligation to update them.
INDUSTRY DATA
We refer to market and industry data throughout this prospectus
that we have obtained from publicly available information and
industry publications and other data that is based on the good
faith estimates of our management, which estimates are based
upon their review of internal surveys, independent industry
publications and other publicly available information. Although
we believe that these sources are reliable, we have not verified
the accuracy or completeness of this information. We are not
aware of any misstatements regarding the market and industry
data presented in this prospectus, however, our estimates
involve risks and uncertainties and are subject to change based
on various factors, including those discussed under the heading
Risk Factors.
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USE OF PROCEEDS
We will not receive any proceeds from the exchange of the new
notes for the private notes pursuant to the exchange offer. On
February 7, 2005, we issued and sold the private notes in a
private offering, receiving net proceeds of approximately
$471.5 million, after deducting selling and offering
expenses.
We intend to use the net proceeds of the private offering for
general business purposes, including to pursue our primary
business strategy of acquiring undervalued assets in either our
existing lines of business or other businesses and to provide
additional capital to grow our existing business.
We will use the net proceeds of the private offering and conduct
our activities in a manner so as not to be deemed an investment
company under the Investment Company Act. Generally, this means
that we do not intend to enter the business of investing in
securities and that no more than 40% of our total assets will be
invested in securities. The portion of our assets invested in
each type of security or any single issuer or industry will not
be limited.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer
In connection with the sale of the private notes, we and the
initial purchaser entered into a registration rights agreement
in which we and AREH agreed to:
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file a registration statement with the Securities and Exchange
Commission with respect to the exchange of the private notes for
new notes, or the exchange offer registration statement, no
later than 180 days after the date we issued the private
notes; |
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use all commercially reasonable efforts to have the exchange
offer registration statement declared effective by the SEC on or
prior to 300 days after the issuance date; and |
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commence the offer to exchange new notes for the private notes
and use all commercially reasonable efforts to issue on or prior
to 30 business days, or longer if required by the federal
securities laws, after the date on which the exchange offer
registration statement was declared effective by the SEC, new
notes in exchange for all private notes tendered prior to that
date in the exchange offer. |
We are making the exchange offer to satisfy certain of our
obligations under the registration rights agreement. We filed a
copy of the registration rights agreement as an exhibit to the
exchange offer registration statement.
Resale of Exchange Notes
Under existing interpretations of the Securities Act of 1933 by
the staff of the SEC contained in several no-action letters to
third parties, we believe that the new notes will generally be
freely transferable by holders who have validly participated in
the exchange offer without further registration under the
Securities Act of 1933 (assuming the truth of certain
representations required to be made by each holder of notes, as
set forth below). For additional information on the staffs
position, we refer you to the following no-action letters: Exxon
Capital Holdings Corporation, available April 13, 1988;
Morgan Stanley & Co. Incorporated, available
June 5, 1991; and Shearman & Sterling, available
July 2, 1993. However, any purchaser of private notes who
is one of our affiliates or who intends to
participate in the exchange offer for the purpose of
distributing the new notes or who is a broker-dealer who
purchased private notes from us to resell pursuant to
Rule 144A or any other available exemption under the
Securities Act of 1933:
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will not be able to tender its private notes in the exchange
offer; |
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will not be able to rely on the interpretations of the staff of
the SEC; and |
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must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 in connection with
any sale or transfer of the private notes unless such sale or
transfer is made pursuant to an exemption from these
requirements. |
If you wish to exchange private notes for new notes in the
exchange offer, you will be required to make representations in
a letter of transmittal which accompanies this prospectus,
including that:
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you are not our affiliate (as defined in
Rule 405 under the Securities Act of 1933); |
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any new notes to be received by you will be acquired in the
ordinary course of your business; |
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you have no arrangement or understanding with any person to
participate in the distribution of the new notes in violation of
the provisions of the Securities Act of 1933; |
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if you are not a broker-dealer, you are not engaged in, and do
not intend to engage in, a distribution of new notes; and |
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if you are a broker-dealer, you acquired the private notes for
your own account as a result of market-making or other trading
activities (and as such, you are a participating
broker-dealer), you have not entered into any arrangement
or understanding with American Real Estate Partners, L.P. or an
affiliate |
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of American Real Estate Partners, L.P. to distribute the new
notes and you will deliver a prospectus meeting the requirements
of the Securities Act of 1933 in connection with any resale of
the new notes. |
Rule 405 under the Securities Act of 1933 provides that an
affiliate of, or person affiliated with,
a specified person, is a person that directly, or indirectly
through one or more intermediaries, controls or is controlled
by, or is under common control with, the person specified.
The SEC has taken the position that participating broker-dealers
may be deemed to be underwriters within the meaning
of the Securities Act of 1933, and accordingly may fulfill their
prospectus delivery requirements with respect to the new notes,
other than a resale of an unsold allotment from the original
sale of the notes, with the prospectus contained in the exchange
offer registration statement. Under the registration rights
agreement, we have agreed to use commercially reasonable efforts
to allow participating broker-dealers and other persons, if any,
subject to similar prospectus delivery requirements, to use the
prospectus contained in the exchange offer registration
statement in connection with the resale of the new notes for a
period of 270 days from the issuance of the new notes.
Terms of the Exchange Offer
This prospectus and the accompanying letter of transmittal
contain the terms and conditions of the exchange offer. Upon the
terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept
for exchange all private notes which are properly tendered and
not withdrawn on or prior to 5:00 p.m., New York City time,
on the expiration date. After authentication of the new notes by
the trustee or an authentication agent, we will issue and
deliver $1,000 principal amount of new notes in exchange for
each $1,000 principal amount of outstanding private notes
accepted in the exchange offer. Holders may tender some or all
of their private notes in the exchange offer in denominations of
$1,000 and integral multiples thereof.
The form and terms of the new notes are identical in all
material respects to the form and terms of the private notes,
except that:
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(1) the offering of the new notes has been registered under
the Securities Act of 1933; |
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(2) the new notes generally will not be subject to transfer
restrictions or have registration rights; and |
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(3) certain provisions relating to liquidated damages on
the private notes provided for under certain circumstances will
be eliminated. |
The new notes will evidence the same debt as the private notes.
The new notes will be issued under and entitled to the benefits
of the indenture.
As of the date of this prospectus, $480 million aggregate
principal amount of the private notes is outstanding. In
connection with the issuance of the private notes, we made
arrangements for the private notes to be issued and transferable
in book-entry form through the facilities of the Depository
Trust Company acting as a depositary. The new notes will also be
issuable and transferable in book-entry form through the
Depository Trust Company.
The exchange offer is not conditioned upon any minimum aggregate
principal amount of private notes being tendered. However, our
obligation to accept private notes for exchange pursuant to the
exchange offer is subject to certain customary conditions that
we describe under Conditions below.
Holders who tender private notes in the exchange offer will not
be required to pay brokerage commissions or fees or, subject to
the instructions in the letter of transmittal, transfer taxes
with respect to the exchange of private notes pursuant to the
exchange offer. We will pay all charges and expenses, other than
certain applicable taxes, in connection with the exchange offer.
See Solicitation of Tenders; Fees and
Expenses for more detailed information regarding the
expenses of the exchange offer.
By executing or otherwise becoming bound by the letter of
transmittal, you will be making the representations described
under Procedures for Tendering below.
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Expiration Date; Extensions; Amendments
The term expiration date will mean 5:00 p.m.,
New York City time,
on ,
2005, unless we, in our sole discretion, extend the exchange
offer, in which case the term expiration date will
mean the latest date and time to which we extend the exchange
offer.
To extend the exchange offer, we will:
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notify the exchange agent of any extension orally or in
writing; and |
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notify the registered holders of the private notes by means of a
press release or other public announcement, each before
9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date. |
We reserve the right, in our reasonable discretion:
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to delay accepting any private notes; |
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to extend the exchange offer; or |
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if any conditions listed below under
Conditions are not satisfied, to
terminate the exchange offer by giving oral or written notice of
the delay, extension or termination to the exchange agent. |
We will follow any delay in acceptance, extension or termination
as promptly as practicable by oral or written notice to the
registered holders. If we amend the exchange offer in a manner
we determine constitutes a material change, we will promptly
disclose the amendment in a prospectus supplement that we will
distribute to the registered holders.
Interest on the New Notes
Interest on the new notes will accrue from the last interest
payment date on which interest was paid on the private notes
surrendered in exchange for new notes or, if no interest has
been paid on the private notes, from the issue date of the
private notes, February 7, 2005. Interest on the new notes
will be payable semi-annually on February 15 and August 15 of
each year, commencing on August 15, 2005.
Procedures for Tendering
You may tender your private notes in the exchange offer only if
you are a registered holder of private notes. To tender in the
exchange offer, you must:
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complete, sign and date the letter of transmittal or a facsimile
of the letter of transmittal; |
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have the signatures thereof guaranteed if required by the letter
of transmittal; and |
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mail or otherwise deliver the letter of transmittal or such
facsimile to the exchange agent, at the address listed below
under Exchange Agent for receipt prior
to the expiration date. |
In addition, either:
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the exchange agent must receive certificates for the private
notes along with the letter of transmittal into its account at
the Depository Trust Company pursuant to the procedure described
under Book-Entry Transfer before the
expiration date; |
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the exchange agent must receive a timely confirmation of a
book-entry transfer, if the procedure is available, into its
account at the Depository Trust Company pursuant to the
procedure described under Book-Entry
Transfer before the expiration date; or |
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you must comply with the procedures described under
Guaranteed Delivery Procedures. |
Your tender, if not withdrawn before the expiration date, will
constitute an agreement between you and us in accordance with
the terms and subject to the conditions described in this
prospectus and in the letter of transmittal.
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The method of delivery of private notes and the letter of
transmittal and all other required documents to the exchange
agent is at your election and risk. We recommend that, instead
of delivery by mail, you use an overnight or hand delivery
service. In all cases, you should allow sufficient time to
ensure delivery to the exchange agent prior to the expiration
date. You should not send letters of transmittal or private
notes to us. You may request that your respective brokers,
dealers, commercial banks, trust companies or nominees effect
the transactions described above for you.
If you are a beneficial owner whose private notes are registered
in the name of a broker, dealer, commercial bank, trust company
or other nominee and you wish to tender your private notes, you
should contact such registered holder promptly and instruct such
registered holder to tender on your behalf. If you wish to
tender on your own behalf, prior to completing and executing the
letter of transmittal and delivering your private notes, you
must either:
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make appropriate arrangements to register ownership of your
private notes in your name; or |
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obtain a properly completed bond power from the registered
holder. |
The transfer of record ownership may take considerable time
unless private notes are tendered:
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by a registered holder who has not completed the box entitled
Special Registration Instructions or Special
Delivery Instruction on the letter of transmittal; or |
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for the account of an Eligible Institution which is
either: |
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a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc.; |
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a commercial bank or trust company located or having an office
or correspondent in the United States; or |
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otherwise an eligible guarantor institution within
meaning of Rule 17Ad-15 under the Securities Exchange Act
of 1934. |
An Eligible Institution must guarantee the signatures on a
letter of transmittal or a notice of withdrawal described below
under Withdrawal of Tenders.
If the letter of transmittal is signed by a person other than
the registered holder, such private notes must be endorsed or
accompanied by appropriate bond powers which authorize such
person to tender the private notes on behalf of the registered
holder, in either case signed as the name of the registered
holder or holders appears on the private notes.
If the letter of transmittal or any private notes or bond powers
are signed or endorsed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons
should so indicate when signing, and unless waived by us, they
must submit evidence satisfactory to us of their authority to so
act with the letter of transmittal.
The letter of transmittal will include representations to us as
set forth under Resale of Exchange Notes.
You should note that:
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All questions as to the validity, form, eligibility, including
time of receipt, acceptance and withdrawal of the tendered
private notes will be determined by us in our sole discretion,
which determination will be final and binding; |
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We reserve the absolute right to reject any and all private
notes not properly tendered or any private notes the acceptance
of which would, in our judgment or the judgment of our counsel,
be unlawful; |
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We also reserve the absolute right to waive any irregularities
or conditions of tender as to particular private notes. Our
interpretation of the terms and conditions of the exchange
offer, including the instructions in the letter of transmittal,
will be final and binding on all parties. Unless waived, any |
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defects or irregularities in connection with tenders of private
notes must be cured within such time as we shall determine; |
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Although we intend to notify holders of defects or
irregularities with respect to any tender of private notes,
neither we, the exchange agent nor any other person shall be
under any duty to give notification of any defect or
irregularity with respect to tenders of private notes, nor shall
any of them incur any liability for failure to give such
notification; and |
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Tenders of private notes will not be deemed to have been made
until such irregularities have been cured or waived. Any private
notes received by the exchange agent that we determine are not
properly tendered or the tender of which is otherwise rejected
by us and as to which the defects or irregularities have not
been cured or waived by us will be returned by the exchange
agent to the tendering holder unless otherwise provided in the
letter of transmittal, as soon as practicable following the
expiration date. |
Book-Entry Transfer
The exchange agent will make a request promptly after the date
of this prospectus to establish accounts with respect to the
private notes at the Depository Trust Company for the purpose of
facilitating the exchange offer. Any financial institution that
is a participant in the Depository Trust Companys system
may make book-entry delivery of private notes by causing the
Depository Trust Company to transfer such private notes into the
exchange agents account with respect to the private notes
in accordance with the Depository Trust Companys Automated
Tender Offer Program procedures for such transfer. However, the
exchange for the private notes so tendered will only be made
after timely confirmation of such book-entry transfer of private
notes into the exchange agents account, and timely receipt
by the exchange agent of an agents message and any other
documents required by the letter of transmittal. The term
agents message means a message, transmitted by
the Depository Trust Company and received by the exchange agent
and forming a part of the confirmation of a book-entry transfer,
which states that the Depository Trust Company has received an
express acknowledgment from a participant that is tendering
private notes that such participant has received the letter of
transmittal and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce such agreement against the
participant.
Although delivery of private notes may be effected through
book-entry transfer into the exchange agents account at
the Depository Trust Company, you must transmit and the exchange
agent must receive, the letter of transmittal (or facsimile
thereof) properly completed and duly executed with any required
signature guarantee and all other required documents prior to
the expiration date, or you must comply with the guaranteed
delivery procedures described below. Delivery of documents to
the Depository Trust Company does not constitute delivery to the
exchange agent.
Guaranteed Delivery Procedures
If you wish to tender your private notes but your private notes
are not immediately available, or time will not permit your
private notes or other required documents to reach the exchange
agent before the expiration date, or the procedure for
book-entry transfer cannot be completed on a timely basis, you
may effect a tender if:
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(1) the tender is made through an Eligible Institution; |
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(2) prior to the expiration date, the exchange agent
receives from such Eligible Institution a properly completed and
duly executed notice of guaranteed delivery, by facsimile
transmittal, mail or hand delivery |
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stating the name and address of the holder, the certificate
number or numbers of such holders private notes and the
principal amount of such private notes tendered; |
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stating that the tender is being made thereby; and |
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guaranteeing that, within three New York Stock Exchange trading
days after the expiration date, the letter of transmittal, or a
facsimile thereof, together with the certificate(s) representing
the private notes to be tendered in proper form for transfer, or
confirmation of a book-entry transfer into the exchange
agents account at the Depository Trust Company of private
notes delivered electronically, and any other documents required
by the letter of transmittal, will be deposited by the Eligible
Institution with the exchange agent; and |
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(3) such properly completed and executed letter of
transmittal, or a facsimile thereof, together with the
certificate(s) representing all tendered private notes in proper
form for transfer, or confirmation of a book-entry transfer into
the exchange agents account at the Depository Trust
Company of private notes delivered electronically and all other
documents required by the letter of transmittal are received by
the exchange agent within three New York Stock Exchange trading
days after the expiration date. |
Upon request, the exchange agent will send to you a notice of
guaranteed delivery if you wish to tender your private notes
according to the guaranteed delivery procedures described above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may
withdraw tenders of private notes at any time prior to the
expiration date.
For a withdrawal to be effective, the exchange agent must
receive a written or facsimile transmission notice of withdrawal
at its address set forth this prospectus prior to the expiration
date. Any such notice of withdrawal must:
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specify the name of the person who deposited the private notes
to be withdrawn; |
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identify the private notes to be withdrawn, including the
certificate number or number and principal amount of such
private notes or, in the case of private notes transferred by
book-entry transfer, the name and number of the account at the
Depository Trust Company to be credited; and |
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be signed in the same manner as the original signature on the
letter of transmittal by which such private notes were tendered,
including any required signature guarantee. |
We will determine in our sole discretion all questions as to the
validity, form and eligibility, including time of receipt, of
such withdrawal notices, and our determination shall be final
and binding on all parties. We will not deem any properly
withdrawn private notes to have been validly tendered for
purposes of the exchange offer, and we will not issue new notes
with respect those private notes unless you validly retender the
withdrawn private notes. You may retender properly withdrawn
private notes following one of the procedures described above
under Procedures for Tendering at any
time prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we will
not be required to accept for exchange, or exchange the new
notes for, any private notes, and may terminate the exchange
offer as provided in this prospectus before the acceptance of
the private notes, if:
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the exchange offer violates applicable law, rules or regulations
or an applicable interpretation of the staff of the SEC; |
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an action or proceeding has been instituted or threatened in any
court or by any governmental agency which might materially
impair our ability to proceed with the exchange offer; |
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there has been proposed, adopted or enacted any law, rule or
regulation that, in our reasonable judgment would impair
materially our ability to consummate the exchange offer; or |
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all governmental approvals which we deem necessary for the
completion of the exchange offer have not been obtained. |
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If we determine in our reasonable discretion that any of these
conditions are not satisfied, we may:
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refuse to accept any private notes and return all tendered
private notes to you; |
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extend the exchange offer and retain all private notes tendered
before the exchange offer expires, subject, however, to your
rights to withdraw the private notes; or |
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waive the unsatisfied conditions with respect to the exchange
offer and accept all properly tendered private notes that have
not been withdrawn. |
If the waiver constitutes a material change to the exchange
offer, we will promptly disclose the waiver by means of a
prospectus supplement that we will distribute to the registered
holders of the private notes.
Exchange Agent
We have appointed Wilmington Trust Company, the trustee under
the indenture, as exchange agent for the exchange offer. You
should send all executed letters of transmittal to the exchange
agent at one of the addresses set forth below. In such capacity,
the exchange agent has no fiduciary duties and will be acting
solely on the basis of directions of our company. You should
direct questions, requests for assistance and requests for
additional copies of this prospectus or of the letter of
transmittal and requests for a notice of guaranteed delivery to
the exchange agent addressed as follows:
By Certified or Registered Mail:
Wilmington Trust Company
DC-1626 Processing Unit
P.O. Box 8861
Wilmington, DE 19899-8861
By Overnight Courier or Hand Delivery:
Wilmington Trust Company
Corporate Capital Markets
1100 North Market Street
Wilmington, DE 19890-1626
By Facsimile:
(302) 636-4145
Confirm By Telephone:
(302) 636-6470
Delivery to an address or facsimile number other than those
listed above will not constitute a valid delivery.
The trustee does not assume any responsibility for and makes no
representation as to the validity or adequacy of this prospectus
or the notes.
Solicitation of Tenders; Fees And Expenses
We will pay all expenses of soliciting tenders pursuant to the
exchange offer. We are making the principal solicitation by
mail. Our officers and regular employees may make additional
solicitations in person or by telephone or telecopier.
We have not retained any dealer-manager in connection with the
exchange offer and will not make any payments to brokers,
dealers or other persons soliciting acceptances of the exchange
offer. We will, however, pay the exchange agent reasonable and
customary fees for its services and will reimburse the exchange
agent for its reasonable out-of-pocket costs and expenses in
connection therewith.
We also may pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred
by them in forwarding copies of this prospectus, letters of
transmittal and related documents to the beneficial owners of
the private notes and in handling or forwarding tenders for
exchange.
36
We will pay the expenses to be incurred in connection with the
exchange offer, including fees and expenses of the exchange
agent and trustee and accounting and legal fees and printing
costs.
We will pay all transfer taxes, if any, applicable to the
exchange of private notes for new notes pursuant to the exchange
offer. If, however, certificates representing new notes or
private notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered
holder of the private notes tendered, or if tendered private
notes are registered in the name of any person other than the
person signing the letter of transmittal, or if a transfer tax
is imposed for any reason other than the exchange of private
notes pursuant to the exchange offer, then the amount of any
such transfer taxes, whether imposed on the registered holder or
any other persons, will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the letter of transmittal, the
amount of such transfer taxes will be billed by us directly to
such tendering holder.
Consequences of Failure to Exchange
Participation in the exchange offer is voluntary. We urge you to
consult your financial and tax advisors in making your decisions
on what action to take. Private notes that are not exchanged for
new notes pursuant to the exchange offer will remain restricted
securities. Accordingly, those private notes may be resold only:
|
|
|
|
|
to a person whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of
Rule 144A under the Securities Act of 1933; |
|
|
|
in a transaction meeting the requirements of Rule 144 under
the Securities Act of 1933; |
|
|
|
outside the United States to a foreign person in a transaction
meeting the requirements of Rule 903 or 904 of
Regulation S under the Securities Act of 1933; |
|
|
|
in accordance with another exemption from the registration
requirements of the Securities Act of 1933 and based upon an
opinion of counsel if we so request; |
|
|
|
to us; or |
|
|
|
pursuant to an effective registration statement. |
In each case, the private notes may be resold only in accordance
with any applicable securities laws of any state of the United
States or any other applicable jurisdiction.
37
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
The unaudited pro forma condensed consolidated financial
statement information set forth below is presented to reflect
the pro forma effects of the following transactions as if they
occurred on the dates indicated as discussed below:
|
|
|
(i) The Acquisitions; and |
|
|
(ii) The issuance of $480.0 million of Senior Notes
due 2013 at an interest rate of
71/8% per
annum in February 2005. |
The Acquisitions will be accounted for as a combination of
entities under common control and are recorded at the historical
basis of the entities as of the date acquired by AREP. AREP will
prepare restated financial statements to include the historical
financial position and results of operations up to the date of
the Acquisitions for periods that the entities were under common
control. The unaudited condensed historical combined balance
sheet at March 31, 2005 included herein includes the
combination of NEG Holding, GB Holdings and Panaco, which
presentation AREP anticipates will be materially consistent with
AREPs presentation of its actual consolidated balance
sheet after the consummation of the Acquisitions.
The unaudited pro forma condensed consolidated balance sheet has
been prepared as if the Acquisitions had occurred on
March 31, 2005. The unaudited pro forma condensed
consolidated balance sheet as of March 31, 2005 gives
effect to the unaudited pro forma adjustments necessary to
account for the Acquisitions.
The unaudited pro forma condensed historical combined statements
of earnings for each of the years ended December 31, 2004,
2003 and 2002 (1) combine the historical consolidated
statements of earnings of NEG Holding and GB Holdings for each
such year, which financial statements are included elsewhere in
this prospectus, and (2) reflects the combination of such
companies during a period of common control, which presentation
AREP anticipates will be materially consistent with AREPs
presentation of restated consolidated statements of earnings
after the consummation of the Acquisitions.
The unaudited pro forma condensed consolidated statements of
earnings for the three months ended March 31, 2005
(1) combine the historical consolidated statements of
earnings of NEG Holding, GB Holdings and Panaco for the three
months ended March 31, 2005 which financial statements are
included elsewhere in this prospectus, and (2) reflect the
combination of such companies during a period of common control,
which presentation AREP anticipates will be materially
consistent with AREPs presentation of restated
consolidated statements of earnings after the consummation of
the Acquisitions.
The unaudited pro forma condensed consolidated financial
statement information is based on, and should be read together
with (1) AREPs consolidated financial statements as
of March 31, 2005 (unaudited) and for the three months
ended March 31, 2005 and 2004 (unaudited) and for the
years ended December 31, 2004, 2003 and 2002,
(2) AREPs supplemental consolidated financial
statements included elsewhere in this prospectus, giving effect
to the acquisition of TransTexas on April 6, 2005 for
$180.0 million of cash, (3) the consolidated financial
statements as of March 31, 2005 (unaudited) and for the
three months ended March 31, 2005 and 2004
(unaudited) and for the years ended December 31, 2004,
2003 and 2002 of each of NEG Holding and GB Holdings, and
(4) the financial statements as of December 31, 2004
and for the three months ended March 31, 2005 and 2004
(unaudited) and for the year ended December 31, 2004
of Panaco.
38
AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical(1) | |
|
|
|
|
|
|
|
|
| |
|
Pro Forma | |
|
Pro Forma | |
|
|
|
|
AREP | |
|
NEG | |
|
|
|
GB | |
|
Intercompany | |
|
Historical | |
|
Adjustments | |
|
Intercompany | |
|
|
|
|
(Supplemental)(2) | |
|
Holding | |
|
Panaco | |
|
Holdings | |
|
Adjustments | |
|
Combined | |
|
Acquisitions(1)(2) | |
|
Adjustments(3) | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
ASSETS |
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,250,074 |
|
|
$ |
10,999 |
|
|
$ |
9,721 |
|
|
$ |
14,929 |
|
|
$ |
|
|
|
$ |
1,285,723 |
|
|
$ |
(180,000 |
) |
|
$ |
|
|
|
$ |
1,105,723 |
|
|
Investment in U.S. Government and Agency obligations
|
|
|
68,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,894 |
|
|
|
|
|
|
|
|
|
|
|
68,894 |
|
|
Marketable equity and debt securities
|
|
|
68,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,497 |
|
|
|
|
|
|
|
|
|
|
|
68,497 |
|
|
Due from brokers
|
|
|
147,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,223 |
|
|
|
|
|
|
|
|
|
|
|
147,223 |
|
|
Restricted cash
|
|
|
28,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,537 |
|
|
|
|
|
|
|
|
|
|
|
28,537 |
|
|
Receivables and other assets
|
|
|
52,567 |
|
|
|
19,992 |
|
|
|
25,642 |
|
|
|
16,421 |
|
|
|
(11,549 |
) |
|
|
103,073 |
|
|
|
|
|
|
|
|
|
|
|
103,073 |
|
|
Real estate leased to others under the financing method
|
|
|
3,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,740 |
|
|
|
|
|
|
|
|
|
|
|
3,740 |
|
|
Properties held for sale
|
|
|
33,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,995 |
|
|
|
|
|
|
|
|
|
|
|
33,995 |
|
|
Current portion of investment in debt securities of affiliates
|
|
|
5,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of deferred tax asset
|
|
|
2,685 |
|
|
|
|
|
|
|
3,567 |
|
|
|
|
|
|
|
|
|
|
|
6,252 |
|
|
|
|
|
|
|
|
|
|
|
6,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,661,641 |
|
|
|
30,991 |
|
|
|
38,930 |
|
|
|
31,350 |
|
|
|
(16,978 |
) |
|
|
1,745,934 |
|
|
|
(180,000 |
) |
|
|
|
|
|
|
1,565,934 |
|
|
Investment in U.S. Government and Agency obligations
|
|
|
5,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,533 |
|
|
|
|
|
|
|
|
|
|
|
5,533 |
|
|
Other investments
|
|
|
244,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,602 |
|
|
|
466,000 |
|
|
|
(466,000 |
) |
|
|
244,602 |
|
|
Land and construction-in- progress
|
|
|
106,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,000 |
|
|
|
|
|
|
|
|
|
|
|
106,000 |
|
|
Real estate leased to others:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounted for under the financing method
|
|
|
75,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,949 |
|
|
|
|
|
|
|
|
|
|
|
75,949 |
|
|
Accounted for under the operating method, net
|
|
|
51,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,127 |
|
|
|
|
|
|
|
|
|
|
|
51,127 |
|
|
Oil and gas properties, net
|
|
|
180,241 |
|
|
|
245,216 |
|
|
|
96,319 |
|
|
|
|
|
|
|
|
|
|
|
521,776 |
|
|
|
|
|
|
|
|
|
|
|
521,776 |
|
Hotel, casino and resort operating properties, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel and Casino
|
|
|
288,890 |
|
|
|
|
|
|
|
|
|
|
|
168,237 |
|
|
|
|
|
|
|
457,127 |
|
|
|
|
|
|
|
|
|
|
|
457,127 |
|
|
Hotel and resorts
|
|
|
46,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,041 |
|
|
|
|
|
|
|
|
|
|
|
46,041 |
|
|
Deferred finance costs and other assets
|
|
|
24,831 |
|
|
|
4,052 |
|
|
|
19,632 |
|
|
|
17,467 |
|
|
|
|
|
|
|
65,982 |
|
|
|
|
|
|
|
|
|
|
|
65,982 |
|
|
Long-term portion of investment in debt securities of affiliates
|
|
|
91,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91,864 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in NEG Holding LLC
|
|
|
97,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity interest in GB Holdings, Inc.
|
|
|
9,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment
|
|
|
|
|
|
|
2,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,170 |
|
|
|
|
|
|
|
|
|
|
|
2,170 |
|
|
Deferred tax asset
|
|
|
52,147 |
|
|
|
|
|
|
|
21,340 |
|
|
|
|
|
|
|
|
|
|
|
73,487 |
|
|
|
|
|
|
|
|
|
|
|
73,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,935,697 |
|
|
$ |
282,429 |
|
|
$ |
176,221 |
|
|
$ |
217,054 |
|
|
$ |
(215,673 |
) |
|
$ |
3,395,728 |
|
|
$ |
286,000 |
|
|
$ |
(466,000 |
) |
|
$ |
3,215,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical(1) | |
|
|
|
|
|
|
|
|
| |
|
Pro Forma | |
|
Pro Forma | |
|
|
|
|
AREP | |
|
NEG | |
|
|
|
GB | |
|
Intercompany | |
|
Historical | |
|
Adjustments | |
|
Intercompany | |
|
|
|
|
(Supplemental)(2) | |
|
Holding | |
|
Panaco | |
|
Holdings | |
|
Adjustments | |
|
Combined | |
|
Acquisitions(1)(2) | |
|
Adjustments(3) | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
LIABILITIES AND PARTNERS/ SHAREHOLDERS EQUITY |
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of mortgages payable
|
|
$ |
4,205 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,205 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,205 |
|
|
Mortgages on properties held for sale
|
|
|
20,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,372 |
|
|
|
|
|
|
|
|
|
|
|
20,372 |
|
|
Due to affiliate
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
Current portion note payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,741 |
|
|
|
|
|
|
|
43,741 |
|
|
|
|
|
|
|
|
|
|
|
43,741 |
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
5,429 |
|
|
|
|
|
|
|
(5,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
96,814 |
|
|
|
35,699 |
|
|
|
15,029 |
|
|
|
22,500 |
|
|
|
(207 |
) |
|
|
169,835 |
|
|
|
|
|
|
|
|
|
|
|
169,835 |
|
|
Securities sold not yet purchased
|
|
|
83,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,750 |
|
|
|
|
|
|
|
|
|
|
|
83,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
215,141 |
|
|
|
35,699 |
|
|
|
20,458 |
|
|
|
70,241 |
|
|
|
(15,636 |
) |
|
|
325,903 |
|
|
|
|
|
|
|
|
|
|
|
325,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
28,133 |
|
|
|
13,782 |
|
|
|
2,258 |
|
|
|
5,881 |
|
|
|
(1,342 |
) |
|
|
48,712 |
|
|
|
|
|
|
|
|
|
|
|
48,712 |
|
|
Mortgages payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate leased to others
|
|
|
55,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,614 |
|
|
|
|
|
|
|
|
|
|
|
55,614 |
|
|
Senior secured notes payable and credit facility
|
|
|
215,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,000 |
|
|
|
|
|
|
|
|
|
|
|
215,000 |
|
|
Senior unsecured notes payable, net
|
|
|
350,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,679 |
|
|
|
|
|
|
|
|
|
|
|
350,679 |
|
|
Senior unsecured notes payable
|
|
|
480,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480,000 |
|
|
|
|
|
|
|
|
|
|
|
480,000 |
|
|
Long-term debt, net of current portion
|
|
|
|
|
|
|
66,834 |
|
|
|
31,214 |
|
|
|
66,259 |
|
|
|
(95,138 |
) |
|
|
69,169 |
|
|
|
|
|
|
|
|
|
|
|
69,169 |
|
|
Asset retirement obligation
|
|
|
3,999 |
|
|
|
3,116 |
|
|
|
33,600 |
|
|
|
|
|
|
|
|
|
|
|
40,715 |
|
|
|
|
|
|
|
|
|
|
|
40,715 |
|
|
Preferred limited partnership units
|
|
|
108,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,006 |
|
|
|
|
|
|
|
|
|
|
|
108,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
1,241,431 |
|
|
|
83,732 |
|
|
|
67,072 |
|
|
|
72,140 |
|
|
|
(96,480 |
) |
|
|
1,367,895 |
|
|
|
|
|
|
|
|
|
|
|
1,367,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants in Atlantic Coast Entertainment Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,587 |
|
|
|
(43,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,808 |
|
|
|
16,808 |
|
|
|
|
|
|
|
|
|
|
|
16,808 |
|
Partners/Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners equity
|
|
|
1,383,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,383,913 |
|
|
|
466,000 |
|
|
|
(6,773 |
) |
|
|
1,843,140 |
|
|
General partner equity
|
|
|
107,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,133 |
|
|
|
|
|
|
|
(433,230 |
) |
|
|
(326,097 |
) |
|
Treasury units at cost
|
|
|
(11,921 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,921 |
) |
|
|
|
|
|
|
|
|
|
|
(11,921 |
) |
|
Shareholders equity
|
|
|
|
|
|
|
162,998 |
|
|
|
88,691 |
|
|
|
31,086 |
|
|
|
(76,778 |
) |
|
|
205,997 |
|
|
|
(180,000 |
) |
|
|
(25,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners/ Shareholders equity
|
|
|
1,479,125 |
|
|
|
162,998 |
|
|
|
88,691 |
|
|
|
31,086 |
|
|
|
(76,778 |
) |
|
|
1,685,122 |
|
|
|
286,000 |
|
|
|
(466,000 |
) |
|
|
1,505,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,935,697 |
|
|
$ |
282,429 |
|
|
$ |
176,221 |
|
|
$ |
217,054 |
|
|
$ |
(215,673 |
) |
|
$ |
3,395,728 |
|
|
$ |
286,000 |
|
|
$ |
(466,000 |
) |
|
$ |
3,215,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical(1) | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
AREP | |
|
NEG | |
|
|
|
GB | |
|
Intercompany | |
|
Historical | |
|
Debt | |
|
|
|
|
(Supplemental)(2) | |
|
Holding | |
|
Panaco | |
|
Holdings | |
|
Adjustments | |
|
Combined | |
|
Offering(5) | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except unit and per unit data) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel and casino operating income
|
|
$ |
82,838 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
39,965 |
|
|
$ |
(136 |
) |
|
$ |
122,667 |
|
|
$ |
|
|
|
$ |
122,667 |
|
|
Land, house and condominium sales
|
|
|
8,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,279 |
|
|
|
|
|
|
|
8,279 |
|
|
Interest income on financing leases
|
|
|
1,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,966 |
|
|
|
|
|
|
|
1,966 |
|
|
Interest income on U.S. Government and Agency obligations
and other investments
|
|
|
12,902 |
|
|
|
|
|
|
|
132 |
|
|
|
107 |
|
|
|
(602 |
) |
|
|
12,539 |
|
|
|
|
|
|
|
12,539 |
|
|
Rental income
|
|
|
2,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,035 |
|
|
|
|
|
|
|
2,035 |
|
|
Hotel and resort operating income
|
|
|
5,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,563 |
|
|
|
|
|
|
|
5,563 |
|
|
Oil and gas operating income
|
|
|
15,422 |
|
|
|
25,490 |
|
|
|
12,707 |
|
|
|
|
|
|
|
|
|
|
|
53,619 |
|
|
|
|
|
|
|
53,619 |
|
|
Accretion of investment in NEG Holding LLC
|
|
|
9,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NEG management fee
|
|
|
2,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend and other income
|
|
|
4,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,206 |
|
|
|
|
|
|
|
4,206 |
|
|
Equity in losses of equity method investees
|
|
|
(986 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,226 |
|
|
|
25,490 |
|
|
|
12,839 |
|
|
|
40,072 |
|
|
|
(11,753 |
) |
|
|
210,874 |
|
|
|
|
|
|
|
210,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel and casino operating expenses
|
|
|
57,624 |
|
|
|
|
|
|
|
|
|
|
|
37,468 |
|
|
|
(304 |
) |
|
|
94,788 |
|
|
|
|
|
|
|
94,788 |
|
|
Cost of land, house and condominium sales
|
|
|
7,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,047 |
|
|
|
|
|
|
|
7,047 |
|
|
Hotel and resort operating expenses
|
|
|
5,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,405 |
|
|
|
|
|
|
|
5,405 |
|
|
Oil and gas operating expenses
|
|
|
2,866 |
|
|
|
6,449 |
|
|
|
5,551 |
|
|
|
|
|
|
|
(2,108 |
) |
|
|
12,758 |
|
|
|
|
|
|
|
12,758 |
|
|
Interest expense
|
|
|
19,265 |
|
|
|
916 |
|
|
|
604 |
|
|
|
2,451 |
|
|
|
(1,074 |
) |
|
|
22,162 |
|
|
|
3,575 |
|
|
|
25,737 |
|
|
Depreciation, depletion and amortization
|
|
|
16,167 |
|
|
|
6,688 |
|
|
|
4,842 |
|
|
|
4,026 |
|
|
|
|
|
|
|
31,723 |
|
|
|
|
|
|
|
31,723 |
|
|
General and administrative expenses
|
|
|
7,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,610 |
|
|
|
|
|
|
|
7,610 |
|
|
Property expenses
|
|
|
952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
952 |
|
|
|
|
|
|
|
952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,936 |
|
|
|
14,053 |
|
|
|
10,997 |
|
|
|
43,945 |
|
|
|
(3,486 |
) |
|
|
182,445 |
|
|
|
3,575 |
|
|
|
186,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
27,290 |
|
|
|
11,437 |
|
|
|
1,842 |
|
|
|
(3,873 |
) |
|
|
(8,267 |
) |
|
|
28,429 |
|
|
|
(3,575 |
) |
|
|
24,854 |
|
Other gains and (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other losses
|
|
|
(180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(180 |
) |
|
|
|
|
|
|
(180 |
) |
|
Unrealized gains on securities sold short
|
|
|
21,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,704 |
|
|
|
|
|
|
|
21,704 |
|
|
Gain on sales and disposition of real estate and other assets
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
190 |
|
|
|
|
|
|
|
190 |
|
|
Debt restructuring/ reorganization costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
(24 |
) |
|
Change in fair value of derivative contracts
|
|
|
(9,813 |
) |
|
|
(22,620 |
) |
|
|
(6,336 |
) |
|
|
|
|
|
|
|
|
|
|
(38,769 |
) |
|
|
|
|
|
|
(38,769 |
) |
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
932 |
|
|
|
932 |
|
|
|
|
|
|
|
932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
39,187 |
|
|
|
(11,183 |
) |
|
|
(4,494 |
) |
|
|
(3,893 |
) |
|
|
(7,335 |
) |
|
|
12,282 |
|
|
|
(3,575 |
) |
|
|
8,707 |
|
|
Income tax (expense) benefit
|
|
|
(4,782 |
) |
|
|
|
|
|
|
1,624 |
|
|
|
(247 |
) |
|
|
|
|
|
|
(3,405 |
) |
|
|
|
|
|
|
(3,405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
34,405 |
|
|
$ |
(11,183 |
) |
|
$ |
(2,870 |
) |
|
$ |
(4,140 |
) |
|
$ |
(7,335 |
) |
|
$ |
8,877 |
|
|
$ |
(3,575 |
) |
|
$ |
5,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$ |
38,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,416 |
|
|
General partner
|
|
|
(4,535 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
34,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per LP unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per LP unit
|
|
$ |
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding
|
|
|
46,098,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,167,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per LP unit
|
|
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units and equivalent partnership units
outstanding
|
|
|
49,857,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,167,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Pro Forma Adjustments | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Panaco | |
|
|
|
|
|
|
Historical(1) | |
|
|
|
Intercompany | |
|
|
|
|
|
|
| |
|
|
|
and | |
|
|
|
|
|
|
AREP | |
|
NEG | |
|
GB | |
|
Intercompany | |
|
Historical | |
|
|
|
Bankruptcy | |
|
Debt | |
|
Prior Debt | |
|
|
|
|
(Supplemental)(2) | |
|
Holding | |
|
Holdings | |
|
Adjustments | |
|
Combined | |
|
Panaco(1) | |
|
Adjustment(4) | |
|
Offering(5) | |
|
Offering(6) | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except unit and per unit data) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel and casino operating income
|
|
$ |
299,981 |
|
|
$ |
|
|
|
$ |
171,243 |
|
|
$ |
(359 |
) |
|
$ |
470,865 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
470,865 |
|
|
Land, house and condominium sales
|
|
|
26,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,591 |
|
|
Interest income on financing leases
|
|
|
9,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,880 |
|
|
Interest income on U.S. Government and Agency obligations
and other investments
|
|
|
44,376 |
|
|
|
449 |
|
|
|
422 |
|
|
|
(156 |
) |
|
|
45,091 |
|
|
|
684 |
|
|
|
(684 |
) |
|
|
|
|
|
|
|
|
|
|
45,091 |
|
|
Rental income
|
|
|
7,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,916 |
|
|
Hotel and resort operating income
|
|
|
16,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,211 |
|
|
Accretion of investment in NEG Holding LLC
|
|
|
34,432 |
|
|
|
|
|
|
|
|
|
|
|
(34,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NEG management fee
|
|
|
6,887 |
|
|
|
|
|
|
|
|
|
|
|
(6,887 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend and other income
|
|
|
3,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,616 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,664 |
|
|
Equity in losses of equity method investees
|
|
|
(2,113 |
) |
|
|
(519 |
) |
|
|
|
|
|
|
2,113 |
|
|
|
(519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(519 |
) |
|
Oil and gas operating income
|
|
|
58,419 |
|
|
|
78,727 |
|
|
|
|
|
|
|
|
|
|
|
137,146 |
|
|
|
51,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
506,196 |
|
|
|
78,657 |
|
|
|
171,665 |
|
|
|
(39,721 |
) |
|
|
716,797 |
|
|
|
51,966 |
|
|
|
(684 |
) |
|
|
|
|
|
|
|
|
|
|
768,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel and casino operating expenses
|
|
|
227,603 |
|
|
|
|
|
|
|
154,252 |
|
|
|
(639 |
) |
|
|
381,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
381,216 |
|
|
Cost of land, house and condominium sales
|
|
|
18,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,486 |
|
|
Hotel and resort operating expenses
|
|
|
12,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,730 |
|
|
Interest expense
|
|
|
49,669 |
|
|
|
2,716 |
|
|
|
11,115 |
|
|
|
(4,754 |
) |
|
|
58,746 |
|
|
|
2,517 |
|
|
|
(2,321 |
) |
|
|
35,263 |
|
|
|
12,285 |
|
|
|
106,490 |
|
|
Depreciation, depletion and amortization
|
|
|
68,291 |
|
|
|
21,647 |
|
|
|
14,898 |
|
|
|
|
|
|
|
104,836 |
|
|
|
25,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,801 |
|
|
General and administrative expenses
|
|
|
20,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,952 |
|
|
Property expenses
|
|
|
4,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,340 |
|
|
Oil and gas operating expenses
|
|
|
13,816 |
|
|
|
25,172 |
|
|
|
|
|
|
|
(6,162 |
) |
|
|
32,826 |
|
|
|
18,095 |
|
|
|
(725 |
) |
|
|
|
|
|
|
|
|
|
|
50,196 |
|
|
Provision for loss on real estate
|
|
|
3,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
419,037 |
|
|
|
49,535 |
|
|
|
180,265 |
|
|
|
(11,555 |
) |
|
|
637,282 |
|
|
|
46,577 |
|
|
|
(3,046 |
) |
|
|
35,263 |
|
|
|
12,285 |
|
|
|
728,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
87,159 |
|
|
|
29,122 |
|
|
|
(8,600 |
) |
|
|
(28,166 |
) |
|
|
79,515 |
|
|
|
5,389 |
|
|
|
2,362 |
|
|
|
(35,263 |
) |
|
|
(12,285 |
) |
|
|
39,718 |
|
Other gains and (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of other assets
|
|
|
1,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,680 |
|
|
Gain on sale of marketable equity and debt securities and other
investments
|
|
|
40,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,159 |
|
|
Unrealized losses on securities sold short
|
|
|
(23,619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,619 |
) |
|
Impairment loss on equity interest in GB Holdings, Inc.
|
|
|
(15,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,600 |
) |
|
Gain on retirement/ restructuring of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,268 |
|
|
|
(51,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on restructuring of payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,495 |
|
|
|
(12,495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale and disposition of real estate and other
assets
|
|
|
5,262 |
|
|
|
|
|
|
|
(152 |
) |
|
|
|
|
|
|
5,110 |
|
|
|
(76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,034 |
|
|
Severance tax refund
|
|
|
4,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,468 |
|
|
Debt restructuring/ reorganization costs
|
|
|
|
|
|
|
|
|
|
|
(3,084 |
) |
|
|
|
|
|
|
(3,084 |
) |
|
|
(7,355 |
) |
|
|
7,355 |
|
|
|
|
|
|
|
|
|
|
|
(3,084 |
) |
|
Minority interest
|
|
|
(812 |
) |
|
|
|
|
|
|
|
|
|
|
2,886 |
|
|
|
2,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Pro Forma Adjustments | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Panaco | |
|
|
|
|
|
|
Historical(1) | |
|
|
|
Intercompany | |
|
|
|
|
|
|
| |
|
|
|
and | |
|
|
|
|
|
|
AREP | |
|
NEG | |
|
GB | |
|
Intercompany | |
|
Historical | |
|
|
|
Bankruptcy | |
|
Debt | |
|
Prior Debt | |
|
|
|
|
(Supplemental)(2) | |
|
Holding | |
|
Holdings | |
|
Adjustments | |
|
Combined | |
|
Panaco(1) | |
|
Adjustment(4) | |
|
Offering(5) | |
|
Offering(6) | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except unit and per unit data) | |
|
Income (loss) from continuing operations before income taxes
|
|
|
98,697 |
|
|
|
29,122 |
|
|
|
(11,836 |
) |
|
|
(25,280 |
) |
|
|
90,703 |
|
|
|
61,721 |
|
|
|
(54,046 |
) |
|
|
(35,263 |
) |
|
|
(12,285 |
) |
|
|
50,830 |
|
|
Income tax (expense) benefit
|
|
|
(17,326 |
) |
|
|
|
|
|
|
(986 |
) |
|
|
|
|
|
|
(18,312 |
) |
|
|
22,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
81,371 |
|
|
$ |
29,122 |
|
|
$ |
(12,822 |
) |
|
$ |
(25,280 |
) |
|
$ |
72,391 |
|
|
$ |
84,598 |
|
|
$ |
(54,046 |
) |
|
$ |
(35,263 |
) |
|
$ |
(12,285 |
) |
|
$ |
55,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$ |
71,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
45,997 |
|
|
General partner
|
|
|
9,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
81,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per LP unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per LP unit
|
|
$ |
1.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding
|
|
|
46,098,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,167,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per LP unit
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units and equivalent partnership units
outstanding
|
|
|
51,542,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,167,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Year Ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical(1) | |
|
|
| |
|
|
AREP | |
|
NEG | |
|
|
|
Intercompany | |
|
Historical | |
|
|
(Supplemental)(2) | |
|
Holding | |
|
GB Holdings | |
|
Adjustments | |
|
Combined | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In $000s) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel and casino operating income
|
|
$ |
262,811 |
|
|
$ |
|
|
|
$ |
167,749 |
|
|
$ |
(191 |
) |
|
$ |
430,369 |
|
|
Land, house and condominium sales
|
|
|
13,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,265 |
|
|
Interest income on financing leases
|
|
|
13,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,115 |
|
|
Interest income on U.S. Government and Agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations and other investments
|
|
|
22,592 |
|
|
|
587 |
|
|
|
627 |
|
|
|
(115 |
) |
|
|
23,691 |
|
|
Rental income
|
|
|
7,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,092 |
|
|
Hotel and resort operating income
|
|
|
12,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,376 |
|
|
Accretion of investment in NEG Holding LLC
|
|
|
30,142 |
|
|
|
|
|
|
|
|
|
|
|
(30,142 |
) |
|
|
|
|
|
NEG management fee
|
|
|
6,629 |
|
|
|
|
|
|
|
|
|
|
|
(6,629 |
) |
|
|
|
|
|
Dividend and other income
|
|
|
3,211 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
3,336 |
|
|
Equity in losses of equity method investees
|
|
|
(3,466 |
) |
|
|
(102 |
) |
|
|
|
|
|
|
3,466 |
|
|
|
(102 |
) |
|
Oil and gas operating income
|
|
|
20,899 |
|
|
|
77,606 |
|
|
|
|
|
|
|
|
|
|
|
98,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388,666 |
|
|
|
78,216 |
|
|
|
168,376 |
|
|
|
(33,611 |
) |
|
|
601,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel and casino operating expenses
|
|
|
216,857 |
|
|
|
|
|
|
|
156,556 |
|
|
|
(191 |
) |
|
|
373,222 |
|
|
Cost of land, house and condominium sales
|
|
|
9,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,129 |
|
|
Hotel and resort operating expenses
|
|
|
8,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,773 |
|
|
Interest expense
|
|
|
27,057 |
|
|
|
1,538 |
|
|
|
12,581 |
|
|
|
(7,147 |
) |
|
|
34,029 |
|
|
Depreciation, depletion and amortization
|
|
|
40,571 |
|
|
|
23,686 |
|
|
|
14,123 |
|
|
|
|
|
|
|
78,380 |
|
|
General and administrative expenses
|
|
|
14,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,081 |
|
|
Property expenses
|
|
|
4,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,472 |
|
|
Oil and gas operating expenses
|
|
|
5,028 |
|
|
|
23,080 |
|
|
|
|
|
|
|
(6,629 |
) |
|
|
21,479 |
|
|
Provision for loss on real estate
|
|
|
750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326,718 |
|
|
|
48,304 |
|
|
|
183,260 |
|
|
|
(13,967 |
) |
|
|
544,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
61,948 |
|
|
|
29,912 |
|
|
|
(14,884 |
) |
|
|
(19,644 |
) |
|
|
57,332 |
|
Other gains and (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of marketable equity and debt securities and
other investments
|
|
|
2,607 |
|
|
|
(954 |
) |
|
|
|
|
|
|
|
|
|
|
1,653 |
|
|
Loss on sale of other assets
|
|
|
(1,503 |
) |
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
(1,531 |
) |
|
Write-down of equity securities available for sale
|
|
|
(19,759 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,759 |
) |
|
Gain on sale and disposition of real estate
|
|
|
7,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,121 |
|
|
Debt restructuring/reorganization costs
|
|
|
|
|
|
|
|
|
|
|
(1,843 |
) |
|
|
|
|
|
|
(1,843 |
) |
|
Minority interest
|
|
|
(1,266 |
) |
|
|
|
|
|
|
|
|
|
|
3,987 |
|
|
|
2,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
49,148 |
|
|
|
28,958 |
|
|
|
(16,755 |
) |
|
|
(15,657 |
) |
|
|
45,694 |
|
|
Income tax benefit (expense)
|
|
|
16,750 |
|
|
|
|
|
|
|
(958 |
) |
|
|
|
|
|
|
15,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
65,898 |
|
|
$ |
28,958 |
|
|
$ |
(17,713 |
) |
|
$ |
(15,657 |
) |
|
$ |
61,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$ |
48,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,249 |
|
|
General partner
|
|
|
17,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
65,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
61,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per LP unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per LP unit
|
|
$ |
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding
|
|
|
46,098,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,856,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per LP unit
|
|
$ |
0.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units and equivalent partnership units
outstanding
|
|
|
54,489,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,248,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Year Ended December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical(1) | |
|
|
| |
|
|
|
|
Intercompany | |
|
Historical | |
|
|
AREP | |
|
NEG Holding | |
|
GB Holdings | |
|
Adjustments | |
|
Combined | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel and casino operating income
|
|
$ |
250,023 |
|
|
$ |
|
|
|
$ |
$189,917 |
|
|
$ |
(28 |
) |
|
|
439,912 |
|
|
Land, house and condominium sales
|
|
|
76,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,024 |
|
|
Interest income on financing leases
|
|
|
14,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,722 |
|
|
Interest income on U.S. Government and Agency obligations
and other investments
|
|
|
30,569 |
|
|
|
1,791 |
|
|
|
1,067 |
|
|
|
(546 |
) |
|
|
32,881 |
|
|
Rental income
|
|
|
6,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,852 |
|
|
Hotel and resort operating income
|
|
|
12,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,921 |
|
|
Accretion of investment in NEG Holding LLC
|
|
|
32,879 |
|
|
|
|
|
|
|
|
|
|
|
(32,879 |
) |
|
|
|
|
|
NEG management fee
|
|
|
7,637 |
|
|
|
|
|
|
|
|
|
|
|
(7,637 |
) |
|
|
|
|
|
Dividend and other income
|
|
|
2,720 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
2,895 |
|
|
Equity in earnings of equity method investees
|
|
|
305 |
|
|
|
|
|
|
|
|
|
|
|
(305 |
) |
|
|
|
|
|
Oil and gas operating income
|
|
|
|
|
|
|
35,901 |
|
|
|
|
|
|
|
|
|
|
|
35,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434,652 |
|
|
|
37,867 |
|
|
|
190,984 |
|
|
|
(41,395 |
) |
|
|
622,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel and casino operating expenses
|
|
|
217,938 |
|
|
|
|
|
|
|
170,567 |
|
|
|
(28 |
) |
|
|
388,477 |
|
|
Cost of land, house and condominium sales
|
|
|
54,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,640 |
|
|
Hotel and resort operating expenses
|
|
|
10,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,536 |
|
|
Interest expense
|
|
|
27,297 |
|
|
|
96 |
|
|
|
12,195 |
|
|
|
(7,578 |
) |
|
|
32,010 |
|
|
Depreciation, depletion and amortization
|
|
|
23,646 |
|
|
|
15,509 |
|
|
|
13,292 |
|
|
|
|
|
|
|
52,447 |
|
|
General and administrative expenses
|
|
|
14,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,134 |
|
|
Property expenses
|
|
|
3,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,862 |
|
|
Oil and gas operating expenses
|
|
|
|
|
|
|
16,556 |
|
|
|
|
|
|
|
(7,637 |
) |
|
|
8,919 |
|
|
Provision for loss on real estate
|
|
|
3,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,212 |
|
|
Loss on impairment of fixed assets
|
|
|
|
|
|
|
|
|
|
|
1,282 |
|
|
|
|
|
|
|
1,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
355,265 |
|
|
|
32,161 |
|
|
|
197,336 |
|
|
|
(15,243 |
) |
|
|
569,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income(loss)
|
|
|
79,387 |
|
|
|
5,706 |
|
|
|
(6,352 |
) |
|
|
(26,152 |
) |
|
|
52,589 |
|
Other gains and (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of marketable equity and debt securities and other
investments
|
|
|
|
|
|
|
8,712 |
|
|
|
|
|
|
|
|
|
|
|
8,712 |
|
|
Loss on sale of other assets
|
|
|
(353 |
) |
|
|
|
|
|
|
(185 |
) |
|
|
|
|
|
|
(538 |
) |
|
Write-down of equity securities available for sale
|
|
|
(8,476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,476 |
) |
|
Gain on sale and disposition of real estate
|
|
|
8,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,990 |
|
|
Unrealized loss on financial instruments/short sale
|
|
|
|
|
|
|
(347 |
) |
|
|
|
|
|
|
|
|
|
|
(347 |
) |
|
Loss on limited partnership interests
|
|
|
(3,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,750 |
) |
|
Dividend expense
|
|
|
|
|
|
|
(145 |
) |
|
|
|
|
|
|
|
|
|
|
(145 |
) |
|
Minority interest
|
|
|
(1,943 |
) |
|
|
|
|
|
|
|
|
|
|
1,648 |
|
|
|
(295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss) from continuing operations before income taxes
|
|
|
73,855 |
|
|
|
13,926 |
|
|
|
(6,537 |
) |
|
|
(24,504 |
) |
|
|
56,740 |
|
|
Income tax expense
|
|
|
(10,096 |
) |
|
|
|
|
|
|
(784 |
) |
|
|
|
|
|
|
(10,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss) from continuing operations
|
|
$ |
63,759 |
|
|
$ |
13,926 |
|
|
$ |
(7,321 |
) |
|
$ |
(24,504 |
) |
|
$ |
45,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss) from continuing operations attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$ |
56,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,826 |
|
|
General partner
|
|
|
7,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
45,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss) from continuing operations per LP unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
1.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding
|
|
|
46,098,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,856,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss) from continuing operations per LP unit
|
|
$ |
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units and equivalent partnership units
outstanding
|
|
|
56,466,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,225,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENT INFORMATION
(1) Gives effect to the following pending transactions:
We have entered into purchase agreements with affiliates of
Mr. Icahn to acquire the following:
|
|
|
|
|
The membership interest in NEG Holding for 11,344,828 Depositary
Units valued at $329.0 million. |
|
|
|
100% of the equity of Panaco for 4,310,345 Depositary Units
valued at $125.0 million. |
|
|
|
Approximately 41.2% of the outstanding common stock of GB
Holdings and approximately 11.3% of the fully diluted common
stock of Atlantic Holdings for 413,793 Depositary Units valued
at $12.0 million, plus 206,897 units valued at
$6.0 million if certain earnings targets are met during
2005 and 2006. |
The Acquisitions will be accounted for as a combination of
entities under common control and are recorded at the historical
basis of the entities being acquired as of and for the periods
for which the entities were under common control.
Although Panaco emerged from bankruptcy on November 16,
2004, the six weeks of operations during this period were not
material. For purposes of the pro forma financial statements,
the acquisition of Panaco was considered effective as of
December 31, 2004.
None of the pending Acquisitions is conditioned upon the closing
of the others. We may not complete all or any of the pending
Acquisitions. For purposes of the pro forma presentations, we
have assumed the closing of all pending Acquisitions.
The intercompany adjustments reflect the elimination of
intercompany amounts necessary to prepare consolidated financial
statements. These adjustments are summarized as follows:
|
|
(a) |
Pro Forma Condensed Consolidated Balance Sheet at
March 31, 2005 |
|
|
|
|
|
The elimination of AREPs $97.7 million investment in
NEG Holding, since NEG Holding is now consolidated. |
|
|
|
The elimination of AREPs $9.1 million equity interest
in GB Holdings, since GB Holdings is now consolidated. |
|
|
|
The elimination of AREPs $63.9 million investment in
the Atlantic Holdings 3% Notes due 2008 or the Atlantic
Holdings Notes, and the elimination of the corresponding debt of
Atlantic Holdings. |
|
|
|
The elimination of $2.2 million of deferred consent fees
for both AREP and GB Holdings related to AREPs
consent, in July 2004, to an exchange of GB Holdings
11% notes due 2005 for the Atlantic Holdings Notes. |
|
|
|
The elimination of AREPs share of warrants in Atlantic
Holdings, valued at $33.8 million. The warrants owned by
AREP after the Acquisitions represent approximately 77.5% of the
outstanding warrants. The remaining approximate 22.5% of the
warrants in Atlantic Holdings, valued at $9.8 million, have
been reclassified to minority interests. |
|
|
|
The recording of the minority interest in GB Holdings of
$7.0 million. |
|
|
|
The elimination of AREPs $36.6 million investment in
the outstanding term loans of Panaco, Inc., or the Panaco Debt,
plus accrued interest and the elimination of the corresponding
debt of Panaco. |
|
|
|
The elimination of a $10.0 million receivable/payable
between AREP and Panaco. |
|
|
(b) |
Pro Forma Condensed Consolidated Statement of Earnings for
the Three Months Ended March 31, 2005 |
|
|
|
|
|
The elimination of AREPs $9.9 million accretion of
investment in NEG Holding, since NEG Holding is now consolidated. |
46
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENT INFORMATION (Continued)
|
|
|
|
|
The elimination of AREPs $1.0 million equity in
losses of GB Holdings, since GB Holdings is now consolidated. |
|
|
|
The elimination of AREPs $2.1 million management fee
from NEG Holding, since NEG Holding is now consolidated. |
|
|
|
The elimination of a $0.1 million administrative charge
between ACEP and GB Holdings. |
|
|
|
The elimination of $0.2 million of amortization of deferred
consent fees between AREP and GB Holdings. |
|
|
|
The elimination of $0.5 million of related party interest
expense paid by GB Holdings to Mr. Icahn and affiliates. |
|
|
|
The recording of a credit to minority interest expense on
GB Holdings of $0.9 million. |
|
|
|
The elimination of $0.6 million of interest expense/income
recorded by Panaco/ AREP on the term loans of Panaco. |
|
|
(c) |
Pro Forma Condensed Consolidated Statement of Earnings for
the Year Ended December 31, 2004 |
|
|
|
|
|
The elimination of AREPs $34.4 million accretion of
investment in NEG Holding, since NEG Holding is now consolidated. |
|
|
|
The elimination of AREPs $2.1 million equity in
losses of GB Holdings, since GB Holdings is now
consolidated. |
|
|
|
The elimination of AREPs $6.2 million management fee
from NEG Holding, since NEG Holding is now consolidated. |
|
|
|
The elimination of a $0.3 million administrative charge
between ACEP and GB Holdings. |
|
|
|
The elimination of $0.3 million of amortization of deferred
consent fees between AREP and GB Holdings. |
|
|
|
The elimination of $4.8 million of related party interest
expense paid by GB Holdings to Mr. Icahn and
affiliates. |
|
|
|
The recording of a credit to minority interest expense on
GB Holdings of $2.9 million. |
|
|
(d) |
Pro Forma Condensed Consolidated Statement of Earnings for
the Year Ended December 31, 2003 |
|
|
|
|
|
The elimination of AREPs $30.1 million accretion of
investment in NEG Holding, since NEG Holding is now consolidated. |
|
|
|
The elimination of AREPs $3.5 million equity in
losses of GB Holdings, since GB Holdings is now
consolidated. |
|
|
|
The elimination of AREPs $6.6 million management fee
from NEG Holding, since NEG Holding is now consolidated. |
|
|
|
The elimination of a $0.2 million administrative charge
between ACEP, a consolidated subsidiary of AREP and
GB Holdings. |
|
|
|
The elimination of $0.1 million of interest income and
expense between NEG Holding and NEG, Inc., a consolidated
subsidiary of AREP. |
|
|
|
The elimination of $7.0 million of related party interest
expense paid by GB Holdings to Mr. Icahn and affiliates. |
|
|
|
The recording of a credit to minority interest expense on GB
Holdings of $4.0 million, representing 22.5% of the loss of
GB Holdings. |
47
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENT INFORMATION (Continued)
(e) Pro Forma Condensed Consolidated Statement of
Earnings for the Year Ended December 31, 2002
|
|
|
|
|
The elimination of AREPs $32.9 million accretion of
investment in NEG Holding, since NEG Holding is now consolidated. |
|
|
|
The elimination of AREPs $0.3 million equity in
earnings of GB Holdings, since GB Holdings is now consolidated. |
|
|
|
The elimination of AREPs $7.6 million management fee
from NEG Holding, since NEG Holding is now consolidated. |
|
|
|
The elimination of $0.5 million of interest income and
expense between NEG Holding and NEG. |
|
|
|
The elimination of $7.0 million of related party interest
expense paid by GB Holdings to Mr. Icahn and affiliates. |
|
|
|
The recording of a debit to minority interest on GB Holdings of
$2.9 million, representing 22.5% of the loss of GB Holdings. |
(2) Gives effect to the following completed transaction:
On April 6, 2005, we purchased from affiliates of
Mr. Icahn 100% of the equity of TransTexas for
$180.0 million in cash. The acquisition was accounted for
as a combination of entities under common control and the
supplemental consolidated financial statements for the three
months ended March 31, 2005 and 2004 (unaudited) and
the years ended December 31, 2004 and 2003 give effect to
the inclusion of the results of TransTexas since August 28,
2003, the date it emerged from bankruptcy. The supplemental
consolidated financial statements are included elsewhere in this
prospectus.
(3) The pro forma intercompany adjustments also reflect the
elimination of intercompany amounts necessary to prepare
consolidated financial statements. These adjustments are
summarized as follows:
|
|
|
Pro Forma Condensed Consolidated Balance Sheet at
March 31, 2005 |
|
|
|
|
|
The elimination of AREPs $466 million pro forma
investment in the Acquisitions. |
|
|
|
The allocation of the change in equity as a result of the
transaction between the general partner and the limited partners. |
(4) Reflects the following adjustments for Panaco:
|
|
|
|
|
The reduction of interest expense and interest income that
results from the effect of its bankruptcy. |
|
|
|
The elimination of related party interest expense following
emergence from bankruptcy in November 2004. |
|
|
|
The elimination of $0.7 million management fee paid to
AREP, following emergence from bankruptcy. |
|
|
|
The elimination of $51.3 million of gain on
retirement/restructuring of debt, $12.5 million gain on
restructuring of payables and $7.4 million debt
restructuring/reorganization costs related to the emergence from
bankruptcy. |
(5) Reflects interest expense related to the issuance of
$480.0 million of Senior Notes.
(6) Reflects interest expense and amortization of costs
from the beginning of the period presented, (January 1), related
to the issuance of notes from prior debt offerings. The prior
debt offerings consisted of 7.85% senior secured notes due
2012 in the principal amount of $215.0 million, issued by
American Casino & Entertainment Properties LLC and
American Casino & Entertainment Properties Finance Corp
in January 2004, and
81/8% senior
notes due 2012 in the principal amount of $353.0 million
issued by AREP and AREP Finance in May 2004.
48
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected historical
consolidated financial data of AREP, which you should read in
conjunction with its financial statements and the related notes
contained in this prospectus and Managements
Discussion and Analysis of Financial Condition and Results of
Operations incorporated by reference from the
Form 8-K filed on June 20, 2005. The selected
historical consolidated financial data as of December 31,
2004 and 2003, and for the years ended December 31, 2004,
2003 and 2002, have each been derived from our audited
consolidated financial statements at those dates and for those
periods, contained elsewhere in this prospectus. The selected
historical consolidated financial data as of December 31,
2002 and 2001 and for the year ended December 31, 2001 have
each been derived from our audited consolidated financial
statements at that date and for that period, not contained in
this prospectus. The selected historical consolidated financial
data as of and for the year ended December 31, 2000 has
been derived from our consolidated financial statements
(unaudited) at that date and for that period. The selected
historical consolidated financial data as of March 31, 2005
and for the three months ended March 31, 2005 and 2004 are
unaudited. For the three month periods ended March 31, 2005
and 2004, all adjustments, consisting only of normal recurring
adjustments, which are, in our opinion, necessary for a fair
presentation of the interim consolidated financial statements,
have been included. Results for the three months ended
March 31, 2005 and 2004 are not necessarily indicative of
the results for the full year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
|
|
March 31, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In $000s, except per unit amounts) | |
Total revenues
|
|
$ |
130,623 |
|
|
$ |
102,219 |
|
|
$ |
452,012 |
|
|
$ |
368,946 |
|
|
$ |
434,652 |
|
|
$ |
414,545 |
|
|
$ |
378,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
25,670 |
|
|
$ |
24,142 |
|
|
$ |
88,837 |
|
|
$ |
68,979 |
|
|
$ |
79,387 |
|
|
$ |
63,938 |
|
|
$ |
66,356 |
|
Other gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of marketable equity and debt securities
|
|
|
|
|
|
|
28,857 |
|
|
|
40,159 |
|
|
|
2,607 |
|
|
|
|
|
|
|
6,749 |
|
|
|
|
|
|
Unrealized gains (losses) on securities sold short
|
|
|
21,704 |
|
|
|
|
|
|
|
(23,619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on equity interest in GB Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
(15,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain on sale of other assets
|
|
|
(180 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(1,503 |
) |
|
|
(353 |
) |
|
|
27 |
|
|
|
|
|
|
Gain on sales and disposition of real estate
|
|
|
186 |
|
|
|
6,047 |
|
|
|
5,262 |
|
|
|
7,121 |
|
|
|
8,990 |
|
|
|
1,737 |
|
|
|
6,763 |
|
|
Write-down of marketable equity and debt securities and other
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,759 |
) |
|
|
(8,476 |
) |
|
|
|
|
|
|
|
|
|
(Loss) gain on limited partnership interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,750 |
) |
|
|
|
|
|
|
3,461 |
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,943 |
) |
|
|
(450 |
) |
|
|
(2,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
47,380 |
|
|
|
59,042 |
|
|
|
95,039 |
|
|
|
57,445 |
|
|
|
73,855 |
|
|
|
72,001 |
|
|
|
73,833 |
|
Income tax (expense) benefit
|
|
|
(7,650 |
) |
|
|
(6,169 |
) |
|
|
(16,763 |
) |
|
|
1,573 |
|
|
|
(10,096 |
) |
|
|
25,664 |
|
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
39,730 |
|
|
|
52,873 |
|
|
|
78,276 |
|
|
|
59,018 |
|
|
|
63,759 |
|
|
|
97,655 |
|
|
|
74,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
957 |
|
|
|
3,218 |
|
|
|
7,500 |
|
|
|
7,653 |
|
|
|
6,937 |
|
|
|
7,944 |
|
|
|
6,260 |
|
|
Gain on sales and disposition of real estate
|
|
|
18,723 |
|
|
|
6,929 |
|
|
|
75,197 |
|
|
|
3,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from discontinued operations
|
|
|
19,680 |
|
|
|
10,147 |
|
|
|
82,697 |
|
|
|
11,006 |
|
|
|
6,937 |
|
|
|
7,944 |
|
|
|
6,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
59,410 |
|
|
$ |
63,020 |
|
|
$ |
160,973 |
|
|
$ |
70,024 |
|
|
$ |
70,696 |
|
|
$ |
105,609 |
|
|
$ |
80,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$ |
58,228 |
|
|
$ |
57,608 |
|
|
$ |
152,507 |
|
|
$ |
59,360 |
|
|
$ |
63,168 |
|
|
$ |
66,190 |
|
|
$ |
72,225 |
|
|
General partner
|
|
|
1,182 |
|
|
|
5,412 |
|
|
|
8,466 |
|
|
|
10,664 |
|
|
|
7,528 |
|
|
|
39,419 |
|
|
|
8,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
59,410 |
|
|
$ |
63,020 |
|
|
$ |
160,973 |
|
|
$ |
70,024 |
|
|
$ |
70,696 |
|
|
$ |
105,609 |
|
|
$ |
80,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
|
|
March 31, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002(1) | |
|
2001(1) | |
|
2000(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In $000s except per unit amounts) | |
Net earnings per limited partnership unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.84 |
|
|
$ |
1.03 |
|
|
$ |
1.55 |
|
|
$ |
1.00 |
|
|
$ |
1.12 |
|
|
$ |
1.17 |
|
|
$ |
1.35 |
|
|
|
Income from discontinued operations
|
|
|
0.42 |
|
|
|
0.22 |
|
|
|
1.76 |
|
|
|
0.24 |
|
|
|
0.15 |
|
|
|
0.17 |
|
|
|
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per LP Unit
|
|
$ |
1.26 |
|
|
$ |
1.25 |
|
|
$ |
3.31 |
|
|
$ |
1.24 |
|
|
$ |
1.27 |
|
|
$ |
1.34 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average limited partnership units outstanding
|
|
|
46,098,284 |
|
|
|
46,098,284 |
|
|
|
46,098,284 |
|
|
|
46,098,284 |
|
|
|
46,098,284 |
|
|
|
46,098,284 |
|
|
|
46,098,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.81 |
|
|
$ |
0.93 |
|
|
$ |
1.48 |
|
|
$ |
0.94 |
|
|
$ |
1.00 |
|
|
$ |
1.05 |
|
|
$ |
1.18 |
|
|
|
Income from discontinued operations
|
|
|
0.39 |
|
|
|
0.19 |
|
|
|
1.57 |
|
|
|
0.19 |
|
|
|
0.12 |
|
|
|
0.14 |
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per LP Unit
|
|
$ |
1.20 |
|
|
$ |
1.12 |
|
|
$ |
3.05 |
|
|
$ |
1.13 |
|
|
$ |
1.12 |
|
|
$ |
1.19 |
|
|
$ |
1.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average limited partnership units and equivalent
partnership units outstanding
|
|
|
49,857,622 |
|
|
|
52,499,303 |
|
|
|
51,542,312 |
|
|
|
54,489,943 |
|
|
|
56,466,698 |
|
|
|
55,599,112 |
|
|
|
56,157,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (excluding property acquisitions)
|
|
$ |
4,781 |
|
|
$ |
1,658 |
|
|
$ |
16,221 |
|
|
$ |
33,324 |
|
|
$ |
21,896 |
|
|
$ |
68,199 |
|
|
$ |
52,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, | |
|
|
At March 31, | |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002(1) | |
|
2001(1) | |
|
2000(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In $000s) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,245,762 |
|
|
$ |
762,708 |
|
|
$ |
487,498 |
|
|
$ |
79,540 |
|
|
$ |
83,975 |
|
|
$ |
172,621 |
|
Hotel, casino and resort operating properties
|
|
|
334,931 |
|
|
|
339,492 |
|
|
|
340,229 |
|
|
|
335,121 |
|
|
|
339,201 |
|
|
|
264,566 |
|
Investment in U.S. Government and Agency obligations
|
|
|
5,533 |
|
|
|
102,331 |
|
|
|
61,573 |
|
|
|
336,051 |
|
|
|
313,641 |
|
|
|
475,267 |
|
Other investments
|
|
|
244,602 |
|
|
|
245,948 |
|
|
|
50,328 |
|
|
|
54,216 |
|
|
|
10,529 |
|
|
|
4,289 |
|
Total assets
|
|
|
2,775,685 |
|
|
|
2,263,057 |
|
|
|
1,646,606 |
|
|
|
1,706,031 |
|
|
|
1,721,100 |
|
|
|
1,566,597 |
|
Mortgages payable
|
|
|
4,205 |
|
|
|
91,896 |
|
|
|
180,989 |
|
|
|
171,848 |
|
|
|
166,808 |
|
|
|
182,049 |
|
Senior secured notes payable 7.85%
|
|
|
215,000 |
|
|
|
215,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes payable 8 1/8%
|
|
|
830,679 |
|
|
|
350,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes payable 7 1/8%
|
|
|
480,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for preferred limited partnership units(1)
|
|
|
108,006 |
|
|
|
106,731 |
|
|
|
101,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners equity
|
|
$ |
1,360,142 |
|
|
$ |
1,303,126 |
|
|
$ |
1,270,214 |
|
|
$ |
1,245,437 |
|
|
$ |
1,136,452 |
|
|
$ |
1,154,400 |
|
|
|
(1) |
On July 1, 2003, we adopted Statement of Financial
Accounting Standards No. 150 (SFAS 150), Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS 150 requires that a financial
instrument, which is an unconditional obligation, be classified
as a liability. Previous guidance required an entity to include
in equity financial instruments that the entity could redeem in
either cash or stock. Pursuant to SFAS 150, our preferred
units, which are an unconditional obligation, have been
reclassified from Partners equity to a
liability account in the consolidated balance sheets and the
preferred pay-in-kind distribution for the period from
July 1, 2003 to December 31, 2003 of $2.4 million
and all future distributions have been and will be recorded as
Interest expense in the consolidated statements of
earnings. |
50
SELECTED SUPPLEMENTAL AND PRO FORMA CONSOLIDATED FINANCIAL
DATA
The following table summarizes certain supplemental and
unaudited pro forma consolidated financial data for AREP, to
give effect to the acquisition of TransTexas accounted for in a
manner similar to a pooling of interests, which you should read
in conjunction with AREPs supplemental financial
statements and the related notes contained in this prospectus
and Managements Discussion and Analysis of
Supplemental Financial Condition and Results of
Operations. The selected historical supplemental
consolidated financial data as of December 31, 2004 and
2003, and for the years ended December 31, 2004 and 2003,
have each been derived from our audited supplemental
consolidated financial statements at those dates and for those
periods, contained elsewhere in this prospectus. The selected
historical supplemental consolidated financial data as of
March 31, 2005 and for the three months ended
March 31, 2005 and 2004 have each been derived from our
unaudited supplemental consolidated financial statements
contained elsewhere in this prospectus. For the three months
ended March 31, 2005 and 2004, all adjustments consisting
only of normal recurring adjustments, which are, in our opinion,
necessary for a fair presentation of the interim supplemental
consolidated financial statements have been included. Results
for the three months ended March 31, 2005 and 2004 are not
necessarily indicative of the results for the full year. The
selected unaudited pro forma consolidated financial data as of
March 31, 2005 (unaudited) and December 31, 2004 and
2003 and for the three months ended March 31, 2005
(unaudited) and the years ended December 31, 2004, 2003 and
2002 should be read in conjunction with the unaudited pro forma
consolidated financial data and related notes contained
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Supplemental) | |
|
(Supplemental) | |
|
(Pro Forma) | |
|
(Supplemental) | |
|
(Pro Forma) | |
|
(Supplemental) | |
|
(Pro Forma) | |
|
(Pro Forma) | |
|
|
(In $000s, except per unit amounts) | |
Total revenues
|
|
$ |
144,226 |
|
|
$ |
116,452 |
|
|
$ |
210,874 |
|
|
$ |
506,196 |
|
|
$ |
768,079 |
|
|
$ |
388,666 |
|
|
$ |
601,647 |
|
|
$ |
622,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
27,290 |
|
|
$ |
22,533 |
|
|
$ |
24,854 |
|
|
$ |
87,159 |
|
|
$ |
39,718 |
|
|
$ |
61,948 |
|
|
$ |
57,332 |
|
|
$ |
52,589 |
|
Other gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of marketable equity and debt securities
|
|
|
|
|
|
|
28,857 |
|
|
|
|
|
|
|
40,159 |
|
|
|
40,159 |
|
|
|
2,607 |
|
|
|
1,653 |
|
|
|
8,712 |
|
|
Unrealized gains (losses) on securities sold short
|
|
|
21,704 |
|
|
|
|
|
|
|
21,704 |
|
|
|
(23,619 |
) |
|
|
(23,619 |
) |
|
|
|
|
|
|
|
|
|
|
(347 |
) |
|
Change in fair market value of derivative contract
|
|
|
(9,813 |
) |
|
|
|
|
|
|
(38,769 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on equity interest in GB Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,600 |
) |
|
|
(15,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain on sale of other assets
|
|
|
(180 |
) |
|
|
(4 |
) |
|
|
(180 |
) |
|
|
1,680 |
|
|
|
1,680 |
|
|
|
(1,503 |
) |
|
|
(1,531 |
) |
|
|
(538 |
) |
|
Gain on sales and disposition of real estate
|
|
|
186 |
|
|
|
6,047 |
|
|
|
190 |
|
|
|
5,262 |
|
|
|
5,034 |
|
|
|
7,121 |
|
|
|
7,121 |
|
|
|
8,990 |
|
|
Write-down of marketable equity and debt securities and other
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,759 |
) |
|
|
(19,759 |
) |
|
|
(8,476 |
) |
|
Loss on limited partnership interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,750 |
) |
|
Debt restructuring/ reorganization costs
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
(3,084 |
) |
|
|
|
|
|
|
(1,843 |
) |
|
|
|
|
|
Severance tax refund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,468 |
|
|
|
4,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145 |
) |
|
Minority interest
|
|
|
|
|
|
|
(39 |
) |
|
|
932 |
|
|
|
(812 |
) |
|
|
2,074 |
|
|
|
(1,266 |
) |
|
|
2,721 |
|
|
|
(295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
39,187 |
|
|
|
57,394 |
|
|
|
8,707 |
|
|
|
98,697 |
|
|
|
50,830 |
|
|
|
49,148 |
|
|
|
45,694 |
|
|
|
56,740 |
|
Income tax (expense) benefit
|
|
|
(4,782 |
) |
|
|
(5,966 |
) |
|
|
(3,405 |
) |
|
|
(17,326 |
) |
|
|
4,565 |
|
|
|
16,750 |
|
|
|
15,792 |
|
|
|
(10,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
34,405 |
|
|
$ |
51,428 |
|
|
$ |
5,302 |
|
|
$ |
81,371 |
|
|
$ |
55,395 |
|
|
$ |
65,898 |
|
|
$ |
61,486 |
|
|
$ |
45,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Supplemental) | |
|
(Supplemental) | |
|
(Pro Forma) | |
|
(Supplemental) | |
|
(Pro Forma) | |
|
(Supplemental) | |
|
(Pro Forma) | |
|
(Pro Forma) | |
|
|
(In $000s, except per unit amounts) | |
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
957 |
|
|
|
3,218 |
|
|
|
|
|
|
|
7,500 |
|
|
|
|
|
|
|
7,653 |
|
|
|
|
|
|
|
|
|
|
|
Gain on sales and disposition of real estate
|
|
|
18,723 |
|
|
|
6,929 |
|
|
|
|
|
|
|
75,197 |
|
|
|
|
|
|
|
3,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from discontinued operations
|
|
|
19,680 |
|
|
|
10,147 |
|
|
|
|
|
|
|
82,697 |
|
|
|
|
|
|
|
11,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
54,085 |
|
|
$ |
61,575 |
|
|
|
|
|
|
$ |
164,068 |
|
|
|
|
|
|
$ |
76,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$ |
58,228 |
|
|
$ |
57,608 |
|
|
|
|
|
|
$ |
152,507 |
|
|
|
|
|
|
$ |
59,360 |
|
|
|
|
|
|
|
|
|
|
General partner
|
|
|
(4,143 |
) |
|
|
3,967 |
|
|
|
|
|
|
|
11,561 |
|
|
|
|
|
|
|
17,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
54,085 |
|
|
$ |
61,575 |
|
|
|
|
|
|
$ |
164,068 |
|
|
|
|
|
|
$ |
76,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per limited partnership unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.84 |
|
|
$ |
1.03 |
|
|
$ |
0.17 |
|
|
$ |
1.55 |
|
|
$ |
0.74 |
|
|
$ |
1.00 |
|
|
$ |
0.72 |
|
|
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
0.42 |
|
|
|
0.22 |
|
|
|
|
|
|
|
1.76 |
|
|
|
|
|
|
|
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per LP unit
|
|
$ |
1.26 |
|
|
$ |
1.25 |
|
|
|
|
|
|
$ |
3.31 |
|
|
|
|
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average limited partnership units outstanding
|
|
|
46,098,284 |
|
|
|
46,098,284 |
|
|
|
62,167,250 |
|
|
|
46,098,284 |
|
|
|
62,167,250 |
|
|
|
46,098,284 |
|
|
|
57,856,905 |
|
|
|
57,856,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.81 |
|
|
$ |
0.93 |
|
|
$ |
0.17 |
|
|
$ |
1.48 |
|
|
$ |
0.74 |
|
|
$ |
0.94 |
|
|
$ |
0.70 |
|
|
$ |
0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
0.39 |
|
|
|
0.19 |
|
|
|
|
|
|
|
1.57 |
|
|
|
|
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per LP unit
|
|
$ |
1.20 |
|
|
$ |
1.12 |
|
|
|
|
|
|
$ |
3.05 |
|
|
|
|
|
|
$ |
1.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average limited partnership units outstanding
|
|
|
49,857,622 |
|
|
|
52,499,303 |
|
|
|
62,167,250 |
|
|
|
51,542,312 |
|
|
|
62,167,250 |
|
|
|
54,489,942 |
|
|
|
66,248,564 |
|
|
|
68,225,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (excluding property acquisitions)
|
|
$ |
25,852 |
|
|
$ |
6,106 |
|
|
|
|
|
|
$ |
63,749 |
|
|
$ |
150,854 |
|
|
$ |
33,957 |
|
|
$ |
86,841 |
|
|
$ |
60,776 |
|
|
Book value per unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30.97 |
|
|
$ |
23.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, | |
|
At December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2005 (Pro | |
|
2004 | |
|
2004 (Pro | |
|
2003 | |
|
|
(Supplemental) | |
|
Forma) | |
|
(Supplemental) | |
|
Forma) | |
|
(Supplemental) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In $000s) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,250,074 |
|
|
$ |
1,105,723 |
|
|
$ |
768,918 |
|
|
$ |
1,097,810 |
|
|
$ |
504,369 |
|
|
Hotel, casino and resort operating properties
|
|
|
334,931 |
|
|
|
503,168 |
|
|
|
339,492 |
|
|
|
511,132 |
|
|
|
340,229 |
|
|
Oil and gas properties
|
|
|
180,241 |
|
|
|
521,776 |
|
|
|
168,136 |
|
|
|
506,900 |
|
|
|
168,921 |
|
|
Investment in U.S. Government and Agency Obligations
|
|
|
74,427 |
|
|
|
74,427 |
|
|
|
102,331 |
|
|
|
102,331 |
|
|
|
61,573 |
|
|
Other investments
|
|
|
244,602 |
|
|
|
244,602 |
|
|
|
245,948 |
|
|
|
245,948 |
|
|
|
50,328 |
|
|
Total assets
|
|
|
2,935,697 |
|
|
|
3,215,728 |
|
|
|
2,408,189 |
|
|
|
3,179,167 |
|
|
|
1,831,573 |
|
|
Mortgages payable
|
|
|
80,191 |
|
|
|
80,191 |
|
|
|
91,896 |
|
|
|
91,896 |
|
|
|
180,989 |
|
|
Senior secured note payable 7.85% due 2012
|
|
|
215,000 |
|
|
|
215,000 |
|
|
|
215,000 |
|
|
|
215,000 |
|
|
|
|
|
|
Senior unsecured notes payable
81/8%
due 2012
|
|
|
350,679 |
|
|
|
350,679 |
|
|
|
350,598 |
|
|
|
830,598 |
|
|
|
|
|
|
Senior unsecured notes payable
71/8%
due 2013
|
|
|
480,000 |
|
|
|
480,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for preferred limited partnership units
|
|
|
108,006 |
|
|
|
108,006 |
|
|
|
106,731 |
|
|
|
106,731 |
|
|
|
101,649 |
|
|
Partners equity
|
|
|
1,479,125 |
|
|
|
1,505,122 |
|
|
|
1,427,435 |
|
|
|
1,477,355 |
|
|
|
1,393,347 |
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
25,852 |
|
|
|
N/A |
|
|
$ |
63,750 |
|
|
$ |
63,750 |
|
|
$ |
33,957 |
|
|
Panaco
|
|
|
N/A |
|
|
|
N/A |
|
|
|
1,994 |
|
|
|
N/A |
|
|
|
N/A |
|
|
GB Holdings, Inc.
|
|
|
N/A |
|
|
|
N/A |
|
|
|
17,378 |
|
|
|
N/A |
|
|
|
N/A |
|
|
NEG Holding
|
|
|
N/A |
|
|
|
N/A |
|
|
|
67,732 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
25,852 |
|
|
|
N/A |
|
|
$ |
63,750 |
|
|
$ |
150,854 |
|
|
$ |
33,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
MANAGEMENTS DISCUSSION AND ANALYSIS OF
SUPPLEMENTAL FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a diversified holding company engaged in a variety of
businesses. Our primary business strategy is to continue to grow
our core businesses, including real estate, gaming and
entertainment, and oil and gas. In addition, we seek to acquire
undervalued assets and companies that are distressed or in out
of favor industries.
Our businesses currently include rental real estate; real estate
development; hotel and resort operations; hotel and casino
operations; oil and gas exploration and production; and
investments in equity and debt securities. We may also seek
opportunities in other sectors, including energy, industrial
manufacturing, insurance and asset management.
In continuation of our strategy to grow our core businesses, we
have recently acquired, and have entered into agreements to
acquire, additional gaming and entertainment and oil and gas
assets from affiliates of Mr. Icahn.
To capitalize on favorable real estate market conditions and the
mature nature of our commercial real estate portfolio, we have
offered our rental real estate portfolio for sale. During the
year ended December 31, 2004, we sold 57 rental real
estate properties for approximately $245.4 million. These
properties were encumbered by mortgage debt of approximately
$93.8 million that we repaid from the sale proceeds. As of
December 31, 2004, we owned 71 rental real estate
properties with a book value of approximately
$196.3 million, individually encumbered by mortgage debt
which aggregated approximately $91.9 million. As of
December 31, 2004, we had entered into conditional sales
contracts or letters of intent for 15 rental real estate
properties. Selling prices for the properties covered by the
contracts or letters of intent would total approximately
$97.9 million. These properties are encumbered by mortgage
debt of approximately $36.0 million. Because of the
conditional nature of sales contracts and letters of intent, we
cannot be certain that these properties will be sold. We
continue to seek purchasers for our remaining rental real estate
portfolio. We cannot be certain that we will receive offers
satisfactory to us or, if we receive offers, any of the
properties will ultimately be sold at prices acceptable to us.
In the three months ended March 31, 2005, we sold four
rental real estate properties and a golf resort for
approximately $51.9 million which were encumbered by
mortgage debt of approximately $10.7 million that was
repaid from the sale proceeds.
Of the five properties, we sold one financing lease property for
approximately $8.4 million encumbered by mortgage debt of
approximately $3.8 million. The carrying value of this
property was approximately $8.2 million; therefore, we
recognized a gain on sale of approximately $0.2 million in
the three months ended March 31, 2005, which is included in
income from continuing operations. We sold four operating
properties for approximately $43.5 million encumbered by
mortgage debt of approximately $6.9 million. The carrying
value of these properties was approximately $24.8 million.
We recognized a gain on sale of approximately $18.7 million
in the three months ended March 31, 2005, which is included
in income from discontinued operations.
At March 31, 2005, we had 11 properties under contract or
as to which letters of intent had been executed by potential
purchasers, all of which contracts or letters of intent are
subject to purchasers due diligence and other closing
conditions. Selling prices for the properties covered by the
contracts or letters of intent would total approximately
$45.5 million. These properties are encumbered by mortgage
debt of approximately $25.3 million. At March 31,
2005, the carrying value of these properties is approximately
$29.1 million. In accordance with generally accepted
accounting principles, or GAAP, only the real estate operating
properties under contract or letter of intent, but not the
financing lease properties, were reclassified to
Properties Held for Sale and the related income and
expense reclassified to Income from Discontinued
Operations.
Historically, substantially all of our real estate assets leased
to others have been net-leased to single corporate tenants under
long-term leases. With certain exceptions, these tenants are
required to pay all expenses relating to the leased property and
therefore we are not typically responsible for payment of
expenses, such as maintenance, utilities, taxes and insurance
associated with such properties.
54
Expenses relating to environmental clean-up related to our
development and rental real estate operations have not had a
material effect on our earnings, capital expenditures or
competitive position. We believe that substantially all such
costs would be the responsibility of the tenants pursuant to
lease terms. While most tenants have assumed responsibility for
the environmental conditions existing on their leased property,
there can be no assurance that we will not be deemed to be a
responsible party or that the tenant will bear the costs of
remediation. Also, as we acquire more operating properties, our
exposure to environmental clean-up costs may increase. We have
completed Phase I environmental site assessments on most of
our properties through third-party consultants. Based on the
results of these Phase I environmental site assessments,
the environmental consultant has recommended that certain sites
may have environmental conditions that should be further
reviewed. We have notified each of the responsible tenants to
attempt to ensure that they cause any required investigation
and/or remediation to be performed and most tenants continue to
take appropriate action. However, if the tenants fail to perform
responsibilities under their leases referred to above, we could
potentially be liable for these costs. Based on the limited
number of Phase II environmental site assessments that have
been conducted by the consultants, there can be no accurate
estimate of the need for or extent of any required remediation,
or the costs thereof. Phase I environmental site
assessments will also be performed in connection with new
acquisitions and with such property refinancings as we may deem
necessary and appropriate. We are in the process of updating our
Phase I environmental site assessments for certain of our
environmentally sensitive properties. Approximately 75 updates
were completed in 2003. No additional material environmental
conditions were discovered. Although we conducted environmental
investigations in 2004 for newly acquired properties and no
environmental concerns were disclosed by such investigations, we
did not conduct any updates to the Phase I environmental
site assessments for our remaining portfolio in 2004.
We have made investments in the gaming industry through our
ownership of Stratosphere Casino Hotel & Tower in Las
Vegas, Nevada and through our purchase of securities of the
entity which owns The Sands Hotel and Casino in Atlantic City,
New Jersey. One of our subsidiaries, formed for this purpose,
entered into an agreement in January 2004 to acquire two Las
Vegas hotels and casinos, Arizona Charlies Decatur and
Arizona Charlies Boulder, from Mr. Icahn and an
entity affiliated with Mr. Icahn, for aggregate
consideration of $125.9 million. Upon obtaining all
approvals necessary under gaming laws, the acquisition was
completed in May 2004. We have entered into an agreement with
affiliates of Mr. Icahn pursuant to which we will acquire
approximately 41.2% of the outstanding common stock of GB
Holdings and approximately 11.3% of the fully diluted common
stock of Atlantic Holdings, the indirect owner of The Sands
Hotel and Casino. We are considering additional gaming industry
investments. These investments may include acquisitions from, or
be made in conjunction with, our affiliates, provided that the
terms thereof are fair and reasonable to us.
We have entered into agreements with affiliates of
Mr. Icahn to purchase the other membership interest in NEG
Holding and 100% of the equity of Panaco, an oil and gas
exploration and production company. On April 6, 2005, we
completed the purchase of TransTexas for $180.0 million of
cash. NEG Operating, TransTexas and Panaco are affected by
extensive regulation through various federal, state and local
laws and regulations relating to the exploration for and
development, production, gathering and marketing of oil and gas.
NEG Operating, TransTexas and Panaco are also subject to
numerous environmental laws, including but not limited to, those
governing management of waste, protection of water, air quality,
the discharge of materials into the environment, and
preservation of natural resources. Non-compliance with
environmental laws and the discharge of oil, natural gas, or
other materials into the air, soil or water may give rise to
liabilities to the government and third parties, including civil
and criminal penalties, and may require us to incur costs to
remedy the discharge. Laws and regulations protecting the
environment have become more stringent in recent years, and may
in certain circumstances impose retroactive, strict, and joint
and several liabilities rendering entities liable for
environmental damage without regard to negligence or fault. We
cannot assure you that new laws and regulations, or
modifications of or new interpretations of existing laws and
regulations, will not substantially increase the cost of
compliance or otherwise adversely affect our oil and gas
operations and financial condition or that material indemnity
claims will not arise with respect to properties that we
acquire. While we do not anticipate incurring material costs in
connection with environmental compliance and remediation, we
cannot guarantee that material costs will not be incurred.
In accordance with generally accepted accounting principles, or
GAAP, assets transferred between entities under common control
are accounted for at historical costs similar to a pooling of
interests and the
55
financial statements of previously separate companies for
periods prior to the acquisition are (and, in the case of the
pending acquisitions, following the closing of the acquisitions,
will be) restated on a combined basis.
Supplemental Results of Operations
|
|
|
Three Months Ended March 31, 2005 Compared to Three
Months Ended March 31, 2004 |
Gross revenues increased by $27.8 million, or 23.9%, during
the three months ended March 31, 2005 as compared to the
same period in 2004. This increase reflects increases of
$8.0 million in interest income on U.S. government and
agency obligations and other investments, $7.9 million in
hotel and casino operating income, $4.2 million in hotel
and resort operating income, $3.4 million in dividend and
other income, $3.3 million in land, house and condominium
sales, $2.0 million in accretion of investment in NEG
Holding LLC and $0.6 million in NEG management fees,
partially offset by decreases of $1.0 million in interest
income on financing leases and $0.6 million in equity in
earnings of GB Holdings. The increase in interest income on
U.S. government and agency obligations and other
investments is primarily due to increased interest income from
the senior debt proceeds, increased interest income from other
investment and increased interest income on debt securities of
affiliates. The increase in hotel and casino operating income is
primarily due to an increase in casino, hotel and food and
beverage revenues. Hotel and resort operating income increased
primarily due to the acquisition of the Grand Harbor
development. The increase in land, house and condominium sales
is primarily due to an increase in the number of units sold.
Expenses increased by $23.0 million, or 24.5%, during the
three months ended March 31, 2005 as compared to the same
period in 2004. This increase reflects increases of
$12.1 million in interest expense, $4.0 million in
hotel and resorts operating expenses, $3.7 million in the
cost of land, house and condominium sales, $3.4 million in
hotel and casino operating expenses, and $3.2 million in
general and administrative expenses partially offset by
decreases of $2.2 million in depreciation and amortization
and $0.1 million in property expenses. The increase in
interest expense is primarily attributable to interest on the
senior notes issued by us in May 2004 and February 2005,
respectively. The increase in hotel and resort operating
expenses is primarily due to the Grand Harbor acquisition. The
increase in costs of land, house and condominium sales is due to
increased sales as noted above. The increase in hotel and casino
operating expenses is primarily attributable to increased costs
associated with increased revenues. The increase in general and
administrative expenses is primarily attributable to expenses
incurred by NEG in connection with the increase in NEG
management fees, legal fees, the addition of Grand Harbor and
state and local franchise taxes in connection with the 2004
property sales.
Operating income increased during the three months ended
March 31, 2005 by $4.8 million compared to the same
period in 2004 as detailed above.
Earnings from land, house and condominium operations decreased
by $0.4 million in the three months ended March 31,
2005 compared to the same period in 2004 due to a decrease in
margins on units sold.
Earnings from hotel and casino operating properties increased by
$4.4 million during the three months ended March 31,
2005 due to increased revenues throughout the properties.
A gain on property transactions from continuing operations of
$0.2 million was recorded in the three months ended
March 31, 2005 as compared to $6.0 million in the same
period in 2004.
Other losses of $0.2 million were recorded in the three
months ended March 31, 2005. There were no significant
other losses in 2004.
A gain on sale of marketable equity securities of
$28.9 million was recorded in the three months ended
March 31, 2004. There were no such gains in the comparable
period of 2005.
Unrealized gains on securities sold short of $21.7 million
were recorded in the three months ended March 31, 2005.
There were no such gains in 2004.
Income from continuing operations before income taxes decreased
by $18.2 million in the three months ended March 31,
2005 as compared to the same period in 2004 as detailed above.
56
Income tax expense of $4.8 million was recorded in the
three months ended March 31, 2005 as compared to
$6.0 million in the same period in 2004. Income tax expense
was recorded by our corporate subsidiaries, NEG, TransTexas and
American Casino.
Income from continuing operations decreased by
$17.0 million in the three months ended March 31, 2005
as compared to the same period in 2004 as detailed above.
Income from discontinued operations increased by
$9.5 million in the three months ended March 31, 2005,
as compared to the same period in 2004 due to gains on property
dispositions.
Net earnings for the three months ended March 31, 2005
decreased by $7.5 million as compared to the three months
ended March 31, 2004, primarily due to decreased gain on
sales of real estate from continuing operations
($5.9 million) and decreased gain on sale of marketable
equity securities ($28.9 million), partially offset by
unrealized gains on securities sold short ($21.7 million)
and in the 2005 period increased income from discontinued
operations ($9.5 million).
Calendar Year 2004 Compared to Calendar Year 2003
Gross revenues increased by $117.5 million, or 30.2%,
during 2004 as compared to 2003. This increase reflects
increases of $37.5 million in oil and gas operating
revenues, $37.1 million in hotel and casino operating
revenues, $21.8 million in interest income on
U.S. government and agency obligations and other
investments, $13.3 million in land, house and condominium
sales, $4.3 million in accretion of investment in NEG
Holding LLC, $3.8 million in hotel and resort operating
income, $0.3 million in NEG management fees,
$1.4 million in equity in earnings of GB Holdings,
$0.8 million in rental income, and $0.4 million in
dividend and other income. These increases were partially offset
by a decrease of $3.2 million in interest income on
financing leases. The increase in oil and gas operating income
was due to a full year of income for TransTexas compared to four
months in 2003. The increase in hotel and casino operating
income is primarily due to an increase in casino, hotel, and
food and beverage revenues. The increase in interest income on
U.S. government and agency obligations and other
investments is primarily due to the repayment of two mezzanine
loans, on which interest was accruing, and increased interest
income from other investments. The increase in land, house and
condominium sales is primarily due to sales of higher priced
units. The increase in NEG management fees is primarily due to
management fees received from Panaco. NEG entered into a
management agreement with Panaco in November 2004. The decrease
in interest income on financing leases is primarily due to
property sales and reclassifications.
Expenses increased by $92.3 million, or 28.3%, during 2004,
as compared to 2003. This increase reflects increases of
$22.6 million in interest expense, $10.7 million in
hotel and casino operating expenses, $9.4 million in cost
of land, house and condominium sales, $8.8 million in oil
and gas operating expenses, $6.9 million in general and
administrative expenses, $27.7 million in depreciation,
depletion and amortization, $4.0 million in hotel and
resort operating expenses and $2.4 million in provision for
loss on real estate. These increases were partially offset by a
decrease of $0.2 million in property expenses. The increase
in interest expense is primarily attributable to interest on the
$215 million principal amount of 7.85% senior secured
notes issued by American Casino, the $353 million principal
amount of
81/8% senior
notes issued by us in May 2004 and interest expense pertaining
to preferred limited partnership pay-in-kind distribution. The
increase in hotel and casino operating expenses is primarily
attributable to increased costs associated with increased
revenues. The increase in the land, house and condominium
expenses is primarily attributable to increased sales as
discussed above. The increase in oil and gas operating expenses
of $8.8 million was due to a full year of expenses in 2004
compared to four months in 2003. The increase in general and
administrative expenses is primarily attributable to expenses
incurred in connection with the increase in NEG management fees
and as a result of the Grand Harbor acquisition in July 2004.
The increase in depreciation, depletion and amortization is
primarily due to increased depreciation and amortization with
respect to American Casino and a full year of depletion with
respect to TransTexas compared to four months in 2003.
Operating income increased during 2004 by $25.3 million, or
40.9%, to $87.2 million from $61.9 million in 2003, as
detailed above.
Earnings from land, house and condominium operations increased
by $4.0 million or 96.0% to $8.1 million in 2004 due
to sales of higher priced units. Based on current information,
sales are expected to
57
decrease in early 2005. However, we currently expect that the
effects of the acquisition of Grand Harbor, completed in July
2004, and the approval in March 2004 of a 35 unit
sub-division in Westchester County, New York, should provide
increased earnings from these operations in the second half of
2005.
Earnings from hotel and casino operating properties increased by
$26.4 million, or 57.4%, to $72.4 million during 2004
due to increased revenues at each of our three properties.
Earnings from oil and gas operating properties increased by
$28.7 million, or 180.5% to $44.6 million.
Gains on sales of property transactions and other assets from
continuing operations increased by $1.3 million or 23.2%,
to $6.9 million, in 2004.
A gain on sale of marketable debt securities of
$40.2 million was recorded in 2004, as compared to a gain
of $2.6 million in 2003.
A write-down of marketable equity and debt securities and other
investments of $19.8 million was recorded in 2003. There
was no such write-down in 2004.
Unrealized losses on securities sold short of $23.6 million
was recorded in 2004. There were no such losses in 2003. At
March 1, 2005, the $23.6 million of unrealized losses
has been reversed and a net gain of $3 million recorded.
An impairment loss on equity interest in GB Holdings, Inc.
of $15.6 million was recorded in 2004. The impairment
reflects the price, $12 million, subject to increases up to
$6 million based upon Atlantic Holdings meeting earnings
targets in 2005 and 2006, used in the agreement to purchase,
from an affiliate of Mr. Icahn, shares of GB Holdings
common stock representing approximately 41.2% of the outstanding
GB Holdings common stock. The purchase price pursuant to
the agreement was less than our carrying value, approximately
$26.2 million, for the approximately 36.3% of the
outstanding GB Holdings common stock that we own. There was
no such loss in 2003.
A severance tax refund of $4.5 million was received in
2004. No such refund was received in 2003.
Minority interest in the net earnings of TransTexas was
$0.8 million in 2004 as compared to $1.3 million
during 2003.
Income from continuing operations before income taxes increased
by $49.5 million in 2004 as compared to 2003, as detailed
above.
Income tax expense of $17.3 million was recorded in 2004 as
compared to a $16.8 million income tax benefit in 2003 due
to a reduction in the tax valuation allowance in 2003. Income
tax expense was recorded by our corporate subsidiaries NEG,
TransTexas and American Casino.
Income from continuing operations increased by
$15.5 million, or 23.5%, to $81.4 million in 2004.
Income from discontinued operations increased by
$71.7 million to $82.7 million in 2004. This reflects
our decision to capitalize on favorable real estate markets and
the mature nature of our commercial real estate portfolio, which
resulted in gains on property dispositions.
Net earnings for 2004 increased by $87.2 million, or
113.3%, to $164.1 million. This primarily was attributable
to increased income from discontinued operations
($71.7 million), increased gain on marketable debt
securities ($37.6 million), increased net oil and gas
operating income ($28.7 million), increased net hotel and
casino operating income ($26.4 million) and increased
interest income ($21.8 million). These gains were partially
offset by increased depreciation, depletion and amortization
($27.7 million) increased interest expense
($22.6 million), increase in unrealized losses on
securities sold short ($23.6 million), increased income tax
expense ($34.1 million) and impairment loss on equity
interest in GB Holdings, Inc. ($15.6 million). Net
earnings in 2003 also was affected by a write down of other
investments of $19.8 million.
Upon completion of the acquisitions described in Note 29 of
the consolidated financial statements, we will consolidate the
financial statements of NEG Holding, Panaco, and
GB Holdings. Certain intercompany transactions will be
eliminated. As a result, certain intercompany transactions will
be eliminated, including, along others, the equity interest in
GB Holdings for which we recorded an impairment loss in
2004, and NEG management fees.
58
Calendar Year 2003 Compared to Calendar Year 2002
Gross revenues decreased by $46.0 million, or 10.6%, during
2003 as compared to 2002. This decrease reflects decreases of
(1) $62.8 million in land, house and condominium
sales, (2) $8.0 million in interest income on
U.S. government and agency obligations and other
investments, (3) $3.8 million in equity in earnings of
GB Holdings, Inc., (4) $2.7 million in accretion of
investment in NEG Holding, (5) $1.6 million in
financing lease income, (6) $1.0 million in NEG
management fee and (7) $0.5 million in hotel and
resort operating income, partially offset by increases of
$20.9 million in oil and gas operating income,
$12.8 million in hotel and casino operating income,
$0.2 million in rental income, $0.5 million in
dividend and other income. The decrease in land, house and
condominium sales is primarily due to a decrease in the number
of units sold, as the Grassy Hollow, Gracewood and Stone Ridge
properties were depleted by sales. During 2003, Hammond Ridge
received necessary approvals and, along with Penwood, have
commenced lot sales. The decrease in interest income on
U.S. government and agency obligations and other
investments is primarily attributable to the prepayment of a
loan to Mr. Icahn in 2003 and a decline in interest rates
on U.S. Government and Agency obligations as higher rate
bonds were called in 2002. The decrease in equity in earnings of
GB Holdings, Inc. is due to decreased casino revenue primarily
attributable to a reduction in the number of table games as new
slot machines were added in 2002. This business strategy had a
negative effect on casino operations and was changed in 2003 to
focus on the mid to high-end slot customer with a balanced table
game business. The decrease in accretion of investment in NEG
Holding is primarily attributable to priority distributions
received from NEG Holding in 2003. The decrease in financing
lease income is the result of lease expirations,
reclassifications of financing leases and normal financing lease
amortization. The decrease in NEG management fee was due to a
decrease in costs associated with NEG. The decrease in rental
income is primarily attributable to property dispositions. The
increase in hotel and casino operating income is primarily
attributable to an increase in hotel, food and beverage revenues
and a decrease in promotional allowances. The average daily room
rate, or ADR, at the Stratosphere increased $3 to $51 and
percentage occupancy increased approximately 0.2% to 89.8%. The
ADR at Arizona Charlies Decatur decreased $1 to $43
and percentage occupancy increased 10.9% to 85.3%. The ADR at
Arizona Charlies Boulder increased less than $1
to $43 and percentage occupancy increased 0.5%
to 55.7%.
Expenses decreased by $28.5 million, or 8.0%, during 2003
as compared to 2002. This decrease reflects decreases of
$45.5 million in the cost of land, house and condominium
sales, $1.8 million in hotel and resort operating expenses,
$1.1 million in hotel and casino operating expenses and
$2.5 million in provision for loss on real estate,
partially offset by increases of $5.0 million in oil and
gas operating expenses, $0.6 million in rental property
expenses and $16.9 million in depreciation, depletion and
amortization. The decrease in the cost of land, house and
condominium sales is due to decreased sales. Costs as a
percentage of sales decreased from 72% in 2002 to 69% in 2003.
The decrease in hotel and resort operating expenses is due to a
decrease in payroll and related expenses. The decrease in hotel
and casino operating expenses is primarily attributable to a
decrease in selling, general and administrative expenses. Costs
as a percentage of sales decreased from 87% in 2002 to 83% in
2003. A provision for loss on real estate of $0.8 million
was recorded in 2003 as compared to $3.2 million in 2002.
In 2002, there were more properties vacated due to tenant
bankruptcies than in 2003. The increase in oil and gas operating
expenses was due to no activity during 2002. The increase in
depreciation, depletion and amortization was due to the
inclusion of TransTexas in our operating results for four months
in 2003.
Operating income decreased during 2003 by $17.4 million
compared to 2002 as detailed above.
Earnings from land, house and condominium operations decreased
significantly in 2003 compared to 2002 due to a decline in
inventory of completed units available for sale. Based on
current information, sales will increase moderately during 2004.
However, municipal approval of land inventory or the purchase of
approved land is required to continue this upward trend into
2005 and beyond.
Earnings from hotel, casino and resort properties could be
constrained by recessionary pressures, international tensions
and competition.
Earnings from oil and gas operations were $45.4 million in
2003 as compared to $33.4 million in 2002. The increase was
due to the inclusion of TransTexas in our operating results in
2003.
59
Gain on property transactions from continuing operations
decreased by $1.9 million during 2003 as compared to 2002
due to the size and number of transactions.
A loss on sale of other assets of $1.5 million was recorded
in 2003 as compared to $0.4 million loss in 2002.
A write-down of marketable equity and debt securities and other
investments of $19.8 million, pertaining to our investment
in the Philip notes, was recorded in 2003 as compared to a
write-down of $8.5 million in 2002. These write downs
relate to our investment in Philip Services Corp., which filed
for bankruptcy protection in June 2003.
A write-down of a limited partnership investment of
$3.8 million was recorded in 2002. There was no such
write-down in 2003.
A gain on sale of marketable equity securities of
$2.6 million was recorded in 2003. There was no such gain
in 2002.
Minority interest in the net earnings of Stratosphere
Corporation was $1.9 million during 2002. As a result of
the acquisition of the minority interest in December 2002, there
was no minority interest in Stratosphere in 2003 or thereafter.
Minority interest in the net earnings of TransTexas was
$1.3 million during 2003.
Income from continuing operations before income taxes decreased
by $24.7 million in 2003 as compared to 2002, as detailed
above.
An income tax benefit of $16.8 million was recorded in 2003
as compared to an expense of $10.1 million in 2002. The
effective tax rate on earnings of taxable subsidiaries was
positively affected in 2003 by a reduction in the valuation
allowance in deferred tax assets. We expect our effective tax
rate on earnings of taxable subsidiaries to increase
significantly in 2004.
Income from continuing operations increased by $2.1 million
in 2003 as compared to 2002, as detailed above.
Income from discontinued operations increased by
$4.1 million in 2003 as compared to 2002, primarily due to
gains on property dispositions.
Net earnings for 2003 increased by $6.2 million as compared
to 2002 primarily due to oil and gas net operating income of
$15.9 million in 2003, decreased income tax expense of
$26.8 million, decreased write-down of limited partnership
interests of $3.8 million, increased earnings from hotel
and casino operations of $13.9 million, increased gain on
the sale of marketable equity securities of $2.6 million
and an increase in income from discontinued operations of
$4.1 million which was partially offset by an increase in
depreciation, depletion and amortization of $16.9 million,
an increase in the write-down of marketable equity and debt
securities and other investments of $11.3 million,
decreased earnings from land, house and condominium operations
of $17.2 million, decreased interest income of
$8.0 million and decreased equity in earnings of
GB Holdings of $3.8 million.
Liquidity and Capital Resources
March 31, 2005 and 2004
Net cash provided by operating activities was $37.0 million
for the three months ended March 31, 2005 as compared to
$39.3 million in the comparable period of 2004. This
decrease was primarily due to an increase in restricted cash
($8.7 million), an increase in due from brokers
($2.5 million), a decrease in accounts payable and accrued
expenses ($11.6 million) and a decrease in discontinued
operations ($2.4 million), partially offset by an increase
in cash flow from other operations ($0.1 million), a
decrease in receivables and other assets ($14.1 million), a
decrease in land and construction-in-progress
($6.4 million), and an increase in deferred income tax
expense ($2.3 million).
Net cash provided by operating activities was $98.0 million
for 2004 as compared to $32.9 million for 2003. This
increase of $65.1 million was primarily due to an increase
in oil and gas operations ($28.7 million) and hotel and
casino operations ($26.4 million), an increase in interest
income ($21.8 million), repayment of accounts payable and
accrued expenses in 2003 and increased accounts payable and
accrued expenses in 2004
60
($134.6 million) and an increase in cash flow from other
operations ($10.0 million), partially offset by an increase
in interest expense ($22.6 million), an increase in due
from brokers ($123.0 million) and an increase in
receivables and other assets ($14.2 million).
The following table reflects, at March 31, 2005, our
contractual cash obligations, subject to certain conditions, due
over the indicated periods and when they come due (in $millions):
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Less Than | |
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After | |
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1 Year | |
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1-3 Years | |
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3-5 Years | |
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5 Years | |
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Total | |
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| |
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| |
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| |
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| |
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| |
Mortgages payable
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|
$ |
4.2 |
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|
$ |
8.9 |
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|
$ |
29.3 |
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|
$ |
37.8 |
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|
$ |
80.2 |
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Acquisition of TransTexas
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180.0 |
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|
|
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|
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|
|
180.0 |
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Senior secured notes payable
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|
|
|
|
|
|
|
|
|
|
|
|
|
215.0 |
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|
|
215.0 |
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Senior unsecured notes payable
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|
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|
|
|
|
|
|
|
|
|
|
|
833.0 |
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|
|
833.0 |
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Senior debt interest
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|
78.3 |
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|
|
159.5 |
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|
|
159.5 |
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|
|
211.3 |
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|
|
608.6 |
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Construction and development obligations
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44.5 |
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|
15.8 |
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|
60.3 |
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Total
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$ |
307.0 |
|
|
$ |
184.2 |
|
|
$ |
188.8 |
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|
$ |
1,297.1 |
|
|
$ |
1,977.1 |
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Mortgages
During the three months ended March 31, 2005 and 2004,
approximately $1.0 million and $1.7 million of
mortgage principal amounts were repaid. During the years ended
December 31, 2004 and 2003, approximately $5.2 million
and $6.5 million, respectively, of mortgage principal were
repaid. These amounts do not include mortgage debt repaid in
connection with sales of real estate. In 2004, mortgage
financing proceeds were $10.0 million on commercial condo
units located New York City. In May 2003, we obtained mortgage
financing in the principal amount of $20.0 million on a
distribution facility located in Windsor Locks, Connecticut. We
intend to use asset sale, financing and refinancing proceeds for
new investments.
Long-Term Debt
In January 2004, ACEP issued senior secured notes due 2012. The
notes, in the aggregate principal amount of $215.0 million,
bear interest at the rate of 7.85% per annum. ACEP used the
proceeds of the offering for the Arizona Charlies
acquisitions, to repay intercompany indebtedness and for
distributions to AREH. ACEP also has a $20.0 million credit
facility. The restrictions imposed by ACEPs senior secured
notes and the credit facility likely will preclude our receiving
payments from the operations of our principal hotel and gaming
properties. ACEP accounted for 67% of our revenues and 34% of
our operating income in 2004.
ACEPs 7.85% senior secured notes due 2012 restrict
the payment of cash dividends or distributions by ACEP, the
purchase of its equity interests, the purchase, redemption,
defeasance or acquisition of debt subordinated to ACEPs
notes and investments as restricted payments.
ACEPs notes also prohibit the incurrence of debt, or the
issuance of disqualified or preferred stock, as defined, by
ACEP, with certain exceptions, provided that ACEP may incur debt
or issue disqualified stock if, immediately after such
incurrence or issuance, the ratio of consolidated cash flow to
fixed charges (each as defined) for the most recently ended four
full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such
additional indebtedness is incurred or disqualified stock or
preferred stock is issued would have been at least 2.0 to 1.0,
determined on a pro forma basis giving effect to the debt
incurrence or issuance. As of March 31, 2005, this ratio
was 1.1 to 1.0. The ACEP notes also restrict the creation of
liens, the sale of assets, mergers, consolidations or sales of
substantially all of its assets, the lease or grant of a
license, concession, other agreements to occupy, manage or use
our assets, the issuance of capital stock of restricted
subsidiaries and certain related party transactions. The ACEP
notes allow ACEP to incur indebtedness, among other things, of
up to $50 million under credit facilities, non-recourse
financing of up to $15 million to finance the construction,
purchase or lease of personal or real property used in its
business, permitted affiliate subordinated indebtedness (as
defined), the issuance of additional 7.85% senior secured
notes due 2012 in an aggregate principal amount not to exceed
2.0 times net cash proceeds received from equity offerings and
permitted affiliate subordinated debt, and additional
indebtedness of up to $10.0 million.
61
Additionally, ACEPs senior secured revolving credit
facility allows for borrowings of up to $20.0 million,
including the issuance of letters of credit of up to
$10.0 million. Loans made under the senior secured
revolving facility will mature and the commitments under them
will terminate in January 2008. At March 31, 2005, there
were not any borrowings or letters of credit outstanding under
the facility. The facility contains restrictive covenants
similar to those contained in the 7.85% senior secured
notes due 2012. In addition, the facility requires that, as of
the last date of each fiscal quarter, ACEPs ratio of net
property, plant and equipment for key properties, as defined, to
consolidated first lien debt be not less than 5.0 to 1.0 and
ACEPs ratio of consolidated first lien debt to
consolidated cash flow not be more than 1.0 to 1.0. At
March 31, 2005, these ratios were 86.3 to 1.0 and 0.0 to
1.0, respectively.
On May 12, 2004, we and AREP Finance issued senior notes
due 2012. The notes, in the aggregate principal amount of
$353.0 million, and priced at 99.266% of principal amount,
bear interest at a rate of
81/8% per
annum. The notes are guaranteed by AREH. Net proceeds from the
offering have been and will continue to be used for general
business purposes, including to pursue our primary business
strategy of acquiring undervalued assets in either our existing
lines of business or other businesses and to provide additional
capital to grow our existing businesses.
On February 7, 2005, we and AREP Finance issued senior
notes due 2013. The notes, in the aggregate principal amount of
$480 million, bear interest at a rate of
71/8% per
annum. The notes are guaranteed by AREH. Net proceeds from the
offering have been used to fund the acquisition of TransTexas
and to pay related fees and expenses, and will be used for
general business purposes.
Our
81/8% senior
notes due 2012 and
71/8% notes
due 2013 restrict the payment of cash dividends or
distributions, the purchase of equity interests or the purchase,
redemption, defeasance or acquisition of debt subordinated to
the
81/8% senior
notes due 2012 and
71/8% notes
due 2013. The notes also restrict the incurrence of debt, or the
issuance of disqualified stock, as defined, with certain
exceptions, provided that we may incur debt or issue
disqualified stock if, immediately after such incurrence or
issuance, the ratio of the aggregate principal amount of all
outstanding indebtedness of AREP and its subsidiaries on a
consolidated basis to the tangible net worth of AREP and its
subsidiaries on a consolidated basis would have been less than
1.75 to 1.0. As of March 31, 2005, such ratio was 0.76 to
1.0. In addition, both issues of notes require that on each
quarterly determination date that the Fixed Charge Coverage
Ratio of us and the guarantor of the notes (currently only AREH)
for the four consecutive fiscal quarters most recently completed
prior to such quarterly determination date be at least 1.5 to
1.0. For the four quarters ended March 31, 2005, such ratio
was 2.44 to 1.0. If the ratio is less than 1.5 to 1.0, we will
be deemed to have satisfied this test if there is deposited
cash, which together with cash previously deposited for such
purpose and not released, equal to the amount of interest
payable on the notes for one year. If, at any subsequent
quarterly determination date, the ratio is at least 1.5 to 1.0,
the deposited funds will be released to us. The notes also
require, on each quarterly determination date, that the ratio of
total unencumbered assets, as defined, to the principal amount
of unsecured indebtedness, as defined, be greater than 1.5 to
1.0 as of the last day of the most recently completed fiscal
quarter. As of March 31, 2005, this ratio was 2.90 to 1.0.
The notes also restrict the creation of liens, mergers,
consolidations and sales of substantially all of our assets, and
transactions with affiliates. As of March 31, 2005, based
upon these tests, on a pro forma basis, giving effect to the
issuance of the
71/8% notes
due 2013, we and AREH could have incurred up to approximately
$1.5 billion of additional indebtedness.
The operating subsidiary of NEG Holding, of which we have agreed
to acquire a membership interest, has a credit agreement which
contains covenants that have the effect of restricting dividends
or distributions. These, together with the ACEP indenture and
the indenture governing the notes, likely will preclude our
receiving payments from the operations of our principal hotel
and casino and certain of our oil and gas properties.
Asset Sales and Purchases
In the three months ended March 31, 2005, we sold four
rental real estate properties and a golf resort for
approximately $51.9 million which were encumbered by
mortgage debt of approximately $10.7 million. The mortgage
debt was repaid from the sale proceeds. Net proceeds from the
sale or disposal of portfolio properties
62
totaled approximately $41.2 million in the three months
ended March 31, 2005. During the comparable period of 2004,
net proceeds totaled approximately $25.3 million.
Of the five properties, we sold one financing lease property for
approximately $8.4 million which was encumbered by mortgage
debt of approximately $3.8 million. The carrying value of
this property was approximately $8.2 million; therefore, we
recognized a gain on sale of approximately $0.2 million in
the three months ended March 31, 2005, which is included in
income from continuing operations. We sold four operating
properties for approximately $43.5 million which was
encumbered by mortgage debt of approximately $6.9 million.
The carrying value of these properties was approximately
$24.8 million. We recognized a gain on the sale of
approximately $18.7 million in the three months ended
March 31, 2005, which is included in income from
discontinued operations.
During the year ended December 31, 2004, we sold
57 rental real estate properties for approximately
$245.4 million, which were encumbered by mortgage debt of
approximately $93.8 million which was repaid from the sales
proceeds. As of December 31, 2004, we had entered into
conditional sales contracts or letters of intent for 15
additional rental real estate properties, all of which contracts
or letters of intent are subject to purchasers due
diligence and other closing conditions. Selling prices for the
properties covered by the contracts or letters of intent would
total approximately $97.9 million. These properties are
encumbered by mortgage debt of approximately $36.0 million.
Net proceeds from the sale or disposal of portfolio properties
totaled approximately $151.6 million in the year ended
December 31, 2004. During 2003, net sales proceeds totaled
approximately $20.6 million.
At March 31, 2005, we had 11 properties under contract or
as to which letters of intent had been executed by the potential
purchaser, all of which contracts or letters of intent are
subject to purchasers due diligence and other closing
conditions. Selling prices for the properties covered by the
contracts or letters of intent would total approximately
$45.5 million. These properties are encumbered by mortgage
debt of approximately $25.3 million.
Capital Expenditures
Capital expenditures for real estate, oil and gas operations,
hotel and casino and hotel and resort operations were
approximately $4.8 million and $1.7 million during the
three months ended March 31, 2005 and 2004, respectively,
and $63.8 million and $34.0 million during the years
ended December 31, 2004 and 2003, respectively. In the year
ended December 31, 2004, we acquired a property for
approximately $14.6 million, a hotel and resort property
for approximately $16.5 million and development property
for approximately $62.2 million, the latter two acquired in
the Grand Harbor acquisition.
Leases
In 2003, 17 leases covering 17 rental real estate
properties and representing approximately $2.2 million in
annual rentals expired. Twelve leases originally representing
$1.6 million in annual rental income were renewed for
$1.4 million in annual rentals. Such renewals are generally
for a term of five years. Five properties with annual rental
income of $0.6 million were not renewed.
In 2004, 11 leases covering 11 rental real estate
properties and representing approximately $1.8 million in
annual rentals expired. Eight leases representing
$1.5 million in annual rental income were renewed for
$1.5 million in annual rentals. Such renewals are generally
for a term of five years. Three properties with annual rentals
of $0.3 million were not renewed.
In 2005, 14 leases covering 24 rental real estate
properties representing approximately $3.6 million in
annual rentals are scheduled to expire. Six leases representing
approximately $2.9 million in annual rentals were renewed
for approximately $2.9 million. Such renewals are generally
for a term of 10 years. Three properties with annual
rentals of approximately $0.2 million have not been
renewed. The status of five properties with annual rentals of
approximately $0.5 million has not yet been determined.
On March 31, 2004, we distributed to holders of record of
our preferred units, as of March 12, 2004, 489,657
additional preferred units. Pursuant to the terms of the
preferred units, on March 4, 2005, we declared
63
our scheduled annual preferred unit distribution payable in
additional preferred units at the rate of 5% of the liquidation
preference of $10.00. On March 31, 2005, we distributed to
holders of record as of March 15, 2005, 514,133 additional
preferred units. In March 2005, the number of authorized
preferred units was increased to 10,900,000.
Our preferred units are subject to redemption at our option on
any payment date, and the preferred units must be redeemed by us
on or before March 31, 2010. The redemption price is
payable, at our option, subject to the indenture, either all in
cash or by the issuance of depositary units, in either case, in
an amount equal to the liquidation preference of the preferred
units plus any accrued but unpaid distributions thereon.
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Cash and Cash Equivalents |
Our cash and cash equivalents and investment in
U.S. government and agency obligations increased by
$455.1 million during the three months ended March 31,
2005 primarily due to proceeds from the issuance of our
71/8% senior
notes due 2013 ($471.5 million), property sales proceeds
($41.2 million), cash provided by operations
($27.3 million) and repayment of affiliates debt
securities ($2.7 million), partially offset by purchase of
equity securities ($66.3 million), repayment of affiliate
debt ($16.6 million), capital expenditures
($4.8 million) and other ($6.4 million).
Our cash and cash equivalents and investment in
U.S. government and agency obligations increased by
$305.3 million during the year ended December 31, 2004
primarily due to proceeds from the issuance of our
81/8% senior
notes due 2012 and ACEPs 7.85% senior secured notes
due 2012 in the aggregate ($565.4 million), property sales
proceeds ($151.6 million), proceeds from the sale of
marketable equity in the aggregate and debt securities
($90.6 million), repayment of mezzanine loans
($49.1 million), cash provided by operations
($98.0 million), guaranteed payment from NEG Holding
($16.0 million), proceeds from mortgages payable
($10.0 million) and proceeds from the sale of other assets
($3.8 million) partially offset by the purchase of debt
securities ($245.2 million), purchase of the Arizona
Charlies ($125.9 million), the Grand Harbor and Oak
Harbor acquisition ($78.6 million), purchase of debt
securities of affiliates ($65.5 million), purchase of
Atlantic Holdings debt ($36 million), repayment of
affiliate debt ($25.0 million), capital expenditures
($63.8 million), rental real estate acquisitions
($14.6 million), periodic principal payments
($14.6 million) and other ($10.0 million).
Of our cash and cash equivalents at December 31, 2004,
approximately $75.2 million is at ACEP. The terms of
ACEPs 7.85% senior secured notes and its revolving
credit facility restrict dividends and distributions to us, as
well as redemptions of equity interests and other transactions
that would make the cash available to AREP and its other
subsidiaries.
We received net proceeds of approximately $471.5 million
from the issuance, in February 2005, of our
71/8% senior
notes due 2013. Our cash has been used to fund the
$180 million acquisition of TransTexas, and for general
business purposes, including to pursue our primary business
strategy of acquiring undervalued assets in either our existing
lines of business or other businesses and to provide additional
capital to grow our businesses.
On April 6, 2005, we acquired 100% of the equity of
TransTexas, an oil and gas exploration and production company,
for a purchase price of $180.0 million in cash.
During December 2004, we acquired the following:
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$27.5 million aggregate principal amount of term notes
issued by TransTexas, or the TransTexas Notes, for
$28.2 million in cash, which included $0.7 million of
accrued interest through December 6, 2004; |
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All of the membership interests of Mid River, the assets of
which consist of $38.0 million principal amount of term
loans outstanding under the term loan and security agreement,
dated as of November 16, 2004, among Panaco, as borrower,
the lenders (as defined therein) and Mid River as administrative
agent, or the Panaco Debt, and $0.1 million of accrued
interest, through December 6, 2004, for $38.1 million
in cash; and |
64
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$37.0 million principal amount of 3% notes due 2008
issued by Atlantic Coast Entertainment Holdings LLC, or Atlantic
Holdings, or the Atlantic Holdings Notes, for $36.0 million
in cash. |
On May 26, 2004, ACEP acquired two Las Vegas hotels and
casinos, Arizona Charlies Decatur and Arizona
Charlies Boulder, from Mr. Icahn and an entity
affiliated with Mr. Icahn, for aggregate consideration of
$125.9 million. At the closing of those acquisitions, AREH
transferred 100% of the common stock of Stratosphere to ACEP. As
a result, ACEP owns and operates three gaming and entertainment
properties in the Las Vegas metropolitan area.
In October 2003, pursuant to a purchase agreement dated as of
May 16, 2003, we acquired all of the debt and 50% of the
equity securities of NEG from entities affiliated with
Mr. Icahn for an aggregate consideration of approximately
$148.1 million plus approximately $6.7 million of
accrued interest on the debt securities.
In July 2004, we acquired Grand Harbor and Oak Harbor, two
waterfront communities in Vero Beach, Florida. The communities
include three golf courses, a tennis complex, fitness center,
beach club and an assisted living facility. In addition, we
acquired approximately 400 acres of land to the north of
Grand Harbor which currently has entitlements to build
approximately 600 homes and an 18 hole golf course. The total
purchase price was approximately $75.0 million.
In January 2004, we purchased a 34,422 square foot
commercial condominium unit in New York City for approximately
$14.5 million.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements. As of
March 31, 2005, AREH was the sole guarantor of each of the
81/8%
senior notes due 2012 and the
71/8%
senior notes due 2013 issued by us. In conjunction with our
issuance of each series of the senior notes, we loaned AREH
substantially all of the proceeds from the issuance of those
notes on substantially similar terms as those contained in the
notes. Since AREHs financial statements already reflect
this obligation, AREH does not expect the guarantees to have a
material impact on its financial condition, revenues, expenses
or results of operations.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, or
GAAP. The preparation of financial statements in conformity with
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. Among others, estimates are used when accounting
for valuation of investments, recognition of casino revenues and
promotional allowances and estimated costs to complete its land,
house and condominium developments. 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.
We accounted for our acquisitions of NEG, TransTexas and the
Arizona Charlies hotels and casinos as assets transferred
between entities under common control which requires that they
be accounted for at historical costs similar to a pooling of
interests. NEGs investment in NEG Holding constitutes a
variable interest entity. In accordance with GAAP, we have
determined that NEG is not the primary beneficiary of NEG
Holding and therefore we do not consolidate NEG Holding in our
consolidated financial statements.
We believe the following accounting policies are critical to our
business operations and the understanding of results of
operations and affect the more significant judgments and
estimates used in the preparation of our consolidated financial
statements.
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Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of |
Long-lived assets held and used by us and long-lived assets to
be disposed of, are reviewed for impairment whenever events or
changes in circumstances, such as vacancies and rejected leases,
indicate that the carrying amount of an asset may not be
recoverable.
65
In performing the review for recoverability, we estimate the
future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected future
cash flows, undiscounted and without interest charges, is less
than the carrying amount of the asset an impairment loss is
recognized. Measurement of an impairment loss for long-lived
assets that we expect to hold and use is based on the fair value
of the asset. Long-lived assets to be disposed of are reported
at the lower of carrying amount or fair value less cost to sell.
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Commitments and Contingencies
Litigation |
On an ongoing basis, we assess the potential liabilities related
to any lawsuits or claims brought against us. While it is
typically very difficult to determine the timing and ultimate
outcome of such actions, we use our best judgment to determine
if it is probable that we 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, we make estimates of the
amount of insurance recoveries, if any. We accrue a liability
when we believe 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 we have previously made.
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Marketable Equity and Debt Securities and Investment in
U.S. Government and Agency Obligations |
Investments in equity and debt securities are classified as
either held-to-maturity or available for sale for accounting
purposes. Investment in U.S. government and agency
obligations are classified as available for sale. Available for
sale securities are carried at fair value on our balance sheet.
Unrealized holding gains and losses are excluded from earnings
and reported as a separate component of partners equity.
Held-to-maturity securities are recorded at amortized cost.
A decline in the market value of any held-to-maturity security
below cost that is deemed to be other than temporary results in
a reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is
established. Dividend income is recorded when declared and
interest income is recognized when earned.
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Mortgages and Notes Receivable |
We have generally not recognized any profit in connection with
the property sales in which certain purchase money mortgages
receivable were taken back. Such profits are being deferred and
will be recognized when the principal balances on the purchase
money mortgages are received.
We engage in real estate lending, including making second
mortgage or secured mezzanine loans to developers for the
purpose of developing single-family homes, luxury garden
apartments or commercial properties. These loans are subordinate
to construction financing and we target an interest rate in
excess of 20% per annum. However interest is not paid
periodically and is due at maturity or earlier from unit sales
or refinancing proceeds. We defer recognition of interest income
on mezzanine loans pending receipt of principal and interest
payments.
Revenue from real estate sales and related costs are recognized
at the time of closing primarily by specific identification. We
follow the guidelines for profit recognition set forth by
Financial Accounting Standards Board (FASB) Statement
No. 66, Accounting for Sales of Real Estate.
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Casino Revenues and Promotional Allowances |
We recognize revenues in accordance with industry practice.
Casino revenue is recorded as the net win from gaming
activities, the difference between gaming wins and losses.
Casino revenues are net of accruals for anticipated payouts of
progressive and certain other slot machine jackpots. Revenues
include the retail value of rooms, food and beverage and other
items that are provided to customers on a complimentary basis. A
corresponding amount is deducted as promotional allowances. The
cost of such complimentaries is included in Hotel and
casino operating expenses. We also reward customers,
through the use of loyalty programs, with
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points based on amounts wagered, that can be redeemed for a
specified period of time for cash. We deduct the cash incentive
amounts from casino revenue.
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Natural Gas Production Imbalances |
We account for natural gas production imbalances using the sales
method, whereby we recognize revenue on all natural gas sold to
our customers notwithstanding the fact its ownership may be less
than 100% of the natural gas sold. We record liabilities for
imbalances greater than our proportionate share of remaining
natural gas reserves.
From time to time, we enter into commodity price swap agreements
(the Hedge Agreements) to reduce our exposure to price risk in
the spot market for natural gas. We follow Statement of
Financial Accounting Standards No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging
Activities, which was amended by Statement of Financial
Accounting Standards No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities. These
pronouncements established accounting and reporting standards
for derivative instruments and for hedging activities, which
generally require recognition of all derivatives as either
assets or liabilities in the balance sheet at their fair value.
The accounting for changes in fair value depends on the intended
use of the derivative and its resulting designation. We elected
not to designate these instruments as hedges for accounting
purposes, accordingly both realized and unrealized gains and
losses are included in oil and natural gas sales.
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Oil and Natural Gas Properties |
We utilize the full cost method of accounting for our crude oil
and natural gas properties. Under the full cost method, all
productive and nonproductive costs incurred in connection with
the acquisition, exploration and development of crude oil and
natural gas reserves are capitalized and amortized on the
units-of-production method based upon total proved reserves. The
costs of unproven properties are excluded from the amortization
calculation until the individual properties are evaluated and a
determination is made as to whether reserves exist. Conveyances
of properties, including gains or losses on abandonments of
properties, are treated as adjustments to the cost of crude oil
and natural gas properties, with no gain or loss recognized.
Under the full cost method, the net book value of oil and
natural gas properties, less related deferred income taxes, may
not exceed the estimated after-tax future net revenues from
proved oil and natural gas properties, discounted at
10% per year (the ceiling limitation). In arriving at
estimated future net revenues, estimated lease operating
expenses, development costs, abandonment costs, and certain
production related and ad-valorem taxes are deducted. In
calculating future net revenues, prices and costs in effect at
the time of the calculation are held constant indefinitely,
except for changes, which are fixed and determinable by existing
contracts. The net book value is compared to the ceiling
limitation on a quarterly basis.
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Accounting for Asset Retirement Obligations |
We account for our asset retirement obligation under Statement
of Financial Accounting Standards No. 143 (SFAS 143),
Accounting for Asset Retirement Obligations.
SFAS 143 provides accounting requirements for costs
associated with legal obligations to retire tangible, long-lived
assets. Under SFAS 143, an asset retirement obligation is
needed at fair value in the period in which it is incurred by
increasing the carrying amount for the related long-lived asset.
In each subsequent period, the liability is accreted to its
present value and the capitalized cost is depreciated over the
useful life of the related asset.
No provision has been made for federal, state or local income
taxes on the results of operations generated by partnership
activities as such taxes are the responsibility of the partners.
Stratosphere Corporation, NEG and TransTexas, our corporate
subsidiaries, account for their income taxes under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards.
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Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date.
Management periodically evaluates all evidence, both positive
and negative, in determining whether a valuation allowance to
reduce the carrying value of deferred tax assets is still
needed. In 2004 and 2003, we concluded, based on the projected
allocations of taxable income, that our corporate subsidiaries,
NEG, Stratosphere and TransTexas, more likely than not will
realize a partial benefit from their deferred tax assets and
loss carryforwards. Ultimate realization of the deferred tax
asset is dependent upon, among other factors, our corporate
subsidiaries ability to generate sufficient taxable income
within the carryforward periods and is subject to change
depending on the tax laws in effect in the years in which the
carryforwards are used.
Properties held for investment, other than those accounted for
under the financing method, are carried at cost less accumulated
depreciation unless declines in the value of the properties