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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission file number 1-9516
AMERICAN REAL ESTATE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
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Delaware |
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13-3398766 |
(State or other jurisdiction of
incorporation or organization) |
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(.I.R.S. Employer
Identification No.) |
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100 South Bedford Road, Mt. Kisco, New York |
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10549 |
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(Address of principal executive offices) |
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(Zip Code) |
(914) 242-7700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Name of each exchange on which registered |
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Depositary Units Representing Limited Partner Interests |
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New York Stock Exchange |
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5% Cumulative Pay-in-Kind Redeemable Preferred Units
Representing Limited Partner Interests
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. þ
Indicate by a check mark whether registrant is an accelerated
filer (as defined in Rule 12b-2 of the
Act). Yes þ No o
The aggregate market value of depositary units held by
nonaffiliates of the registrant as of June 30, 2004, the
last business day of the registrant’s most recently
completed second fiscal quarter, based upon the closing price of
depositary units on the New York Stock Exchange Composite Tape
on such date was $133,207,103.
AMERICAN REAL ESTATE PARTNERS, L.P.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2004
TABLE OF CONTENTS
1
PART I
Introduction
American Real Estate Partners, L.P., or AREP, is a master
limited partnership formed in Delaware on February 17,
1987. 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 and insurance and asset management.
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 Corp. is owned by Carl C. Icahn. Our
business is conducted 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. References to AREP
in this Annual Report on Form 10-K include AREH, unless the
context otherwise requires. As of March 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 8,900,995 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. See
Item 12 — “Security Ownership of Certain
Beneficial Owners and 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, real estate and
oil and gas assets from unrelated parties and affiliates of
Mr. Icahn.
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American Casino & Entertainment Properties LLC.
On May 26, 2004, our subsidiary, American Casino &
Entertainment Properties LLC, or ACEP, acquired two Las Vegas
hotels and casinos, Arizona Charlie’s Decatur and Arizona
Charlie’s Boulder for aggregate consideration of
$125.9 million. At that date, AREH transferred 100% of the
common stock of Stratosphere Corporation, which owns and
operates the Stratosphere Hotel in Las Vegas, Nevada, to ACEP. |
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Grand Harbor and Oak Harbor. 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. |
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NEG Holding LLC. We currently own 50.01% of the
outstanding common stock of National Energy Group, Inc., or NEG,
and all of its approximately $148.6 million aggregate
principal amount of notes. NEG owns a membership interest in NEG
Holding LLC. NEG Holding owns 100% of NEG Operating LLC, an oil
and gas exploration and production company. We have entered into
an agreement to acquire the other membership interest in NEG
Holding for an aggregate of up to 11,344,828 of depositary
units, valued at $29.00 per unit, or an aggregate of up to
$329 million. The number of depositary units is subject to
reduction based upon NEG Holding’s oil and gas reserve
reports, as of January 21, 2005, to be prepared by an
independent reserve engineering firm. |
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TransTexas Gas Corporation. On December 6, 2004, we
purchased $27.5 million aggregate principal amount of term
notes issued by TransTexas, or the TransTexas Notes, which
constitutes 100% of the outstanding term notes of TransTexas. We
have entered into an agreement to acquire 100% of the equity of
TransTexas, an oil and gas exploration and production company,
for a purchase price of up to |
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$180.0 million payable in cash. The purchase price is
subject to reduction based upon TransTexas Gas
Corporation’s oil and gas reserve reports as of
January 21, 2005, to be prepared by an independent reserve
engineering firm. |
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Panaco, Inc. On December 6, 2004, we purchased
$38.0 million aggregate principal amount of term loans
issued by Panaco, which constitutes 100% of the outstanding term
loans of Panaco, or the Panaco Debt. We have entered into an
agreement to acquire 100% of the equity of Panaco, an oil and
gas exploration and production company, for up to 4,310,345
depositary units, valued at $29.00 per unit, or an
aggregate of up to $125.0 million. The number of units to
be issued is subject to reduction based upon Panaco’s oil
and gas reserve reports as of January 21, 2005, to be
prepared by an independent reserve engineering firm. |
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GB Holdings, Inc. We currently own approximately 36.3% of
the outstanding common stock of GB Holdings. On
December 27, 2004, we purchased $37.0 million
principal amount of the 3% notes due September 2008 issued
by GB Holdings’ subsidiary, Atlantic Coast Entertainment
Holdings, Inc., or Atlantic Holdings, bringing our ownership of
that debt to approximately $63.9 million principal amount,
or approximately 96.4% of the principal amount outstanding. The
notes may be paid in full, at the option of the holders of a
majority of their principal amount, with common stock of
Atlantic Holdings. We also own warrants to purchase, upon the
occurrence of certain events, approximately 10.0% of the fully
diluted common stock of Atlantic Holdings. Atlantic Holdings
owns 100% of ACE Gaming LLC, the owner and operator of The Sands
Hotel and Casino located in Atlantic City, New Jersey. We have
entered into an agreement to acquire an additional approximate
41.2% of the outstanding common stock of GB Holdings and
warrants to purchase, upon the occurrence of certain events, an
additional approximate 11.3% of the fully diluted common stock
of Atlantic Holdings for an aggregate of 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 additional
$6.0 million, if GB Holdings meets certain earnings targets
during 2005 and 2006. Upon completion of the acquisition, we
will own approximately 77.5% of the outstanding GB Holdings
common stock and warrants to purchase, upon the occurrence of
certain events, approximately 21.3% of the fully diluted common
stock of Atlantic Holdings. Warrants to purchase, upon the
occurrence of certain events, approximately 27.5% of the fully
diluted common stock of Atlantic Holdings are currently
outstanding of which we own, currently, warrants to purchase up
to 10.0% of the fully diluted common stock of Atlantic Holdings.
Under certain circumstances, the Atlantic Holdings notes are
convertible into approximately 47.3% of the fully diluted common
stock of Atlantic Holdings. If all outstanding notes were
converted and warrants exercised, giving effect to the
acquisition, we would own approximately 63.4% of the 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. |
On January 29, 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
acquisitions of Arizona Charlie’s Decatur and Arizona
Charlie’s Boulder, to repay indebtedness owed to AREH and
for distributions to its parent, American Entertainment
Properties Corp., or AEP, a wholly owned subsidiary of AREH.
On May 12, 2004, we 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 issued senior notes due 2013. The
notes, in the aggregate principal amount of $480 million,
bear interest at a rate of 7.125% per annum. The notes are
guaranteed by AREH. Net proceeds from the offering will be used
to fund the acquisition of TransTexas, to pay related fees and
expenses, 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 existing businesses.
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Pending Acquisitions
The following describes the terms of the agreements for the
acquisitions of TransTexas, NEG Holding, Panaco and
GB Holding, which acquisitions have not been completed.
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TransTexas Gas Corporation |
On January 21, 2005, National Onshore LP, 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 Oil & Gas LLC, which is a wholly-owned
subsidiary of AREH, entered into an agreement and plan of merger
with Highcrest Investors Corp., or Highcrest, an entity
indirectly wholly-owned by Mr. Icahn, and TransTexas Gas
Corporation pursuant to which we will acquire TransTexas.
Pursuant to the TransTexas merger agreement, TransTexas will
merge with and into National Onshore, all of the common stock of
TransTexas will be canceled and cease to exist, and National
Onshore will pay merger consideration to Highcrest of up to
$180.0 million in cash. The consideration to be paid by us
was based on TransTexas’ 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 amount of the consideration to be paid is
subject to a reduction, but not an increase, in accordance with
the reserves determined by the engineers. The TransTexas merger
agreement contains customary representations and warranties,
indemnification provisions, covenants regarding the conduct of
business prior to closing and conditions to closing.
The closing of the transactions contemplated by the TransTexas
merger agreement is subject to the satisfaction or waiver of
certain conditions, including, for each of the parties, no
action or proceeding by any governmental authority or other
person shall have been instituted or threatened which
(1) might have a material adverse effect on TransTexas or
(2) could enjoin, restrain or prohibit, or could result in
substantial damages in respect of, any provision of the
TransTexas merger agreement or the consummation of the
transactions contemplated by the TransTexas merger agreement.
With respect to National Onshore, the closing of the
transactions contemplated by the TransTexas merger agreement is
also subject to (1) the satisfaction or waiver of the
condition that no material adverse change with respect to
TransTexas shall have occurred and no event shall have occurred
which, in the reasonable judgment of National Onshore, is
reasonably likely to have a material adverse effect and
(2) the receipt of TransTexas’ oil and gas reserve
reports. Highcrest has agreed to indemnify National Onshore, up
to a maximum liability equal to the purchase price, against, and
agreed to hold it harmless from, any and all losses it incurs
associated with any breach of or any inaccuracy in any
representation or warranty made by Highcrest in the merger
agreement, or any breach of or failure by Highcrest to perform
any of its covenants or obligations set out or contemplated in
the merger agreement. A company wholly-owned by Mr. Icahn
has agreed to guarantee all duties and obligations of Highcrest
under the TransTexas merger agreement.
TransTexas’ oil and gas reserve report for certain oil and
gas properties located in Alabama, North Dakota and Texas
prepared by an independent reserve engineering firm has been
received. We believe that the information included within the
report is consistent with the estimates of reserves upon which
the purchase price was based.
TransTexas and its wholly-owned subsidiaries, Galveston Bay
Pipeline Company and Galveston Bay Processing Company, 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. Highcrest acquired TransTexas upon
its emergence from bankruptcy in August 2003.
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On January 21, 2005, we entered into a membership interest
purchase agreement with Gascon Partners, or Gascon, Cigas Corp.,
or Cigas, and Astral Gas Corp., or Astral, pursuant to which we
will purchase Gascon’s 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 Carl C. Icahn.
The number of depositary units to be issued was based on NEG
Holding’s 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
NEG, of which 50.01% of the common stock is owned by us. The NEG
purchase agreement contains customary representations and
warranties, indemnification provisions, covenants regarding the
conduct of business prior to closing and conditions to closing.
The closing of the transactions contemplated by the NEG purchase
agreement is subject to the satisfaction or waiver of certain
conditions, including, for each of the parties, no action or
proceeding by any governmental authority or other person shall
have been instituted or threatened which (1) might have a
material adverse effect on NEG Holding or (2) could enjoin,
restrain or prohibit, or could result in substantial damages in
respect of, any provision of the purchase agreement or the
consummation of the transactions contemplated by the purchase
agreement. With respect to us, the closing of the transactions
contemplated by the NEG purchase agreement is also subject to
(1) the satisfaction or waiver of the condition that no
material adverse change with respect to NEG Holding shall have
occurred and no event shall have occurred which, in our
reasonable judgment, is reasonably likely to have a material
adverse effect and (2) the receipt of NEG Holding’s
oil and gas reserve reports. Gascon has agreed to indemnify us,
up to a maximum liability equal to the purchase price, against,
and agreed to hold us harmless from, any and all losses we incur
associated with any breach of or any inaccuracy in any
representation or warranty made by Cigas and Astral or Gascon,
as applicable, in the purchase agreement, or any breach of or
failure by Cigas and Astral to perform any of their respective
covenants or obligations set out or contemplated in the NEG
purchase agreement. A company wholly-owned by Mr. Icahn has
agreed to guarantee all the duties and obligations of Gascon
under the NEG purchase agreement.
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 ours, entered into an agreement
and plan of merger with Highcrest, Arnos Corp., or Arnos, and
Panaco 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 Panaco’s 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. Immediately following the merger, we will contribute
each of the general partner and limited partner interests of
National Offshore to AREH and AREH will contribute such limited
partnership interest to AREP Oil & Gas. The Panaco
merger agreement contains customary representations and
warranties, indemnification provisions, covenants regarding the
conduct of business prior to closing and conditions to closing.
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The closing of the transactions contemplated by the Panaco
merger agreement is subject to the satisfaction or waiver of
certain conditions, including, for each of the parties, no
action or proceeding by any governmental authority or other
person shall have been instituted or threatened which
(1) might have a material adverse effect on Panaco or
(2) could enjoin, restrain or prohibit, or could result in
substantial damages in respect of, any provision of the merger
agreement or the consummation of the transactions contemplated
by the merger agreement. With respect to National Offshore, the
closing of the transactions contemplated by the Panaco merger
agreement is also subject to (1) the satisfaction or waiver
of the condition that no material adverse change with respect to
Panaco shall have occurred and no event shall have occurred
which, in the reasonable judgment of National Offshore, is
reasonably likely to have a material adverse effect and
(2) the receipt of Panaco’s oil and gas reserve
reports. Highcrest and Arnos have agreed to indemnify National
Offshore, up to a maximum liability equal to the purchase price,
against, and agreed to hold it harmless from, any and all losses
it incurs associated with any breach of or any inaccuracy in any
representation or warranty made by Highcrest and Arnos in the
merger agreement, or any breach of or failure by Highcrest and
Arnos to perform any of their covenants or obligations set out
or contemplated in the merger agreement. A company wholly-owned
by Mr. Icahn has agreed to guarantee all duties and
obligations of Highcrest and Arnos under the Panaco merger
agreement.
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. Highcrest and Arnos
acquired Panaco upon its emergence from bankruptcy in November
2004.
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GB Holdings, Inc. (The Sands) |
On January 21, 2005, we entered into a purchase agreement
with Cyprus, LLC, or Cyprus, pursuant to which we will
purchase 4,121,033 shares of common stock of GB
Holdings and 4,121,033 Atlantic Holdings warrants which are
exercisable for an aggregate of 1,133,284 shares of common
stock of Atlantic Holdings. Cyprus is indirectly wholly-owned by
Mr. Icahn. The purchase price to be paid under the Sands
purchase agreement 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. The Sands
purchase agreement contains customary representations and
warranties, indemnification provisions, covenants regarding the
conduct of business prior to closing and conditions to closing.
The closing of the transactions contemplated by the Sands
purchase agreement is subject to the satisfaction or waiver of
certain conditions, including, for each of the parties, no
action or proceeding by any governmental authority or other
person shall have been instituted or threatened which
(1) might have a material adverse effect on GB Holdings or
Atlantic Holdings or (2) could enjoin, restrain or
prohibit, or could result in substantial damages in respect of,
any provision of the purchase agreement or the consummation of
the transactions contemplated by the purchase agreement. With
respect to us, the closing of the Sands purchase agreement is
also subject to the satisfaction or waiver of the condition that
no material adverse change with respect to GB Holdings or
Atlantic Holdings shall have occurred and no event shall have
occurred which, in our reasonable judgment, is reasonably likely
to have a material adverse effect. Cyprus has agreed to
indemnify us against, and agreed to hold us harmless from, any
and all losses we incur associated with any breach of or any
inaccuracy in any representation or warranty made by Cyprus in
the purchase agreement, or any breach of or failure by Cyprus to
perform any of its covenants or obligations set out or
contemplated in the purchase agreement. A company wholly-owned
by Mr. Icahn has agreed to guarantee all duties and
obligations of Cyprus under the Sands purchase agreement.
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GB Holdings has no operating activities. Its significant asset
is its investment in Atlantic Holdings, which 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 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.
As of the date of the agreements described above, Mr. Icahn
indirectly owned approximately 86.5% of our depositary units and
preferred units and indirectly owned 100% of our general
partner, API. Each of the transactions described above was
approved by our audit committee. The audit committee was advised
as to each transaction by independent financial advisors and by
legal counsel. The audit committee received fairness opinions to
the effect that, as of January 21, 2005, the consideration
to be paid by us or our subsidiaries, as applicable, in each
such transaction, was fair, from a financial point of view, to
us.
Under the rules of the New York Stock Exchange, the issuance of
depositary units requires the approval of the holders of our
depositary units. The closing of the transactions contemplated
by each of the NEG purchase agreement, the Panaco merger
agreement and the Sands purchase agreement is subject to that
approval being obtained.
Rental Real Estate Investments
Our rental real estate operations consist primarily of retail,
office and industrial properties leased to single corporate
tenants. Historically, substantially all of our real estate
assets leased to others have been net-leased 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,
including maintenance, utilities, taxes, insurance or any
capital items associated with such properties.
To capitalize on favorable real estate market conditions and the
mature nature of our commercial real estate portfolio, we have
offered for sale our rental real estate portfolio. 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.
From January 1, 2005 through March 1, 2005, we sold
four of these rental real estate properties for approximately
$46.5 million. These properties were encumbered by
approximately $10.8 million of mortgage debt.
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We continue to seek opportunities to acquire additional rental
real estate properties. While we believe opportunities in real
estate related acquisitions continue to remain available, there
is increasing competition for these opportunities and the
increased competition affects price and the ability to find
quality assets that provide attractive returns.
Real Estate Development
Our residential home development operations focus primarily on
the construction and sale of single-family homes, custom-built
homes, multi-family homes and residential lots in subdivisions
and in planned communities. Our home building business is
managed by Bayswater Development L.L.C., our wholly-owned
subsidiary. Our long-term investment horizon and operational
expertise allow us to acquire properties with limited current
income and complex entitlement and development issues.
Bayswater currently is developing seven residential subdivisions
in New York, Florida and Massachusetts. In New York, Bayswater
is developing two high-end residential subdivisions in
Westchester County: Penwood, located in Bedford, and Hammond
Ridge, located in Armonk and New Castle. Bayswater also is
seeking approval to develop Pondview Estates which is located in
Patterson and Kent in Putnam County, New York. In Naples,
Florida, Bayswater is building, developing and selling Falling
Waters, a condominium development. In Cape Cod, Massachusetts,
Bayswater is pursuing the development of our New Seabury
property, a proposed luxury second-home waterfront community. In
July 2004, we acquired Grand Harbor and Oak Harbor, residential
waterfront communities in Vero Beach, Florida.
Penwood. Located in Bedford, New York, Penwood consists
of 44 lots situated on 297 acres. The development is
approximately one hour from Manhattan. Homes are situated on
lots that range from 2.1 acres to 14.5 acres. Homes
range in size from 5,400 square feet to 9,600 square
feet. The average selling price of a Penwood home is
$2.4 million, with a range of sales prices between
$2.0 million and $3.4 million. As of December 31,
2004, we have sold 33 of the 44 units and one unit was
under contract.
Hammond Ridge. Located in Armonk and New Castle, New
York, Hammond Ridge consists of 37 single-family lots
situated on 220 acres. The development is approximately
40 minutes from Manhattan. We acquired the land through the
purchase and foreclosure of a bank loan. At the time of
acquisition, the land was unentitled. Purchasers of Hammond
Ridge units may select one of many home designs and many options
and upgrades that we offer or customize designs. The average
selling price of a Hammond Ridge home is $2.1 million, with
a range of prices between $1.6 million and
$2.8 million. From January 2004, when sales commenced,
through December 31, 2004, we have executed sale contracts
for 16 of the 37 homes.
Pondview Estates. Located in Patterson and Kent, New
York, Pondview Estates is a townhouse condominium development on
a 91-acre wooded hillside overlooking an on-site pond. We expect
to build a 50-townhouse condominiums once final approvals are
granted. Pre-sales are expected to begin in 2005.
Falling Waters. Located in Naples, Florida, Falling
Waters is a 793-unit condominium development on 158 acres
located approximately ten minutes from downtown Naples, Florida.
It is a gated community with 24-hour security. The average
selling price is $200,000. As of December 31, 2004, there
were 175 units remaining to be constructed, 170 of which
have been pre-sold and five of which remain to be sold.
Grand Harbor and Oak Harbor. On July 22, 2004, we
completed the acquisition of these two waterfront communities in
Vero Beach, Florida. As of December 31, 2004, approximately
900 homes had been built and sold in the communities. Grand
Harbor and Oak Harbor include properties in various stages of
development, including 364 improved lots and 36 substantially
finished homes ready for sale. 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 for the Grand Harbor and Oak Harbor communities
and the additional entitled land was approximately
$75.0 million.
New Seabury Development. Located in Cape Cod,
Massachusetts, New Seabury is a 381 acre resort community
overlooking Nantucket Sound and Martha’s Vineyard. There
are approximately 178 acres of land for development. We acquired
the property in bankruptcy in 1998 after community members voted
in favor of our involvement.
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Construction has been delayed by a dispute with the Cape Cod
Commission, a Massachusetts regional planning body that claims
that it has jurisdiction to review and approve our proposed
development. We commenced litigation to contest the
commission’s decision to exercise jurisdiction and a
Massachusetts court has ruled that a development proposal of up
to 278 residential units and 145,000 square feet of
commercial space is exempt from the commission’s
jurisdiction. The court has not ruled on our proposal to build
up to 675 residential/hotel units. Litigation is
continuing, however, the parties are currently in settlement
negotiations. Although we are currently in settlement
negotiations with the Cape Cod Commission, these discussions may
not be successful. We cannot predict the effect on the
development process if we lose any appeal or if the commission
is ultimately successful in asserting jurisdiction over any of
our development proposals.
Additional Developments. We have invested and expect to
continue to invest in undeveloped land and development
properties. We are highly selective in making investments in
residential home development. Currently we are reviewing a wide
variety of potential developments in New York and Florida.
Hotel and Resort Operations
New Seabury Resort. New Seabury is a resort community
overlooking Nantucket Sound and Martha’s Vineyard in Cape
Cod, Massachusetts. In addition to our residential development
at New Seabury, we operate a full-service resort. The property
currently includes a golf club with two 18 hole championship
golf courses, the Popponesset Inn, which is a casual waterfront
dining and wedding facility, a private beach club, a fitness
center and a 16 court tennis facility.
We invested a total of $28.0 million to acquire our
interest in New Seabury and have invested approximately
$30.0 million in additional improvements through
December 31, 2004. We have replaced an outdated clubhouse
with a 42,000 square foot state of the art facility which
includes indoor and outdoor dining, a clubroom, banquet
facilities, conference capability, a pro shop, locker rooms, a
snack bar and indoor cart storage. We have constructed a 300,000
gallon per day wastewater treatment plant for resort facilities
and future development. We have built a new 2,500 square
foot state of the art poolside fitness center. We have
reconfigured and reconstructed the Dunes Golf Course. We have
invested capital to reconfigure our two championship golf
courses and maintain their status as a high-end private facility.
Grand Harbor and Oak Harbor. In addition to the
residential development at Grand Harbor and Oak Harbor, we
acquired three golf courses, a tennis complex, fitness center,
beach club and clubhouses and an assisted living facility
located adjacent to the Intracoastal Waterway in Vero Beach,
Florida.
Hotel and Casino Operations
Our primary hotel, casino and resort operations consist of our
ownership of Stratosphere Casino Hotel & Tower, Arizona
Charlie’s Decatur and Arizona Charlie’s Boulder in Las
Vegas, Nevada. Since we acquired the Stratosphere in 1998, we
have invested approximately $118.0 million to, among other
things, build a 1,000-room hotel tower. We acquired Arizona
Charlie’s Decatur and Arizona Charlie’s Boulder from
Mr. Icahn and his affiliates for approximately
$125.9 million in May 2004. We also own approximately 36.3%
of the common stock of the holding company that indirectly owns
and operates The Sands Hotel and Casino.
The Stratosphere is situated on approximately 31 acres of
land located at the northern end of the Las Vegas Strip. We
believe the Stratosphere is one of the most recognized landmarks
in Las Vegas. The Stratosphere offers the tallest free-standing
observation tower in the United States and, at 1,149 feet,
it is the tallest building west of the Mississippi River. The
Tower includes an award-winning 336-seat revolving restaurant
with unparalleled views of Las Vegas, known as the Top of the
World, and the highest indoor/outdoor observation deck in Las
Vegas. The Tower also features the three highest amusement rides
in the world, for which we charge a price of $5 to $9 per
ride. On March 10, 2005, we launched a fourth thrill ride,
Insanity, designed to spin passengers in a centrifugal motion at
40-miles per hour over the edge of the Tower. In addition, the
Tower has a cocktail lounge, a wedding chapel and event space.
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The Stratosphere’s casino contains approximately
80,000 square feet of gaming space, with approximately
1,400 slot machines, 48 table games and a race and sports book.
Seven themed restaurants and four lounges, two of which feature
live entertainment, are all located adjacent to the casino.
These facilities have been designed to enable convenient access
to the casino. For the years ended December 31, 2004, 2003
and 2002, approximately 70.6%, 70.1% and 72.4%, respectively, of
the Stratosphere’s gaming revenue was generated by slot
machine play and 27.4%, 28.0% and 26.8%, respectively, by table
games. The Stratosphere derives its other gaming revenue from
the race and sports book, which primarily serves to attract
customers for slot machines and table games.
The hotel has 2,444 rooms, including 131 suites. The hotel
amenities include a 67,000 square foot pool and a
recreation area with a café, cocktail bar, private cabanas
and a fitness center located on the 8th floor. Beach
Club 25, located on the 25th floor, provides a secluded
adult pool. The Stratosphere is currently in the process of
refurbishing approximately 1,400 of its guest rooms, which is
expected to be completed in 2005. In addition, we own land which
is suitable for additional development, if we determine the
opportunity exists.
The retail center, located on the second floor of the base
building, occupies approximately 110,000 square feet of
developed retail space. The retail center contains 43 shops, six
of which are food venues, and 15 merchant kiosks. Adjacent to
the retail center is the 640-seat showroom that currently offers
afternoon and evening shows, which are designed to appeal to the
wide spectrum of value-minded visitors who come to Las Vegas.
The Stratosphere’s entertainment includes American
Superstars, a celebrity tribute featuring today’s and
yesterday’s hottest stars, and Viva Las Vegas, Las
Vegas’ longest-running daytime show now in its twelfth
year, featuring singing, dancing, comedy and specialty acts, and
Bite, a vampire-themed adult review. The retail center also
includes a full-service salon and spa. The parking facility
accommodates approximately 4,000 cars.
The Stratosphere utilizes the unique amenities of its Tower to
attract visitors. Gaming products, hotel rooms, entertainment
and food and beverage products are priced to appeal to the
value-conscious middle-market Las Vegas visitor. The Top of the
World restaurant, however, caters to higher-end customers.
Stratosphere offers competitive payout ratios for its slot
machines and video poker machines and competitive odds for its
table games and sports book products. Stratosphere offers
attractive and often unique table games, including Single Zero
Roulette and Ten Times Odds on Craps, that provide patrons with
odds that are better than the standard odds at other Las Vegas
casinos. The Stratosphere participates in our Ultimate Rewards
Club which provides members with cash and/or complimentaries at
the casino, which can be used at Arizona Charlie’s Decatur
or Arizona Charlie’s Boulder. Advertising and promotional
campaigns are designed to maximize hotel room occupancy, visits
to the Tower and attract and retain players on property.
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Arizona Charlie’s Decatur |
Arizona Charlie’s Decatur opened in April 1988 as a
full-service hotel and casino geared toward residents of Las
Vegas and surrounding communities. Arizona Charlie’s
Decatur is located on approximately 17 acres of land four
miles west of the Las Vegas Strip in the heavily populated west
Las Vegas area. The property is easily accessible from Route 95,
a major highway in Las Vegas.
Arizona Charlie’s Decatur contains approximately
52,000 square feet of gaming space with approximately 1,500
slot machines, 15 table games, a race and sports book, a 24-hour
bingo parlor, a Keno lounge and a 16-seat poker lounge.
Approximately 68% of the slot machines at Arizona Charlie’s
Decatur are video poker games. Arizona Charlie’s Decatur
emphasizes video poker because it is popular with local players
and generates, as a result, high volumes of play and casino
revenue. For the years ended December 31, 2004, 2003 and
2002, approximately 90.0%, 90.8% and 91.3%, respectively, of the
property’s gaming revenue was generated by slot machine
play and 5.1%, 5.0% and 5.7%, respectively, by table games.
Arizona Charlie’s Decatur derives its other gaming revenue
from bingo, Keno, poker and the race and sports book, which
primarily serve to attract customers for slot machines and table
games.
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Arizona Charlie’s Decatur currently has 258 rooms,
including nine suites. Hotel customers include local residents
and their out-of-town guests, as well as those business and
leisure travelers who, because of location and cost
considerations, choose not to stay on the Las Vegas Strip or at
other hotels in Las Vegas.
Arizona Charlie’s Decatur provides complimentary
entertainment as a component of its overall customer appeal. The
Naughty Ladies Saloon, features a variety of entertainment,
including live bands, musician showcase nights and jam sessions.
Arizona Charlie’s Decatur has focused on the appeal of its
entertainment programming in order to retain its customers and
increase the play at its casino.
Arizona Charlie’s Decatur markets its hotel and casino
primarily to local residents of Las Vegas and the surrounding
communities. We believe that the property’s pricing and
gaming odds make it one of the best values in the gaming
industry and that its gaming products, hotel rooms, restaurants
and other amenities attract local customers in search of
reasonable prices, smaller casinos and more attentive service.
Arizona Charlie’s Decatur also tailors its selection of
slot machines and table games, to local casino patrons. Slot
machines include video poker machines and table games include
double-deck, hand-dealt black jack. In addition, the casino
features a selection of games that invite personal interaction
and which we believe are set for higher payout rates than those
at other Las Vegas casinos generally.
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Arizona Charlie’s Boulder |
Arizona Charlie’s Boulder opened in 1988 as a stand-alone
hotel and RV park. The full-service casino opened in May 2000.
Arizona Charlie’s Boulder is situated on approximately
24 acres of land located on Boulder Highway, in an
established retail and residential neighborhood in the eastern
metropolitan area of Las Vegas. The property is easily
accessible from I-515, the most heavily traveled east/west
highway in Las Vegas.
Arizona Charlie’s Boulder contains approximately
41,000 square feet of gaming space with approximately
850 slot machines, 14 table games, a race and sports
book and a 24-hour bingo parlor. Approximately 65% of the slot
machines at Arizona Charlie’s Boulder are video poker
games. Arizona Charlie’s Boulder emphasizes video poker
because it is popular with local players and generates, as a
result, high volumes of play and casino revenue. For the years
ended December 31, 2002, 2003 and 2004 approximately 92.9%,
86.9% and 89.1%, respectively, of gaming revenue was generated
by slot machine play and 10.4%, 9.3% and 7.0%, respectively, by
table games. Arizona Charlie’s Boulder derives its other
gaming revenue from bingo and the race and sports book, which
primarily serve to attract customers for slot machines and table
games.
Arizona Charlie’s Boulder currently has 303 rooms,
including 221 suites. Hotel customers include local
residents and their out-of-town guests, as well as those
business and leisure travelers who, because of location and cost
considerations, choose not to stay on the Las Vegas Strip or at
other hotels in Las Vegas. We recently renovated our hotel room
interiors.
Arizona Charlie’s Boulder provides complimentary
entertainment as a component of its overall customer appeal.
Palace Grand, features live bands at no charge.
Arizona Charlie’s Boulder also has an RV park. With 30- to
70-foot pull through stations and over 200 spaces, it is
one of the largest short-term RV parks on the Boulder Strip. The
RV park offers a range of services, including laundry
facilities, game and exercise rooms, swimming pool, whirlpool
and shower facilities, which are included in the nightly, weekly
or monthly rates.
Arizona Charlie’s Boulder markets its hotel and casino
primarily to residents of Las Vegas and the surrounding
communities. We believe that its pricing and gaming odds make it
one of the best values in the gaming industry and that its
gaming products, hotel rooms, restaurants, and other amenities
attract local customers in search of reasonable prices, smaller
casinos and more attentive service. Arizona Charlie’s
Boulder also tailors its selection of slot machines, including
many diverse video poker machines, and table games, including
double-deck hand-dealt blackjack, to local casino patrons. In
addition, the casino features a selection of games that invite
personal interaction and which we believe are set for higher
payout rates than those at other Las Vegas casinos generally.
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The Sands Hotel and Casino |
We own approximately 3.6 million shares of common stock of
GB Holdings, representing approximately 36.3% of its outstanding
common stock and, including the recent purchase of
$37.0 million principal amount of the Atlantic Holdings
Notes, own approximately $63.9 million principal amount, or
approximately 96.4%, of the Atlantic Holdings Notes. We also own
warrants to purchase, upon the occurrence of certain events,
approximately 10.0% of the fully diluted common stock of
Atlantic Holdings. GB Holdings owns 100% of Atlantic Holdings.
Atlantic Holdings owns 100% of ACE Gaming, the owner and
operator 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 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, two
hotels with a total of 620 rooms, and related amenities. ACEP
personnel provide certain executive management services to The
Sands Hotel and Casino.
On July 22, 2004, GB Holdings and Atlantic Holdings
consummated an exchange offer in which Atlantic Holdings offered
to exchange $110.0 million principal amount of its secured
notes due September 2008 with an interest rate of 3% per
annum payable at maturity, for $110.0 million principal
amount of 11% secured notes due September 2005 of GB Property
Funding, Inc., a wholly-owned subsidiary of GB Holdings. In the
exchange offer, holders of 60.2% of the outstanding principal
amount of the 11% secured notes due September 2005, including
the 58.2% held by Mr. Icahn and affiliated companies,
including AREP, exchanged those notes. Upon completion of the
exchange offer, approximately $43.7 million principal
amount of GB Holdings debt was outstanding and approximately
$66.3 million principal amount of Atlantic Holdings debt
was outstanding, $26.9 million of which was owned by AREH
and $37.0 million of which was owned by affiliates of
Mr. Icahn. The 3% notes due September 2008 may be paid
in full, at the option of the holders of a majority of their
principal amount, with common stock of Atlantic Holdings. The
transaction also included the following:
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The indenture for the 11% secured notes due September 2005 was
amended to remove certain provisions and covenants and release
the liens on The Sands Hotel and Casino’s assets that
secured the notes; |
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The Sands Hotel and Casino’s assets were transferred to a
wholly-owned subsidiary of Atlantic Holdings, ACE
Gaming; and |
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The 3% notes due September 2008 were secured by a pledge of
all of the assets of ACE Gaming, including The Sands Hotel and
Casino. |
The GB Holdings common stockholders received warrants, that are
exercisable, following the occurrence of certain events, for
27.5% of the fully diluted common stock of Atlantic Holdings.
GB Holdings and Atlantic Holdings are reporting companies under
the Securities Exchange Act of 1934 and each separately files
with the Securities and Exchange Commission annual, quarterly
and current reports that are available to the public free of
charge either from each respective company or at the SEC website
at http://www.sec.gov.
Oil and Gas
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National Energy Group, Inc. |
In October 2003, pursuant to a purchase agreement dated as of
May 16, 2003, we acquired certain debt and 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. The agreement was
reviewed and approved by our Audit Committee which was advised
by independent financial advisors and legal counsel. The
securities acquired were $148.6 million in principal amount
of debt securities, or the NEG Notes, representing all of
NEG’s outstanding debt securities, and
5,584,044 shares of common stock of NEG. As a result of
this transaction and the acquisition by us of additional shares
of common stock of
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NEG, we currently beneficially own 50.01% of the outstanding
common stock of NEG. The remaining shares of common stock of NEG
are publicly held. NEG is a reporting company under the
Securities Exchange Act of 1934 and separately files with the
Securities and Exchange Commission annual, quarterly and current
reports that are available to the public free of charge either
from NEG or at the SEC website at http://www.sec.gov.
NEG owns a membership interest in NEG Holding. The other
membership interest in NEG Holding is held by Gascon, an
affiliate of Mr. Icahn. Gascon is the managing member of
NEG Holding. NEG Holding owns NEG Operating which is engaged in
the business of oil and gas exploration and production with
properties located on-shore in Texas, Louisiana, Oklahoma and
Arkansas. NEG Operating’s oil and gas properties are
managed by NEG. We have agreed to acquire the membership
interest in NEG Holding owned by Gascon.
Pursuant to the NEG Holding operating agreement between NEG and
Gascon, distributions from NEG Holding to NEG and Gascon are
made in the following order: (1) Guaranteed payments are to
be paid to NEG, calculated on an annual interest rate of 10.75%
on the outstanding priority amount. The priority amount is equal
to the amount of the NEG Notes due to us. As of
December 31, 2004, the priority amount was
$148.6 million. The guaranteed payments will be made on a
semi-annual basis; (2) The priority amount is to be paid to
NEG. Such payment is to occur by November 6, 2006;
(3) An amount equal to the priority amount and all
guaranteed payments paid to NEG, plus any additional capital
contributions made by Gascon, less any distributions previously
made to Gascon, is to be paid to Gascon; (4) An amount
equal to the aggregate annual interest (calculated at prime plus
1/2% on the sum of the guaranteed payments), plus any unpaid
interest for prior years (calculated at prime plus 1/2% on the
sum of the guaranteed payments), less any distributions
previously made by NEG Holding to Gascon, is to be paid to
Gascon; and (5) After the above distributions have been
made, any additional distributions will be made in accordance
with the ratio of NEG’s and Gascon’s respective
capital accounts, as defined in the operating agreement.
The operating agreement further contains a provision that allows
Gascon, or its successor, at any time, in its sole discretion,
to redeem NEG’s membership interest at a price equal to the
fair market value of the interest determined as if NEG Holding
had sold all of its assets for fair market value and liquidated.
A determination of the fair market value of such assets will be
made by an independent third party jointly engaged by Gascon and
NEG, unless otherwise agreed.
The management and operation of NEG Operating is being
undertaken by NEG pursuant to a management agreement which NEG
has entered into with NEG Operating. However, neither NEG’s
officers nor directors will control the strategic direction of
NEG Operating’s oil and gas business, including oil and gas
drilling and capital investments, which is controlled by the
managing member of NEG Holding, currently Gascon. The management
agreement provides that NEG will manage NEG Operating’s oil
and gas assets and business until the earlier of
November 1, 2006, or such time as NEG Operating no longer
owns any of the managed oil and gas properties. NEG’s
employees conduct the day-to-day operations of NEG
Operating’s oil and gas properties, and all costs and
expenses incurred in the operation of the oil and gas properties
are borne by NEG Operating; although the management agreement
provides that the salary of NEG’s Chief Executive Officer
will be 70% attributable to the managed oil and gas properties,
and the salaries of each of the General Counsel and Chief
Financial Officer will be 20% attributable to the managed oil
and gas properties. In exchange for NEG’s management
services, NEG Operating pays NEG a management fee equal to 115%
of the actual direct and indirect administrative and reasonable
overhead costs incurred by NEG in operating the oil and gas
properties which either NEG or NEG Operating may seek to change
within the range of 110%-115%, as such change is warranted.
However, the parties have agreed to consult with each other to
ensure that the administrative and reasonable overhead costs
attributable to the managed properties are properly reflected in
the management fee paid to NEG. In addition, NEG Operating has
agreed to indemnify NEG to the extent it incurs any liabilities
in connection with its operation of the assets and properties of
NEG Operating, except to the extent of its gross negligence or
misconduct. NEG recorded $6.2 million as a management fee
for NEG Operating for the year ended December 31, 2004.
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On August 28, 2003, NEG and TransTexas entered into a
management agreement pursuant to which NEG provides management
and administrative services with respect to TransTexas’ oil
and gas operations. As consideration for performance of these
services, TransTexas is required to pay to NEG a monthly fee of
$312,500. The agreement will terminate (1) 90 days
following a written notice of termination by NEG, (2) as
may be mutually agreed by NEG and TransTexas,
(3) 30 days following a written notice of termination
by TransTexas or (4) 30 days following any day where a
majority of the TransTexas board of directors ceases to be
comprised of High River’s designees unless the
newly-constituted board of directors agrees to waive application
of this termination. NEG recorded $4.7 million as a
management fee for TransTexas for the year ended
December 31, 2004.
On November 16, 2004, NEG and Panaco entered into a
management agreement pursuant to which NEG provides management
and administrative services with respect to Panaco’s oil
and gas operations. As consideration for performance of these
services, Panaco is required to pay to NEG a monthly fee equal
to 115% of the actual direct and indirect administrative costs
incurred by NEG. The agreement will terminate
(1) 90 days following a written notice of termination
by either Panaco or NEG, (2) as may be mutually agreed by
NEG and Panaco or (3) 30 days following any day where
the Panaco board of directors ceases to be comprised of one or
more members who are not affiliates of NEG unless such members
agree to waive application of this termination provision. NEG
recorded $0.7 million as a management fee for Panaco for
the year ended December 31, 2004.
On December 6, 2004, we purchased from affiliates of
Mr. Icahn $27.5 million aggregate principal amount, or
100%, of the TransTexas Notes and all the membership interests
of Mid River, the assets of which consist of $38.0 million
principal amount, or 100%, of the Panaco Debt. As noted above,
we have entered into agreements with affiliates of
Mr. Icahn to purchase 100% of the equity of TransTexas
and Panaco.
Investments
We also seek to purchase undervalued securities to maximize our
returns. Undervalued securities are those which we believe may
have greater inherent value than indicated by their then current
trading price and may present the opportunity for
“activist” bondholders or shareholders to act as
catalysts to realize value. The equity securities in which we
may invest may include common stocks, preferred stocks and
securities convertible into common stocks, as well as warrants
to purchase these securities. The debt securities and
obligations in which we may invest include bonds, debentures,
notes, mortgage-related securities and municipal obligations.
Certain of these securities may include lower rated securities
which may provide the potential for higher yields and therefore
may entail higher risks. In addition, we may engage in various
investment techniques, including options and futures
transactions, foreign currency transactions and leveraging for
hedging or other purposes.
The undervalued securities in which we invest may be undervalued
due to market inefficiencies, may relate to opportunities in
which economic or market trends have not been identified and
reflected in market value, or may include complex or not readily
followed securities. Less favorable financial reports, lowered
credit ratings, revised industry forecasts or sudden legal
complications may result in market inefficiencies and
undervalued situations. We may determine to establish an
ownership position through the purchase of debt or equity
securities of such entities and then negotiate for the ownership
or effective control of some or all of the underlying equity in
such assets.
During 2004, our significant investment activity included:
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the purchase for approximately $205.8 million of an
aggregate of approximately $278.1 million principal amount
of secured bank debt of WestPoint Stevens Inc. Approximately
$193.6 million principal amount is secured by a first
priority lien of certain assets of WestPoint, and approximately
$84.5 million principal amount is secured by a second
priority lien. WestPoint currently is operating as a debtor in
possession under Chapter 11 of the U.S. Bankruptcy
Code; |
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the purchase of an aggregate of approximately $71.8 million
of secured bank debt of Union Power Partners L.P. and Panda Gila
River L.P., independent power producers, for a purchase price of
approximately $39.3 million. No interest is currently being
received on this debt; |
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the sale, for $82.3 million, of approximately
$86.9 million principal amount of corporate debt securities
which we purchased for approximately $45.1 million,
recognizing a gain of $37.2 million; and |
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the short sale of approximately 2.5 million shares of
common stock of a company in bankruptcy. |
On February 28, 2005, WestPoint and certain of its
subsidiaries entered into an asset purchase agreement with New
Textile Holding Co. and New Textile Co., for the sale of
substantially all of WestPoint’s assets pursuant to
Section 363 of the U.S. Bankruptcy Code. The
consummation of the transactions contemplated by the asset
purchase agreement is subject to the receipt of any higher or
better offers through a bidding process. We are exploring our
alternatives with respect to WestPoint Stevens which, among
other things, may include bidding for the assets or objecting to
the asset purchase agreements with New Textile Holding Co. and
New Textile Co.
Our real estate lending operations consist of making second
mortgage or secured mezzanine loans to developers and existing
property owners for the purpose of developing single-family
homes, luxury garden apartments or commercial properties. This
financing may provide for a contractual rate of interest to be
paid as well as providing for a participation in the profits of
the development. The security for these loans is a pledge of the
developers’ ownership interest in the properties and may
also include a second mortgage on the property. These loans are
subordinate to construction financing and are generally referred
to as mezzanine loans. Our mezzanine loans have historically
accrued interest at approximately 22% per annum.
Bayswater’s home building infrastructure and expertise
allow us to evaluate financing opportunities relating to
residential properties and complete developments when necessary.
On April 30, 2004, we received approximately
$16.7 million for the prepayment of a mezzanine loan. The
principal amount of the loan was $11.0 million. The
prepayment included approximately $5.7 million of accrued
interest which was recognized as interest income in the year
ended December 31, 2004. In June and July of 2004, we
received approximately $43.3 million in repayment of a
mezzanine loan. The payment included $31.0 million of
principal and accrued interest of approximately
$12.3 million. Interest income of approximately
$12.3 million was recognized in the year ended
December 31, 2004. As of December 31, 2004, we did not
own any mezzanine loans.
We held one second mortgage loan in the principal amount of
$7.0 million which was repaid in August 2004.
We conduct our activities in a manner so as not to be deemed an
investment company under the Investment Company Act of 1940.
Generally, this means that we do not intend to invest in
securities as our primary business and that no more than 40% of
our total assets will be invested in investment securities as
such term is defined in the Investment Company Act. In addition,
we intend to structure our investments so as to continue to be
taxed as a partnership rather than as a corporation under the
applicable publicly traded partnership rules of the Internal
Revenue Code of 1986, as amended.
Real Estate Leasing Activities
In 2005, 14 leases covering 24 of our properties representing
approximately $3.6 million in annual rentals are scheduled
to expire. Of the 14 leases, six leases representing
approximately $2.9 million in annual rentals were renewed
for annual rentals of approximately $2.9 million. These
renewals are generally for a term of 10 years. Three
properties with annual rentals of approximately
$0.2 million will not be renewed. The status of five
properties with annual rentals of approximately
$0.5 million has not yet been determined.
In many of our leases, the tenant has an option to renew at the
same rents it is currently paying and in many of the leases the
tenant also has an option to purchase the property. We believe
that tenants acting in their best interests will renew those
leases which are at below market rents, and permit leases for
properties that are less marketable, either as a result of the
condition of the property or its location, or are at above-
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market rents to expire. We expect that it may be difficult and
time consuming to re-lease or sell those properties that
existing tenants decline to re-let or purchase and that we may
be required to incur expenditures to renovate such properties
for new tenants. We also may become responsible for the payment
of certain operating expenses, including maintenance, utilities,
taxes, insurance and environmental compliance costs associated
with such properties which are presently the responsibility of
the tenant.
Bankruptcies and Defaults
We are aware that 19 of our present and former tenants in our
rental real estate business have been or are currently involved
in some type of bankruptcy or reorganization. Under the
U.S. Bankruptcy Code, a tenant may assume or reject its
unexpired lease. In the event a tenant rejects its lease, the
U.S. Bankruptcy Code limits the amount of damages a
landlord is permitted to claim in the bankruptcy proceeding as a
result of the lease termination. Generally, a claim resulting
from a rejection of an unexpired lease is a general unsecured
claim. When a tenant rejects a lease, there can be no assurance
that we will be able to relet the property at an equivalent
rental. As a result of tenant bankruptcies, we have incurred and
expect, at least in the near term, to continue to incur certain
property expenses and other related costs. Thus far, these costs
have consisted largely of legal fees, real estate taxes and
property operating expenses. Of our 19 present and former
tenants known to be involved in bankruptcy proceedings or
reorganization, 14 have rejected their leases, affecting 37
properties, all of which have been vacated. These rejections
have had an adverse impact on annual net cash flow including
both the decrease in revenues from lost rents, as well as
increased operating expenses.
Insurance
We carry customary insurance for our properties and business
segments. However, we do not insure net lease properties where
the tenant provides appropriate amounts of insurance. We
determine on a property by property basis whether or not to
obtain terrorism insurance coverage.
Employees
We and our consolidated subsidiaries have approximately 6,000
full and part-time employees, which number fluctuates due to the
seasonal nature of certain of our businesses. Most of the
employees are employed by our subsidiaries. Approximately 1,300
employees of Stratosphere are covered by three collective
bargaining agreements. We believe we currently have sufficient
staffing to operate effectively our day-to-day business.
Competition
Competition in leasing and buying and selling real property
remains strong. Many of our tenants have rights to renew at
prior rental rates. Our experience is that tenants will renew
below market leases and permit leases that are less marketable
or at above market rents to expire, making it difficult for us
to relet or sell on favorable terms properties vacated by
tenants.
Competition for the acquisition of approved land for development
has intensified and we have not been able to replenish our
approved land inventory. Competition for the sale of developed
land, houses and condominiums is also strong in certain areas of
the country. We compete in these areas with national real estate
developers, some of which have greater financial resources than
we do.
Competition for investments of the types we intend to pursue has
been increasing in recent years, including that from a number of
investment funds and REITS that have raised capital for such
investments, resulting in, among other things, higher prices for
such investments. Such investments have become competitive to
source and the increased competition may have an adverse impact
on the spreads and our ability to find quality assets at
appropriate yields. While we believe our capital base may enable
us to gain a competitive advantage over certain other purchasers
of real estate by allowing us to respond quickly and make all
cash transactions without financing contingencies where
appropriate, there can be no assurance that this will be the
case.
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Hotel and Casino Operations |
Investments in the gaming and entertainment industries involve
significant competitive pressures and political and regulatory
considerations. In recent years, there have been many new gaming
establishments opened as well as facility expansions, providing
increased supply of competitive products and properties in the
industry, which may adversely affect our operating margins and
investment returns. The hotel and casino industry is highly
competitive. Hotels located on or near the Las Vegas Strip
compete primarily with other Las Vegas strip hotels and with a
few major hotels in downtown Las Vegas. Stratosphere also
competes with a large number of hotels and motels located in and
near Las Vegas. Stratosphere’s Tower competes with all
other forms of entertainment, recreational activities and other
attractions in and near Las Vegas and elsewhere. Many of our
competitors offer more products than we do and have greater name
recognition and may have greater resources.
The Sands Hotel and Casino faces intense competition from the
eleven other existing Atlantic City casinos, including the newly
opened Borgata. According to reports of the Casino Control
Commission, the twelve Atlantic City casinos currently offer
approximately 1.4 million square feet of gaming space. The
Sands Hotel and Casino also competes with legalized gaming from
casinos located on Native American tribal lands. Legalized
casino gaming in the State of New York, northern New Jersey or
certain areas of Pennsylvania or in other venues that are more
convenient to those areas, could have a material adverse effect
on The Sands Hotel and Casino.
Regulation
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Rental Real Estate and Real Estate Development |
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 released on or in its property. Such laws
often impose such liability without regard to whether the owner
or operator knew of, or was responsible for, the release of such
hazardous substances. If any such substances were 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 will generally require
that properties in which we invest will be subject to a
Phase I environmental site assessment, which involves
record review, visual site assessment and personnel interviews,
but does not involve invasive procedures such as air and soil
sampling or groundwater analysis. There can be no assurance,
however, that these evaluations will reveal 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.
Most of our properties continue to be net-leased to single
corporate tenants, and we believe these tenants would be
responsible for any environmental conditions existing on our
properties they lease. Normally, therefore, such conditions
should not have a material adverse effect on the financial
statements or competitive position. Many of the properties
acquired by us in connection with our formation in 1987 were not
subjected to any type of environmental site assessment at the
time of the acquisition. Consequently, we undertook to have
Phase I environmental site assessments completed on most of
our properties. We believe that under the terms of the net
leases with our tenants, the costs of any environmental problems
would be the responsibility of such tenants. 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 cost of remediation. Also, if we acquire
more operating properties, our exposure to environmental cleanup
costs may increase.
In some cases, the Phase I environmental site assessments
completed on certain properties indicate that they may have
environmental conditions that should be further reviewed. We
have notified the responsible tenants to attempt to ensure that
they cause any required investigation and/or remediation to be
performed
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and most tenants continue to take appropriate action. However,
if the tenants fail to perform responsibilities under their
leases in respect of such sites, we may be liable for
investigation or remediation costs. However, as a limited number
of Phase II environmental site assessments have been
conducted by us, there can be no accurate estimate of the need
for or extent of any required remediation. Approximately 75
updates to Phase I environmental site assessments were
completed in 2003. 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 assessment for our remaining portfolio in 2004.
We could also become liable for environmental clean-up costs if
a bankrupt or insolvent tenant were unable to pay such costs.
Environmental problems may also delay or impair our ability to
sell, refinance or re-lease particular properties, resulting in
decreased income and increased cost to us. While we attempt to
sell properties “as is” and transfer any environmental
liability to the purchaser, we could incur liability based on
our past ownership or operation of divested properties.
Under Title III of the Americans with Disabilities Act of
1990 and its rules or ADA, in order to protect individuals with
disabilities, owners and certain tenants of public
accommodations including hotels, casinos, resorts, offices and
shopping centers, must remove architectural and communication
barriers which are structural in nature from existing places of
public accommodation to the extent “readily
achievable,” as defined in the ADA. In addition, under the
ADA, alterations to a place of public accommodation or a
commercial facility are to be made so that, to the maximum
extent feasible, such altered portions are readily accessible to
and usable by disabled individuals.
Except for certain properties operated by us, we believe that
the existing net leases require the tenants of many of our
properties to comply with the ADA. If a tenant does not comply
with the ADA or rejects its lease in bankruptcy without
complying with the ADA, we may ultimately have to bear the
expense of complying with the ADA.
If we acquire more operating properties, we may be required to
make expenditures to bring such properties into compliance with
the ADA and other applicable laws.
Hotel and Casino Operations
The ownership and operation of casino gaming facilities in the
State of Nevada are subject to the Nevada Gaming Control Act and
the regulations made under such Act, as well as various local
ordinances. The gaming operations of our casinos are subject to
the licensing and regulatory control of the Nevada Gaming
Commission and the Nevada State Gaming Control Board. Our
casinos’ operations are also subject to regulation by the
Clark County Liquor and Gaming Licensing Board and the City of
Las Vegas. These agencies are referred to herein collectively as
the Nevada Gaming Authorities.
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Policy Concerns of Gaming Laws |
The laws, regulations and supervisory procedures of the Nevada
Gaming Authorities are based upon declarations of public policy.
These public policy concerns include, among other things:
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preventing unsavory or unsuitable persons from being directly or
indirectly involved with gaming at any time or in any capacity; |
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establishing and maintaining responsible accounting practices
and procedures; |
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maintaining effective controls over the financial practices of
licensees, including establishing minimum procedures for
internal fiscal affairs, and safeguarding assets and revenue,
providing reliable recordkeeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; |
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preventing cheating and fraudulent practices; and |
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providing a source of state and local revenue through taxation
and licensing fees. |
Changes in these laws, regulations and procedures could have
significant negative effects on our gaming operations and our
financial condition and results of operations.
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Owner and Operator Licensing Requirements |
Our casinos are licensed by the Nevada Gaming Authorities as
corporate and limited liability company licensees, which we
refer to herein as company licensees. Under their gaming
licenses, our casinos are required to pay periodic fees and
taxes. The gaming licenses are not transferable.
To date, our casino properties have obtained all gaming licenses
necessary for the operation of their existing gaming operations;
however, gaming licenses and related approvals are privileges
under Nevada law, and we cannot assure you that any new gaming
license or related approvals that may be required in the future
will be granted, or that any existing gaming licenses or related
approvals will not be limited, conditioned, suspended or revoked
or will be renewed.
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Our Registration Requirements |
We have been registered by the Nevada Gaming Commission as a
publicly traded corporation, which we refer to as a registered
company for the purposes of the Nevada Gaming Control Act. API,
AREH, Beckton and AREH’s direct and indirect subsidiaries
AEP, ACEP, Stratosphere Corporation and Charlie’s Holding,
LLC have been registered by the Nevada Gaming Commission as
holding companies.
Periodically, we will be required to submit detailed financial
and operating reports to the Nevada Gaming Commission and to
provide any other information that the Nevada Gaming Commission
may require. Substantially all of our material loans, leases,
sales of securities and similar financing transactions must be
reported to, or approved by, the Nevada Gaming Commission.
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Individual Licensing Requirements |
No person may become a stockholder or member of, or receive any
percentage of the profits of, a non-publicly traded holding or
intermediary company or company licensee without first obtaining
licenses and approvals from the Nevada Gaming Authorities. The
Nevada Gaming Authorities may investigate any individual who has
a material relationship to or material involvement with us to
determine whether the individual is suitable or should be
licensed as a business associate of a gaming licensee. We and
certain of our officers, directors and key employees are
required to file applications with the Nevada Gaming Authorities
and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. The Nevada Gaming Authorities may
deny an application for licensing for any cause which they deem
reasonable. A finding of suitability is comparable to licensing,
and both require submission of detailed personal and financial
information followed by a thorough investigation. An applicant
for licensing or an applicant for a finding of suitability must
pay or must cause to be paid all the costs of the investigation.
Changes in licensed positions must be reported to the Nevada
Gaming Authorities and, in addition to their authority to deny
an application for a finding of suitability or licensing, the
Nevada Gaming Authorities have the jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer,
director or key employee unsuitable for licensing or unsuitable
to continue having a relationship with us, we would have to
sever all relationships with that person. In addition, the
Nevada Gaming Commission may require us to terminate the
employment of any person who refuses to file appropriate
applications. Determinations of suitability or questions
pertaining to licensing are not subject to judicial review in
Nevada.
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Consequences of Violating Gaming Laws |
If the Nevada Gaming Commission decides that we have violated
the Nevada Gaming Control Act or any of its regulations, it
could limit, condition, suspend or revoke our registrations and
gaming licenses. In addition, we and the persons involved could
be subject to substantial fines for each separate violation of
the Nevada Gaming Control Act, or of the regulations of the
Nevada Gaming Commission, at the discretion of the Nevada Gaming
Commission. Further, the Nevada Gaming Commission could appoint
a supervisor to conduct the operations of our casinos and, under
specified circumstances, earnings generated during the
supervisor’s appointment (except for the reasonable rental
value of the premises) could be forfeited to the State of
Nevada. Limitation, conditioning or suspension of any of our
gaming licenses and the appointment of a supervisor could, and
revocation of any gaming license would, have a significant
negative effect on our gaming operations.
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Requirements for Beneficial Securities Holders |
Regardless of the number of shares held, any beneficial holder
of our voting securities may be required to file an application,
be investigated and have that person’s suitability as a
beneficial holder of voting securities determined if the Nevada
Gaming Commission has reason to believe that the ownership would
otherwise be inconsistent with the declared policies of the
State of Nevada. If the beneficial holder of the voting
securities who must be found suitable is a corporation,
partnership, limited partnership, limited liability company or
trust, it must submit detailed business and financial
information including a list of its beneficial owners. The
applicant must pay all costs of the investigation incurred by
the Nevada Gaming Authorities in conducting any investigation.
The Nevada Gaming Control Act requires any person who acquires
more than 5% of the voting securities of a registered company to
report the acquisition to the Nevada Gaming Commission. The
Nevada Gaming Control Act requires beneficial owners of more
than 10% of a registered company’s voting securities to
apply to the Nevada Gaming Commission for a finding of
suitability within 30 days after the Chairman of the Nevada
State Gaming Control Board mails the written notice requiring
such filing. Under certain circumstances, an “institutional
investor,” as defined in the Nevada Gaming Control Act,
which acquires more than 10%, but not more than 15%, of the
registered company’s voting securities may apply to the
Nevada Gaming Commission for a waiver of a finding of
suitability if the institutional investor holds the voting
securities for investment purposes only. In certain
circumstances, an institutional investor that has obtained a
waiver can hold up to 19% of a registered company’s voting
securities for a limited period of time and maintain the waiver.
An institutional investor will not be deemed to hold voting
securities for investment purposes unless the voting securities
were acquired and are held in the ordinary course of business as
an institutional investor and not for the purpose of causing,
directly or indirectly, the election of a majority of the
members of the board at directors of the registered company, a
change in the corporate charter, bylaws, management, policies or
operations of the registered company, or any of its gaming
affiliates, or any other action which the Nevada Gaming
Commission finds to be inconsistent with holding the registered
company’s voting securities for investment purposes only.
Activities which are not deemed to be inconsistent with holding
voting securities for investment purposes only include:
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voting on all matters voted on by stockholders or interest
holders; |
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making financial and other inquiries of management of the type
normally made by securities analysts for informational purposes
and not to cause a change in its management, policies or
operations; and |
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other activities that the Nevada Gaming Commission may determine
to be consistent with such investment intent. |
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Consequences of Being Found Unsuitable |
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered
to do so by the Nevada Gaming Commission or by the Chairman of
the Nevada State Gaming Control Board, or who refuses or fails
to pay the investigative costs incurred by the Nevada Gaming
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Authorities in connection with the investigation of its
application, may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any person found
unsuitable and who holds, directly or indirectly, any beneficial
ownership of any voting security or debt security of a
registered company beyond the period of time as may be
prescribed by the Nevada Gaming Commission may be guilty of a
criminal offense. We will be subject to disciplinary action if,
after we receive notice that a person is unsuitable to hold an
equity interest or to have any other relationship with, we:
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pay that person any dividend or interest upon any voting
securities; |
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allow that person to exercise, directly or indirectly, any
voting right held by that person; |
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pay remuneration in any form to that person for services
rendered or otherwise; or |
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fail to pursue all lawful efforts to require the unsuitable
person to relinquish such person’s voting securities
including, if necessary, the immediate purchase of the voting
securities for cash at fair market value. |
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Gaming Laws Relating to Securities Ownership |
The Nevada Gaming Commission may, in its discretion, require the
holder of any debt or similar securities of a registered company
to file applications, be investigated and be found suitable to
own the debt or other security of the registered company if the
Nevada Gaming Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared
policies of the State of Nevada. If the Nevada Gaming Commission
decides that a person is unsuitable to own the security, then
under the Nevada Gaming Control Act, the registered company can
be sanctioned, including the loss of its approvals if, without
the prior approval of the Nevada Gaming Commission, it:
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pays to the unsuitable person any dividend, interest or any
distribution whatsoever; |
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recognizes any voting right by the unsuitable person in
connection with the securities; |
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pays the unsuitable person remuneration in any form; or |
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makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar
transaction. |
We are required to maintain a current stock ledger in Nevada
which may be examined by the Nevada Gaming Authorities at any
time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the
identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make the disclosure may be grounds for
finding the record holder unsuitable. We will be required to
render maximum assistance in determining the identity of the
beneficial owner of any of our voting securities. The Nevada
Gaming Commission has the power to require the stock
certificates of any registered company to bear a legend
indicating that the securities are subject to the Nevada Gaming
Control Act and certain subject to restrictions imposed by
applicable gaming laws. To date, this requirement has not been
imposed on us.
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Approval of Public Offerings |
Neither we nor any of our affiliates may make a public offering
of our securities without the prior approval of the Nevada
Gaming Commission if the proceeds from the offering are intended
to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for those
purposes or for similar transactions. Any offer by us to
exchange notes (including the 7.125% senior notes due 2013
issued on February 7, 2005) for publicly registered notes
will require the review of, and prior approval by, the Nevada
Gaming Authorities. The Nevada Commission has granted us prior
approval to make public offerings for a period of two years
expiring in May 2006, subject to certain conditions. This
approval, the shelf approval, may be rescinded for good cause
without prior notice upon the issuance of an interlocutory stop
order by the Chairman of the Nevada Board and must be renewed at
the end of the two-year approval period. The shelf approval
applies to any affiliated company wholly owned by us, or an
affiliate, which is a publicly
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traded corporation or would thereby become a publicly traded
corporation pursuant to a public offering. The shelf approval
includes approval for Stratosphere Gaming Corp. to guarantee any
security issued by, or to hypothecate its assets to secure the
payment or performance of any obligations evidenced by a
security issued by, us or an Affiliate in a public offering
under the shelf approval. The shelf approval also includes
approval for us to place restrictions upon the transfer of, and
to enter into agreements not to encumber the equity securities
of our subsidiaries licensed or registered in Nevada, as
applicable, in conjunction with public offerings made under the
shelf approval. The shelf approval does not constitute a
finding, recommendation or approval by the Nevada Commission or
the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered.
Any representation to the contrary is unlawful.
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Approval of Changes in Control |
As a registered company, we must obtain prior approval of the
Nevada Gaming Commission with respect to a change in control
through:
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merger; |
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consolidation; |
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stock or asset acquisitions; |
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management or consulting agreements; or |
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any act or conduct by a person by which the person obtains
control of us. |
Entities seeking to acquire control of a registered company must
satisfy the Nevada State Gaming Control Board and Nevada Gaming
Commission with respect to a variety of stringent standards
before assuming control of the registered company. The Nevada
Gaming Commission may also require controlling stockholders,
officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire
control to be investigated and licensed as part of the approval
process relating to the transaction.
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Approval of Defensive Tactics |
The Nevada legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting
securities and corporate defense tactics affecting Nevada gaming
licenses or affecting registered companies that are affiliated
with the operations permitted by Nevada gaming licenses may be
harmful to stable and productive corporate gaming. The Nevada
Gaming Commission has established a regulatory scheme to reduce
the potentially adverse effects of these business practices upon
Nevada’s gaming industry and to further Nevada’s
policy to:
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assure the financial stability of corporate gaming operators and
their affiliates; |
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preserve the beneficial aspects of conducting business in the
corporate form; and |
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promote a neutral environment for the orderly governance of
corporate affairs. |
As a registered company, we may need to obtain approvals from
the Nevada Gaming Commission before we can make exceptional
repurchases of voting securities above our current market price
and before a corporate acquisition opposed by management can be
consummated. The Nevada Gaming Control Act also requires prior
approval of a plan of recapitalization proposed by a registered
company’s board of directors in response to a tender offer
made directly to its stockholders for the purpose of acquiring
control.
License fees and taxes, computed in various ways depending on
the type of gaming or activity involved, are payable to the
State of Nevada and to the counties and cities in which the
licensed subsidiaries respective
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operations are conducted. Depending upon the particular fee or
tax involved, these fees and taxes are payable either monthly,
quarterly or annually and are based upon:
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a percentage of gross revenues received; |
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the number of gaming devices operated; or |
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the number of table games operated. |
Our casinos are also subject to a state payroll tax based on the
wages paid to their employees.
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Foreign Gaming Investigations |
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with those
persons, or licensees, and who proposes to become involved in a
gaming venture outside of Nevada, is required to deposit with
the Nevada State Gaming Control Board, and thereafter maintain,
a revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada State Gaming Control Board of the
licensee’s or registrant’s participation in such
foreign gaming. The revolving fund is subject to increase or
decrease in the discretion of the Nevada Gaming Commission.
Licensees and registrants are required to comply with the
reporting requirements imposed by the Nevada Gaming Control Act.
A licensee or registrant is also subject to disciplinary action
by the Nevada Gaming Commission if it:
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knowingly violates any laws of the foreign jurisdiction
pertaining to the foreign gaming operation; |
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fails to conduct the foreign gaming operation in accordance with
the standards of honesty and integrity required of Nevada gaming
operations; |
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engages in any activity or enters into any association that is
unsuitable because it poses an unreasonable threat to the
control of gaming in Nevada, reflects, or tends to reflect,
discredit or disrepute upon the State of Nevada or gaming in
Nevada, or is contrary to the gaming policies of Nevada; |
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engages in activities or enters into associations that are
harmful to the State of Nevada or its ability to collect gaming
taxes and fees; or |
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employs, contracts with or associates with a person in the
foreign operation who has been denied a license or finding of
suitability in Nevada on the ground of unsuitability. |
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License for Conduct of Gaming and Sale of Alcoholic
Beverages |
The conduct of gaming activities and the service and sale of
alcoholic beverages by our casinos are subject to licensing,
control and regulation by the Clark County Liquor and Gaming
Licensing Board and the City of Las Vegas. In addition to
approving our casinos, the Clark County Liquor and Gaming
License Board and the City of Las Vegas have the authority
to approve all persons owning or controlling the stock of any
corporation controlling a gaming license. All licenses are
revocable and are not transferable. The county and city agencies
have full power to limit, condition, suspend or revoke any
license. Any disciplinary action could, and revocation would,
have a substantial negative impact upon our operations.
Casino gaming is strictly regulated in Atlantic City under the
New Jersey Casino Control Act, or NJCCA, and the
regulations of the New Jersey Casino Control Commission, or
New Jersey Commission, which affect virtually all aspects
of the operations of The Sands Hotel and Casino. The NJCCA and
regulations affecting Atlantic City casino licensees concern
primarily the financial stability, integrity and character of
casino operators, their employees, their debt and equity
security holders and others financially interested in casino
operations; the nature of hotel and casino facilities; the
operation methods (including rules of games and credit granting
procedures); and financial and accounting practices used in
connection with casino operations. A number of these regulations
require practices that are different from those in casinos in
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Nevada and elsewhere, and some of these regulations result in
casino operating costs greater than those in comparable
facilities in Nevada and elsewhere. The following is only a
summary of the applicable provisions of the NJCCA. It does not
purport to be a full description and is qualified in its
entirety by reference to the NJCCA and such other applicable
laws and regulations.
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New Jersey Gaming Regulations |
In general, the NJCCA and the regulations promulgated thereunder
contain detailed provisions concerning, among other things:
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the granting and renewal of casino licenses; |
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the suitability of the approved hotel facility, and the amount
of authorized casino space and gaming units permitted therein; |
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the qualification of natural persons and entities related to the
casino licensee; |
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the licensing of certain employees and vendors of casino
licensees; |
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the rules of the games; |
| |
| |
• |
the selling and redeeming of gaming chips; |
| |
| |
• |
the granting and duration of credit and the enforceability of
gaming debts; |
| |
| |
• |
management control procedures, accounting and cash control
methods and reports to gaming agencies; |
| |
| |
• |
the security standards; |
| |
| |
• |
the manufacture and distribution of gaming equipment; and |
| |
| |
• |
the simulcasting of horse races by casino licensees,
advertising, entertainment and alcoholic beverages. |
|
|
|
Casino Control Commission |
The ownership and operation of hotel and casino facilities in
Atlantic City are the subject of strict state regulation under
the NJCCA. The New Jersey Commission is empowered to
regulate a wide spectrum of gaming and non-gaming related
activities and to approve the form of ownership and financial
structure of not only a casino licensee, but also its entity
qualifiers and intermediary and holding companies and any other
related entity required to be qualified.
No casino hotel facility may operate unless the appropriate
license and approvals are obtained from the New Jersey
Commission, which has broad discretion with regard to the
issuance, renewal, revocation and suspension of such licenses
and approvals, which are non-transferable. The qualification
criteria with respect to the holder of a casino license include
its financial stability, integrity and responsibility; the
integrity and adequacy of its financial resources which bear any
relation to the casino project; its good character, honesty and
integrity; and the sufficiency of its business ability and
casino experience to establish the likelihood of a successful,
efficient casino operation. A plenary license authorizes the
operation of a casino with the games authorized in an operation
certificate issued by the New Jersey Commission, and the
operation certificate may be issued only on a finding that the
casino conforms to the requirements of the NJCCA and applicable
regulations that the casino is prepared to entertain the public.
Under such determination, ACE Gaming, LLC, trading as The Sands
Casino Hotel, has been issued a plenary casino license. The
plenary license issued to The Sands Hotel and Casino was renewed
by the New Jersey Commission on September 29, 2004 for
four years through September 2008. The New Jersey
Commission may reopen license hearings at any time, and must
reopen a licensing hearing at the request of the New Jersey
Division of Gaming Enforcement.
To be considered financially stable, a licensee must demonstrate
the following abilities: to pay winning wagers when due; to
achieve an annual gross operating profit; to pay all local,
state and federal taxes when due;
24
to make necessary capital and maintenance expenditures to insure
that it has a superior first-class facility; and to pay,
exchange, refinance or extend debts which will mature or become
due and payable during the license term.
In the event a licensee fails to demonstrate financial
stability, the New Jersey Commission may take such action
as it deems necessary to fulfill the purposes of the NJCCA and
protect the public interest, including: issuing conditional
licenses, approvals or determinations; establishing an
appropriate cure period; imposing reporting requirements;
placing restrictions on the transfer of cash or the assumption
of liabilities; requiring reasonable reserves or trust accounts;
denying licensure; or appointing a conservator. See
“— Conservatorship.”
Pursuant to the NJCCA and the regulations and precedent of the
New Jersey Commission, no entity may hold a casino license
unless each officer, director, principal employee, person who
directly or indirectly holds any beneficial interest or
ownership in the licensee, each person who in the opinion of the
New Jersey Commission has the ability to control or elect a
majority of the board of directors of the licensee (other than a
banking or other licensed lending institution which makes a loan
or holds a mortgage or other lien acquired in the ordinary
course of business) and any lender, underwriter, agent or
employee of the licensee or other person whom the
New Jersey Commission may consider appropriate, obtains and
maintains qualification approval from the New Jersey
Commission. Qualification approval means that such person must,
but for residence, individually meet the qualification
requirements as a casino key employee.
Any entity qualifier or intermediary of a holding company, such
as AREP, is required to register with the New Jersey
Commission and meet the same basic standards for approval as a
casino licensee; provided, however, that the New Jersey
Commission, with the concurrence of the Director of the Division
of Gaming Enforcement, may waive compliance by a publicly-traded
corporate holding company with the requirement that an officer,
director, lender, underwriter, agent or employee thereof, or
person directly or indirectly holding a beneficial interest or
ownership of the securities thereof, individually qualify for
approval under casino key employee standards so long as the New
Jersey Commission and the Director of the Division of Gaming
Enforcement are, and remain, satisfied that such officer,
director, lender, underwriter, agent or employee is not
significantly involved in the activities of the casino licensee,
or that such security holder does not have the ability to
control the publicly-traded corporate holding company or elect
one or more of its directors. Persons holding 5.0% or more of
the equity securities of such holding company are presumed to
have the ability to control the company or elect one or more of
its directors and will, unless this presumption is rebutted, be
required to individually qualify. Equity securities are defined
as any voting stock or any security similar to or convertible
into or carrying a right to acquire any security having a direct
or indirect participation in the profits of the issuer.
The New Jersey Commission may require all financial backers,
investors, mortgagees, bond holders and holders of notes or
other evidence of indebtedness, either in effect or proposed,
which bear any relation to any casino project, including holders
of publicly-traded securities of an entity which holds a casino
license or is an entity qualifier, subsidiary or holding company
of a casino licensee, to qualify as financial sources. In the
past, the New Jersey Commission has waived the
qualification requirement for holders of less than 15.0% of a
series of publicly-traded mortgage bonds so long as the bonds
remained widely distributed and freely traded in the public
market and the holder had no ability to control the casino
licensee. The New Jersey Commission may require holders of
less than 15.0% of a series of debt to qualify as financial
sources even if not active in the management of the issuer or
casino licensee.
An institutional investor is defined by the NJCCA as any
retirement fund administered by a public agency for the
exclusive benefit of federal, state or local public employees;
any investment company registered
25
under the Investment Company Act of 1940, as amended; any
collective investment trust organized by banks under
Part Nine of the Rules of the Comptroller of the Currency;
any closed end investment trust; any chartered or licensed life
insurance company or property and casualty insurance company;
any banking and other chartered or licensed lending institution;
any investment advisor registered under the Investment Advisers
Act of 1940, as amended; and such other persons as the
New Jersey Commission may determine for reasons consistent
with the policies of the NJCCA.
An institutional investor may be granted a waiver by the
New Jersey Commission from financial source or other
qualification requirements applicable to a holder of
publicly-traded securities, in the absence of a prima facie
showing by the Division of Gaming Enforcement that there is any
cause to believe that the holder may be found unqualified, on
the basis of New Jersey Commission findings that:
(1) its holdings were purchased for investment purposes
only and, upon request by the New Jersey Commission, it
files a certified statement to the effect that it has no
intention of influencing or affecting the affairs of the issuer,
the casino licensee or its holding or intermediary companies;
provided, however, that the institutional investor will be
permitted to vote on matters put to the vote of the outstanding
security holders; and (2) if (x) the securities are
debt securities of a casino licensee’s holding or
intermediary companies or another subsidiary company of the
casino licensee’s holding or intermediary companies which
is related in any way to the financing of the casino licensee
and represent either (A) 20.0% or less of the total
outstanding debt of the company or (B) 50.0% or less of any
issue of outstanding debt of the company, (y) the
securities are equity securities and represent less than 10.0%
of the equity securities of a casino licensee’s holding or
intermediary companies or (z) the securities so held exceed
such percentages, upon a showing of good cause. There can be no
assurance, however, that the New Jersey Commission will
make such findings or grant such waiver and, in any event, an
institutional investor may be required to produce for the
New Jersey Commission or the Antitrust Division of the
Department of Justice upon request, any document or information
which bears any relation to such debt or equity securities.
|
|
|
Ownership and Transfer of Securities |
The NJCCA imposes certain restrictions upon the issuance,
ownership and transfer of securities of a regulated company and
defines the term “security” to include instruments
which evidence a direct or indirect beneficial ownership or
creditor interest in a regulated company including, but not
limited to mortgages, debentures, security agreements, notes and
warrants. AREP is deemed to be a regulated company, and
instruments evidencing a beneficial ownership or creditor
interest therein, including the notes or a partnership interest,
are deemed to be the securities of a regulated company.
If the New Jersey Commission finds that a holder of such
securities is not qualified under the NJCCA, it has the right to
take any remedial action it may deem appropriate, including the
right to force divestiture by such disqualified holder of such
securities. In the event that certain disqualified holders fail
to divest themselves of such securities, the New Jersey
Commission has the power to revoke or suspend the casino license
affiliated with the regulated company which issued the
securities. If a holder is found unqualified, it is unlawful for
the holder (1) to exercise, directly or through any trustee
or nominee, any right conferred by such securities or
(2) 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.
With respect to non-publicly-traded securities, the NJCCA and
regulations of the New Jersey Commission require that the
corporate charter or partnership agreement of a regulated
company establish a right in the New Jersey Commission of
prior approval with regard to transfers of securities, shares
and other interests and an absolute right in the regulated
company to repurchase at the market price or the purchase price,
whichever is the lesser, any such security, share or other
interest in the event that the New Jersey Commission
disapproves a transfer. With respect to publicly-traded
securities, such corporate charter or partnership agreement is
required to establish that any such securities of the entity are
held subject to the condition that if a holder thereof is found
to be disqualified by the New Jersey Commission, such
holder shall dispose of such securities.
26
Under the terms of the indenture governing the notes, if a
holder of the notes does not qualify under the NJCCA when
required to do so, such holder must dispose of its interest in
such securities, and the issuer of such securities may redeem
the securities at the lesser of the outstanding amount or fair
market value.
If, at any time, it is determined that The Sands Hotel and
Casino, AREP or any other holding company, intermediary company
or entity qualifier has violated the NJCCA or that any of such
entities cannot meet the qualification requirements of the
NJCCA, such entity could be subject to fines or the suspension
or revocation of its license or qualification. If a casino
license is suspended for a period in excess of 120 days or
is revoked, or if the New Jersey Commission fails or refuses to
renew such casino license, the New Jersey Commission could
appoint a conservator to operate and dispose of such
licensee’s casino hotel facilities. A conservator would be
vested with title to all property of such licensee relating to
the casino and the approved hotel subject to valid liens and/or
encumbrances. The conservator would be required to act under the
direct supervision of the New Jersey Commission and would
be charged with the duty of conserving, preserving and, if
permitted, continuing the operation of the casino hotel. During
the period of the conservatorship, a former or suspended casino
licensee is entitled to a fair rate of return out of net
earnings, if any, on the property retained by the conservator.
The New Jersey Commission may also discontinue any
conservatorship action and direct the conservator to take such
steps as are necessary to effect an orderly transfer of the
property of a former or suspended casino licensee. Such events
could result in an event of default under the terms of the
indenture governing the notes.
The oil and gas industry is subject to laws, regulations and
other legal requirements enacted or adopted by federal, state
and local, as well as foreign, authorities relating to
protection of the environment and health and safety matters,
including those legal requirements that govern discharges of
substances into the air and water, the management and disposal
of hazardous substances and wastes, the cleanup of contaminated
sites, groundwater quality and availability, plant and wildlife
protection, reclamation and restoration of properties after
drilling is completed.
Oil and gas exploration, production, and related operations are
subject to extensive rules and regulations promulgated by
federal and state agencies. Failure to comply with such rules
and regulations can result in substantial penalties and/or the
revocation of permits or licenses necessary for our business.
The regulatory burden on the oil and gas industry increases the
cost of doing business and affects profitability. Because such
rules and regulations are frequently amended or interpreted by
federal and state agencies or jurisdictions, we are not able to
predict the future cost or impact of complying with such laws.
|
|
|
Exploration and Production |
Exploration and development operations are subject to various
types of regulation at the federal, state, and local levels.
Such regulation includes requiring permits for the drilling of
wells; maintaining bonding requirements in order to drill or
operate wells; and regulating the location of wells, the method
of drilling and casing wells, the surface use and restoration of
properties upon which wells are drilled, and the plugging and
abandoning of wells. Operations are also subject to various
conservation regulations and rules to protect the correlative
rights of mineral interest owners. These include the regulation
of the size of drilling and spacing units or proration units,
the density of wells which may be drilled, and the unitization
or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of tracts to
facilitate exploration, while other states rely on voluntary
pooling of land and leases. In addition, some state conservation
laws establish maximum rates of production from oil and gas
wells, generally prohibit the venting or flaring of natural gas,
and impose certain requirements regarding the ratability of
production. The effect of these regulations is to limit the
amounts of oil and gas that can be produced from wells and to
limit the number of wells or the locations at which wells can be
drilled. Legislation in Oklahoma and regulatory action in Texas
governs the methodology by which the regulatory agencies
establish permissible monthly production
27
allowables. We cannot predict what effect any change in
prorationing regulations might have on production and sales of
natural gas.
Certain oil, gas and mineral leases are granted by the federal
government and administered by various federal agencies. Such
leases require compliance with detailed federal regulations and
orders which regulate, among other matters, drilling and
operations on these leases and calculation and disbursement of
royalty payments to the federal government. The Mineral Lands
Leasing Act of 1920 places limitations on the number of acres
under federal leases that may be owned in any one state.
|
|
|
Environmental Protection and Occupational Safety |
NEG Holding, Panaco and TransTexas each is subject to numerous
federal, state and local laws and regulations governing the
release of materials into the environment or otherwise relating
to environmental protection. These laws and regulations may
require the acquisition of a permit before drilling commences,
restrict the types, quantities and concentration of various
substances that can be released into the environment in
connection with drilling and production activities, limit or
prohibit drilling activities on certain lands lying within
wilderness, wetlands and other protected areas, and impose
substantial liabilities for pollution resulting from operations.
Moreover, the recent trend toward stricter standards in
environmental legislation and regulation is likely to continue.
Because such laws and regulations are frequently changed, we
cannot predict the ultimate cost and effects of such compliance.
The Comprehensive Environmental Response, Compensation and
Liability Act, or CERCLA, also known as the
“Superfund” law, imposes liability, without regard to
fault or the legality of the original conduct, on certain
classes of persons who are considered to have contributed to the
release or threatened release of a “hazardous
substance” into the environment. These persons include the
owner or operator of the disposal site or sites where the
release occurred and companies that disposed or arranged for the
disposal of the hazardous substances. Under CERCLA, such persons
or companies may be subject to joint and several liability for
the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural
resources. Also, it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury,
property damage, and recovery of response costs allegedly caused
by hazardous substance released into the environment. In
addition, the U.S. Oil Pollution Act of 1990, or OPA, and
regulations promulgated pursuant thereto impose a variety of
regulations on responsible parties related to the prevention of
oil spills and liability for damages resulting from such spills.
The OPA establishes strict liability for owners of facilities
that are the site of a release of oil into “waters of the
United States.” While OPA liability more typically applies
to facilities near substantial bodies of water, at least one
district court has held that OPA liability can attach if the
contamination could enter waters that may flow into navigable
waters. The Resource Conservation and Recovery Act, or RCRA, and
regulations promulgated thereunder govern the generation,
storage, transfer and disposal of hazardous wastes. RCRA,
however, currently excludes from the definition of hazardous
wastes “drilling fluids, produced waters, and other wastes
associated with the exploration, development, or production of
crude oil, natural gas, or geothermal energy.” Because of
this exclusion, many of the operations of NEG Holding, Panaco
and TransTexas are exempt from RCRA regulation. Nevertheless,
each must comply with RCRA regulations for any of its operations
that do not fall within the RCRA exclusion (such as painting
activities or use of solvents). On August 8, 1998, EPA
added four petroleum refining wastes to the list of RCRA
hazardous wastes. The impact of this change is not likely to be
any more burdensome on us than to any other similarly situated
company involved in oil and gas exploration and production.
Because oil and gas exploration, production and other activities
have been conducted at some of our properties by previous owners
and operators, materials from these operations may remain on
some of the properties and in some instances require
remediation. In addition, NEG Holding, Panaco and TransTexas
each has agreed to indemnify some sellers of producing
properties from whom it has acquired reserves against certain
liabilities for environmental claims associated with such
properties. There can be no guarantee that such costs will not
result in future material expenditures. Additionally, in the
course of routine oil and gas operations, surface spills and
leaks, including casing leaks of oil or other materials
occasionally occur, and as a result, NEG Holding, Panaco
and TransTexas could incur costs for waste handling and
environmental compliance. Moreover, NEG Holding, Panaco and
TransTexas are able to control directly the operations of only
those
28
wells for which any of them acts as the operator.
Notwithstanding the lack of control over wells in which any of
them owns an interest but are operated by others, the failure of
the operator to comply with applicable environmental regulations
may, in certain circumstances, be attributable to NEG Holding,
Panaco and TransTexas.
NEG, Panaco and TransTexas also are subject to laws and
regulations concerning occupational safety and health. While it
is not anticipated that we will be required in the near future
to expend amounts that are material in the aggregate to overall
operations by reason of occupational safety and health laws and
regulations, we are unable to predict the ultimate cost of
future compliance.
Available Information
Our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments
to those reports are available, without charge, on our website,
http://www.areplp.com/investor.shtml as soon as
reasonably practicable after they are filed electronically with
the SEC. Copies are also available, without charge, by writing
American Real Estate Partners, L.P., 100 South Bedford
Road, Mt. Kisco, NY 10549, Attention: Investor Relations.
Rental Real Estate
As of December 31, 2004, we owned 71 separate real estate
assets, excluding our real estate development, hotel and resort
operations, hotel and casino operations and real estate assets
related to our oil and gas operations. These primarily consist
of fee and leasehold interests and, to a limited extent,
interests in real estate mortgages in 23 states. Most of
these properties are net-leased to single corporate tenants.
Approximately 84% of these properties are currently net-leased,
6% are operating properties and 10% are vacant.
The following table summarizes the type, number per type and
average net effective rent per square foot of such properties:
| |
|
|
|
|
|
|
|
|
| |
|
Number of |
|
Average Net Effective |
| Type of Property |
|
Properties |
|
Rent Per Square Foot(1) |
| |
|
|
|
|
|
Retail
|
|
|
28 |
|
|
$ |
5.29 |
|
|
Industrial
|
|
|
13 |
|
|
$ |
2.07 |
|
|
Office
|
|
|
18 |
|
|
$ |
10.01 |
|
|
Supermarkets
|
|
|
4 |
|
|
$ |
6.44 |
|
|
Banks
|
|
|
3 |
|
|
$ |
3.11 |
|
|
Other
|
|
|
5 |
|
|
|
N/A |
|
|
|
| (1) |
Based on net-lease rentals. |
The following table summarizes the number of such properties in
each region specified below:
| |
|
|
|
|
|
| |
|
Number of |
| Location of Property |
|
Properties |
| |
|
|
|
United States:
|
|
|
|
|
| |
Southeast
|
|
|
35 |
|
| |
Northeast
|
|
|
14 |
|
| |
South Central
|
|
|
3 |
|
| |
Southwest
|
|
|
1 |
|
| |
North Central
|
|
|
17 |
|
| |
Northwest
|
|
|
1 |
|
To capitalize on favorable real estate market conditions and the
mature nature of our commercial real estate portfolio, we have
offered for sale our rental real estate portfolio. 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
29
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. From January 1, 2005 through March 1, 2005,
we sold four of these rental real estate properties for
approximately $46.5 million. These properties were
encumbered by approximately $10.8 million of mortgage debt.
For each of the years ended December 31, 2004, 2003 and
2002, no single real estate asset or series of assets leased to
the same lessee accounted for more than 10% of our gross
revenues. However, as of December 31, 2002 and 2003, PGEC
occupied a property which represented approximately 14% of the
carrying value of our total real estate assets leased to others;
at December 31, 2004 such amount was 23%. PGEC is an
electric utility engaged in the generation, purchase,
transmission, distribution and sale of electricity. All of
PGEC’s common stock was owned by Enron Corp. which has
filed for bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code. PGEC was not included in the filing.
In November 2003, Enron agreed to sell PGEC to a newly created
company named Oregon Electric Utility Company, LLC. In
February 2004, the Bankruptcy Court approved the sale,
subject to certain regulatory approvals. We are not aware of any
conditions of the sale that will affect PGEC’s lease
obligation.
PGEC’s property is an office complex consisting of three
buildings containing an aggregate of approximately
803,000 square feet on an approximate 2.7 acre parcel
of land located in Portland, Oregon. PGEC’s property is
net-leased to a wholly-owned subsidiary of PGEC through
September 30, 2018, with two ten-year and one five-year
renewal options. The annual rental is $4.9 million until
2018 and $2.5 million during each renewal option. PGEC has
guaranteed the performance of its subsidiary’s obligations
under the lease. The lessee has an option to purchase
PGEC’s property in September 2008, 2013 and 2018 at a
price equal to the fair market value of PGEC’s property
determined in accordance with the lease and is required to make
a rejectable offer to purchase PGEC’s property in
September 2018 for a price of $15.0 million. A
rejection of such offer will have no effect on the lease
obligations or the renewal and purchase options.
Real Estate Development
We own, primarily through our Bayswater subsidiary, residential
development properties. Bayswater, a real estate investment,
management and development company, focuses primarily on the
construction and sale of single-family houses, multi-family
homes and lots in subdivisions and planned communities and raw
land for residential development.
Our New Seabury development includes land for future residential
and commercial development. See Item 3. “Legal
Proceedings.”
We own the waterfront communities of Grand Harbor and Oak Harbor
in Vero Beach, Florida. These communities include properties in
various stages of development and we also own 400 acres of
land to the north of Grand Harbor which has entitlements to
build additional homes.
Hotel and Casino Operations
We own and operate the Stratosphere Tower, Casino &
Hotel, located in Las Vegas, Nevada, which is centered
around the Stratosphere Tower, the tallest free-standing
observation tower in the United States. The hotel and
entertainment facility has 2,444 rooms and suites, a
80,000 square foot casino and related amenities.
We own Arizona Charlie’s Decatur and Arizona Charlie’s
Boulder. Arizona Charlie’s Decatur has 258 hotel rooms and
a 52,000 square foot casino and related amenities. Arizona
Charlie’s Boulder has 303 hotel rooms and a
41,000 square foot casino and related amenities.
We own a 36.3% of the common stock in GB Holdings, the
indirect parent company of The Sands Hotel and Casino. The Sands
Hotel and Casino, located in Atlantic City, New Jersey,
contains 620 rooms and suites, a 78,000 square foot casino
and related amenities.
30
Hotel and Resort Operations
We own a resort property in New Seabury, Massachusetts. The New
Seabury resort is comprised of two golf courses, other
recreational facilities, condominium and time share units.
Our Grand Harbor and Oak Harbor properties in Vero Beach,
Florida include golf courses, tennis courts, fitness centers,
beach clubs and clubhouses.
|
|
| Item 3. |
Legal Proceedings. |
We are from time to time parties to various legal proceedings
arising out of our businesses. We believe however, that other
than the proceedings discussed below, there are no proceedings
pending or threatened against us which, if determined adversely,
would have a material adverse effect on our business, financial
condition, results of operations or liquidity.
New Seabury
In January 2002, the Cape Cod Commission, a Massachusetts
regional planning body created in 1989, concluded that our New
Seabury development is within its jurisdiction for review and
approval. We believe that the proposed residential, commercial
and recreational development is in substantial compliance with a
special permit issued for the property in 1964 and is therefore
exempt from the commission’s jurisdiction and that the
Commission is barred from exercising jurisdiction pursuant to a
1993 settlement agreement between the commission and a prior
owner of the New Seabury property.
In February 2002, New Seabury Properties L.L.C., our
subsidiary and owner of the property, filed in Barnstable County
Massachusetts Superior Court, a civil complaint appealing the
decision by the commission, and a separate civil complaint to
find the commission in contempt of the settlement agreement. The
court subsequently consolidated the two complaints into one
proceeding and in July 2003, the parties each filed cross
motions for summary judgment.
Also, in July 2003, in accordance with a court ruling, the
commission reconsidered the question of its jurisdiction over
the initial development proposal and over a modified development
proposal that New Seabury filed in March 2003. The Commission
concluded that both proposals are within its jurisdiction. In
August 2003, New Seabury filed in Barnstable County
Massachusetts Superior Court another civil complaint appealing
the Commission’s second decision and petitioning the court
to find the Commission in contempt of the settlement agreement.
In November 2003, the court ruled in New Seabury’s favor on
its July 2003 motion for partial summary judgment, finding that
the special permit remains valid and that the modified
development proposal is in substantial compliance with the
special permit and therefore exempt from the commission’s
jurisdiction; the court has not yet ruled on the initial
proposal to build up to 675 residential/hotel units and 80,000
square feet of commercial space. Under the modified development
proposal, New Seabury could potentially develop up to
278 residential units and 145,000 square feet of
commercial space. In February 2004, the court consolidated the
three complaints into one proceeding. In March 2004, New Seabury
and the Commission each moved for summary judgment to dispose of
remaining claims under all three complaints and to obtain a
final judgment from the court. The court heard arguments in June
2004 and took the matter under advisement. The Commission and
New Seabury filed a joint motion to delay, until May 6,
2005, any ruling by the court on New Seabury’s pending
motion for summary judgment and the Commission’s pending
cross-motion for summary judgment. We are currently in
settlement negotiations with Commission but these discussions
may not be successful. We cannot predict the effect on the
development process if we lose any appeal or if the commission
is ultimately successful in asserting jurisdiction over any of
the development proposals.
|
|
| Item 4. |
Submission of Matters to a Vote of Security
Holders. |
No matters were submitted to a vote of Unitholders during 2004.
31
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity, Related
Security Holder Matter and Issuer Purchases of Equity
Securities. |
Market Information
Our depositary units are traded on the New York Stock Exchange,
or NYSE, under the symbol “ACP.” Trading on the NYSE
commenced July 23, 1987, and the range of high and low
market prices for the depositary units on the New York Stock
Exchange Composite Tape (as reported by The Wall Street Journal)
for each quarter from January 1, 2003 through
December 31, 2004 is as follows:
| |
|
|
|
|
|
|
|
|
| Quarter Ended: |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
March 31, 2003
|
|
$ |
10.94 |
|
|
$ |
9.26 |
|
|
June 30, 2003
|
|
|
12.45 |
|
|
|
10.15 |
|
|
September 30, 2003
|
|
|
12.80 |
|
|
|
10.65 |
|
|
December 31, 2003
|
|
|
17.20 |
|
|
|
11.55 |
|
| |
|
March 31, 2004
|
|
$ |
17.19 |
|
|
$ |
14.46 |
|
|
June 30, 2004
|
|
|
21.80 |
|
|
|
15.25 |
|
|
September 30, 2004
|
|
|
22.93 |
|
|
|
18.41 |
|
|
December 31, 2004
|
|
|
29.23 |
|
|
|
20.00 |
|
As of December 31, 2004, there were approximately
9,300 record holders of the depositary units.
There were no repurchases of our depositary units during the
quarter ended December 31, 2004.
Distributions
Since January 1, 1994, AREP has not made any cash
distributions with respect to the depositary units.
We do not currently expect to make any cash distributions on our
depositary units in 2005. We continue to believe that we should
hold and utilize in our business, rather than distribute, cash.
No distributions were made in 2004 or 2003. We intend to
continue to apply available cash flow toward our operations,
repayment of maturing indebtedness, investments, acquisitions
and other capital expenditures. Proceeds from the sales of our
rental real estate portfolio will be utilized to attempt to
further diversify our business operations, including but not
limited to sectors such as insurance and oil and gas and gaming
as well as in real estate if opportunities to do so at favorable
prices are found. We will seek investments that provide rates of
return in excess of our cost of capital. Making such
acquisitions or achieving such returns cannot be assured. Our
ability to pay dividends is restricted by our
81/8% senior
notes due 2012 and
71/8% senior
notes due 2013. ACEP’s 7.85% senior secured notes due
2012 contain restrictions on dividends and distributions to us,
the purchase of our equity interests in ACEP, loans to us, as
well as other transactions with us. Notes issued by Atlantic
Holdings also contain restrictions on dividends and
distributions to equity holders. 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 and
distributions. For a description of these restrictions, see
Item 7 — “Management’s Discussion and
Analysis of the Financial Condition and Results of
Operations — Capital Resources and Liquidity.”
As of March 1, 2005, there were 46,098,284 depositary
units and 10,286,264 preferred units outstanding. Trading
in the preferred units commenced March 31, 1995 on the NYSE
under the symbol “ACPPR.” The preferred units
represent limited partnership interests in AREP and have certain
rights and designations, generally as follows. Each preferred
unit has a liquidation preference of $10.00 and entitles the
holder to receive distributions payable solely in additional
preferred units, at a rate of $.50 per preferred unit per
annum (which is equal to a rate of 5% of the liquidation
preference of the unit) payable annually on March 31 of
each year, each referred to as a payment date. On any payment
date, we, with the approval of our audit committee, may opt to
redeem all, but not less than all, of the preferred units for a
price, payable either in all cash or by issuance of additional
depositary units, equal to the liquidation preference of the
preferred units, plus any
32
accrued but unpaid distributions thereon. On March 31,
2010, we must redeem all, but not less than all, of the
preferred units on the same terms as any optional redemption.
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 our
scheduled annual preferred unit distribution payable in
additional preferred units at the rate of 5% of the liquidation
preference of $10.00. The distribution is payable on
March 31, 2005 to holders of record as of March 15,
2005. In March 2005, the number of authorized preferred units
was increased to 10,900,000.
Each depositary unitholder will be taxed on the
unitholder’s allocable share of our taxable income and
gains and, with respect to preferred unitholders, accrued
guaranteed payments, whether or not any cash is distributed to
the unitholder.
|
|
| Item 6. |
Selected 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 Annual Report on Form 10-K and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” 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 report. The selected
historical consolidated financial data as of and for the year
ended December 31, 2001 has been derived from our audited
consolidated financial statements at that date and for that
period, not contained in this report. 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. In addition, certain amounts have been reclassified as
discontinued operations in accordance with Statement of
Financial Accounting Standards No. 144.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In $000’s, except per unit amounts) | |
|
Total revenues
|
|
$ |
453,581 |
|
|
$ |
370,469 |
|
|
$ |
435,729 |
|
|
$ |
416,624 |
|
|
$ |
378,957 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
87,814 |
|
|
$ |
68,213 |
|
|
$ |
78,817 |
|
|
$ |
64,463 |
|
|
$ |
65,175 |
|
|
Other gains and (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gain on sale of marketable equity and debt securities
|
|
|
40,159 |
|
|
|
2,607 |
|
|
|
— |
|
|
|
6,749 |
|
|
|
— |
|
| |
Unrealized losses on securities sold short
|
|
|
(23,619 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Impairment loss on equity interest in GB Holdings, Inc.
|
|
|
(15,600 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Gain (loss) on sale of other assets
|
|
|
— |
|
|
|
(1,503 |
) |
|
|
(353 |
) |
|
|
27 |
|
|
|
— |
|
| |
Gain on sales and disposition of real estate
|
|
|
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 |
) |
|
|
— |
|
|
|
— |
|
| |
Gain (loss) on limited partnership interests
|
|
|
— |
|
|
|
— |
|
|
|
(3,750 |
) |
|
|
— |
|
|
|
3,461 |
|
| |
Minority interest
|
|
|
— |
|
|
|
— |
|
|
|
(1,943 |
) |
|
|
(450 |
) |
|
|
(2,747 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
94,016 |
|
|
|
56,679 |
|
|
|
73,285 |
|
|
|
72,526 |
|
|
|
72,652 |
|
|
Income tax (expense) benefit
|
|
|
(16,763 |
) |
|
|
1,573 |
|
|
|
(10,096 |
) |
|
|
25,664 |
|
|
|
379 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
77,253 |
|
|
|
58,252 |
|
|
|
63,189 |
|
|
|
98,190 |
|
|
|
73,031 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In $000’s, except per unit amounts) | |
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income from discontinued operations
|
|
|
8,523 |
|
|
|
8,419 |
|
|
|
7,507 |
|
|
|
7,419 |
|
|
|
7,441 |
|
| |
Gain on sales and disposition of real estate
|
|
|
75,197 |
|
|
|
3,353 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from discontinued operations
|
|
|
83,720 |
|
|
|
11,772 |
|
|
|
7,507 |
|
|
|
7,419 |
|
|
|
7,441 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
160,973 |
|
|
$ |
70,024 |
|
|
$ |
70,696 |
|
|
$ |
105,609 |
|
|
$ |
80,472 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Limited partners
|
|
$ |
152,507 |
|
|
$ |
59,360 |
|
|
$ |
63,168 |
|
|
$ |
66,190 |
|
|
$ |
72,225 |
|
| |
General partner
|
|
|
8,466 |
|
|
|
10,664 |
|
|
|
7,528 |
|
|
|
39,419 |
|
|
|
8,247 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
160,973 |
|
|
$ |
70,024 |
|
|
$ |
70,696 |
|
|
$ |
105,609 |
|
|
$ |
80,472 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per limited partnership unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income from continuing operations
|
|
$ |
1.53 |
|
|
$ |
0.99 |
|
|
$ |
1.11 |
|
|
$ |
1.18 |
|
|
$ |
1.32 |
|
| |
|
Income from discontinued operations
|
|
|
1.78 |
|
|
|
0.25 |
|
|
|
0.16 |
|
|
|
0.16 |
|
|
|
0.16 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings per LP Unit
|
|
$ |
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 |
|
| |
Diluted earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income from continuing operations
|
|
$ |
1.46 |
|
|
$ |
0.92 |
|
|
$ |
0.99 |
|
|
$ |
1.06 |
|
|
$ |
1.16 |
|
| |
|
Income from discontinued operations
|
|
|
1.59 |
|
|
|
0.21 |
|
|
|
0.13 |
|
|
|
0.13 |
|
|
|
0.13 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted earnings per LP Unit
|
|
$ |
3.05 |
|
|
$ |
1.13 |
|
|
$ |
1.12 |
|
|
$ |
1.19 |
|
|
$ |
1.29 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average limited partnership units and equivalent
partnership units outstanding
|
|
|
51,542,312 |
|
|
|
54,489,943 |
|
|
|
56,466,698 |
|
|
|
55,599,112 |
|
|
|
56,157,079 |
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(2)
|
|
$ |
253,790 |
|
|
$ |
114,318 |
|
|
$ |
131,678 |
|
|
$ |
143,037 |
|
|
$ |
125,596 |
|
|
Capital expenditures (excluding property acquisitions)
|
|
$ |
16,221 |
|
|
$ |
33,324 |
|
|
$ |
21,896 |
|
|
$ |
68,199 |
|
|
$ |
52,598 |
|
34
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002(1) | |
|
2001(1) | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in $000’s) | |
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
762,708 |
|
|
$ |
487,498 |
|
|
$ |
79,540 |
|
|
$ |
83,975 |
|
|
$ |
172,621 |
|
|
Hotel, casino and resort operating properties
|
|
|
339,492 |
|
|
|
340,229 |
|
|
|
335,121 |
|
|
|
339,201 |
|
|
|
264,566 |
|
|
Investment in U.S. Government and Agency obligations
|
|
|
102,331 |
|
|
|
61,573 |
|
|
|
336,051 |
|
|
|
313,641 |
|
|
|
475,267 |
|
|
Other investments
|
|
|
245,948 |
|
|
|
50,328 |
|
|
|
54,216 |
|
|
|
10,529 |
|
|
|
4,289 |
|
|
Total assets
|
|
|
2,263,057 |
|
|
|
1,646,606 |
|
|
|
1,706,031 |
|
|
|
1,721,100 |
|
|
|
1,566,597 |
|
|
Mortgages payable
|
|
|
91,896 |
|
|
|
180,989 |
|
|
|
171,848 |
|
|
|
166,808 |
|
|
|
182,049 |
|
|
Senior secured note payable
|
|
|
215,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Senior unsecured note payable
|
|
|
350,598 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Liability for preferred limited partnership units(1)
|
|
|
106,731 |
|
|
|
101,649 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Partners’ equity
|
|
$ |
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. |
| |
| (2) |
EBITDA represents net earnings before interest expense, income
tax (benefit) expense and depreciation, depletion and
amortization, including provision for obligatory investments. We
present EBITDA because we consider it an important supplemental
measure of our performance and believe it is frequently used by
securities analysts, investors and other interested parties in
the evaluation of companies issuing debt, many of which present
EBITDA when reporting their results. We present EBITDA on a
consolidated basis. However, EBITDA does not reflect cash flows
and we conduct substantially all of our operations through
subsidiaries. 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
currently 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. |
|
|
| |
EBITDA has limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our
results as reported under generally accepted accounting
principles, or GAAP. For example, EBITDA: |
|
|
|
| |
• |
does not reflect our cash expenditures, or future requirements
for capital expenditures, or contractual commitments; |
| |
| |
• |
does not reflect changes in, or cash requirements for, our
working capital needs; and |
| |
| |
• |
does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal
payments, on our debts. |
|
|
|
Although depreciation, depletion and amortization are non-cash
charges, the assets being depreciated, depleted or amortized
often will have to be replaced in the future, and EBITDA does
not reflect any cash requirements for such replacements. Other
companies in our industry may calculate EBITDA differently than
we do, limiting its usefulness as a comparative measure. In
addition, EBITDA does not reflect the |
35
|
|
|
impact of earnings or charges resulting from matters we consider
not to be indicative of our ongoing operations. |
| |
|
EBITDA is a measure of our performance that is not required by,
or presented in accordance with, GAAP. EBITDA is not a
measurement of our financial performance under GAAP and should
not be considered as an alternative to net earnings, operating
income or any other performance measures derived in accordance
with GAAP or as an alternative to cash flow from operating
activities as a measure of our liquidity. We compensate for
these limitations by relying primarily on our GAAP results and
using EBITDA only supplementally. |
| |
|
The following table reconciles net earnings to EBITDA for the
periods indicated: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Net earnings
|
|
$ |
160,973 |
|
|
$ |
70,024 |
|
|
$ |
70,696 |
|
|
$ |
105,609 |
|
|
$ |
80,472 |
|
|
Interest expense
|
|
|
46,099 |
|
|
|
21,103 |
|
|
|
27,297 |
|
|
|
36,577 |
|
|
|
20,057 |
|
|
Income tax (benefit) expense
|
|
|
16,763 |
|
|
|
(1,573 |
) |
|
|
10,096 |
|
|
|
(25,664 |
) |
|
|
5,445 |
|
|
Depreciation, depletion and amortization, including provision
for obligatory investments
|
|
|
29,955 |
|
|
|
24,764 |
|
|
|
23,589 |
|
|
|
26,515 |
|
|
|
19,622 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
EBITDA
|
|
$ |
253,790 |
|
|
$ |
114,318 |
|
|
$ |
131,678 |
|
|
$ |
143,037 |
|
|
$ |
125,596 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations. |
Statements included in Management’s Discussion and Analysis
of Financial Condition and Results of Operations which are not
historical in nature, are intended to be, and are hereby
identified as, “forward looking statements” for
purposes of the safe harbor provided by Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended by Public Law 104-67.
Forward-looking statements regarding management’s present
plans or expectations involve risks and uncertainties and
changing economic or competitive conditions, as well as the
negotiation of agreements with third parties, which could cause
actual results to differ from present plans or expectations, and
such differences could be material. Readers should consider that
such statements speak only as to the date hereof.
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 as
assets from affiliates of Mr. Icahn. See “Pending
Acquisitions.”
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
36
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.
From January 1, 2005 through March 1, 2005, we sold
four of these rental real estate properties for approximately
$46.5 million. These properties were encumbered by
approximately $10.8 million of mortgage debt.
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.
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 Charlie’s Decatur and
Arizona Charlie’s 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 warrants to purchase, upon the occurrence of
certain events, approximately 11.3% of the fully diluted common
stock of Atlantic Holdings, the indirect owner of The Sands
Hotel and Casino. See “Item 1 —
Business — Pending Acquisitions.” 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 TransTexas and Panaco, each an
oil and gas exploration and production company. See “Item
1 — Business — Pending Acquisitions.”
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
37
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 GAAP, assets transferred between entities
under common control are accounted for at historical costs
similar to a pooling of interests and the 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.
Results of Operations
|
|
|
Calendar Year 2004 Compared to Calendar Year 2003 |
Gross revenues increased by $83.1 million, or 22.4%, during
2004 as compared to 2003. This increase reflects increases of
$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, $3.9 million in
hotel and resort operating income, $3.6 million in NEG
management fees, $1.4 million in equity in earnings of GB
Holdings, $0.8 million in rental income, and
$0.1 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 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 TransTexas. NEG entered
into a management agreement with TransTexas in August 2003. The
decrease in interest income on financing leases is primarily due
to property sales and reclassifications.
Expenses increased by $63.5 million, or 21.0%, during 2004,
as compared to 2003. This increase reflects increases of
$25.0 million in interest expense, $10.7 million in
hotel and casino operating expenses, $9.3 million in cost
of land, house and condominium sales, $6.9 million in
general and administrative expenses, $5.2 million in
depreciation and amortization, $4.1 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 $0.1 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 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 and amortization is primarily due to
increased depreciation and amortization with respect to American
Casino.
Operating income increased during 2004 by $19.6 million, or
28.7%, to $87.8 million from $68.2 million in 2003, as
detailed above.
38
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 decrease in early 2005. However, the
Company currently expects 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 57.5%, to $72.4 million during 2004
due to increased revenues at each of our three properties.
Gain on property transactions from continuing operations
decreased by $1.9 million or 26.1%, to $5.3 million,
in 2004.
A loss on sale of other assets of $1.5 million was recorded
in 2003. There was no such loss in 2004.
A gain on sale of marketable debt securities of
$40.1 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
were recorded in 2004. There were no such losses in 2003. At
March 1, 2005, the $23.6 million of unrealized losses
have 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 of 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.
Income from continuing operations before income taxes increased
by $37.3 million in 2004 as compared to 2003, as detailed
above.
Income tax expense of $16.7 million was recorded in 2004 as
compared to a $1.6 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 and
American Casino.
Income from continuing operations increased by
$19.0 million, or 32.6%, to $77.3 million in 2004.
Income from discontinued operations increased by
$71.9 million to $83.7 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 $90.9 million, or
129.9%, to $161.0 million. This primarily was attributable
to increased income from discontinued operations
($71.9 million), increased gain on marketable debt
securities ($37.6 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 interest expense ($25.0 million), increase in
unrealized losses on securities sold short ($23.6 million),
increased income tax expense ($18.3 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, the Company will
consolidate the financial statements of TransTexas, Panaco, and
GB Holdings. Certain intercompany transactions will be
eliminated. As a result, certain intercompany transactions will
be eliminated, including, among others, the equity interest in
GB Holdings for which we recorded an impairment loss in
2004, and NEG management fees.
39
|
|
|
Calendar Year 2003 Compared to Calendar Year 2002 |
Gross revenues decreased by $65.3 million, or 15.0%, 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 and (6) $0.3 million in hotel
and resort operating income, partially offset by increases of
$12.8 million in hotel and casino operating income,
$0.5 million in rental income, $0.3 million in
dividend and other income and $0.3 million in NEG
management fee. 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 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 Charlie’s Decatur decreased $1 to $43 and
percentage occupancy increased 10.9% to 85.3%. The ADR at
Arizona Charlie’s Boulder increased less than $1 to $43 and
percentage occupancy increased 0.5% to 55.7%.
Expenses decreased by $54.7 million, or 15.3%, during 2003
as compared to 2002. This decrease reflects decreases of
$45.5 million in the cost of land, house and condominium
sales, $6.2 million in interest expense, $1.4 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 $0.9 million in rental property expenses and
$1.2 million in depreciation 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 interest expense is
primarily due to repayment of debt by NEG and our purchase of
the NEG Notes in October 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.
Operating income decreased during 2003 by $10.6 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.
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.
40
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.
Income from continuing operations before income taxes decreased
by $16.6 million in 2003 as compared to 2002, as detailed
above.
An income tax benefit of $1.6 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 decreased by $4.9 million
in 2003 as compared to 2002, as detailed above.
Income from discontinued operations increased by
$4.2 million in 2003 as compared to 2002, primarily due to
gains on property dispositions.
Net earnings for 2003 decreased by $0.7 million as compared
to 2002 primarily due to 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, partially offset by
decreased income tax expense of $11.7 million, decreased
interest expense of $6.2 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 $4.3 million.
Liquidity and Capital Resources
Net cash provided by operating activities was $51.4 million
for 2004 as compared to $21.9 million for 2003. This
increase of $29.5 million was primarily due to an increase
in 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 ($129.8 million) and
an increase in cash flow from other operations
($10.0 million), partially offset by an increase in
interest expense ($25.0 million), an increase in due from
brokers ($123.0 million) and an increase in receivables and
other assets ($10.5 million).
41
The following table reflects our contractual cash obligations as
of December 31, 2004, due over the indicated periods and
when they come due (in $ millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Less Than | |
|
|
|
|
|
After | |
|
|
| |
|
1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Mortgages payable
|
|
$ |
4.8 |
|
|
$ |
40.9 |
|
|
$ |
9.3 |
|
|
$ |
36.9 |
|
|
$ |
91.9 |
|
|
Senior secured notes payable
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
215.0 |
|
|
|
215.0 |
|
|
Senior unsecured notes payable
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
353.0 |
|
|
|
353.0 |
|
|
Senior debt interest
|
|
|
78.3 |
|
|
|
159.5 |
|
|
|
159.5 |
|
|
|
211.3 |
|
|
|
608.6 |
|
|
Acquisition of TransTexas Gas Corp.
|
|
|
180.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
180.0 |
|
|
Construction and development obligations
|
|
|
55.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
55.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
318.1 |
|
|
$ |
200.4 |
|
|
$ |
168.8 |
|
|
$ |
816.2 |
|
|
$ |
1,503.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2004 and 2003,
approximately $5.2 million and $6.5 million,
respectively, of mortgage principal payments 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 in 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.
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 Charlie’s
acquisitions, to repay intercompany indebtedness and for
distributions to AREH. ACEP also has a $20.0 million credit
facility. At December 31, 2004, there were no borrowings
under the credit facility. The restrictions imposed by
ACEP’s 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.
ACEP’s 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 ACEP’s
notes and investments as “restricted payments.”
ACEP’s 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 December 31, 2004, such ratio
was 3.9 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 it 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.
Additionally, ACEP’s 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
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revolving facility will mature and the commitments under them
will terminate in January 2008. At December 31, 2004, 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, ACEP’s 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
ACEP’s ratio of consolidated first lien debt to
consolidated cash flow not be more than 1.0 to 1.0. At
December 31, 2004, these ratios were 83.9 to 1.0 and 0.1 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 will be used to fund the acquisition of TransTexas,
to pay related fees and expenses, 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 existing businesses.
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 December 31, 2004, such ratio was 0.5 to
1.0, and 0.87 to 1.0 giving pro forma effect to the issuance of
the
71/8% notes
due 2013. 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 December 31, 2004, such
ratio was 2.98 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,
such 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 December 31, 2004, such ratio was 5.0 to
1.0, and 2.7 to 1.0, giving pro forma effect to the issuance of
the
71/8% notes
due 2013. The notes also restrict the creation of liens,
mergers, consolidations and sales of substantially all of our
assets, and transactions with affiliates. As of
December 31, 2004, 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
$1.1 billion of additional indebtedness.
Notes issued by GB Holdings and Atlantic Holdings also contain
restrictions on dividends and distributions and loans to us, as
well as other transactions with us. 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.
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Asset Sales and Purchases |
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 purchaser’s 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.
The types of assets we are pursuing, including assets that may
not be readily financeable or generate positive cash flow, such
as development properties, non-performing mortgage loans or
securities of companies which may be undergoing restructuring,
require significant capital investment or require us to maintain
a strong capital base in order to own, develop and reposition
these assets.
Capital expenditures for real estate, hotel and casino and hotel
and resort operations were approximately $16.2 million and
$33.3 million during the year 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. We anticipate that, for 2005, capital
expenditures for our current real estate and hotel and casino
and hotel and resort operations will be approximately
$28.1 million. This does not include capital expenditures
relating to our potential acquisitions of NEG Holding,
TransTexas, Panaco and GB Holdings.
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.
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Preferred Unit Distributions |
No cash distributions on our depositary units are expected to be
made in 2005. We continue to believe that we should continue to
hold and invest, rather than distribute, cash. We intend to
continue to apply available cash flow toward operations,
repayment of maturing indebtedness, tenant requirements,
investments, acquisitions and other capital expenditures.
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 our
scheduled annual preferred unit distribution payable in
additional preferred units at the rate of 5% of the
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liquidation preference of $10.00. The distribution is payable on
March 31, 2005 to holders of record as of March 15,
2005. 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
$316.0 million during the year ended December 31, 2004
primarily due to proceeds from the issuance of our
81/8% senior
notes due 2012 and ACEP’s 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 and, in the aggregate, debt securities
($90.6 million), repayment of mezzanine loans
($49.1 million), cash provided by operations
($51.4 million), guaranteed payment from NEG Holding
($16.0 million) and proceeds from mortgages payable
($10.0 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
($16.2 million), rental real estate acquisitions
($14.6 million) and other ($11.0 million).
Of our cash and cash equivalents at December 31, 2004,
approximately $75.2 million is at ACEP. The terms of
ACEP’s 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 $474 million from
the issuance, in February 2005, of our
71/8% senior
notes due 2013. Our cash will be 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.
During December 2004, we acquired the following:
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$27.5 million aggregate principal amount of 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 Panaco
Debt, and $0.1 million of accrued interest, through
December 6, 2004, for $38.1 million in cash; and |
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$37.0 million principal amount of Atlantic Holdings Notes
for $36.0 million in cash. |
On May 26, 2004, ACEP acquired two Las Vegas hotels
and casinos, Arizona Charlie’s Decatur and Arizona
Charlie’s 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
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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.
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 and the Arizona
Charlie’s 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. NEG’s 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.
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 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.
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 and National Energy Group, Inc., 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.
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.
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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 and Stratosphere, 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 are
considered other than temporary at which time the property is
written down to net realizable value. Properties held for sale
are carried at the lower of cost or net realizable value. Such
properties are no longer depreciated and their operations are
included in discontinued operations. A property is classified as
held for sale at the time we determine that the criteria in
SFAS 144 have been met.
Trends and Other Uncertainties
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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, Carl C. Icahn, and our president and
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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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. Icahn’s 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 $33.0 million on an ongoing
actuarial basis and $149.0 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 ACF 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.
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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.
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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
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.
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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
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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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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.
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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.
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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 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. 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, 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 January 1, 2005 through
March 1, 2005, we sold four of these rental real estate
properties for approximately $46.5 million. These
properties were encumbered by approximately $10.8 million
of mortgage debt.
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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.
50
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The development of our New Seabury property may be limited by
government authorities. |
We continue to pursue the approval and development of our New
Seabury property in Cape Cod, Massachusetts. The development
plans have been opposed by the Cape Cod Commission. We have
appealed its administrative decision asserting jurisdiction over
the development and a Massachusetts Superior Court ruled that a
development proposal for up to 278 residential units was exempt
from the commission’s jurisdiction. However, the court has
not ruled with respect to our initial proposal to build up to
675 residential/hotel units. We are currently in settlement
discussions with the commission but these discussions may not be
successful. We cannot predict the effect on our development of
the property if we are unable to settle with the commission, if
we lose any appeal from the court’s decision or if the
commission is ultimately successful in asserting jurisdiction
over any of the development proposals.
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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 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.
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Hotel and Casino Operations |
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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 in an agreement to acquire
shares of GB Holdings that together with shares we currently
own, will result in our owning approximately 77.5% of the common
stock to GB Holdings and warrants to purchase, upon the
occurrence of certain events, 21.3% of the fully diluted common
stock of its subsidiary, Atlantic Holdings, which 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 current or
proposed 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,
51
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.
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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. |
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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.
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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.
52
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.
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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. 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.
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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. |
53
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The oil and gas industry is subject to environmental
regulation by state and federal agencies. |
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.
The operations that we expect to acquire 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.
The operations that we expect to acquire depend upon financing
or acquiring additional reserves.
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We may experience difficulty finding and acquiring additional
reserves and may be unable to compensate for the depletion of
proved reserves. |
The future success and growth of the operations that we expect
to acquire depend 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. Future oil and gas reserves
and production, and, therefore, cash flow and income will be
highly dependent upon the level of success in exploiting 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, the 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.
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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 to operate the well. While each has
successfully drilled wells, you should know that there are
inherent risks in doing so, and, if we complete the
acquisitions, those difficulties could materially affect our
financial condition and results of
54
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. |
The revenues, profitability and the carrying value of oil and
gas properties that we have agreed to acquire 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:
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• |
domestic and foreign political conditions; |
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• |
the price and availability of domestic and imported oil and gas; |
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• |
the level of consumer and industrial demand; |
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• |
weather, domestic and foreign government relations; and |
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• |
the price and availability of alternative fuels and overall
economic conditions. |
The production of each of NEG Holding, TransTexas and Panaco is
weighted toward natural gas, making earnings and cash flow more
sensitive to natural gas price fluctuations.
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Operating hazards and uninsured risks are inherent to the oil
and gas industry. |
The 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 NEG
Holding, TransTexas and Panaco carry insurance at levels we
believe are reasonable, they are not fully insured against all
risks. Losses and liabilities arising from uninsured or
under-insured events could have a material adverse effect on
their and our financial condition and operations.
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Our use of hedging arrangements could adversely affect our
results of operations. |
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 NEG Holding and TransTexas
hedged 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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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.
55
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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 may
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 may
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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| Item 7A. |
Quantitative and Qualitative Disclosure About Market
Risks |
The United States Securities and Exchange Commission requires
that registrants include information about primary market risk
exposures relating to financial instruments. Through our
operating and investment activities, we are exposed to market,
credit and related risks, including those described elsewhere
herein. We may invest in debt or equity securities of companies
undergoing restructuring or undervalued by the market, these
securities are subject to inherent risks due to price
fluctuations, and risks relating to the issuer and its industry,
and the market for these securities may be less liquid and more
volatile than that of higher rated or more widely followed
securities.
Other related risks include liquidity risks, which arise in the
course of our general funding activities and the management of
our balance sheet. This includes both risks relating to the
raising of funding with appropriate maturity and interest rate
characteristics and the risk of being unable to liquidate an
asset in a timely manner at an acceptable price. Real estate
investments by their nature are often difficult or
time-consuming to liquidate. Also, buyers of minority interests
may be difficult to secure, while transfers of large block
positions may be subject to legal, contractual or market
restrictions. Other operating risks for us include lease
terminations, whether scheduled terminations or due to tenant
defaults or bankruptcies, development risks, and environmental
and capital expenditure matters, as described elsewhere herein.
Our mortgages payable are primarily fixed-rate debt and,
therefore, are not subject to market risk.
We invest in U.S. Government and Agency obligations which
are subject to interest rate risk. As interest rates fluctuate,
we will experience changes in the fair value of these
investments with maturities greater than
56
one year. If interest rates increased 100 basis points, the
fair value of these investments at December 31, 2004, would
decline by approximately $200,000.
At December 31, 2004, we had a short position with respect
to 2.5 million shares of common stock of a company in
bankruptcy. If the price of the common stock increased by 10%
from the price at that date, we would have incurred an
additional loss of approximately $10.0 million with respect
to that position.
Whenever practical, we employ internal strategies to mitigate
exposure to these and other risks. We perform, on a case by case
basis with respect to new investments, internal analyses of risk
identification, assessment and control. We review credit
exposures, and seek to mitigate counterparty credit exposure
through various techniques, including obtaining and maintaining
collateral, and assessing the creditworthiness of counterparties
and issuers. Where appropriate, an analysis is made of
political, economic and financial conditions, including those of
foreign countries. Operating risk is managed through the use of
experienced personnel. We seek to achieve adequate returns
commensurate with the risk it assumes. We utilize qualitative as
well as quantitative information in managing risk.
57
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| ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Partners of
American Real Estate Partners, L.P.
We have audited the accompanying consolidated balance sheet of
American Real Estate Partners, L.P. and Subsidiaries as of
December 31, 2004, and the related consolidated statements
of earnings, changes in partners’ equity and comprehensive
income, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the
Partnership’s management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of American Real Estate Partners, L.P. and Subsidiaries
as of December 31, 2004, and the results of their
operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America.
Our audit was conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole. The financial
statement schedule listed in the index at Item 15(a)(2) is
presented for purposes of additional analysis and is not a
required part of the basic financial statements. This schedule
has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of American Real Estate Partners, L.P. and
Subsidiaries’ internal control over financial reporting as
of December 31, 2004, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated March 11, 2005 expressed
an unqualified opinion.
New York, New York
March 11, 2005
58
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Partners
American Real Estate Partners, L.P.:
We have audited the accompanying consolidated balance sheet of
American Real Estate Partners, L.P. and subsidiaries as of
December 31, 2003, and the related consolidated statements
of earnings, changes in partners’ equity and comprehensive
income, and cash flows for each of the years in the two-year
period ended December 31, 2003. In connection with our
audits of the consolidated financial statements, we also have
audited the financial statement schedule III for the years
ended December 31, 2003 and 2002. These consolidated
financial statements and the financial statement schedule are
the responsibility of the Partnership’s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of American Real Estate Partners, L.P. and subsidiaries
as of December 31, 2003, and the results of their
operations and their cash flows for each of the years in the
two-year period ended December 31, 2003, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
New York, New York
September 5, 2004
59
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
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December 31, | |
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2004 | |
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2003 | |
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(In $000’s except per | |
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unit amounts) | |
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ASSETS |
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Current Assets:
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Cash and cash equivalents (Note 2)
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$ |
762,708 |
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|
$ |
487,498 |
|
| |
Investment in U.S. government and agency obligations
(Note 4)
|
|
|
96,840 |
|
|
|
52,583 |
|
| |
Marketable equity and debt securities (Note 5)
|
|
|
2,248 |
|
|
|
55,826 |
|
| |
Due from brokers (Note 6)
|
|
|
123,001 |
|
|
|
— |
|
| |
Restricted cash
|
|
|
19,856 |
|
|
|
15,058 |
|
| |
Receivables and other current assets
|
|
|
51,575 |
|
|
|
43,420 |
|
| |
Real estate leased to others:
|
|
|
|
|
|
|
|
|
| |
|
Current portion of lease amortization for leases accounted for
under the financing method (Note 8)
|
|
|
3,912 |
|
|
|
5,738 |
|
| |
Properties held for sale (Notes 9 and 15)
|
|
|
58,021 |
|
|
|
128,813 |
|
| |
Current portion of investment in debt securities of affiliates
(Note 12)
|
|
|
10,429 |
|
|
|
— |
|
| |
Current portion of deferred tax asset (Note 23)
|
|
|
2,685 |
|
|
|
2,982 |
|
| |
|
|
|
|
|
|
| |
|
|
Total current assets
|
|
|
1,131,275 |
|
|
|
791,918 |
|
|
Investment in U.S. government and agency obligations
(Note 4)
|
|
|
5,491 |
|
|
|
8,990 |
|
|
Other investments (Note 7)
|
|
|
245,948 |
|
|
|
50,328 |
|
|
Land and construction-in-progress (Note 15)
|
|
|
106,537 |
|
|
|
43,459 |
|
|
Real estate leased to others:
|
|
|
|
|
|
|
|
|
| |
Accounted for under the financing method (Notes 8, 15 and
16)
|
|
|
85,281 |
|
|
|
131,618 |
|
| |
Accounted for under the operating method, net of accumulated
depreciation (Notes 9, 15 and 16)
|
|
|
49,118 |
|
|
|
76,443 |
|
|
Hotel, casino and resort operating properties, net of
accumulated depreciation:
|
|
|
|
|
|
|
|
|
| |
|
American Casino & Entertainment Properties LLC
(Notes 10 and 17)
|
|
|
289,360 |
|
|
|
298,703 |
|
| |
|
Hotel and resorts (Notes 9 and 11)
|
|
|
50,132 |
|
|
|
41,526 |
|
|
Deferred finance costs and other assets, net
|
|
|
21,038 |
|
|
|
3,833 |
|
|
Long-term portion of investment in debt securities of affiliates
(Note 12)
|
|
|
115,075 |
|
|
|
24,696 |
|
|
Investment in NEG Holding LLC (Note 14)
|
|
|
87,800 |
|
|
|
69,346 |
|
|
Equity interest in GB Holdings, Inc. (The Sands Hotel and
Casino)(Note 13)
|
|
|
10,603 |
|
|
|
30,854 |
|
|
Deferred tax asset (Note 23)
|
|
|
65,399 |
|
|
|
74,892 |
|
| |
|
|
|
|
|
|
| |
|
|
Total
|
|
$ |
2,263,057 |
|
|
$ |
1,646,606 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND PARTNERS’ EQUITY |
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
| |
Current portion of mortgages payable (Notes 8, 9 and 16)
|
|
$ |
3,700 |
|
|
$ |
4,892 |
|
| |
Mortgages on properties held for sale (Notes 9 and 16)
|
|
|
27,477 |
|
|
|
82,861 |
|
| |
Accounts payable, accrued expenses and other current liabilities
(Note 20)
|
|
|
81,793 |
|
|
|
45,774 |
|
| |
Securities sold not yet purchased (Note 6)
|
|
|
90,674 |
|
|
|
— |
|
| |
Credit facility due affiliates (Notes 14 and 17)
|
|
|
— |
|
|
|
25,000 |
|
| |
|
|
|
|
|
|
| |
|
|
Total current liabilities
|
|
|
203,644 |
|
|
|
158,527 |
|
| |
|
|
|
|
|
|
|
Other liabilities
|
|
|
23,239 |
|
|
|
22,980 |
|
|
Long-term portion of mortgages payable (Notes 8, 9 and 16)
|
|
|
60,719 |
|
|
|
93,236 |
|
|
Senior secured notes payable (Note 18)
|
|
|
215,000 |
|
|
|
— |
|
|
Senior unsecured notes payable-net of unamortized discount of
$2,402 (Note 19)
|
|
|
350,598 |
|
|
|
— |
|
|
Preferred limited partnership units:
|
|
|
|
|
|
|
|
|
| |
$10 liquidation preference, 5% cumulative pay-in-kind;
10,400,000 authorized; 10,286,264 and 9,796,607 issued and
outstanding as of December 31, 2004 and 2003 (Note 24)
|
|
|
106,731 |
|
|
|
101,649 |
|
| |
|
|
|
|
|
|
| |
|
|
Total long-term liabilities
|
|
|
756,287 |
|
|
|
217,865 |
|
| |
|
|
|
|
|
|
|
Commitments and contingencies (Notes 3 and 24):
|
|
|
|
|
|
|
|
|
|
Partners’ Equity:
|
|
|
|
|
|
|
|
|
|
Limited partners:
|
|
|
|
|
|
|
|
|
| |
|
Depositary units; 47,850,000 authorized; 47,235,484 outstanding
|
|
|
1,328,031 |
|
|
|
1,184,870 |
|
|
General partner
|
|
|
(12,984 |
) |
|
|
97,265 |
|
|
Treasury units at cost:
|
|
|
|
|
|
|
|
|
| |
|
1,137,200 depositary units (Note 28)
|
|
|
(11,921 |
) |
|
|
(11,921 |
) |
| |
|
|
|
|
|
|
|
Partners’ equity (Notes 2 and 3)
|
|
|
1,303,126 |
|
|
|
1,270,214 |
|
| |
|
|
|
|
|
|
| |
|
|
Total
|
|
$ |
2,263,057 |
|
|
$ |
1,646,606 |
|
| |
|
|
|
|
|
|
See notes to consolidated financial statements.
60
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In $000’s except unit and | |
| |
|
per unit amounts) | |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Hotel and casino operating income (Note 10)
|
|
$ |
299,981 |
|
|
$ |
262,811 |
|
|
$ |
250,023 |
|
| |
Land, house and condominium sales
|
|
|
26,591 |
|
|
|
13,265 |
|
|
|
76,024 |
|
| |
Interest income on financing leases
|
|
|
9,880 |
|
|
|
13,115 |
|
|
|
14,722 |
|
| |
Interest income on U.S. Government and Agency obligations
and other investments (Notes 2 and 7)
|
|
|
44,418 |
|
|
|
22,583 |
|
|
|
30,569 |
|
| |
Rental income
|
|
|
7,219 |
|
|
|
6,399 |
|
|
|
5,932 |
|
| |
Hotel and resort operating income (Note 11)
|
|
|
18,477 |
|
|
|
14,592 |
|
|
|
14,918 |
|
| |
Accretion of investment in NEG Holding LLC (Note 14)
|
|
|
34,432 |
|
|
|
30,142 |
|
|
|
32,879 |
|
| |
NEG management fee
|
|
|
11,563 |
|
|
|
7,967 |
|
|
|
7,637 |
|
| |
Dividend and other income (Notes 5 and 7)
|
|
|
3,133 |
|
|
|
3,061 |
|
|
|
2,720 |
|
| |
Equity in (loss) earnings of GB Holdings, Inc. (Note 13)
|
|
|
(2,113 |
) |
|
|
(3,466 |
) |
|
|
305 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
453,581 |
|
|
|
370,469 |
|
|
|
435,729 |
|
| |
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Hotel and casino operating expenses (Note 10)
|
|
|
227,603 |
|
|
|
216,857 |
|
|
|
217,938 |
|
| |
Cost of land, house and condominium sales
|
|
|
18,486 |
|
|
|
9,129 |
|
|
|
54,640 |
|
| |
Hotel and resort operating expenses (Note 11)
|
|
|
15,234 |
|
|
|
11,138 |
|
|
|
12,553 |
|
| |
Interest expense (Notes 15, 16, 17, 18, 19 and 22)
|
|
|
46,099 |
|
|
|
21,103 |
|
|
|
27,297 |
|
| |
Depreciation and amortization
|
|
|
29,955 |
|
|
|
24,764 |
|
|
|
23,589 |
|
| |
General and administrative expenses (Note 3)
|
|
|
20,952 |
|
|
|
14,081 |
|
|
|
14,134 |
|
| |
Property expenses
|
|
|
4,288 |
|
|
|
4,434 |
|
|
|
3,549 |
|
| |
Provision for losses on real estate
|
|
|
3,150 |
|
|
|
750 |
|
|
|
3,212 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
365,767 |
|
|
|
302,256 |
|
|
|
356,912 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
87,814 |
|
|
|
68,213 |
|
|
|
78,817 |
|
|
Other gains and (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Loss) on sale of other assets
|
|
|
— |
|
|
|
(1,503 |
) |
|
|
(353 |
) |
| |
Gain on sale of marketable equity and debt securities
|
|
|
40,159 |
|
|
|
2,607 |
|
|
|
— |
|
| |
Unrealized losses on securities sold short (Note 6)
|
|
|
(23,619 |
) |
|
|
— |
|
|
|
— |
|
| |
Impairment loss on equity interest in GB Holdings, Inc.
(Note 13)
|
|
|
(15,600 |
) |
|
|
— |
|
|
|
— |
|
| |
Write-down of marketable equity and debt securities and other
investments (Note 5)
|
|
|
— |
|
|
|
(19,759 |
) |
|
|
(8,476 |
) |
| |
Gain on sales and disposition of real estate (Note 15)
|
|
|
5,262 |
|
|
|
7,121 |
|
|
|
8,990 |
|
| |
Loss on limited partnership interests
|
|
|
— |
|
|
|
— |
|
|
|
(3,750 |
) |
| |
Minority interest in net earnings of Stratosphere Corporation
(Note 10)
|
|
|
— |
|
|
|
— |
|
|
|
(1,943 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
94,016 |
|
|
|
56,679 |
|
|
|
73,285 |
|
| |
Income tax (expense) benefit (Note 23)
|
|
|
(16,763 |
) |
|
|
1,573 |
|
|
|
(10,096 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Income from continuing operations
|
|
|
77,253 |
|
|
|
58,252 |
|
|
|
63,189 |
|
| |
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income from discontinued operations
|
|
|
8,523 |
|
|
|
8,419 |
|
|
|
7,507 |
|
| |
Gain on sales and disposition of real estate
|
|
|
75,197 |
|
|
|
3,353 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total income from discontinued operations
|
|
|
83,720 |
|
|
|
11,772 |
|
|
|
7,507 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
160,973 |
|
|
$ |
70,024 |
|
|
$ |
70,696 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to (Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Limited partners
|
|
$ |
152,507 |
|
|
$ |
59,360 |
|
|
$ |
63,168 |
|
| |
General partner
|
|
|
8,466 |
|
|
|
10,664 |
|
|
|
7,528 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
160,973 |
|
|
$ |
70,024 |
|
|
$ |
70,696 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net earnings per limited partnership unit (Notes 2 and 21):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income from continuing operations
|
|
$ |
1.53 |
|
|
$ |
0.99 |
|
|
$ |
1.11 |
|
| |
|
Income from discontinued operations
|
|
|
1.78 |
|
|
|
0.25 |
|
|
|
0.16 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Basic earnings per LP unit
|
|
$ |
3.31 |
|
|
$ |
1.24 |
|
|
$ |
1.27 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Weighted average limited partnership units outstanding
|
|
|
46,098,284 |
|
|
|
46,098,284 |
|
|
|
46,098,284 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income from continuing operations
|
|
$ |
1.46 |
|
|
$ |
0.92 |
|
|
$ |
0.99 |
|
| |
|
Income from discontinued operations
|
|
|
1.59 |
|
|
|
0.21 |
|
|
|
0.13 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted earnings per LP unit
|
|
$ |
3.05 |
|
|
$ |
1.13 |
|
|
$ |
1.12 |
|
| |
|
|
|
|
|
|
|
|
|
|
Weighted average limited partnership units and equivalent
partnership units outstanding
|
|
|
51,542,312 |
|
|
|
54,489,943 |
|
|
|
56,466,698 |
|
| |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
61
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’
EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In $000’s)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Limited Partners’ | |
|
|
|
|
|
|
| |
|
|
|
Equity | |
|
|
|
|
|
|
| |
|
General | |
|
| |
|
|
|
|
| |
|
Partner’s | |
|
|
|
Held in Treasury | |
|
Total | |
| |
|
Equity | |
|
Depositary | |
|
Preferred | |
|
| |
|
Partners’ | |
| |
|
(Deficit) | |
|
Units | |
|
Units | |
|
Amounts | |
|
Units | |
|
Equity | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance, December 31, 2001
|
|
$ |
58,846 |
|
|
$ |
996,701 |
|
|
$ |
92,198 |
|
|
$ |
(11,921 |
) |
|
|
1,137 |
|
|
|
1,135,824 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net earnings
|
|
|
7,528 |
|
|
|
63,168 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
70,696 |
|
| |
Reclassification of unrealized loss on sale of debt securities
|
|
|
211 |
|
|
|
10,384 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,595 |
|
| |
Adjustment to reverse unrealized loss on investment securities
reclassified to notes receivable
|
|
|
131 |
|
|
|
6,451 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,582 |
|
| |
Net unrealized losses on securities available for sale
|
|
|
(5 |
) |
|
|
(237 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(242 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income
|
|
|
7,865 |
|
|
|
79,766 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
87,631 |
|
|
Net adjustment for acquisition of minority interest
(Note 10)
|
|
|
21,151 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21,151 |
|
|
Pay-in-kind distribution (Note 22)
|
|
|
— |
|
|
|
(4,610 |
) |
|
|
4,610 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Capital contribution to American Casino (Note 10)
|
|
|
831 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
831 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
88,693 |
|
|
|
1,071,857 |
|
|
|
96,808 |
|
|
|
(11,921 |
) |
|
|
1,137 |
|
|
|
1,245,437 |
|
| |
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net earnings
|
|
|
10,664 |
|
|
|
59,360 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
70,024 |
|
| |
Reclassification of unrealized loss on sale of debt securities
|
|
|
15 |
|
|
|
746 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
761 |
|
| |
Net unrealized gains on securities available for sale
|
|
|
183 |
|
|
|
8,991 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,174 |
|
| |
Sale of marketable equity securities available for sale
|
|
|
(6 |
) |
|
|
(274 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(280 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
10,856 |
|
|
|
68,823 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
79,679 |
|
|
Pay-in-kind distribution (Note 22)
|
|
|
— |
|
|
|
(2,391 |
) |
|
|
2,391 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Change in deferred tax asset valuation allowance related to
book-tax differences existing at time of bankruptcy
(Note 23)
|
|
|
524 |
|
|
|
46,581 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47,105 |
|
|
Capital distribution (Note 10)
|
|
|
(2,808 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,808 |
) |
|
Reclassification of Preferred LP units to liabilities
(Note 22)
|
|
|
— |
|
|
|
— |
|
|
|
(99,199 |
) |
|
|
— |
|
|
|
— |
|
|
|
(99,199 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
97,265 |
|
|
|
1,184,870 |
|
|
|
— |
|
|
|
(11,921 |
) |
|
|
1,137 |
|
|
|
1,270,214 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net earnings
|
|
|
8,466 |
|
|
|
152,507 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
160,973 |
|
| |
Reclassification of unrealized gains on marketable securities
sold
|
|
|
(190 |
) |
|
|
(9,378 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,568 |
) |
| |
Net unrealized losses on securities available for sale
|
|
|
1 |
|
|
|
32 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
33 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
8,277 |
|
|
|
143,161 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
151,438 |
|
|
Capital distribution from American Casino (Note 10)
|
|
|
(17,916 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,916 |
) |
|
Capital contribution to American Casino (Note 10)
|
|
|
22,800 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,800 |
|
|
Arizona Charlie’s acquisition (Note 10)
|
|
|
(125,900 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(125,900 |
) |
|
Change in deferred tax asset related to acquisition of Arizona
Charlie’s
|
|
|
2,490 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,490 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
$ |
(12,984 |
) |
|
$ |
1,328,031 |
|
|
$ |
— |
|
|
$ |
(11,921 |
) |
|
|
1,137 |
|
|
$ |
1,303,126 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) at
December 31, 2004, 2003 and 2002 was $(122), $9,174 and
($242), respectively.
See notes to consolidated financial statements.
62
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In $000’s) | |
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income from continuing operations
|
|
$ |
77,253 |
|
|
$ |
58,252 |
|
|
$ |
63,189 |
|
| |
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization
|
|
|
29,955 |
|
|
|
24,764 |
|
|
|
23,589 |
|
| |
|
Preferred LP interest expense
|
|
|
5,082 |
|
|
|
2,450 |
|
|
|
— |
|
| |
|
Gain on sale of marketable equity securities
|
|
|
(40,159 |
) |
|
|
(2,607 |
) |
|
|
— |
|
| |
|
Unrealized losses on securities sold short
|
|
|
23,619 |
|
|
|
— |
|
|
|
— |
|
| |
|
Impairment loss on equity interest in GB Holdings, Inc.
|
|
|
15,600 |
|
|
|
— |
|
|
|
— |
|
| |
|
Gain on sales and disposition of real estate
|
|
|
(5,262 |
) |
|
|
(7,121 |
) |
|
|
(8,990 |
) |
| |
|
Loss on limited partnership interests
|
|
|
— |
|
|
|
— |
|
|
|
3,750 |
|
| |
|
Loss on sale of other assets
|
|
|
96 |
|
|
|
1,503 |
|
|
|
353 |
|
| |
|
Provision for loss on real estate
|
|
|
3,150 |
|
|
|
750 |
|
|
|
3,212 |
|
| |
|
Write-down of marketable equity and debt securities and other
investments
|
|
|
— |
|
|
|
19,759 |
|
|
|
8,476 |
|
| |
|
Minority interest in net earnings of Stratosphere Corporation
|
|
|
— |
|
|
|
— |
|
|
|
1,943 |
|
| |
|
Equity in losses (earnings) of GB Holdings, Inc.
|
|
|
2,113 |
|
|
|
3,466 |
|
|
|
(305 |
) |
| |
|
Deferred gain amortization
|
|
|
(2,038 |
) |
|
|
(2,038 |
) |
|
|
(2,038 |
) |
| |
|
Accretion of investment in NEG Holding LLC
|
|
|
(34,432 |
) |
|
|
(30,142 |
) |
|
|
(32,879 |
) |
| |
|
Deferred income tax expense (benefit)
|
|
|
13,946 |
|
|
|
(5,875 |
) |
|
|
9,785 |
|
| |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(Increase) decrease in receivables and other assets
|
|
|
(10,234 |
) |
|
|
(299 |
) |
|
|
2,944 |
|
| |
|
|
Increase in due from brokers
|
|
|
(123,001 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
Increase (decrease) in land and construction-in-progress
|
|
|
(1,626 |
) |
|
|
(4,106 |
) |
|
|
24,215 |
|
| |
|
|
Increase in restricted cash
|
|
|
(4,798 |
) |
|
|
(13,095 |
) |
|
|
— |
|
| |
|
|
Increase (decrease) in accounts payable, accrued expenses and
other liabilities
|
|
|
92,476 |
|
|
|
(37,328 |
) |
|
|
271 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by continuing operations
|
|
|
41,740 |
|
|
|
8,333 |
|
|
|
97,515 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total income from discontinued operations
|
|
|
83,720 |
|
|
|
11,772 |
|
|
|
7,507 |
|
| |
|
|
Depreciation and amortization
|
|
|
1,104 |
|
|
|
5,167 |
|
|
|
4,521 |
|
| |
|
|
Net gain from property transactions
|
|
|
(75,197 |
) |
|
|
(3,353 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by discontinued operations
|
|
|
9,627 |
|
|
|
13,586 |
|
|
|
12,028 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by operating activities
|
|
|
51,367 |
|
|
|
21,919 |
|
|
|
109,543 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Increase (decrease) in other investments
|
|
|
2,942 |
|
|
|
(28,491 |
) |
|
|
(23,200 |
) |
| |
Repayments of mezzanine loans included in other investments
|
|
|
49,130 |
|
|
|
12,200 |
|
|
|
23,000 |
|
| |
Net proceeds from the sales and disposition of real estate
|
|
|
16,790 |
|
|
|
15,290 |
|
|
|
20,513 |
|
| |
Principal payments received on leases accounted for under the
financing method
|
|
|
4,219 |
|
|
|
5,310 |
|
|
|
5,941 |
|
| |
Purchase of debt securities included in other investments
|
|
|
(245,166 |
) |
|
|
— |
|
|
|
— |
|
| |
Purchase of debt securities of affiliates
|
|
|
(65,500 |
) |
|
|
— |
|
|
|
— |
|
| |
Purchase of Atlantic Holdings debt included in debt securities
due from affiliates
|
|
|
(36,000 |
) |
|
|
— |
|
|
|
— |
|
| |
Acquisition of Arizona Charlies’
|
|
|
(125,900 |
) |
|
|
— |
|
|
|
— |
|
| |
Additions to hotel, casino and resort operating property
|
|
|
(16,203 |
) |
|
|
(32,911 |
) |
|
|
(21,715 |
) |
| |
Acquisition of hotel and resort operating property
|
|
|
(16,463 |
) |
|
|
— |
|
|
|
— |
|
| |
Acquisitions of rental real estate
|
|
|
(14,583 |
) |
|
|
— |
|
|
|
(18,226 |
) |
| |
Acquisition of land and construction in progress
|
|
|
(61,845 |
) |
|
|
— |
|
|
|
— |
|
| |
Additions to rental real estate
|
|
|
(18 |
) |
|
|
(413 |
) |
|
|
(181 |
) |
| |
(Increase) decrease in investment in U.S. Government and
Agency Obligations (Note 2)
|
|
|
(40,757 |
) |
|
|
274,478 |
|
|
|
(22,410 |
) |
| |
Increase in marketable equity and debt securities
|
|
|
— |
|
|
|
(45,140 |
) |
|
|
(4,415 |
) |
| |
Proceeds from sale of marketable equity and debt securities
|
|
|
90,614 |
|
|
|
3,843 |
|
|
|
— |
|
| |
Decrease in note receivable from affiliate
|
|
|
— |
|
|
|
250,000 |
|
|
|
— |
|
| |
Decrease in minority interest in Stratosphere Corp.
|
|
|
— |
|
|
|
— |
|
|
|
(44,744 |
) |
| |
Decrease in investment in Stratosphere Corp.
|
|
|
— |
|
|
|
788 |
|
|
|
— |
|
| |
Investment in NEG, Inc.
|
|
|
— |
|
|
|
(148,101 |
) |
|
|
— |
|
| |
Guaranteed payment from NEG Holding LLC
|
|
|
15,979 |
|
|
|
18,229 |
|
|
|
21,653 |
|
| |
Priority distribution from NEG Holding LLC
|
|
|
— |
|
|
|
40,506 |
|
|
|
— |
|
| |
Decrease in due to affiliate
|
|
|
— |
|
|
|
— |
|
|
|
(68,491 |
) |
| |
Other
|
|
|
(194 |
) |
|
|
560 |
|
|
|
197 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash (used in) provided by investing activities from
continuing operations
|
|
|
(442,955 |
) |
|
|
366,148 |
|
|
|
(132,078 |
) |
(continued on next page)
63
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS —
(Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
Cash flows from investing activities from discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net proceeds from the sales and disposition of real estate
|
|
|
134,789 |
|
|
|
5,336 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash (used in) provided by investing activities
|
|
|
(308,166 |
) |
|
|
371,484 |
|
|
|
(132,078 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Partners’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Distributions to members
|
|
|
(17,916 |
) |
|
|
— |
|
|
|
— |
|
| |
|
Member’s contribution
|
|
|
22,800 |
|
|
|
— |
|
|
|
— |
|
| |
|
Contributions to American Casino
|
|
|
— |
|
|
|
— |
|
|
|
598 |
|
| |
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Repayment of credit facilities
|
|
|
— |
|
|
|
(2,904 |
) |
|
|
(5,000 |
) |
| |
|
Proceeds from credit facility
|
|
|
— |
|
|
|
7,780 |
|
|
|
17,220 |
|
| |
|
Proceeds from Senior Notes Payable
|
|
|
565,409 |
|
|
|
— |
|
|
|
— |
|
| |
|
Decrease in due to affiliates
|
|
|
(24,925 |
) |
|
|
— |
|
|
|
— |
|
| |
|
Proceeds from mortgages payable
|
|
|
10,000 |
|
|
|
20,000 |
|
|
|
12,700 |
|
| |
|
Payments on mortgages payable
|
|
|
— |
|
|
|
(3,837 |
) |
|
|
(462 |
) |
| |
|
Periodic principal payments
|
|
|
(5,248 |
) |
|
|
(6,484 |
) |
|
|
(7,198 |
) |
| |
|
Debt issuance costs
|
|
|
(18,111 |
) |
|
|
— |
|
|
|
— |
|
| |
Other
|
|
|
— |
|
|
|
— |
|
|
|
242 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided by financing activities
|
|
|
532,009 |
|
|
|
14,555 |
|
|
|
18,100 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
275,210 |
|
|
|
407,958 |
|
|
|
(4,435 |
) |
|
Cash and cash equivalents, beginning of year
|
|
|
487,498 |
|
|
|
79,540 |
|
|
|
83,975 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
762,708 |
|
|
$ |
487,498 |
|
|
$ |
79,540 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash payments for interest, net of amounts capitalized
|
|
$ |
44,258 |
|
|
$ |
65,110 |
|
|
$ |
37,176 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of real estate to operating lease
|
|
$ |
— |
|
|
$ |
5,065 |
|
|
$ |
13,403 |
|
|
Reclassification from hotel and resort operating properties
|
|
|
(6,428 |
) |
|
|
— |
|
|
|
— |
|
|
Reclassification of real estate from financing lease
|
|
|
(1,920 |
) |
|
|
(5,065 |
) |
|
|
(13,503 |
) |
|
Reclassification of real estate from operating lease
|
|
|
(38,452 |
) |
|
|
(126,263 |
) |
|
|
— |
|
|
Reclassification of real estate to property held for sale
|
|
|
46,800 |
|
|
|
126,263 |
|
|
|
100 |
|
|
Decrease in other investments
|
|
|
— |
|
|
|
(3,453 |
) |
|
|
— |
|
|
Decrease in deferred income
|
|
|
— |
|
|
|
2,565 |
|
|
|
— |
|
|
Increase in real estate accounted for under the operating method
|
|
|
— |
|
|
|
888 |
|
|
|
— |
|
|
Reclassification from marketable equity and debt securities
|
|
|
— |
|
|
|
— |
|
|
|
(20,494 |
) |
|
Reclassification from receivable and other assets
|
|
|
— |
|
|
|
(1,631 |
) |
|
|
|
|
|
Reclassification to other investments
|
|
|
— |
|
|
|
1,631 |
|
|
|
20,494 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Net unrealized (losses) gains on securities available for sale
|
|
$ |
33 |
|
|
$ |
9,174 |
|
|
$ |
(242 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Increase in equity and debt securities
|
|
$ |
1,740 |
|
|
$ |
1,200 |
|
|
$ |
2,890 |
|
| |
|
|
|
|
|
|
|
|
|
|
Contribution of note from NEG Holding LLC
|
|
$ |
— |
|
|
$ |
10,940 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Change in tax asset related to acquisition
|
|
$ |
2,490 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
64
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
|
|
| 1. |
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
American Real Estate Partners, L.P. and its subsidiaries (the
“Company” or “AREP”) are engaged in the
following operating businesses: (1) rental real estate;
(2) hotel, casino and resort operations; (3) land,
house and condominium development, (4) participation and
management of oil and gas operating properties; and
(5) investment in securities, including investment in other
entities and marketable equity and debt securities.
As a result of the Company’s expansion into non-real estate
businesses, the Company has changed the presentation of its 2004
Consolidated Balance Sheet to a classified basis. The 2003
Consolidated Balance Sheet has been reclassified to conform to
the 2004 presentation.
On July 1, 1987, American Real Estate Holdings Limited
Partnership (the “Subsidiary” or “AREH”), in
connection with an exchange offer (the “Exchange”),
entered into merger agreements with American Real Estate
Partners, L.P. and each of thirteen separate limited
partnerships (collectively, the “Predecessor
Partnerships”), pursuant to which the Subsidiary acquired
all the assets, subject to the liabilities of the Predecessor
Partnerships.
By virtue of the Exchange, the Subsidiary owns the assets,
subject to the liabilities, of the Predecessor Partnerships. The
Company owns a 99% limited partner interest in AREH. AREH, the
operating partnership, was formed to hold the investments of and
conduct the business operations of the Company. Substantially
all of the assets and liabilities of the Company are owned by
AREH and substantially all operations are conducted through
AREH. American Property Investors, Inc. (the “General
Partner”) owns a 1% general partner interest in both the
Subsidiary and the Company, representing an aggregate 1.99%
general partner interest in the Company and the Subsidiary. The
General Partner is owned and controlled by Mr. Carl C.
Icahn (“Icahn” or “Mr. Icahn”).
On August 16, 1996, the Company amended its Partnership
Agreement to permit non-real estate related acquisitions and
investments to enhance unitholder value and further diversify
its assets. Under the Amendment, investments may include equity
and debt securities of domestic and foreign issuers. The portion
of the Company’s assets invested in any one type of
security or any single issuer are not limited.
The Company will conduct its activities in such a manner so as
not to be deemed an investment company under the Investment
Company Act of 1940 (the “1940 Act”). Generally, this
means that no more than 40% of the Company’s total assets
will be invested in investment securities, as such term is
defined in the 1940 Act. In addition, the Company does not
intend to invest in securities as its primary business and will
structure its investments to continue to be taxed as a
partnership rather than as a corporation under the applicable
publicly traded partnership rules of the Internal Revenue Code.
As of December 31, 2004, affiliates of the General Partner
owned 8,900,995 Preferred Units, or 86.5%, and 39,896,836
Depository Units or 86.5%.
|
|
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Consolidations — The consolidated
financial statements include the accounts of AREP and its
majority-owned subsidiaries in which control can be exercised.
The Company is considered to have control if it has a direct or
indirect ability to make decisions about an entity’s
activities through voting or similar rights. The Company uses
the guidance set forth in AICPA Statement of Position
No. 78-9, Accounting for Investments in Real Estate
Ventures, with respect to its investments in partnerships
and limited liability companies. In addition, the Company uses
the guidance of FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest
Entities, or FIN 46R, whereby an interest in a variable
interest entity where the Company is deemed to be the primary
beneficiary would be consolidated. The Company is not deemed to
be the primary beneficiary, as defined, with respect to National
Energy Group, Inc.’s (“NEG”) investment in NEG
Holding, LLC (“Holding LLC”). The Company accounts for
its residual equity
65
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
investment in Holding LLC in accordance with APB 18 (see
Note 14). All material intercompany balances and
transactions are eliminated.
Investments in affiliated companies determined to be voting
interest entities in which AREP owns between 20% and 50%, and
therefore exercises significant influence, but which it does not
control, are accounted for using the equity method. The Company
accounts for its 36% interest in GB Holdings on the equity basis.
In accordance with generally accepted accounting principles,
assets transferred between entities under common control are
accounted for at historical costs similar to a pooling of
interests, and the financial statements of previously separate
companies for periods prior to the acquisition are restated on a
combined basis.
Net Earnings Per Limited Partnership Unit —
Basic earnings per LP Unit are based on net earnings as adjusted
prior to the July 1, 2003 preferred pay-in-kind
distribution to Preferred Unitholders. The resulting net
earnings available for limited partners are divided by the
weighted average number of depositary limited partnership units
outstanding.
Diluted earnings per LP Unit are based on net earnings
attributable to limited partner interests, as adjusted after
July 1, 2003 for the preferred pay-in-kind distributions,
as the numerator with the denominator based on the weighted
average number of units and equivalent units outstanding. The
Preferred Units are considered to be equivalent units. The
number of limited partnership units used in the calculation of
diluted income per limited partnership unit increased as
follows: 5,444,028, 8,391,659, and 10,368,414 limited
partnership units for the years ended December 31, 2004,
2003 and 2002, respectively, to reflect the effects of the
dilutive preferred units.
For accounting purposes, NEG’s earnings prior to the NEG
acquisition in October 2003 and Arizona Charlie’s earnings
prior to its acquisition in May 2004 have been allocated to the
General Partner and therefore excluded from the computation of
basic and diluted earnings per limited partnership unit.
Cash and Cash Equivalents — The Company
considers short-term investments, which are highly liquid with
original maturities of three months or less at date of purchase,
to be cash equivalents. Included in cash and cash equivalents at
December 31, 2004 and 2003 are investments in
government-backed securities of approximately $658,534,000 and
$378,000,000, respectively.
Restricted Cash — Restricted cash consists of
funds held by third parties in connection with tax free property
exchanges pursuant to Internal Revenue Code Section 1031.
Marketable Equity and Debt Securities, Investment in
U.S. Government and Agency Obligations and Other
Investments — Investments in equity and debt
securities are classified as either trading, held-to-maturity or
available for sale for accounting purposes. Trading securities
are valued at quoted market value at each balance sheet date
with the unrealized gains or losses reflected in the
Consolidated Statements of Earnings. Investments in
U.S. Government and Agency Obligations are classified as
available for sale. Available for sale securities are carried at
fair value on the balance sheet of the Company. Unrealized
holding gains and losses are excluded from earnings and reported
as a separate component of Partners’ Equity and when sold
are reclassified out of Partners’ Equity based on specific
identification. Held-to-maturity securities are recorded at
amortized cost.
A decline in the market value of any held-to-maturity or
available for sale 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.
66
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
a. The Company accounts for secured bank debt acquired at a
discount for which the Company believes it is not probable that
the undiscounted future cash collection will be sufficient to
recover the face amount of the loan and constructive interest
utilizing the cost recovery method in accordance with Practice
Bulletin 6, “Amortization of Discounts on Certain
Acquired Loans.” For secured bank debt acquired at a
discount where recovery is probable, the Company amortizes the
discount on the loan over the period in which the payments are
probable of collection, only if the amounts are reasonably
estimable and the ultimate collectibility of the acquisition
amount of the loan and the discount is probable. The Company
evaluates collectibility for every loan at each balance sheet
date.
SOP 03-03, “Accounting for Certain Loans or Debt Securities
Acquired in a Transfer,” which is effective for fiscal
years beginning after December 15, 2004, limits the yield
that may be accreted to the excess of the Company’s
estimate of undiscounted cash flows expected to be collected
over the Company’s initial investment in a loan. The
Company does not expect that the adoption of this SOP will have
a significant impact on its financial statements.
b. The Company has 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.
c. The Company has provided development financing for
certain real estate projects. The security for these loans is
either a second mortgage or a pledge of the developers’
ownership interest in the properties. Such loans are subordinate
to construction financing and are generally referred to as
mezzanine loans. Generally, interest is not paid periodically
but is due at maturity or earlier from unit sales or refinancing
proceeds. The Company defers recognition of interest income on
mezzanine loans pending receipt of all principal payments.
Income Taxes — 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. American Entertainment
Properties Corp., the parent of American Casino &
Entertainment Properties LLC (“American Casino”), and
NEG, the Company’s 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. 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.
Leases — The Company leases to others
substantially all its real property under long-term net leases
and accounts for these leases in accordance with the provisions
of Financial Accounting Standards Board Statement No. 13,
“Accounting for Leases,” as amended. This Statement
sets forth specific criteria for determining whether a lease is
to be accounted for as a financing lease or an operating lease.
a. Financing Method-Under this method, minimum lease
payments to be received plus the estimated value of the property
at the end of the lease are considered the gross investment in
the lease. Unearned income, representing the difference between
gross investment and actual cost of the leased property, is
amortized to income over the lease term so as to produce a
constant periodic rate of return on the net investment in the
lease.
b. Operating Method-Under this method, revenue is
recognized as rentals become due and expenses (including
depreciation) are charged to operations as incurred.
67
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Properties — Properties held for investment,
other than those accounted for under the financing method, are
carried at cost less accumulated depreciation unless declines in
the values of the properties are considered other than
temporary, at which time the property is written down to net
realizable value. A property is classified as held for sale at
the time management determines that the criteria in
SFAS 144 have been met. Properties held for sale are
carried at the lower of cost or net realizable value. Such
properties are no longer depreciated and their operations are
included in discontinued operations. As a result of the
reclassification of certain real estate to properties held for
sale during the years ended December 31, 2004 and 2003,
income and expenses of such properties are reclassified to
discontinued operations for all prior periods.
Depreciation — Depreciation is principally
computed using the straight-line method over the estimated
useful life of the particular property or property components,
which range from 3 to 45 years.
Use of Estimates — Management has made a number
of estimates and assumptions relating to the reporting of assets
and liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
The more significant estimates include the valuation of
(1) long-lived assets, (2) mortgages and notes
receivable, (3) marketable equity and debt securities and
other investments, (4) costs to complete for land, house
and condominium developments, (5) gaming-related liability
and loyalty programs and (6) deferred tax assets.
|
|
|
Revenue and Expense Recognition- |
1. Revenue from real estate sales and related costs are
recognized at the time of closing primarily by specific
identification. The Company follows the guidelines for profit
recognition set forth by Financial Accounting Standards Board
(FASB) Statement No. 66, “Accounting for Sales of
Real Estate.”
2. Casino revenues and promotional allowances —
The Company recognizes revenues in accordance with industry
practice. Casino revenue is 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. Hotel and
restaurant revenue is recognized when services are performed.
The cost of such complimentaries is included in “Hotel and
casino operating expenses.”
The Company also rewards customers, through the use of loyalty
programs with points based on amounts wagered, that can be
redeemed for a specified period of time for cash. The Company
deducts the cash incentive amounts from casino revenue.
3. Sales, advertising and promotion — These costs
are expensed as incurred and were approximately
$28.8 million, $22.9 million and $18.1 million in
the years ended December 31, 2004, 2003 and 2002,
respectively.
Land and Construction-in-Progress — These costs
are stated at the lower of cost or net realizable value.
Interest is capitalized on expenditures for long-term projects
until a salable condition is reached. The capitalization rate is
based on the interest rate on specific borrowings to fund the
projects.
Investment in NEG Holding LLC — Due to the
substantial uncertainty that the Company will receive any
distribution above the priority and guaranteed payment amounts,
the Company accounts for its investment in Holding LLC as a
preferred investment whereby guaranteed payment amounts received
and receipts of the priority distribution amount are recorded as
reductions in the investment and income is recognized from
accretion of the investment up to the priority distribution
amount, including the guaranteed payments (based on the interest
method). See Note 14. Following receipt of the guaranteed
payments and priority distributions, the residual interest in
the investment will be valued at zero.
68
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company periodically evaluates the carrying amount of its
investment in Holding LLC to determine whether current events or
circumstances warrant adjustments to the carrying value and/or
revisions to accretion of income. The Company currently believes
that no such impairment has occurred and that no revision to the
accretion of income is warranted.
Accounting for Impairment of a Loan — If it is
probable that, based upon current information, the Company will
be unable to collect all amounts due according to the
contractual terms of a loan agreement, the Company considers the
asset to be “impaired.” Reserves are established
against impaired loans in amounts equal to the difference
between the recorded investment in the asset and either the
present value of the cash flows expected to be received, or the
fair value of the underlying collateral if foreclosure is deemed
probable or if the loan is considered collateral dependent.
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of — Long-lived
assets held and used by the Company 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.
In performing the review for recoverability, the Company
estimates 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 the Company expects 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.
|
|
| 3. |
RELATED PARTY TRANSACTIONS |
a. On May 26, 2004, American Casino acquired two Las
Vegas casino/hotels, Arizona Charlie’s Decatur and Arizona
Charlie’s Boulder from Mr. Icahn and an entity
affiliated with Mr. Icahn, for aggregate consideration of
$125.9 million. Mr. Icahn is Chairman of the Board of
American Property Investors, Inc. The terms of the transactions
were approved by the Audit Committee of the Board of Directors
of the General Partner (“Audit Committee”) which was
advised by its independent financial advisor and by counsel.
(See Note 9).
b. At December 31, 2002, the Company had a
$250 million note receivable from Mr. Icahn, Chairman
of the General Partner, which was repaid in October 2003.
Interest income of approximately $7.9 million and
$9.9 million was earned on this loan in the years ended
December 31, 2003 and 2002, respectively, and is included
in “Interest income on U.S. Government and Agency
obligations and other investments” in the Consolidated
Statements of Earnings.
c. In 1997, the Company entered into a license agreement
for a portion of office space from an affiliate. The license
agreement dated as of February 1, 1997 expired May 22,
2004 and has been extended on a month to month basis. Pursuant
to the license agreement, the Company has the non-exclusive use
of approximately 2,275 square feet and common space for
which it paid $11,185 plus 10.77% of additional rent. In the
years ended December 31, 2004, 2003 and 2002, the Company
paid such affiliate approximately $162,000, $159,000 and
$153,000 respectively, in connection with this licensing
agreement. The terms of such sublease were reviewed and approved
by the Audit Committee. If the Company must vacate the space, it
believes there will be adequate alternative space available.
d. American Casino billed the Sands Hotel and Casino (the
“Sands”) approximately $387,500, $191,000 and $27,900,
respectively, for administrative services performed by
Stratosphere personnel during the years ended December 31,
2004, 2003 and 2002.
69
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
e. NEG received management fees from affiliates of
approximately $11.6 million, $8.0 million and
$7.6 million in the years ended December 31, 2004,
2003 and 2002, respectively.
f. For the years ended December 31, 2004, 2003 and
2002 the Company paid approximately $325,000, $273,000 and
$160,900 respectively, to an affiliate of the General Partner
for telecommunication services, XO Communications, Inc.
g. See Note 12b. and c. regarding the purchase of
TransTexas and Panaco debt, respectively, from Icahn affiliates.
h. See Note 12a. regarding the purchase of Atlantic
Holdings Notes from Icahn affiliates.
i. See Note 17 regarding additional related party
obligations.
j. See Note 29 regarding subsequent events.
|
|
| 4. |
INVESTMENT IN U.S. GOVERNMENT AND AGENCY OBLIGATIONS |
The Company has investments in U.S. Government and Agency
Obligations whose maturities range from January 2005 to December
2008 as follows (in $ millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
Cost | |
|
Carrying | |
|
Cost | |
|
Carrying | |
| |
|
Basis | |
|
Value | |
|
Basis | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matures in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
less than 1 year
|
|
$ |
96.8 |
|
|
$ |
96.8 |
|
|
$ |
52.8 |
|
|
$ |
52.6 |
|
| |
2-5 years
|
|
|
5.6 |
|
|
|
5.5 |
|
|
|
9.0 |
|
|
|
9.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
102.4 |
|
|
$ |
102.3 |
|
|
$ |
61.8 |
|
|
$ |
61.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5. |
MARKETABLE EQUITY AND DEBT SECURITIES (IN $ MILLIONS) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
Cost | |
|
Carrying | |
|
Cost | |
|
Carrying | |
| |
|
Basis | |
|
Value | |
|
Basis | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Philip Service Corporation(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Equity
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
Corporate bonds(b)
|
|
|
— |
|
|
|
— |
|
|
|
45.1 |
|
|
|
51.6 |
|
| |
Other
|
|
|
2.2 |
|
|
|
2.2 |
|
|
|
1.3 |
|
|
|
4.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
$ |
2.2 |
|
|
$ |
2.2 |
|
|
$ |
46.4 |
|
|
$ |
55.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
a. At December 31, 2002, the Company owned the
following approximate interests in Philip Service Corporation
(“Philip”): (1) 1.8 million common shares,
(2) $14.2 million in secured term debt, and
(3) $10.9 million in accreted secured convertible
payment-in-kind debt. The Company had an approximate 7% equity
interest in Philip and an Icahn affiliate had an approximate 38%
equity interest. Icahn affiliates also owned term and
payment-in-kind debt.
The market value of Philip’s common stock declined steadily
since it was acquired by the Company. In 2002, based on a review
of Philip’s financial statements, management of the Company
deemed the decrease in
70
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
value to be other than temporary. As a result, the Company wrote
down its investment in Philip’s common stock by charges to
earnings of $8,476,000 and charges to other comprehensive income
(“OCI”) of $761,000 in the year ended
December 31, 2002. This investment had been previously
written down by approximately $6.8 million in charges to
earnings. The Company’s adjusted carrying value of
Philip’s common stock was approximately $200,000 at
December 31, 2002.
In June 2003, Philip announced that it and most of its wholly
owned U.S. subsidiaries filed voluntary petitions under
Chapter 11 of the Federal Bankruptcy Code.
In the year ended December 31, 2003, management of the
Company determined that it was appropriate to write-off the
balance of its investment in the Philip’s common stock by a
charge to earnings of approximately $961,000; of this amount
$761,000 was previously charged to other comprehensive income in
2002, which was reversed in 2003, and included in the $961,000
charge to earnings.
Approximately $6.6 million of charges to OCI were reversed
and the investments were reclassified at their original cost to
“Other investments” at December 31, 2002. These
adjustments had no effect on the Company’s reported
earnings for the year ended December 31, 2002.
In 2003, the cost basis of the debt was approximately
$22.1 million. As previously mentioned, Philip filed for
bankruptcy protection in June 2003. Management of the Company
reviewed Philip’s financial statements, bankruptcy
documents and the prices of recent purchases and sales of the
debt and determined this investment to be impaired. Based upon
this review, management concluded the fair value of the debt to
be approximately $3.3 million; therefore, the Company
recorded a write-down of approximately $18.8 million by a
charge to earnings which was included in “Write-down of
marketable equity and debt securities and other
investments” in the Consolidated Statements of Earnings in
the year ended December 31, 2003. In December 2003, the
Company sold two-thirds of its term and paid-in-kind
(“PIK”) debt with a basis of $2.2 million for
$2.6 million, generating a gain of $0.4 million.
Philip emerged from bankruptcy on December 31, 2003 as a
private company controlled by an Icahn affiliate. The
Company’s remaining interest in the debt will be delivered
and exchanged for approximately 443,000 common shares
representing a 4.4% equity interest in the new Philip, valued at
the carrying value of the debt at December 31, 2004 of
$0.7 million.
b. In December 2003, the Company acquired approximately
$86.9 million principal amount of corporate bonds for
approximately $45.1 million. These bonds were classified as
available for sale securities. Available for sale securities are
carried at fair value on the balance sheet. Unrealized holding
gains and losses are excluded from earnings and reported as a
separate component of Partners’ Equity. At
December 31, 2003, the carrying value of the bonds was
approximately $51.6 million and accumulated other
comprehensive income (“OCI”) was approximately
$6.5 million. This OCI was reversed in the year ended
December 31, 2004, upon the sale of the corporate bonds. In
the year ended December 31, 2004, the Company sold the debt
securities for approximately $82.3 million, recognizing a
gain of $37.2 million.
In November and December 2004, the Company sold short certain
equity securities which resulted in the following (in
$000’s):
|
|
| |
a. $123,001 — Due From Brokers — Net
proceeds from short sales of equity securities and cash
collateral held by brokerage institutions against our short
sales. |
| |
| |
b. $90,674 — Securities Sold Not Yet
Purchased — Our obligation to cover the short sales of
equity securities described above. The Company recorded
unrealized losses on securities sold short of $23.6 million
in the year ended December 31, 2004 reflecting an increase
in price in the securities sold short. This amount has been
recorded in the consolidated statements of earnings for the year
then ended |
71
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| |
in the respective caption. At March 1, 2005, the
$23.6 million of unrealized losses on such securities has
been reversed and a net gain of approximately $3.0 million
recorded. |
|
|
| 7. |
OTHER INVESTMENTS (in $000’s) |
| |
|
|
|
|
|
|
|
|
| |
|
Balance at | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Peninsula/ Hampton & Alex Hotel (a) and (b)
|
|
$ |
— |
|
|
$ |
42,030 |
|
|
WestPoint Stevens (c)
|
|
|
205,850 |
|
|
|
— |
|
|
Union Power Partners L.P. and Panda Gila River L.P. (d)
|
|
|
39,316 |
|
|
|
— |
|
|
Other
|
|
|
782 |
|
|
|
8,298 |
|
| |
|
|
|
|
|
|
| |
|
$ |
245,948 |
|
|
$ |
50,328 |
|
| |
|
|
|
|
|
|
a. On November 30, 2000, the Company entered into a
mezzanine loan agreement to fund $23 million in two
tranches to an unaffiliated borrower. The funds were to be used
for certain initial development costs associated with a 65-unit
condominium property located at 931 1st Avenue in New York
City. The first tranche of $10 million was funded on
November 30, 2000 and provided for interest accruing at a
rate of 25% per annum, with principal and interest due at
maturity, May 29, 2003. Also, in November 2000,
approximately $3.7 million of the second tranche of the
loan was funded. The balance of approximately $9.3 million
was funded in installments during 2001. The second tranche
provided for interest accruing at a rate of 21.5% per
annum, with principal and interest due at maturity,
November 29, 2002. The loans were payable at any time from
the proceeds of unit sales, after satisfaction of senior debt of
approximately $45 million. The loans were secured by the
pledge of membership interests in the entity that owns the real
estate. In May 2002, the Company received approximately
$31.3 million for prepayment of the mezzanine loans. The
balance of the prepayment of $8.3 million represented
accrued interest ($7.9 million) and exit fees
($0.4 million), which amounts were recognized as
“Interest income on U.S. Government and Agency
obligations and other investments” and “Dividend and
other income” respectively, in the Consolidated Statements
of Earnings for the year ended December 31, 2002.
b. At December 31, 2002, the Company had funded two
mezzanine loans for approximately $23.2 million and had
commitments to fund, under certain conditions, additional
advances of approximately $5 million. Both loans had an
interest rate of 22% per annum compounded monthly. The
Peninsula loan, for a Florida condominium development, which had
a term of 24 months from the date of funding, February
2002, was repaid in full in 2003. Approximately
$6.8 million of interest income was recorded and is
included in “Interest income on U.S. Government and
Agency obligations and other investments” in the
Consolidated Statements of Earnings for the year ended
December 31, 2003. The Alex Hotel loan, for a New York City
hotel with approximately 200 rooms, had a term of 36 months
from the closing date, April 2002. At December 31, 2003,
accrued interest of approximately $4.4 million had been
deferred for financial statement purposes pending receipt of
principal and interest payments in connection with this loan.
Origination fees of $3.0 million have been received in
connection with one of the mezzanine loans and approximately
$1.5 million and $1.1 million has been recognized in
“Dividend and other income” in the Consolidated
Statements of Earnings in the years ended December 31, 2003
and 2002 respectively. In February 2003, the Company funded the
Hampton mezzanine loan for approximately $30 million on a
Florida condominium development. The loan was due in
18 months with one six month extension and had an interest
rate of 22% per annum compounded monthly. At
December 31, 2003, accrued interest of approximately
$6.7 million had been deferred for financial statement
purposes pending receipt of principal and interest payments in
connection with this loan. On April 30, 2004, the Company
received approximately $16.7 million for the prepayment of
the Alex Hotel loan. The principal amount of the loan was
$11 million. The prepayment included approximately
72
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
$5.7 million of accrued interest, which was recognized as
interest income in the year ended December 31, 2004.
c. In 2004, the Company purchased approximately
$278.1 million principal amount of secured bank debt of
WestPoint Stevens, a company currently operating as a debtor in
possession under Chapter 11 of the U.S. Bankruptcy
Code, for a purchase price of approximately $205.8 million.
Approximately $193.6 million principal amount is secured by
a first priority lien of certain assets of WestPoint and
approximately $84.5 million principal amount is secured by
a second priority lien. Interest income totalled approximately
$7.2 million in the year ended December 31, 2004 and
is included in “Interest income on U.S. Government and
Agency obligations and other investments” in the
Consolidated Statements of Earnings for the year then ended.
Based on the latest available information, the Company has not
accreted this debt and does not believe that an other than
temporary impairment has been identified.
d. In 2004, the Company purchased approximately
$71.8 million of secured bank debt of Union Power Partners
L.P. and Panda Gila River L.P. for a purchase price of
approximately $39.3 million. No interest is currently being
received on this debt. Based on the latest available
information, the Company has not accreted this debt and does not
believe that an other than temporary impairment has been
identified.
|
|
| 8. |
REAL ESTATE LEASED TO OTHERS ACCOUNTED FOR UNDER THE
FINANCING METHOD |
Real estate leased to others accounted for under the financing
method is summarized as follows (in $000’s):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Minimum lease payments receivable
|
|
$ |
97,725 |
|
|
$ |
161,785 |
|
|
Unguaranteed residual value
|
|
|
48,980 |
|
|
|
74,651 |
|
| |
|
|
|
|
|
|
| |
|
|
146,705 |
|
|
|
236,436 |
|
|
Less unearned income
|
|
|
57,512 |
|
|
|
99,080 |
|
| |
|
|
|
|
|
|
| |
|
|
89,193 |
|
|
|
137,356 |
|
|
Less current portion of lease amortization
|
|
|
3,912 |
|
|
|
5,738 |
|
| |
|
|
|
|
|
|
| |
|
$ |
85,281 |
|
|
$ |
131,618 |
|
| |
|
|
|
|
|
|
The following is a summary of the anticipated future receipts of
the minimum lease payments receivable at December 31, 2004
(in $000’s):
| |
|
|
|
|
| Year Ending December 31, |
|
Amount | |
| |
|
| |
|
2005
|
|
$ |
11,941 |
|
|
2006
|
|
|
11,746 |
|
|
2007
|
|
|
10,832 |
|
|
2008
|
|
|
9,476 |
|
|
2009
|
|
|
9,255 |
|
|
Thereafter
|
|
|
44,475 |
|
| |
|
|
|
| |
|
$ |
97,725 |
|
| |
|
|
|
At December 31, 2004 and 2003, approximately $73,144,000
and $107,543,000, respectively, of the net investment in
financing leases was pledged to collateralize the payment of
nonrecourse mortgages payable.
73
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| 9. |
REAL ESTATE LEASED TO OTHERS ACCOUNTED FOR UNDER THE
OPERATING METHOD |
a. Real estate leased to others accounted for under the
operating method is summarized as follows (in $000’s):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Land
|
|
$ |
13,666 |
|
|
$ |
24,040 |
|
|
Commercial Buildings
|
|
|
45,972 |
|
|
|
83,252 |
|
| |
|
|
|
|
|
|
| |
|
|
59,638 |
|
|
|
107,292 |
|
|
Less accumulated depreciation
|
|
|
10,520 |
|
|
|
30,849 |
|
| |
|
|
|
|
|
|
| |
|
$ |
49,118 |
|
|
$ |
76,443 |
|
| |
|
|
|
|
|
|
The following is a summary of the anticipated future receipts of
minimum lease payments under non-cancelable leases at
December 31, 2004 (in $000’s):
| |
|
|
|
|
| Year Ending December 31, |
|
Amount | |
| |
|
| |
|
2005
|
|
$ |
7,186 |
|
|
2006
|
|
|
6,232 |
|
|
2007
|
|
|
5,649 |
|
|
2008
|
|
|
5,383 |
|
|
2009
|
|
|
5,001 |
|
|
Thereafter
|
|
|
19,753 |
|
| |
|
|
|
| |
|
$ |
49,204 |
|
| |
|
|
|
At December 31, 2004 and 2003, approximately $14,166,000
and $15,630,000, respectively, of net real estate leased to
others was pledged to collateralize the payment of non-recourse
mortgages payable.
b. Property held for sale (in $000’s):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Leased to others
|
|
$ |
74,444 |
|
|
$ |
146,416 |
|
|
Vacant
|
|
|
450 |
|
|
|
2,550 |
|
| |
|
|
|
|
|
|
| |
|
|
74,894 |
|
|
|
148,966 |
|
|
Less accumulated depreciation
|
|
|
16,873 |
|
|
|
20,153 |
|
| |
|
|
|
|
|
|
| |
|
$ |
58,021 |
|
|
$ |
128,813 |
|
| |
|
|
|
|
|
|
At December 31, 2004 and 2003, approximately $34,881,000
and $105,984,000, respectively, of real estate held for sale was
pledged to collateralize the payment of non-recourse mortgages
payable.
74
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following is a summary of income from discontinued
operations (in $000’s):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Rental income
|
|
$ |
16,355 |
|
|
$ |
23,785 |
|
|
$ |
21,993 |
|
|
Hotel and resort operating income
|
|
|
1,602 |
|
|
|
3,912 |
|
|
|
3,679 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
17,957 |
|
|
|
27,697 |
|
|
|
25,672 |
|
| |
|
|
|
|
|
|
|
|
|
|
Mortgage interest expense
|
|
|
3,858 |
|
|
|
7,208 |
|
|
|
6,737 |
|
|
Depreciation and amortization
|
|
|
1,104 |
|
|
|
5,167 |
|
|
|
4,521 |
|
|
Property expenses
|
|
|
3,175 |
|
|
|
3,587 |
|
|
|
3,722 |
|
|
Hotel and resort operating expenses
|
|
|
1,297 |
|
|
|
3,316 |
|
|
|
3,185 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
9,434 |
|
|
|
19,278 |
|
|
|
18,165 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$ |
8,523 |
|
|
$ |
8,419 |
|
|
$ |
7,507 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| 10. |
HOTEL AND CASINO OPERATING PROPERTIES |
In September 2000, Stratosphere’s Board of Directors
approved a going private transaction proposed by the Company and
an affiliate of Icahn. On February 1, 2001 the Company
entered into a merger agreement with Stratosphere under which
the Company would acquire the remaining shares of Stratosphere
that it did not currently own. The Company owned approximately
51% of Stratosphere and Mr. Icahn owned approximately
38.6%. The Company, subject to certain conditions, agreed to pay
approximately $44.3 million for the outstanding shares of
Stratosphere not currently owned by it. Stratosphere
stockholders not affiliated with Icahn would receive a cash
price of $45.32 per share and Icahn related stockholders
would receive a cash price of $44.33 per share. This
transaction was completed in December 2002 after
shareholders’ approval.
The acquisition by the Company of the minority shares not owned
by an Icahn affiliate has been accounted for as a purchase in
accordance with Financial Accounting Standards Board
(“FASB”) Statement No. 141, “Business
Combinations.” The acquisition by the Company of the common
stock held by an Icahn affiliate has been recorded at historical
cost. The excess of the affiliate’s historical cost over
the amount of the cash disbursed, which amounted to $21,151,000,
has been accounted for as an addition to the General
Partner’s equity.
On January 5, 2004, American Casino, an indirect
wholly-owned subsidiary of the Company, entered into an
agreement to acquire two Las Vegas casino/hotels, Arizona
Charlie’s Decatur and Arizona Charlie’s Boulder, from
Carl C. Icahn and an entity affiliated with Mr. Icahn, for
an aggregate consideration of $125.9 million. Upon
obtaining all approvals necessary under gaming laws, the
acquisition was completed on May 26, 2004. The terms of the
transactions were approved by the Audit Committee, which was
advised by its independent financial advisor and by counsel. As
previously contemplated, upon closing, the Company transferred
100% of the common stock of Stratosphere to American Casino. As
a result, following the acquisition and contributions, American
Casino owns and operates three gaming and entertainment
properties in the Las Vegas metropolitan area. The Company
consolidates American Casino and its subsidiaries in the
Company’s financial statements. In accordance with
generally accepted accounting principles, assets transferred
between entities under common control are accounted for at
historical costs similar to a pooling of interests, and the
financial statements of previously separate companies for
periods prior to the acquisition are restated on a combined
basis. The Company’s December 31, 2003 and 2002
consolidated financial statements have been restated to reflect
the acquisition of Arizona Charlie’s Decatur and Arizona
Charlie’s Boulder.
Earnings, capital contributions and distributions of the two
Arizona Charlie’s entities prior to the acquisition have
been allocated to the General Partner. In accordance with the
purchase agreement, prior to
75
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the acquisition, capital contributions of $22.8 million
were received from and capital distributions of
$17.9 million were paid to affiliates of Mr. Icahn.
The assets acquired and liabilities assumed in this acquisition
have been accounted for at historical cost. A reduction of
$125.9 million, reflecting the purchase price, has been
made to the General Partner’s equity in May 2004.
Also in January 2004, American Casino closed on its offering of
Senior Secured Notes Due 2012. The Notes, in the aggregate
principal amount of $215 million, bear interest at the rate
of 7.85% per annum. The proceeds were held in escrow
pending receipt of all approvals necessary under gaming laws and
certain other conditions in connection with the acquisition of
Arizona Charlie’s Decatur and Arizona Charlie’s
Boulder. Upon satisfaction of all closing conditions on
May 26, 2004, the proceeds of the offering were released
from escrow. American Casino used the proceeds of the offering
for the acquisition, to repay intercompany indebtedness and for
distributions to the Company.
American Casino’s operations for the years ended
December 31, 2004, 2003 and 2002 have been included in
“Hotel and casino operating income and expenses” in
the Consolidated Statements of Earnings. Hotel and casino
operating expenses include all expenses except for depreciation
and amortization and income tax provision. Such expenses have
been included in “Depreciation and amortization
expense” and “Income tax expense” in the
Consolidated Statements of Earnings. American Casino’s
depreciation and amortization expense was $23.5 million,
$20.2 million and $20.2 million for the years ended
December 31, 2004, 2003 and 2002, respectively. American
Casino’s income tax provision was $10.1 million and
$4.9 million for the years ended December 31, 2004 and
2002, respectively. American Casino recorded an income tax
benefit of $1.8 million for the year ended
December 31, 2003.
The amount of revenues and expenses attributable to casino,
hotel and restaurants, respectively, is summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(in $000’s) | |
|
Hotel and casino operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Casino
|
|
$ |
167,972 |
|
|
$ |
147,888 |
|
|
$ |
143,057 |
|
| |
Hotel
|
|
|
54,653 |
|
|
|
47,259 |
|
|
|
44,263 |
|
| |
Food and beverage
|
|
|
66,953 |
|
|
|
59,583 |
|
|
|
56,349 |
|
| |
Tower, retail, and other income
|
|
|
33,778 |
|
|
|
30,336 |
|
|
|
28,247 |
|
| |
|
|
|
|
|
|
|
|
|
|
Gross revenues
|
|
|
323,356 |
|
|
|
285,066 |
|
|
|
271,916 |
|
|
Less promotional allowances
|
|
|
(23,375 |
) |
|
|
(22,255 |
) |
|
|
(21,893 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$ |
299,981 |
|
|
$ |
262,811 |
|
|
$ |
250,023 |
|
| |
|
|
|
|
|
|
|
|
|
|
Hotel and casino operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Casino
|
|
$ |
61,985 |
|
|
$ |
61,284 |
|
|
$ |
59,879 |
|
| |
Hotel
|
|
|
24,272 |
|
|
|
22,074 |
|
|
|
20,142 |
|
| |
Food and beverage
|
|
|
48,495 |
|
|
|
44,990 |
|
|
|
43,393 |
|
| |
Other operating expenses
|
|
|
14,131 |
|
|
|
13,524 |
|
|
|
14,505 |
|
| |
Selling, general, and administrative
|
|
|
78,720 |
|
|
|
74,985 |
|
|
|
80,019 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$ |
227,603 |
|
|
$ |
216,857 |
|
|
$ |
217,938 |
|
| |
|
|
|
|
|
|
|
|
|
The ownership and operation of the Las Vegas casinos are subject
to the Nevada Gaming Control Act and regulations promulgated
thereunder, various local ordinances and regulations, and are
subject to the
76
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
licensing and regulatory control of the Nevada Gaming
Commission, the Nevada State Gaming Control Board, and various
other county and city regulatory agencies, including the City of
Las Vegas.
American Casino’s property and equipment consist of the
following as of December 31, 2004 and 2003 (in $000’s):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Land and improvements, including land held for development
|
|
$ |
47,210 |
|
|
$ |
47,041 |
|
|
Building and improvements
|
|
|
221,314 |
|
|
|
220,280 |
|
|
Furniture, fixtures and equipment
|
|
|
108,595 |
|
|
|
98,586 |
|
|
Construction in progress
|
|
|
7,348 |
|
|
|
7,224 |
|
| |
|
|
|
|
|
|
| |
|
|
384,467 |
|
|
|
373,131 |
|
|
Less accumulated depreciation and amortization
|
|
|
95,107 |
|
|
|
74,428 |
|
| |
|
|
|
|
|
|
| |
|
$ |
289,360 |
|
|
$ |
298,703 |
|
| |
|
|
|
|
|
|
Included in property and equipment at both December 31,
2004 and 2003 are assets recorded under capital leases of
$4.0 million.
In connection with the purchase of the master lease from
Strato-Retail, American Casino assumed lessor responsibilities
for various non-cancelable operating leases for certain retail
space. The future minimum lease payments to be received under
these leases for years subsequent to December 31, 2004 are
as follows:
| |
|
|
|
|
| |
|
(in $000’s) | |
|
Years ending December 31,
|
|
|
|
|
|
2005
|
|
$ |
5,877 |
|
|
2006
|
|
|
4,778 |
|
|
2007
|
|
|
3,615 |
|
|
2008
|
|
|
2,177 |
|
|
2009
|
|
|
1,224 |
|
|
Thereafter
|
|
|
959 |
|
| |
|
|
|
|
Total payments
|
|
$ |
18,630 |
|
| |
|
|
|
The above minimum rental income does not include contingent
retail income contained within certain retail operating leases.
In addition, American Casino is reimbursed by lessees for
certain operating expenses.
|
|
| 11. |
HOTEL AND RESORT OPERATING PROPERTIES |
a. The Company owns a hotel and resort property that is
part of a master planned community situated in the town of
Mashpee, located on Cape Cod in Massachusetts. This property
includes two golf courses, other recreational facilities,
condominium and time share units and land for future development.
Total initial costs of approximately $28 million were
classified as follows: approximately $17.4 million as
“Hotel and resort operating properties”,
$8.9 million as “Land and
construction-in-progress” and $1.7 million as
“Receivables and other current assets” on the
Consolidated Balance Sheet.
Resort operations have been included in the “Hotel and
resort operating income and expenses” in the Consolidated
Statements of Earnings. Net hotel and resort operations for this
property (“hotel and resort operating income” less
“hotel and resort operating expenses”) resulted in
income of approximately $2,243,000, $3,033,000 and $1,909,000
for the years ended December 31, 2004, 2003, and 2002,
respectively.
77
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Hotel and resort operating expenses include all expenses except
for approximately $2,544,000, $2,451,000 and $1,833,000 for the
years ended December 31, 2004, 2003 and 2002 of
depreciation and amortization, respectively, which is included
in such caption in the Consolidated Statements of Earnings.
Resort operations are highly seasonal in nature with peak
activity occurring from June to September.
b. The Company owned a hotel located in Miami, Florida
which had a carrying value of approximately $6.4 million at
December 31, 2003, and was unencumbered by any mortgages.
Approximately $1.3 million of capital improvements were
completed in the year ended December 31, 2002.
The Company had a management agreement for the operation of the
hotel with a national management organization. As a result of
the decision to sell the property in 2004, the operating results
for the hotel have been reclassified to discontinued operations
for all periods. Net hotel and resort operations (“hotel
and resort operating revenues” less “hotel and resort
operating expenses”) totaled approximately $306,000,
$596,000 and $494,000 for the years ended December 31,
2004, 2003 and 2002, respectively and have been included in
discontinued operations in the Consolidated Statements of
Earnings. Depreciation expense of $0, $210,000 and $374,000 for
the years ended December 31, 2004, 2003 and 2002,
respectively, have been included in discontinued operations in
the Consolidated Statements of Earnings.
In 2004, the Company sold the hotel located in Miami, Florida
for a loss of approximately $0.9 million which included a
license termination fee of approximately $0.7 million.
|
|
| 12. |
INVESTMENT IN DEBT SECURITIES OF AFFILIATES (in
$000’s): |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Atlantic Holdings/GB Holdings(a)
|
|
$ |
60,004 |
|
|
$ |
24,696 |
|
|
TransTexas(b)
|
|
|
27,500 |
|
|
|
— |
|
|
Panaco(c)
|
|
|
38,000 |
|
|
|
— |
|
| |
|
|
|
|
|
|
| |
|
|
125,504 |
|
|
|
24,696 |
|
|
Less current portion
|
|
|
(10,429 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
| |
|
$ |
115,075 |
|
|
$ |
24,696 |
|
| |
|
|
|
|
|
|
a. In 1998 and 1999, the Company acquired an interest in
the Sands, located in Atlantic City, New Jersey, by purchasing
the principal amount of approximately $31.4 million of
First Mortgage Notes (“Notes”) issued by GB Property
Funding Corp. (“GB Property”). GB Property was
organized as a special purpose entity for the borrowing of funds
by Greate Bay Hotel and Casino, Inc. (“Greate Bay”).
The purchase price for such notes was approximately
$25.3 million. An affiliate of the General Partner also
made an investment in the Notes of GB Property. A total of
$185 million of such Notes were issued.
Greate Bay owned and operated the Sands, a destination resort
complex, located in Atlantic City, New Jersey. On
January 5, 1998, GB Property and Greate Bay filed for
bankruptcy protection under Chapter 11 of the Bankruptcy
Code to restructure its long term debt.
In July 2000, the U.S. Bankruptcy Court ruled in favor of
the reorganization plan proposed by affiliates of the General
Partner which provided for an additional investment of
$65 million by the Icahn affiliates in exchange for a 46%
equity interest, with bondholders (which also includes the Icahn
affiliates) to receive $110 million in new notes of GB
Property First Mortgage (“GB Notes”) and a 54% equity
interest. The plan, which became effective September 29,
2000, provided the Icahn affiliates with a controlling interest.
As required by the New Jersey Casino Control Act (the
“Casino Control Act”), the Partnership Agreement was
amended to provide that securities of the Company are held
subject to the condition that if a
78
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
holder thereof is found to be disqualified by the Casino Control
Commission, pursuant to the provisions of the Casino Control
Act, such holder shall dispose of his interest in the Company in
accordance with the Casino Control Act.
At December 31, 2003, the Company owned approximately
$26.9 million principal amount of GB Notes which were
accounted for as held-to-maturity securities. These notes bore
interest of 11% per annum and were due to mature in September
2005. The carrying value of these notes at December 31,
2003 was approximately $24.7 million.
As part of the Atlantic Holdings Consent Solicitation and Offer
to Exchange further described in Note 13, the Company
tendered its GB Notes and received $26.9 million of
3% Notes due 2008 issued by Atlantic Coast Entertainment
Holdings, Inc. (the “Atlantic Holdings Notes”).
On December 27, 2004, the Company purchased approximately
$37.0 million principal amount of the Atlantic Holdings
Notes from two Icahn affiliates for cash consideration of
$36.0 million. As a result, the Company owns approximately
96.4% of the outstanding Atlantic Holdings Notes. The carrying
value of the Atlantic Holdings Notes at December 31, 2004
is approximately $60 million. Interest income of
approximately $2.5 million in the year ended
December 31, 2004 and $2.9 million in each of the
years ended December 31, 2003 and 2002 was recognized.
b. On December 6, 2004, the Company purchased from
affiliates of Mr. Icahn $27,500,000 aggregate principal
amount, or 100%, of the outstanding term notes issued by
TransTexas (the “TransTexas Notes”). The purchase
price was $28,245,890, which equals the principal amount of the
TransTexas Notes plus accrued but unpaid interest. The notes are
payable annually in equal consecutive annual payments of
$5,000,000, with the final installment due August 28, 2008.
Interest is payable semi-annually in February and August at the
rate of 10% per annum. Interest income of approximately
$196,000 was recognized in the year ended December 31, 2004
and is included in “Interest income on U.S. Government and
Agency obligations and other investments” in the
Consolidated Statements of Earnings in the year then ended. The
TransTexas Notes are secured by a first priority lien on all of
TransTexas assets. TransTexas is indirectly controlled by
Mr. Icahn. See Note 29.
c. On December 6, 2004, the Company purchased all of
the membership interests of Mid River LLC (“Mid
River”) from Icahn affiliates for an aggregate purchase
price of $38,125,999. The assets of Mid River consist of
$38,000,000 principal amount of term loans of Panaco (the
“Panaco Debt”). The purchase price included accrued
but unpaid interest. The principal is payable in twenty-seven
equal quarterly installments of the unpaid principal of
$1,357,143 commencing on March 15, 2005, through and
including September 15, 2011. Interest is payable quarterly
at a rate per annum equal to the LIBOR daily floating rate plus
four percent, which was 6.346% at December 31, 2004.
Interest income of $155,991 was recognized in the year ended
December 31, 2004 and is included in “Interest income
on U.S. Government and Agency obligations and other
investments” in the Consolidated Statements of Earnings for
the year then ended. See Note 29.
|
|
| 13. |
EQUITY INTEREST IN GB HOLDINGS, INC. |
At December 31, 2003, the Company owned approximately
3.6 million shares, or 36.3%, of GB Holdings, Inc.
(“GB Holdings”), the holding company for the Sands
(See Note 12). The Company also owned approximately
$26.9 million principal amount of GB Property First
Mortgage Notes (“GB Notes”).
On June 30, 2004, GB Holdings announced that its
stockholders approved the transfer of the Sands to its
wholly-owned subsidiary, Atlantic Holdings, in connection with
the restructuring of its debt.
On July 22, 2004, Atlantic Holdings announced that its
Consent Solicitation and Offer to Exchange, in which it offered
to exchange the Atlantic Holdings Notes for GB Notes,
expired and approximately $66 million principal amount of
the GB Notes (approximately 60% of the outstanding
GB Notes) were
79
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
tendered to Atlantic Holdings for exchange. On July 23,
2004, 10 million warrants were distributed, on a pro rata
basis, to stockholders. The warrants, under certain conditions,
will allow the holders to purchase common stock of Atlantic
Holdings at a purchase price of $.01 per share,
representing 27.5% of the outstanding common stock of Atlantic
Holdings on a fully diluted basis. Mr. Icahn and his
affiliated companies hold approximately 77.5% of the GB Holdings
stock and held approximately 58.2% of the original debt, of
which the Company owns approximately 36.3% of the common stock
and held approximately 24.5% of the debt. This debt is included
in “Investment in debt securities of Affiliates” in
the consolidated balance sheets. The Company and Mr. Icahn
tendered all of their GB Notes in the exchange. The Company
received:
|
|
|
| |
• |
$26,914,500 principal amount of the Atlantic Holdings Notes; |
| |
| |
• |
$3,620,753 in cash representing accrued interest on the
GB Notes and $100 per $1,000 in principal amount of the
GB Notes; and |
| |
| |
• |
3,627,711 warrants, which under certain conditions will allow
the Company to purchase approximately 998,000 shares of
common stock at $.01 per share of Atlantic Holdings
representing approximately 10% of the outstanding common stock
of Atlantic Holdings, on a fully diluted basis. |
The Company reflects its equity interest in GB Holdings as
“Equity interest in GB Holdings, Inc.” in the
Consolidated Balance Sheets.
The Company owns warrants to purchase, upon the occurrence of
certain events, approximately 10.0% of the fully diluted common
stock of Atlantic Holdings. Atlantic Holdings owns 100% of ACE
Gaming LLC, the owner and operator of the Sands. The Company has
entered into an agreement, with affiliates of Mr. Icahn, to
acquire an additional approximate 41.2% of the outstanding
common stock of GB Holdings and warrants to purchase, upon the
occurrence of certain events, an additional approximate 11.3% of
the fully diluted common stock of Atlantic Holdings for an
aggregate of $12.0 million of depositary units, plus an
aggregate of up to $6.0 million of Depositary Units, if GB
Holdings meets certain earnings targets during 2005 and 2006.
See Note 29 regarding the Company’s agreement to
purchase an approximate 41.2% interest in GB Holdings from
an affiliate of Mr. Icahn. Upon consummation of the
purchase agreement, we will own approximately 77.5% of the
outstanding GB Holdings common stock and warrants to purchase,
upon the occurrence of certain events, approximately 21.3% of
the fully diluted common stock of Atlantic Holdings.
In the year ended December 31, 2004, the Company recorded
an impairment loss of $15.6 million on its equity
investment in GB Holdings. The purchase price pursuant to
the agreement described above was less than our carrying value,
approximately $26.2 million, for the approximately 36.3% of
the outstanding GB Holdings common stock that the Company
owns. In the September 30, 2004 Form 10-Q of
GB Holdings, there was a working capital deficit of
approximately $32 million and there was approximately
$40 million of debt maturing in September 2005.
|
|
| 14. |
NATIONAL ENERGY GROUP |
a. National Energy Group, Inc.
In October 2003, pursuant to a Purchase Agreement dated as of
May 16, 2003, the Company acquired certain debt and equity
securities of NEG from entities affiliated with Mr. Icahn
for an aggregate cash consideration of approximately
$148.1 million plus approximately $6.7 million in cash
of accrued interest on the debt securities. The agreement was
reviewed and approved by the Audit Committee, which was advised
by its independent financial advisor and legal counsel. The
securities acquired were $148,637,000 in principal amount of
outstanding
103/4% Senior
Notes due 2006 of NEG and 5,584,044 shares of common stock
of NEG. As a result of the foregoing transaction and the
acquisition by the Company of additional securities of NEG prior
to the closing, the Company beneficially owns in excess of 50%
of the outstanding common stock of NEG.
80
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
NEG owns a 50% interest in Holding LLC, the other 50% interest
in Holding LLC is held by Gascon Partners (“Gascon”)
an Icahn affiliate and managing member. Holding LLC owns NEG
Operating LLC (“Operating LLC”) which owns operating
oil and gas properties managed by NEG. Under the Holding LLC
operating agreement, as of September 30, 2004, NEG is to
receive guaranteed payments of approximately $39.9 million
in addition to a priority distribution of approximately
$148.6 million before the Icahn affiliate receives any
monies. Due to the substantial uncertainty that NEG will receive
any distribution above the priority and guaranteed payments
amounts, NEG accounts for its investment in Holding LLC as a
preferred investment.
In connection with a credit facility obtained by Holding LLC,
NEG and Gascon have pledged as security their respective
interests in Holding LLC.
See Note 29 pertaining to additional oil and gas
acquisitions.
b. Investment in NEG Holding LLC
As explained below, NEG’s investment in Holding LLC is
recorded as a preferred investment. The initial investment was
recorded at historical carrying value of the net assets
contributed with no gain or loss recognized on the transfer. The
Company currently assesses its investment in Holding LLC through
a cash flow analysis to determine if Holding LLC will have
sufficient cash flows to fund the guaranteed payments and
priority distribution. This analysis is done on a quarterly
basis. Holding LLC is required to make SFAS 69 disclosures
on an annual basis, which include preparation of reserve reports
by independent engineers and cash flow projections. These cash
flow projections are the basis for the cash flow analysis. The
Company follows the conceptual guidance of SFAS 144
“Accounting for the Impairment of Long-Lived Assets”
in assessing any potential impairments in Holding LLC.
Summarized financial information for Holding LLC is as follows
(in $000’s):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Current assets
|
|
$ |
23,146 |
|
|
$ |
33,415 |
|
|
Noncurrent assets(1)
|
|
|
237,127 |
|
|
|
190,389 |
|
| |
|
|
|
|
|
|
|
Total assets
|
|
$ |
260,273 |
|
|
$ |
223,804 |
|
| |
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
22,456 |
|
|
$ |
14,253 |
|
|
Noncurrent liabilities
|
|
|
63,636 |
|
|
|
48,514 |
|
| |
|
|
|
|
|
|
|
Total liabilities
|
|
|
86,092 |
|
|
|
62,767 |
|
|
Members’ equity
|
|
|
174,181 |
|
|
|
161,037 |
|
| |
|
|
|
|
|
|
|
Total liabilities and members’ equity
|
|
$ |
260,273 |
|
|
$ |
223,804 |
|
| |
|
|
|
|
|
|
(1)Primarily oil and gas properties
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In $000’s) | |
|
Total revenues
|
|
$ |
78,727 |
|
|
$ |
77,606 |
|
|
$ |
35,900 |
|
|
Costs and expenses
|
|
|
(47,313 |
) |
|
|
(46,766 |
) |
|
|
(32,064 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
31,414 |
|
|
|
30,840 |
|
|
|
3,836 |
|
|
Other income (expense)
|
|
|
(2,292 |
) |
|
|
30 |
|
|
|
10,090 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
29,122 |
|
|
$ |
30,870 |
|
|
$ |
13,926 |
|
| |
|
|
|
|
|
|
|
|
|
81
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In August 2000, pursuant to a plan of reorganization, Holding
LLC was formed. Prior to September 2001, NEG owned and operated
certain oil and gas properties. In September 2001, NEG
contributed oil and natural gas properties in exchange for
Holding LLC’s obligation to pay the Company the guaranteed
payments and priority distributions. The Company also received a
50% membership interest in Holding LLC. Gascon also contributed
oil and natural gas assets and cash in exchange for future
payments and a 50% membership interest. The Holding LLC
operating agreement requires the payment of guaranteed payments
and priority distributions to NEG in order to pay interest on
senior debt and the principal amount of the debt of
$148.6 million in 2006. After the receipt by NEG of the
guaranteed payments and priority distributions that total
approximately $300 million, the agreement requires the
distribution of an equal amount to Gascon. Holding LLC is
contractually obligated to make the guaranteed payments and
priority distributions to NEG and Gascon before any
distributions can be made to the LLC interest.
NEG originally recorded its investment in Holding LLC at the
historical cost of the oil and gas properties contributed into
the LLC. In evaluating the appropriate accounting to be applied
to this investment, NEG anticipated it will collect the
guaranteed payments and priority distributions through 2006.
However, based on cash flow projections prepared by the
management of Holding LLC and its reserve engineers, there is
substantial uncertainty that there will be any residual value in
Holding LLC subsequent to the payment of the amounts required to
be paid to Gascon. Due to this uncertainty, NEG has been
accreting its investment in Holding LLC, the value of its
preferred interest at the implicit rate of interest up to the
guaranteed payments and priority distributions collected through
2006, recognizing the accretion income in earnings. Accretion
income is periodically adjusted for changes in the timing of
cash flows, if necessary due to unscheduled cash distributions.
Receipt of guaranteed payments and the priority distribution are
recorded as reductions in the preferred investment in Holding
LLC. The preferred investment in Holding LLC is evaluated
quarterly for other than temporary impairment. The rights of NEG
upon liquidation of Holding LLC are identical to those described
above and the Company considered those rights in determining the
appropriate presentation.
Because of the continuing substantial uncertainty that there
will be any residual value in Holding LLC after the guaranteed
payments and priority distributions, no income other than the
accretion is currently being given accounting recognition.
NEG’s preferred investment will be reduced to zero upon
collection of the priority distributions in 2006. After that
date, NEG will continue to monitor payments made to Gascon and,
at such time as it would appear that there is any residual value
to NEG’s 50% interest in Holding LLC, it would receive
accounting recognition. Throughout, and up to this point, NEG
believes that the 50% interest in Holding LLC represents a
residual interest that is currently valued at zero. The Company
accounts for its residual equity investment in Holding LLC in
accordance with APB 18.
The following is a roll forward of the Investment in Holding LLC
as of December 31, 2004 and 2003 (in $000s):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Investment in Holding LLC at beginning of period
|
|
$ |
69,346 |
|
|
$ |
108,880 |
|
|
Priority distribution from Holding LLC
|
|
|
— |
|
|
|
(51,446 |
) |
|
Guaranteed payment from Holding LLC
|
|
|
(15,978 |
) |
|
|
(18,230 |
) |
|
Accretion of investment in Holding LLC
|
|
|
34,432 |
|
|
|
30,142 |
|
| |
|
|
|
|
|
|
|
Investment in Holding LLC at end of period
|
|
$ |
87,800 |
|
|
$ |
69,346 |
|
| |
|
|
|
|
|
|
The Holding LLC Operating Agreement requires that distributions
shall be made to both NEG and Gascon as follows:
|
|
| |
1. Guaranteed payments are to be paid to NEG, calculated on
an annual interest rate of 10.75% on the outstanding priority
distribution amount. The priority distribution amount includes
all outstanding |
82
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| |
debt owed to entities owned or controlled by Carl C. Icahn,
including the amount of NEG’s 10.75% Senior Notes. As
of December 31, 2004, the priority distribution amount was
$148.6 million which equals the amount of NEG’s
10.75% Senior Notes due the Company. The guaranteed
payments will be made on a semi-annual basis. |
| |
| |
2. The priority distribution amount is to be paid to NEG.
Such payment is to occur by November 6, 2006. |
| |
| |
3. An amount equal to the priority distribution amount and
all guaranteed payments paid to NEG, plus any additional capital
contributions made by Gascon, less any distribution previously
made by NEG to Gascon, is to be paid to Gascon. |
| |
| |
4. An amount equal to the aggregate annual interest
(calculated at prime plus
1/2%
on the sum of the guaranteed payments), plus any unpaid interest
for prior years (calculated at prime plus
1/2%
on the sum of the guaranteed payments), less any distributions
previously made by NEG to Gascon, is to be paid to Gascon. |
| |
| |
5. After the above distributions have been made, any
additional distributions will be made in accordance with the
ratio of NEG’s and Gascon’s respective capital
accounts. |
In addition, the Holding LLC Operating Agreement contains a
provision that allows Gascon at any time, in its sole
discretion, to redeem the membership interest in Holding LLC at
a price equal to the fair market value of such interest
determined as if Holding LLC had sold all of its assets for fair
market value and liquidated. Since all of the NEG’s
operating assets and oil and natural gas properties have been
contributed to Holding LLC, as noted above, following such a
redemption, NEG’s principal assets would consist solely of
its cash balances.
c. See Note 29 pertaining to additional oil and gas
acquisitions.
|
|
| 15. |
SIGNIFICANT PROPERTY TRANSACTIONS |
Information on significant property transactions during the
three-year period ended December 31, 2004 is as follows:
|
|
| |
a. In September 2002, the Company purchased an industrial
building located in Nashville, Tennessee for approximately
$18.2 million. The building was constructed in 2001 and is
fully leased to two tenants, Alliance Healthcare and Jet
Equipment & Tools Inc., with leases expiring in 2011.
The annual net operating income was anticipated to be
approximately $1.6 million increasing to approximately
$1.9 million by 2011. In October 2002, the Company closed a
$12.7 million non-recourse mortgage loan on the Nashville,
Tennessee property. The loan bore interest at 6.4% per
annum and was due to mature in ten years. Required payments were
interest only for the first three years and then principal
amortization would commence based on a thirty-year amortization
schedule. In June 2004, the Company sold the property for a
selling price of $19.2 million. A gain of approximately
$1.4 million was recognized in the year ended
December 31, 2004 and is included in discontinued
operations in the Consolidated Statements of Earnings. |
| |
| |
At December 31, 2003, the property had a carrying value of
approximately $18,066,000 and was encumbered by a non-recourse
mortgage in the amount of $12,700,000. |
| |
| |
b. In October 2002, the Company sold a property located in
North Palm Beach, Florida for a selling price of
$3.5 million. A gain of approximately $2.4 million was
recognized in the year ended December 31, 2002. |
83
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| |
c. In October 2003, the Company sold a property located in
Columbia, Maryland to its tenant for a selling price of
$11 million. A gain of approximately $5.8 million was
recognized in the year ended December 31, 2003. |
| |
| |
d. In the year ended December 31, 2004, the Company
sold 57 rental real estate properties for approximately
$245 million which were encumbered by mortgage debt of
approximately $94 million which was repaid from the sale
proceeds. |
| |
| |
In the year ended December 31, 2004, of the 57 properties,
the Company sold nine financing lease properties for
approximately $43.6 million. The properties were encumbered
by mortgage debt of approximately $26.8 million which was
repaid from the sales proceeds. The carrying value of these
properties was approximately $38.3 million; therefore, the
Company recognized a gain on sale of approximately
$5.3 million in the year ended December 31, 2004,
which is included in income from continuing operations in the
Consolidated Statements of Earnings. |
| |
| |
In the year ended December 31, 2004, of the 57 properties,
the Company sold 48 operating and held for sale properties for
approximately $201.8 million. The properties were
encumbered by mortgage debt of approximately $67 million
which was repaid from the sales proceeds. The carrying value of
these properties was approximately $126.6 million. The
Company recognized a gain on sale of approximately
$75.2 million in year ended December 31, 2004, which
is included in income from discontinued operations in the
Consolidated Statements of Earnings. |
| |
| |
At December 31, 2004, the Company had fifteen 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 purchaser’s 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.
At December 31, 2004, the carrying value of these
properties is approximately $62.3 million. As of
March 1, 2005, the Company has sold four of the fifteen
properties for $46.5 million. The properties had a carrying
value of $29.9 million. A gain of $16.6 million will
be recorded in the three months ended March 31, 2005. In
accordance with generally accepted accounting principles, 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.” |
| |
| |
e. In January 2004, in conjunction with its reinvestment
program, the Company purchased a 34,422 square foot
commercial condominium unit (“North Moore Condos”)
located in New York City for approximately $14.5 million.
The unit contains a Citibank branch, a furniture store and a
restaurant. Current annual rent income from the three tenants is
approximately $1,289,000. The Company obtained mortgage
financing of $10 million for this property in April 2004.
The mortgage bears interest at the rate of 5.73% per annum,
and matures in March 2014. Annual debt service is $698,760. |
| |
| |
f. In July 2004, the Company purchased two Vero Beach,
Florida waterfront communities, Grand Harbor and Oak Harbor
(“Grand Harbor”), including their respective golf
courses, tennis complex, fitness center, beach club and
clubhouses. The acquisition also included properties in various
stages of development, including land for future residential
development, improved lots and finished residential units ready
for sale. The purchase price was approximately $75 million,
which included approximately $62 million of land and
construction in progress. The Company plans to invest in the
further development of these properties and the enhancement of
the existing infrastructure. |
84
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Mortgages payable, all of which are nonrecourse to the Company,
are summarized as follows (in $000’s):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Balance at December 31, | |
| |
|
|
|
Annual Principal and | |
|
| |
| Range of Interest Rates |
|
Range of Maturities | |
|
Interest Payment | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
5.630% — 8.250%
|
|
|
10/15/07–10/01/14 |
|
|
$ |
10,811 |
|
|
$ |
91,896 |
|
|
$ |
180,989 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion and mortgages on properties held for sale |
|
|
(31,177 |
) |
|
|
(87,753 |
) |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
$ |
60,719 |
|
|
$ |
93,236 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the contractual future principal
payments of the mortgages (in $000’s):
| |
|
|
|
|
| Year Ending December 31, |
|
Amount | |
| |
|
| |
|
2005
|
|
$ |
4,759 |
|
|
2006
|
|
|
5,116 |
|
|
2007
|
|
|
11,428 |
|
|
2008
|
|
|
24,385 |
|
|
2009
|
|
|
7,211 |
|
|
2010 — 2014
|
|
|
38,997 |
|
| |
|
|
|
| |
|
$ |
91,896 |
|
| |
|
|
|
|
|
| |
a. See Note 15a. for Mid-South Logistics financing in
October 2002. |
| |
| |
b. On May 16, 2003, the Company executed a mortgage
note secured by a distribution facility located in Windsor
Locks, Connecticut and obtained funding in the principal amount
of $20 million. The loan bears interest at 5.63% per
annum and matures on June 1, 2013. Annual debt service is
approximately $1,382,000 based on a 30 year amortization
schedule. |
| |
| |
c. See Note 15e. for North Moore Condo financing in
April 2004. |
|
|
| 17. |
SENIOR NOTES AND CREDIT FACILITIES DUE AFFILIATES |
a. At December 31, 2002, NEG had $10.9 million
outstanding under its existing $100 million credit facility
with Arnos, an Icahn affiliate. Arnos continued to be the holder
of the credit facility; however, the $10.9 million note
outstanding under the credit facility was contributed to Holding
LLC as part of Gascon’s contribution to Holding LLC on
September 12, 2001. In December 2001, the maturity date of
the credit facility was extended to December 31, 2003 and
NEG was given a waiver of compliance with respect to any and all
covenant violations. NEG was not in compliance with the minimum
interest coverage ratio at September 30, 2002; and
December 31, 2002 and the current ratio at
December 31, 2002, however, in December 2001, NEG was given
a waiver of compliance with respect to any and all covenant
violations through December 31, 2003.
On March 26, 2003, Holding LLC distributed the
$10.9 million note outstanding under NEG’s revolving
credit facility as a priority distribution to NEG, thereby
canceling the note. Also, on March 26, 2003, NEG, Arnos and
Operating LLC entered into an agreement to assign the credit
facility to Operating LLC. Effective with this assignment, Arnos
amended the credit facility to increase the revolving commitment
to $150 million, increase the borrowing base to
$75.0 million and extend the revolving due date until
June 30, 2004. Concurrently, Arnos extended a
$42.8 million loan to Operating LLC under the amended
credit facility. Operating LLC then distributed
$42.8 million to Holding LLC which, thereafter, made a
$40.5 million priority distribution and a $2.3 million
guaranteed payment to NEG. NEG utilized these funds to pay the
entire amount of the long-term interest payable on the notes and
interest accrued thereon outstanding on March 27, 2003. The
Arnos facility was canceled on December 29, 2003 in
conjunction with a third party bank financing.
85
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
b. On September 24, 2001, Arizona Charlie’s,
Inc., the predecessor entity to Arizona Charlie’s, LLC,
which was acquired by American Casino in May 2004, refinanced
the remaining principal balance of $7.9 million on a prior
note payable to Arnos Corp., an affiliate of Mr. Icahn. The
note bore interest at the prime rate plus 1.50% (5.75% per
annum at December 31, 2002), with a maturity of June 2004,
and was collateralized by all the assets of Arizona
Charlie’s, Inc. The note was repaid during November 2003.
During the years ended December 31, 2003 and 2002, Arizona
Charlie’s, Inc. paid interest expense of $0.1 million
and $0.4 million, respectively.
c. During fiscal year 2002, Fresca, LLC, which was acquired
by American Casino in May 2004, entered into an unsecured line
of credit in the amount of $25.0 million with Starfire
Holding Corporation (“Starfire”), an affiliate of
Mr. Icahn. The outstanding balance, including accrued
interest, was due and payable on January 2, 2007. As of
December 31, 2003, Fresca, LLC had $25.0 million
outstanding. The note bore interest on the unpaid principal
balance from January 2, 2002 until maturity at the rate per
annum equal to the prime rate, as established by Fleet Bank,
from time to time, plus 2.75%. Interest was payable
semi-annually in arrears on the first day of January and July,
and at maturity. The note was guaranteed by Mr. Icahn. The
note was repaid during May 2004. During the years ended
December 31, 2004, 2003 and 2002, Fresca, LLC paid
$0.7 million, $1.2 million and $0.4 million,
respectively.
|
|
| 18. |
SENIOR SECURED NOTES PAYABLE AND CREDIT FACILITY |
In January 2004, American Casino closed on its offering of
senior secured notes due 2012. The notes, in the aggregate
principal amount of $215 million, bear interest at the rate
of 7.85% per annum. The notes have a fixed annual interest
rate of 7.85% per annum, which will be paid every six
months on February 1 and August 1, commencing
August 1, 2004. The Notes will mature on February 1,
2012. The proceeds were held in escrow pending receipt of all
approvals necessary under gaming laws and certain other
conditions in connection with the acquisition of Arizona
Charlie’s Decatur and Arizona Charlie’s Boulder. Upon
satisfaction of all closing conditions on May 26, 2004, the
proceeds of the offering were released from escrow. American
Casino used the proceeds of the offering for the acquisition of
Arizona Charlie’s Decatur and Boulder, to repay
intercompany indebtedness and for distributions to the Company.
The notes are recourse only to, and are secured by a lien on the
assets of, American Casino and certain of its subsidiaries. The
notes restrict the ability of American Casino and its restricted
subsidiaries, subject to certain exceptions, to: incur
additional debt; pay dividends and make distributions; make
certain investments; repurchase stock; create liens; enter into
transactions with affiliates; enter into sale and leaseback
transactions; merge or consolidate; and transfer, lease or sell
assets. As of December 31, 2004, American Casino is in
compliance with all terms and conditions of the notes. The notes
were issued in an offering not registered under the Securities
Act of 1933. At the time American Casino issued the notes, it
entered into a registration rights agreement in which it agreed
to exchange the notes for new notes which have been registered
under the Securities Act of 1933. On October 26, 2004, the
SEC declared effective American Casino’s registration
statement. The exchange offer was consummated on
December 1, 2004.
The Company recorded approximately $15.6 million of
interest expense on the notes payable in the year ended
December 31, 2004 which is included in “Interest
expense” in the Consolidated Statements of Earnings for the
year then ended.
A syndicate of lenders has provided to American Casino a
non-amortizing $20.0 million revolving credit facility. The
commitments are available to the Company in the form of
revolving loans, and include a letter of credit facility
(subject to $10.0 million sublimit). Loans made under the
senior secured revolving facility will mature and the
commitments under them will terminate on January 29, 2008.
There were no borrowings outstanding under the facility at
December 31, 2004.
Of the Company’s cash and cash equivalents at
December 31, 2004, approximately $75.2 million in cash
is at American Casino which is subject to the restrictions of
its notes and the revolving credit facility.
86
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair value of American Casino’s long-term debt is based
on the quoted market prices for the same or similar issues or on
the current rates offered to us for debt of the same remaining
maturities. As such, the estimated fair value of long-term debt
outstanding is approximately $229.0 million as of
December 31, 2004.
|
|
| 19. |
SENIOR UNSECURED NOTES PAYABLE |
On May 12, 2004, the Company closed on its offering of
senior notes due 2012. The notes, in the aggregate principal
amount of $353 million, were priced at 99.266%. The notes
have a fixed annual interest rate of
81/8%,
which will be paid every six months on June 1 and
December 1, commencing December 1, 2004. The notes
will mature on June 1, 2012. AREH is a guarantor of the
debt; however, no other subsidiaries guarantee payment on the
notes. American Real Estate Finance Corp. (“AREF”), a
wholly-owned subsidiary of the Company, was formed solely for
the purpose of serving as a co-issuer of the debt securities.
AREF will not have any operations or assets and will not have
any revenues. The Company intends to use the proceeds of this
offering for general business purposes, including its primary
business strategy of acquiring undervalued assets in its
existing lines of business or other businesses and to provide
additional capital to grow its existing businesses. The notes
restrict the ability of the Company, subject to certain
exceptions, to, among other things; incur additional debt; pay
dividends or make distributions; repurchase stock; create liens;
and enter into transactions with affiliates. As of
December 31, 2004, the Company is in compliance with all
terms and conditions of the notes. The notes were issued in an
offering not registered under the Securities Act of 1933. At the
time the Company issued the notes, the Company entered into a
registration rights agreement in which the Company agreed to
exchange the notes for new notes which have been registered
under the Securities Act of 1933. On November 8, 2004, the
SEC declared effective the Company’s registration
statement. The exchange offer was consummated on
December 15, 2004.
The fair value of the Company’s long-term debt is based on
the quoted market prices for the same or similar issues or on
the current rates offered to us for debt of the same remaining
maturities. As such, the estimated fair value of long-term debt
outstanding is approximately $375 million as of
December 31, 2004.
The Company recorded approximately $18.5 million of
interest expense on the notes payable in the year ended
December 31, 2004 which is included in “Interest
expense” in the Consolidated Statements of Earnings for the
year then ended.
|
|
| 20. |
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES |
Accounts payable, accrued expenses and other liabilities consist
of the following (In $000’s):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Accrued liabilities
|
|
$ |
11,463 |
|
|
$ |
11,951 |
|
|
Accrued payroll
|
|
|
11,113 |
|
|
|
12,507 |
|
|
Due to Panaco, Inc.
|
|
|
16,242 |
|
|
|
— |
|
|
Other
|
|
|
42,975 |
|
|
|
21,316 |
|
| |
|
|
|
|
|
|
| |
|
$ |
81,793 |
|
|
$ |
45,774 |
|
| |
|
|
|
|
|
|
|
|
| 21. |
EARNINGS PER LIMITED PARTNERSHIP UNIT |
Basic earnings per LP unit are based on net earnings
attributable to limited partners, and in periods prior to
July 1, 2003, adjusted for the preferred pay-in-kind
distribution to Preferred Unitholders. The resulting net
earnings available for limited partners are divided by the
weighted average number of shares of limited partnership units
outstanding.
87
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Diluted earnings per LP unit are based on earnings before the
preferred pay-in-kind distribution as the numerator with the
denominator based on the weighted average number of units and
equivalent units outstanding. The Preferred Units are considered
to be equivalent units.
Basic net income per American Real Estate Partners, L.P. Unit is
derived by dividing net income attributable to the limited
partners by the basic weighted average number of American Real
Estate Partners, L.P. Units outstanding for each period. Diluted
earnings per American Real Estate Partners, L.P. Unit is derived
by adjusting net income attributable to the limited partners for
the assumed dilutive effect of the redemption of the Preferred
LP Units (“Diluted earnings”) and dividing Diluted
earnings by the diluted weighted average number of American Real
Estate Partners, L.P. Units outstanding for each period.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
In $000’s (except per unit data) | |
|
Attributable to Limited Partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income from continuing operations
|
|
$ |
70,453 |
|
|
$ |
47,822 |
|
|
$ |
55,810 |
|
| |
Add Preferred LP Unit distribution
|
|
|
4,981 |
|
|
|
4,792 |
|
|
|
4,518 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income before discontinued operations
|
|
|
75,434 |
|
|
|
52,614 |
|
|
|
60,328 |
|
|
Income from discontinued operations
|
|
|
82,054 |
|
|
|
11,538 |
|
|
|
7,358 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted earnings
|
|
$ |
157,488 |
|
|
$ |
64,152 |
|
|
$ |
67,686 |
|
| |
|
|
|
|
|
|
|
|
|
|
Weighted average limited partnership units outstanding
|
|
|
46,098,284 |
|
|
|
46,098,284 |
|
|
|
46,098,284 |
|
|
Dilutive effect of redemption of Preferred LP Units
|
|
|
5,444,028 |
|
|
|
8,391,659 |
|
|
|
10,368,414 |
|
| |
|
|
|
|
|
|
|
|
|
|
Weighed average limited partnership units and equivalent
partnership units outstanding
|
|
|
51,542,312 |
|
|
|
54,489,943 |
|
|
|
56,466,698 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
1.53 |
|
|
$ |
.99 |
|
|
$ |
1.11 |
|
| |
Income from discontinued operations
|
|
|
1.78 |
|
|
|
.25 |
|
|
|
.16 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic earnings per LP unit
|
|
$ |
3.31 |
|
|
$ |
1.24 |
|
|
$ |
1.27 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income from continuing operations
|
|
$ |
1.46 |
|
|
$ |
.92 |
|
|
$ |
.99 |
|
| |
Income from discontinued operations
|
|
|
1.59 |
|
|
|
.21 |
|
|
|
.13 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per LP unit
|
|
$ |
3.05 |
|
|
$ |
1.13 |
|
|
$ |
1.12 |
|
| |
|
|
|
|
|
|
|
|
|
Pursuant to rights offerings consummated in 1995 and 1997,
Preferred Units were issued. The Preferred Units have certain
rights and designations, generally as follows. Each Preferred
Unit has a liquidation preference of $10.00 and entitles the
holder thereof to receive distributions thereon, payable solely
in additional Preferred Units, at the rate of $.50 per
Preferred Unit per annum (which is equal to a rate of 5% of the
liquidation preference thereof), payable annually on
March 31 of each year (each, a “Payment Date”).
On any Payment Date commencing with the Payment Date on
March 31, 2000, the Company, with the approval of the Audit
Committee of the Board of Directors of the General Partner, may
opt to redeem all, but
88
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
not less than all, of the Preferred Units for a price, payable
either in all cash or by issuance of additional Depositary
Units, equal to the liquidation preference of the Preferred
Units, plus any accrued but unpaid distributions thereon. On
March 31, 2010, the Company must redeem all, but not less
than all, of the Preferred Units on the same terms as any
optional redemption.
Pursuant to the terms of the Preferred Units, on
February 25, 2004, the Company declared its scheduled
annual preferred unit distribution payable in additional
Preferred Units at the rate of 5% of the liquidation preference
of $10 per unit. The distribution was payable March 31,
2004 to holders of record as of March 12, 2004. A total of
489,657 additional Preferred Units were issued. At
December 31, 2004 and 2003, 10,286,264 and 9,796,607
Preferred Units are issued and outstanding, respectively. In
February 2004, the number of authorized Preferred LP units was
increased to 10,400,000.
Pursuant to the terms of the Preferred Units, on March 4,
2005, the Company declared its scheduled annual preferred unit
distribution payable in additional Preferred Units at the rate
of 5% of the liquidation preference of $10. The distribution is
payable on March 31, 2005 to holders of record as of
March 15, 2005. In addition, the Company increased the
number of authorized Preferred Units to 10,900,000.
On July 1, 2003, the Company 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 the
Company’s 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 $2,449,000
and all future distributions have been and will be recorded as
“Interest expense” in the Consolidated Statements of
Operations.
The Company recorded $5.1 million and $2.4 million of
interest expense in the years ended December 31, 2004 and
2003, respectively, in connection with the Preferred LP units
distribution. These amounts are included in “Interest
expense” in the Consolidated Statements of Earnings for the
years then ended.
|
|
| 23. |
INCOME TAXES (in $000’s) |
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
The difference between the book basis and the tax basis of the
net assets of the Company, not directly subject to income taxes,
is as follows:
|
|
|
|
|
|
|
|
|
| |
Book basis of AREH net assets excluding American Casino and NEG
|
|
$ |
1,319,566 |
|
|
$ |
1,149,418 |
|
| |
Excess of tax over book
|
|
|
120,820 |
|
|
|
79,238 |
|
| |
|
|
|
|
|
|
| |
Tax basis of net assets
|
|
$ |
1,440,386 |
|
|
$ |
1,228,656 |
|
| |
|
|
|
|
|
|
89
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
a. Corporate income taxes
|
|
| |
(i) The Company’s corporate subsidiaries recorded the
following income tax (expense) benefit attributable to
continuing operations for American Casino and NEG for the years
ended December 31, 2004, 2003 and 2002 (in $000’s): |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Current
|
|
$ |
(2,626 |
) |
|
$ |
(4,302 |
) |
|
$ |
(311 |
) |
|
Deferred
|
|
|
(14,137 |
) |
|
|
5,875 |
|
|
|
(9,785 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(16,763 |
) |
|
$ |
1,573 |
|
|
$ |
(10,096 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
(ii) The tax effect of significant differences representing
net deferred tax assets (the difference between financial
statement carrying values and the tax basis of assets and
liabilities) for the Company is as follows at December 31,
2004 and 2003 (in $000’s): |
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Depreciation
|
|
$ |
39,209 |
|
|
$ |
39,858 |
|
| |
Net operating loss carryforwards
|
|
|
32,176 |
|
|
|
30,942 |
|
| |
Investment in Holding LLC
|
|
|
5,333 |
|
|
|
18,845 |
|
| |
Other
|
|
|
5,954 |
|
|
|
5,962 |
|
| |
|
|
|
|
|
|
| |
|
|
82,672 |
|
|
|
95,607 |
|
| |
Valuation allowance
|
|
|
(14,588 |
) |
|
|
(17,733 |
) |
| |
|
|
|
|
|
|
| |
Subtotal
|
|
|
68,084 |
|
|
|
77,874 |
|
| |
Less current portion
|
|
|
(2,685 |
) |
|
|
(2,982 |
) |
| |
|
|
|
|
|
|
| |
Net deferred tax assets
|
|
$ |
65,399 |
|
|
$ |
74,892 |
|
| |
|
|
|
|
|
|
At December 31, 2004 and 2003, American Casino had net
operating loss carryforwards available for federal income tax
purposes of approximately $16.0 million and
$28.5 million, respectively, which begin expiring in 2020.
|
|
| |
(iii) The provision (benefit) for income taxes differs from
the amount computed at the federal statutory rate as a result of
the following: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Federal statutory rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
Tax deduction not given book benefit
|
|
|
0.0 |
% |
|
|
5.0 |
% |
|
|
0.0 |
% |
|
Income not subject to taxation
|
|
|
(25.6 |
)% |
|
|
(14.3 |
)% |
|
|
(22.3 |
)% |
|
Valuation allowance
|
|
|
(1.7 |
)% |
|
|
(28.3 |
)% |
|
|
(0.5 |
)% |
|
Other
|
|
|
1.1 |
% |
|
|
0.3 |
% |
|
|
0.3 |
% |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
8.8 |
% |
|
|
(2.3 |
)% |
|
|
12.5 |
% |
| |
|
|
|
|
|
|
|
|
|
SFAS 109 requires a “more likely than not”
criterion be applied when evaluating the realizability of a
deferred tax asset. As of December 31, 2002, given
Stratosphere’s history of losses for income tax purposes,
the volatility of the industry within which the Stratosphere
operates, and certain other factors, Stratosphere
90
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
had established a valuation allowance for the deductible
temporary differences, including the excess of the tax basis of
the Stratosphere’s assets over the basis of such assets for
financial statement purposes and the tax carryforwards. However,
at December 31, 2003, based on various factors including
the current earnings trend and future taxable income
projections, Stratosphere determined that it was more likely
than not that the deferred tax assets will be realized and
removed the valuation allowance. In accordance with
SFAS 109, the tax benefit of any deferred tax asset that
existed on the effective date of a reorganization should be
reported as a direct addition to contributed capital.
Stratosphere has deferred tax assets relating to both before and
after Stratosphere emerged from bankruptcy in September of 1998.
The net decrease in the valuation allowance was
$79.3 million, of which a net amount of $47.5 million
was credited to partners’ equity in the year ended
December 31, 2003.
Additionally, American Casino’s acquisition of Arizona
Charlie’s, LLC and Fresca, LLC in May 2004 resulted in a
net increase in the tax basis of assets in excess of book basis.
As a result, the Company recognized an additional deferred tax
asset of approximately $2.5 million from the transaction.
Pursuant to SFAS 109, the benefit of the deferred tax asset
from this transaction is credited directly to equity.
At December 31, 2004 and 2003, NEG had net operating loss
carryforwards available for federal income tax purposes of
approximately $75.9 and $58.0 million, respectively, which
begin expiring in 2009. Net operating loss limitations may be
imposed as a result of subsequent changes in stock ownership of
NEG. Prior to the formation of Holding LLC, the income tax
benefit associated with the loss carryforwards had not been
recognized since, in the opinion of management, there was not
sufficient positive evidence of future taxable income to justify
recognition of a benefit. Upon the formation of Holding LLC,
management again evaluated all evidence, both positive and
negative, in determining whether a valuation allowance to reduce
the carrying value of deferred tax assets was still needed and
concluded, based on the projected allocations of taxable income
by Holding LLC, NEG more likely than not will realize a partial
benefit from the loss carryforwards. In accordance with
SFAS 109, NEG recorded a deferred tax asset of
$25.5 million as of December 31, 2002,
$25.9 million as of December 31, 2003, and
$19.3 million as of December 31, 2004. Ultimate
realization of the deferred tax asset is dependent upon, among
other factors, NEG’s 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. As a result of the recognition of
expected future income tax benefits, subsequent periods will
reflect a full effective tax rate provision.
|
|
| 24. |
COMMITMENTS AND CONTINGENCIES |
a. In January 2002, the Cape Cod Commission, (the
“Commission”), a Massachusetts regional planning body
created in 1989, concluded that AREP’s New Seabury
development is within its jurisdiction for review and approval
(the “Administrative Decision”). It is the
Company’s position that the proposed residential,
commercial and recreational development is in substantial
compliance with a special permit issued for the property in 1964
and is therefore exempt from the Commission’s jurisdiction
and that the Commission is barred from exercising jurisdiction
pursuant to a 1993 settlement agreement between the Commission
and a prior owner of the New Seabury property (the
“Settlement Agreement”).
In February 2002, New Seabury Properties L.L.C. (“New
Seabury”), an AREP subsidiary and owner of the property,
filed in Barnstable County Massachusetts Superior Court, a civil
complaint appealing the Administrative Decision by the
Commission, and a separate civil complaint to find the
Commission in contempt of the Settlement Agreement. The Court
subsequently consolidated the two complaints into one
proceeding. In July 2003, New Seabury and the Commission filed
cross motions for summary judgment.
Also, in July 2003, in accordance with a Court ruling, the
Commission reconsidered the question of its jurisdiction over
the initial development proposal and over a modified development
proposal that New Seabury filed in March 2003. The Commission
concluded that both proposals are within its jurisdiction (the
Second Administrative Decision). In August 2003, New Seabury
filed in Barnstable County Massachusetts Superior
91
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Court another civil complaint appealing the Commission’s
second decision and petitioning the court to find the Commission
in contempt of the settlement agreement.
In November 2003, the Court ruled in New Seabury’s favor on
its July 2003 motion for partial summary judgment, finding that
the special permit remains valid and that the modified
development proposal is in substantial compliance with the
Special Permit and therefore exempt from the Commission’s
jurisdiction; the Court did not yet rule on the initial proposal
to build 675 residential/hotel units and 80,000 square feet
of commercial space. Under the modified development proposal New
Seabury could potentially develop up to 278 residential units
and 145,000 square feet of commercial space. In February
2004, the court consolidated the three complaints into one
proceeding. In March 2004, New Seabury and the Commission each
moved for Summary Judgment to dispose of remaining claims under
all three complaints and to obtain a final judgment from the
Court. The Court heard arguments in June 2004 and took matters
under advisement. The Commission and New Seabury filed a joint
motion to delay, until May 6, 2005, any ruling by the court
on New Seabury’s pending motion for summary judgment and
the Commission’s pending cross-motion for summary judgment.
The Company is currently in settlement negotiations with the
Commission but these discussions may not be successful. The
Company cannot predict the effect on the development process if
it loses any appeal or if the Commission is ultimately
successful in asserting jurisdiction over any of the development
proposals.
The carrying value of New Seabury’s development assets at
December 31, 2004 was approximately $10.5 million.
The General Partner monitors all tenant bankruptcies and
defaults and may, when it deems it necessary or appropriate,
establish additional reserves for such contingencies.
b. In addition, in the ordinary course of business, the
Company, its subsidiaries and other companies in which the
Company has invested are parties to various legal actions. In
management’s opinion, the ultimate outcome of such legal
actions will not have a material effect on the Company’s
consolidated financial statements taken as a whole.
|
|
| 25. |
EMPLOYEE BENEFIT PLANS |
a. Employees of the Company who are members of various
unions are covered by union-sponsored, collectively bargained,
multi-employer health and welfare and defined benefit pension
plans. The Company recorded expenses for such plans of
approximately $8,100,000, $7,600,000 and $6,500,000 for the
years ended December 31, 2004, 2003 and 2002, respectively.
The Company does not have information from the plans’
sponsors with respect to the adequacy of the plans’ funding
status.
b. The Company has retirement savings plans under
Section 401(k) of the Internal Revenue Code covering its
non-union employees. The plans allow employees to defer, within
prescribed limits, a portion of their income on a pre-tax basis
through contributions to the plans. The Company currently
matches, within prescribed limits, up to 6.25% of eligible
employees’ compensation at rates up to 50% of the
employee’s contribution. The Company recorded charges for
matching contributions of approximately $794,000, $714,000 and
$981,000, for the years ended December 31, 2004, 2003 and
2002, respectively.
|
|
| 26. |
FAIR VALUE OF FINANCIAL INSTRUMENTS |
The carrying amount of cash and cash equivalents, receivables,
investment in debt securities of affiliates, and accounts
payable, accrued expenses and other liabilities and the
Preferred Limited Partnership Units Liability are carried at
cost, which approximates their fair value.
92
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair values of the mortgages and notes receivable past due,
in process of foreclosure, or for which foreclosure proceedings
are pending, are based on the discounted cash flows of the
underlying lease. The fair values of the mortgages and notes
receivable satisfied after year end are based on the amount of
the net proceeds received.
The fair values of the mortgages and notes receivable which are
current are based on the discounted cash flows of their
respective payment streams.
The approximate estimated fair values of other investments held
as of December 31, 2004 and 2003 are summarized as follows
(in $000’s):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At December 31, 2004 | |
|
At December 31, 2003 | |
| |
|
| |
|
| |
| |
|
Net | |
|
Estimated | |
|
Net | |
|
Estimated | |
| |
|
Investment | |
|
Fair Value | |
|
Investment | |
|
Fair Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
Total
|
|
$ |
245,948 |
|
|
$ |
248,900 |
|
|
$ |
50,328 |
|
|
$ |
55,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The net investment at December 31, 2004 and 2003 is equal
to the carrying amount of the mortgage receivable less any
deferred income recorded.
The approximate estimated fair values of the mortgages payable
as of December 31, 2004 and 2003 are summarized as follows
(in $000’s):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At December 31, 2004 | |
|
At December 31, 2003 | |
| |
|
| |
|
| |
| |
|
Carrying | |
|
Estimated | |
|
Carrying | |
|
Estimated | |
| |
|
Value | |
|
Fair Value | |
|
Value | |
|
Fair Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
Total
|
|
$ |
91,896 |
|
|
$ |
93,900 |
|
|
$ |
180,989 |
|
|
$ |
185,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instrument. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
The Company is engaged in six operating segments consisting of
the ownership and operation of (1) rental real estate,
(2) hotel and resort operating properties, (3) hotel
and casino operating properties, (4) property development,
(5) investment in securities including investment in other
limited partnerships and marketable equity and debt securities
and (6) investment in oil and gas operating properties. The
Company’s reportable segments offer different services and
require different operating strategies and management expertise.
Non-segment revenue to reconcile to total revenue consists
primarily of interest income on treasury bills and other
investments. Non-segment assets to reconcile to total assets
includes investment in U.S. Government and Agency
obligations, cash and cash equivalents, receivables and other
assets.
The accounting policies of the segments are the same as those
described in Note 2.
The Company assesses and measures segment operating results
based on segment earnings from operations as disclosed below.
Segment earnings from operations is not necessarily indicative
of cash available to fund cash requirements nor synonymous with
cash flow from operations.
93
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The revenues, net earnings, assets and real estate investment
capital expenditures for each of the reportable segments are
summarized as follows for the years ended and as of
December 31, 2004, 2003, and 2002 (in $000’s):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Hotel & casino operating properties
|
|
$ |
297,868 |
|
|
$ |
259,345 |
|
|
$ |
250,328 |
|
| |
Land, house and condominium sales
|
|
|
26,591 |
|
|
|
13,265 |
|
|
|
76,024 |
|
| |
Rental real estate
|
|
|
17,099 |
|
|
|
19,514 |
|
|
|
20,654 |
|
| |
Hotel & resort operating properties
|
|
|
18,477 |
|
|
|
14,592 |
|
|
|
14,918 |
|
| |
Oil & gas operating properties
|
|
|
45,995 |
|
|
|
38,109 |
|
|
|
40,516 |
|
| |
Other investments
|
|
|
34,241 |
|
|
|
13,874 |
|
|
|
15,283 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Subtotal
|
|
|
440,271 |
|
|
|
358,699 |
|
|
|
417,723 |
|
|
Reconciling items(1)
|
|
|
13,310 |
|
|
|
11,770 |
(1) |
|
|
18,006 |
(1) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total revenues
|
|
$ |
453,581 |
|
|
$ |
370,469 |
|
|
$ |
435,729 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Hotel & casino operating properties
|
|
$ |
70,265 |
|
|
$ |
42,488 |
|
|
$ |
32,390 |
|
| |
Land, house and condominium sales
|
|
|
6,355 |
|
|
|
4,136 |
|
|
|
21,384 |
|
| |
Oil & gas operating properties
|
|
|
34,849 |
|
|
|
30,879 |
|
|
|
33,411 |
|
| |
Rental real estate
|
|
|
12,811 |
|
|
|
14,330 |
|
|
|
13,893 |
|
| |
Hotel and resort operating properties
|
|
|
1,843 |
|
|
|
3,454 |
|
|
|
2,365 |
|
| |
Other investments
|
|
|
34,241 |
|
|
|
13,874 |
|
|
|
15,283 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total segment earnings
|
|
|
160,364 |
|
|
|
109,161 |
|
|
|
118,726 |
|
|
Interest income
|
|
|
13,310 |
|
|
|
11,770 |
|
|
|
18,006 |
|
|
Interest expense
|
|
|
(46,099 |
) |
|
|
(21,103 |
) |
|
|
(27,297 |
) |
|
General and administrative expenses
|
|
|
(9,806 |
) |
|
|
(6,851 |
) |
|
|
(7,029 |
) |
|
Depreciation and amortization
|
|
|
(29,955 |
) |
|
|
(24,764 |
) |
|
|
(23,589 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Operating Income
|
|
|
87,814 |
|
|
|
68,213 |
|
|
|
78,817 |
|
|
Gain on sales and disposition of real estate from continuing
operations
|
|
|
5,262 |
|
|
|
7,121 |
|
|
|
8,990 |
|
|
(Loss) on sale of other assets
|
|
|
— |
|
|
|
(1,503 |
) |
|
|
(353 |
) |
|
Loss on sale of limited partnership interests
|
|
|
— |
|
|
|
— |
|
|
|
(3,750 |
) |
|
Write-down of marketable equity and debt securities and other
investments
|
|
|
— |
|
|
|
(19,759 |
) |
|
|
(8,476 |
) |
|
Gain on sale of marketable equity securities
|
|
|
40,159 |
|
|
|
2,607 |
|
|
|
— |
|
|
Unrealized losses on securities sold short
|
|
|
(23,619 |
) |
|
|
— |
|
|
|
— |
|
|
Impairment loss on equity interest in GB Holdings,
Inc.
|
|
|
(15,600 |
) |
|
|
— |
|
|
|
— |
|
|
Minority interest in net earnings of Stratosphere Corp
|
|
|
— |
|
|
|
— |
|
|
|
(1,943 |
) |
|
Income tax (expense) benefit
|
|
|
(16,763 |
) |
|
|
1,573 |
|
|
|
(10,096 |
) |
|
Income from discontinued operations
|
|
|
83,720 |
|
|
|
11,772 |
|
|
|
7,507 |
|
|
General partner’s share of net income
|
|
|
(8,466 |
) |
|
|
(10,664 |
) |
|
|
(7,528 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net earnings-limited partners’ unitholders
|
|
$ |
152,507 |
|
|
$ |
59,360 |
|
|
$ |
63,168 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Primarily interest income on U.S. Government and Agency
obligations and other short-term investments and Icahn note
receivable. |
94
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Rental real estate
|
|
$ |
196,332 |
|
|
$ |
340,062 |
|
|
$ |
359,700 |
|
| |
Hotel and casino operating properties
|
|
|
289,360 |
|
|
|
298,703 |
|
|
|
290,775 |
|
| |
Land and construction-in-progress
|
|
|
106,537 |
|
|
|
43,459 |
|
|
|
40,415 |
|
| |
Hotel and resort operating properties
|
|
|
50,132 |
|
|
|
41,526 |
|
|
|
44,346 |
|
| |
Other investments
|
|
|
472,103 |
|
|
|
231,050 |
|
|
|
479,104 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
1,114,464 |
|
|
|
954,800 |
|
|
|
1,214,340 |
|
| |
Reconciling items
|
|
|
1,148,593 |
|
|
|
691,806 |
|
|
|
491,691 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
$ |
2,263,057 |
|
|
$ |
1,646,606 |
|
|
$ |
1,706,031 |
|
| |
|
|
|
|
|
|
|
|
|
|
Real estate investment capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Rental real estate
|
|
$ |
14,583 |
|
|
$ |
— |
|
|
$ |
18,226 |
|
| |
Land and construction-in-progress
|
|
|
61,845 |
|
|
|
— |
|
|
|
— |
|
| |
Hotel and casino operating properties
|
|
|
125,900 |
|
|
|
— |
|
|
|
— |
|
| |
Hotel and resort operating properties
|
|
|
16,463 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
218,791 |
|
|
$ |
— |
|
|
$ |
18,226 |
|
| |
|
|
|
|
|
|
|
|
|
|
Developments:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Rental real estate
|
|
$ |
18 |
|
|
$ |
413 |
|
|
$ |
181 |
|
| |
Land and construction-in-progress
|
|
|
17,947 |
|
|
|
— |
|
|
|
1,138 |
|
| |
Hotel and casino operating properties
|
|
|
13,589 |
|
|
|
31,844 |
|
|
|
19,133 |
|
| |
Hotel and resort operating properties
|
|
|
2,614 |
|
|
|
1,067 |
|
|
|
2,582 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
34,168 |
|
|
$ |
33,324 |
|
|
$ |
23,034 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| 28. |
REPURCHASE OF DEPOSITARY UNITS |
The Company has previously been authorized to repurchase up to
1,250,000 Depositary Units. As of December 31, 2004, the
Company has purchased 1,137,200 Depositary Units at an aggregate
cost of approximately $11,921,000.
a. On January 21, 2005, the Company announced that it
had entered into agreements to acquire additional oil and gas
and gaming and entertainment assets in transactions with
affiliates of Carl C. Icahn. The aggregate consideration for the
transactions is $652 million, subject to certain purchase
price adjustments, of which $180 million is payable in cash
and the balance is payable by the issuance of the Company’s
limited partnership depositary units valued at $29 per
unit. Mr. Icahn currently owns indirectly approximately
86.5% of the Company’s outstanding depositary and preferred
units and indirectly owns 100% of the Company’s general
partner, American Property Investors, Inc. Upon the closing of
the transactions, Mr. Icahn will own approximately 90.1% of
the Company’s outstanding depositary units and 86.5% of its
preferred units, assuming no purchase price reductions. The
transactions were approved by the Audit Committee of the
Company’s general partner. The Audit Committee was advised
as to the transactions by independent legal counsel and
95
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
financial advisors. The Audit Committee obtained opinions that
the consideration to be paid in the transactions was fair, from
a financial point of view, to the Company.
The transactions include the acquisition of the membership
interest in Holding LLC other than that already owned by
National Energy Group, Inc. (which is itself 50.02% owned by the
Company); 100% of the equity of each of TransTexas Gas
Corporation and Panaco, Inc., all of which will be consolidated
under AREP Oil & Gas LLC, which is wholly owned by
AREH; and approximately 41.2% of the common stock of GB Holdings
and warrants to purchase, upon the occurrence of certain events,
approximately 11.3% of the fully diluted common stock of its
subsidiary, Atlantic Holdings, which owns 100% of ACE Gaming
LLC, the owner and operator of the Sands. The closing of each of
the transactions is subject to certain conditions, including
approval by the depositary unitholders of the issuance of the
depositary units with respect to the transactions for which the
consideration is depositary units and the receipt of the oil and
gas reserve reports as of January 21, 2005 for each of
Holding LLC, TransTexas and Panaco.
Prior to the transactions, each of the Company and
Mr. Icahn’s affiliated companies owned oil and gas and
gaming and entertainment assets. Upon completion of these
transactions, all such assets held by Mr. Icahn’s
affiliates will have been acquired by the Company. As a result
of these transactions, the Company will have substantially
increased its oil and gas holdings, as well as expanded its
gaming and entertainment holdings.
Before the acquisition of GB Holdings and Atlantic Holdings
securities, the Company owned approximately 36.3% of the
outstanding common stock of GB Holdings and warrants to
purchase, upon the occurrence of certain events, approximately
10.0% of the fully diluted common stock of Atlantic Holdings. As
a result of the transactions, the Company will own approximately
77.5% of the common stock of GB Holdings and warrants to
purchase approximately 21.3% of the fully diluted common stock
of Atlantic Holdings. The Company also owns approximately
$63.9 million principal amount, or 96.4%, of the
3% senior notes due 2008 of Atlantic Holdings, which, upon
the occurrence of certain events, are convertible into
approximately 42.1% of the fully diluted common stock of
Atlantic Holdings. If all outstanding Atlantic Holdings notes
were converted and warrants exercised, the Company would own
approximately 63.4% of the 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.
Between December 6, 2004 and December 27, 2004, the
Company purchased (1) $27.5 million aggregate
principal amount of the TransTexas Notes,
(2) $38.0 million aggregate principal amount of the
Panaco Debt and (3) $37.0 million aggregate principal
amount of Atlantic Holdings Notes, bringing the Company’s
ownership of that debt to $63.9 million principal amount.
b. On February 7, 2005, the Company and its
subsidiary, American Real Estate Finance Corp.
(“AREF”), closed on their offering of senior notes due
2013. The notes, in the aggregate principal amount of
$480 million, were priced at 100% of principal amount. The
notes will have a fixed annual interest rate of
71/8%,
which will be paid every six months on February 15 and
August 15, commencing August 15, 2005. The notes will
mature on February 15, 2013. AREF, a wholly owned
subsidiary of the Company, was formed solely for the purpose of
serving as co-issuer of the notes. AREF does not have any
operations or assets and does not have any revenues. AREH is a
guarantor of the debt; however, no other subsidiaries guarantee
payment on the notes. The Company intends to use the proceeds of
the offering, together with depository units to be issued to
fund for the acquisitions described above, to pay related fees
and expenses and for general business purposes. The notes
restrict the ability of the Company and AREH, subject to certain
exceptions, to, among other things; incur additional debt; pay
dividends or make distributions; repurchase stock; create liens;
and enter into transactions with affiliates. The notes were
issued in an offering not registered under the Securities Act of
1933. At the time the Company issued the notes, the Company
entered into a registration rights agreement in which it agreed
to exchange the notes for new notes which have been registered
under the Securities Act of 1933. If the registration statement
is not filed with the SEC by August 8, 2005 or if the
registration statement
96
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
is not declared effective by the SEC on or prior to
December 5, 2005 or if we fail to consummate an exchange
offer in which we issue notes registered under the Securities
Act of 1933 for the privately issued notes within 30 business
days after December 5, 2005, then we will pay, as
liquidated damages, $.05 per week per $1,000 principal
amount for the first 90 day period following such failure,
increasing by an additional $.05 per week of $1,000
principal amount for each subsequent 90 day period, until
all failures are cured.
30. QUARTERLY FINANCIAL DATA
(UNAUDITED) (In $000’s, except per unit data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended(1) | |
| |
|
| |
| |
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Revenues
|
|
$ |
104,122 |
|
|
$ |
92,859 |
|
|
$ |
117,901 |
|
|
$ |
89,825 |
|
|
$ |
119,485 |
|
|
$ |
94,665 |
|
|
$ |
112,073 |
|
|
$ |
93,120 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
24,898 |
|
|
$ |
16,008 |
|
|
$ |
25,834 |
|
|
$ |
15,425 |
|
|
$ |
23,998 |
|
|
$ |
16,624 |
|
|
$ |
13,084 |
|
|
$ |
20,156 |
|
|
Gains (losses) on property transactions
|
|
|
6,047 |
|
|
|
1,138 |
|
|
|
(226 |
) |
|
|
(272 |
) |
|
|
(10 |
) |
|
|
501 |
|
|
|
(549 |
) |
|
|
5,754 |
|
|
Loss on sale of assets
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(311 |
) |
|
|
— |
|
|
|
(1,192 |
) |
|
Gain on sale of marketable equity and debt securities
|
|
|
28,857 |
|
|
|
— |
|
|
|
8,310 |
|
|
|
— |
|
|
|
— |
|
|
|
2,168 |
|
|
|
2,992 |
|
|
|
439 |
|
|
Unrealized losses on securities sold short
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(23,619 |
) |
|
|
— |
|
|
Impairment loss on equity interest in GB Holdings, Inc.
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15,600 |
) |
|
|
— |
|
|
Write-down of marketable equity and debt securities
|
|
|
— |
|
|
|
(961 |
) |
|
|
— |
|
|
|
(18,798 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax
|
|
|
59,802 |
|
|
|
16,185 |
|
|
|
33,918 |
|
|
|
(3,645 |
) |
|
|
23,988 |
|
|
|
18,982 |
|
|
|
(23,692 |
) |
|
|
25,157 |
|
|
Income tax (expense) benefit
|
|
|
(6,169 |
) |
|
|
(3,892 |
) |
|
|
(3,088 |
) |
|
|
(3,167 |
) |
|
|
(3,637 |
) |
|
|
(3,577 |
) |
|
|
(3,869 |
) |
|
|
12,209 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
53,633 |
|
|
|
12,293 |
|
|
|
30,830 |
|
|
|
(6,812 |
) |
|
|
20,351 |
|
|
|
15,405 |
|
|
|
(27,561 |
) |
|
|
37,366 |
|
|
Income from discontinued operations
|
|
|
9,387 |
|
|
|
2,099 |
|
|
|
50,956 |
|
|
|
4,025 |
|
|
|
10,672 |
|
|
|
3,548 |
|
|
|
12,705 |
|
|
|
2,100 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
63,020 |
|
|
$ |
14,392 |
|
|
$ |
81,786 |
|
|
$ |
(2,787 |
) |
|
$ |
31,023 |
|
|
$ |
18,953 |
|
|
$ |
(14,856 |
) |
|
$ |
39,466 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (loss) per limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership unit(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) from continuing operations
|
|
$ |
1.14 |
|
|
$ |
.15 |
|
|
$ |
.63 |
|
|
$ |
(.22 |
) |
|
$ |
.43 |
|
|
$ |
.25 |
|
|
$ |
(.59 |
) |
|
$ |
.80 |
|
| |
Income from discontinued operations
|
|
|
.20 |
|
|
|
.05 |
|
|
|
1.08 |
|
|
|
.09 |
|
|
|
.23 |
|
|
|
.07 |
|
|
|
.27 |
|
|
|
.05 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings (loss) per LP unit
|
|
$ |
1.34 |
|
|
$ |
.20 |
|
|
$ |
1.71 |
|
|
$ |
(.13 |
) |
|
$ |
.66 |
|
|
$ |
.32 |
|
|
$ |
(.32 |
) |
|
$ |
.85 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income (loss) from continuing operations
|
|
$ |
1.02 |
|
|
$ |
.15 |
|
|
$ |
.58 |
|
|
$ |
(.22 |
) |
|
$ |
.41 |
|
|
$ |
.23 |
|
|
$ |
(.59 |
) |
|
$ |
.71 |
|
| |
|
Income from discontinued operations
|
|
|
.18 |
|
|
|
.03 |
|
|
|
.96 |
|
|
|
.09 |
|
|
|
.20 |
|
|
|
.06 |
|
|
|
.27 |
|
|
|
.04 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted earnings (loss) per LP unit
|
|
$ |
1.20 |
|
|
$ |
.18 |
|
|
$ |
1.54 |
|
|
$ |
(.13 |
) |
|
$ |
.61 |
|
|
$ |
.29 |
|
|
$ |
(.32 |
) |
|
$ |
.75 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
All quarterly amounts have been reclassified for the effects of
reporting discontinued operations. |
| |
| (2) |
Net earnings (loss) per unit is computed separately for each
period and, therefore, the sum of such quarterly per unit
amounts may differ from the total for the year. |
97
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. |
Not applicable.
|
|
| Item 9A. |
Controls and Procedures. |
Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures
As of December 31, 2004, our management, including our
Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of the design and operation of our and our
subsidiaries’ disclosure controls and procedures pursuant
to the Exchange Act Rule 13a-15(e) and 15d-15(e). Based
upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures are currently effective to ensure that information
required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and
Exchange Commission rules and forms, and include controls and
procedures designed to ensure that information required to be
disclosed by us in such reports is accumulated and communicated
to our management, including our principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
We made no change in our internal control over financial
reporting during the fourth quarter ended December 31, 2004
that has materially affected, or is reasonably likely to
materially affect, such internal control over financial
reporting.
Throughout 2004, we implemented a program and engaged
independent consultants to assist us in the evaluation and
improvement of the effectiveness of the design and operation of
our disclosure controls and procedures and our internal controls
over financial reporting. No material weaknesses were identified
by management or our independent consultants. During the three
months ended September 30, 2004, our independent
consultants and management identified a significant deficiency
in the consolidation process involving lack of segregation of
duties within the accounting department. We retained an
assistant controller and our computer system is being updated in
order to address this concern and to enhance financial reporting
controls. We also documented some of our established internal
procedures which had been followed but not fully documented.
During the three months ended December 31, 2004, we
continued to make improvements to our computer system to enhance
controls. In addition to retaining the services of an
independent consultant to evaluate the effectiveness our
internal controls, we determined to retain an additional
assistant controller to review internal controls for us and our
rental real estate, real estate development and hotel and resort
operations.
In October and November 2004, NEG, of which we own 50.01% of the
common stock, implemented a number of improvements in its
policies and procedures surrounding its information technology
processes and infrastructure. In performing its assessment of
internal control over financial reporting, NEG noted several
instances where these policies and procedures were not being
followed. NEG has implemented remediation actions which it
expects to be completed in the first quarter of 2005.
We intend to review and evaluate regularly the design and
effectiveness of our disclosure controls and procedures and
internal controls over financial reporting on an ongoing basis
and to improve these controls and procedures over time and
correct any deficiencies that we may discover in the future.
While we believe that the present design of our disclosure
controls and procedures and internal controls over financial
reporting are effective, future events affecting our business
may cause us to verify these controls and procedures in the
future.
Management’s Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting and for an
assessment of the effectiveness of internal control over
financial reporting, as such items are defined in
Rule 13a-15f under the Securities Exchange Act.
98
Our control over financial reporting is designed to provide
reasonable assurance that our financial reporting and
preparation of financial statements is reliable and in
accordance with generally accepted accounting principles. Our
policies and procedures are designed to provide reasonable
assurance that transactions are recorded and records maintained
in reasonable detail as necessary to accurately and fairly
reflect transactions and that all transactions are properly
authorized by management in order to prevent or timely detect
unauthorized transactions or misappropriation of assets that
could have a material effect on our financial statements.
Management is required to base its assessment of the
effectiveness of the Company’s internal control over
financial reporting on a suitable, recognized control framework.
Management has utilized the criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO) to evaluate the effectiveness of internal control
over financial reporting, which is a suitable framework as
published by the Public Company Accounting Oversight Board
(PCAOB).
The Company’s management has performed an assessment
according to the guidelines established by COSO. Based on the
assessment, management has concluded that the Company’s
system of internal control over financial reporting, as of
December 31, 2004, is effective.
Grant Thornton, our independent registered public accounting
firm, has audited and issued their report on management’s
assessment of AREP’s internal control over financial
reporting, which appears below.
Attestation Report of Independent Registered Public
Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Partners of
American Real Estate Partners, L.P.
We have audited management’s assessment, included in the
accompanying Management’s Assessment of Internal Control
over Financial Reporting, that American Real Estate Partners,
L.P. and Subsidiaries (the “Company”) (a Delaware
limited partnership) maintained effective internal control over
financial reporting as of December 31, 2004, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Company’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized
99
acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company
maintained effective internal control over financial reporting
as of December 31, 2004, is fairly stated, in all material
respects, based on criteria established in Internal
Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2004, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of American Real Estate Partners,
L.P. and Subsidiaries as of December 31, 2004, and the
related consolidated statements of earnings, changes in
partners’ equity and comprehensive income, and cash flows
for the year then ended and our report dated March 11, 2005
expressed an unqualified opinion on those financial statements.
GRANT THORNTON LLP
New York, New York
March 11, 2005
Changes in Internal Control over Financial Reporting
Not applicable.
|
|
| Item 9B. |
Other Information. |
None.
100
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant. |
The names, offices held and the ages of the directors and
executive officers of API are as follows:
| |
|
|
|
|
|
|
| Name |
|
Age | |
|
Position |
| |
|
| |
|
|
|
Carl C. Icahn
|
|
|
69 |
|
|
Chairman of the Board |
|
William A. Leidesdorf
|
|
|
59 |
|
|
Director |
|
James L. Nelson
|
|
|
55 |
|
|
Director |
|
Jack G. Wasserman
|
|
|
68 |
|
|
Director |
|
Keith A. Meister
|
|
|
31 |
|
|
President and Chief Executive Officer |
|
Martin L. Hirsch
|
|
|
49 |
|
|
Executive Vice President and Director of Acquisitions and
Development |
|
John P. Saldarelli
|
|
|
63 |
|
|
Vice President, Chief Financial Officer, Secretary and Treasurer |
The names, offices held and ages of certain key employees of our
subsidiaries are as follows:
| |
|
|
|
|
|
|
| Name |
|
Age | |
|
Position |
| |
|
| |
|
|
|
Bob Alexander
|
|
|
72 |
|
|
President and Chief Executive Officer, National Energy Group,
Inc. |
|
Richard P. Brown
|
|
|
57 |
|
|
President, Chief Executive Officer and Director, American
Casino & Entertainment Properties LLC |
Carl C. Icahn has served as Chairman of the Board and a
director of Starfire Holding Corporation, or Starfire, (formerly
Icahn Holding Corporation), a privately-held holding company,
and Chairman of the Board and a director of various subsidiaries
of Starfire, since 1984. Mr. Icahn is and has been since
1994 a majority shareholder, the Chairman of the Board and a
Director of American Railcar Industries, Inc., or ARI, a
Missouri corporation. ARI is primarily engaged in the business
of manufacturing, managing, leasing and selling of railroad
freight and tank cars. Mr. Icahn has also been Chairman of
the Board and President of Icahn & Co., Inc., a
registered broker-dealer and a member of the National
Association of Securities Dealers, since 1968.
Since November 1990, Mr. Icahn has been Chairman of the
Board of American Property Investors, Inc., the general partner
of American Real Estate Partners, L.P., a public limited
partnership that invests in real estate and holds various other
interests, including the interests in its subsidiaries that are
engaged, among other things, in the oil and gas business and
casino entertainment business. Mr. Icahn has been a
director of Cadus Pharmaceutical Corporation, a firm that holds
various biotechnology patents, since 1993. From August 1998 to
August 2002, Mr. Icahn served as Chairman of the Board of
Maupintour Holding LLC (f/k/a/ Lowestfare.com, LLC), an internet
travel reservations company. From October 1998 through May,
2004, Mr. Icahn was the President and a director of
Stratosphere Corporation, which operates the Stratosphere Hotel
and Casino. Since September 29, 2000, Mr. Icahn has
served as the Chairman of the Board of GB Holdings, Inc., which
owns all of the outstanding stock of Atlantic Coast
Entertainment Holdings, Inc., which through its wholly-owned
subsidiary owns and operates The Sands Hotel and Casino in
Atlantic City, New Jersey. Mr. Icahn also serves in the
same capacity with Atlantic Coast Entertainment Holdings, Inc.
In January 2003, Mr. Icahn became Chairman of the Board and
a director of XO Communications, Inc., a telecommunications
company.
William A. Leidesdorf has served as a Director of API
since March 26, 1991 and as a Director of AREP Finance
since inception. Mr. Leidesdorf is also a Director of Renco
Steel Group, Inc. and its subsidiary, WCI Steel, Inc., a steel
producer which filed for Chapter 11 bankruptcy protection
in September 2003. Since June 1997, Mr. Leidesdorf has been
an owner and a managing director of Renaissance Housing, LLC, a
company
101
primarily engaged in acquiring multifamily residential
properties. From April 1995 through December 1997,
Mr. Leidesdorf acted as an independent real estate
investment banker. Since December 29, 2003,
Mr. Leidesdorf has served as a Director of American
Entertainment Properties Corp. and American Casino &
Entertainment Properties Finance Corp., or ACEP Finance, which
are our indirect subsidiaries. Mr. Leidesdorf has been
licensed by the New Jersey State Casino Control Commission and
the Nevada State Gaming Control Commission.
James L. Nelson has served as a Director of API since
June 12, 2001 and as a Director of AREP Finance since
inception. From 1986 until the present, Mr. Nelson has been
Chairman and Chief Executive Officer of Eaglescliff Corporation,
a specialty investment banking, consulting and wealth management
company. From March 1998 through 2003, Mr. Nelson was
Chairman and Chief Executive Officer of Orbit Aviation, Inc. a
company engaged in the acquisition and completion of Boeing
Business Jets for private and corporate clients. From August
1995 until July 1999, he was Chief Executive Officer and
Co-Chairman of Orbitex Management, Inc. Mr. Nelson
currently serves as a Director of Viskase Corporation, a
closely-held supplier for the meat and poultry business. Until
March 2001, he was on the Board of Orbitex Financial Services
Group, a financial services company in the mutual fund sector.
Since December 29, 2003, Mr. Nelson has served as a
Director of American Entertainment Properties Corp. and ACEP
Finance, which are our indirect subsidiaries. Mr. Nelson
has been licensed by the New Jersey State Casino Control
Commission and the Nevada State Gaming Control Commission.
Jack G. Wasserman has served as a Director of API since
December 3, 1993 and as a Director of AREP Finance since
inception. Mr. Wasserman is an attorney and a member of the
Bars of New York, Florida and the District of Columbia. From
1966 until 2001, he was a senior partner of Wasserman,
Schneider, Babb & Reed, a New York-based law firm and
its predecessors. Since September 2001, Mr. Wasserman has
been engaged in the practice of law as a sole practitioner.
Mr. Wasserman has been licensed by the New Jersey State
Casino Control Commission and the Nevada State Gaming Control
Commission and, at the latter’s direction, is an
independent member and Chairman of the Stratosphere Compliance
Committee. Since December 29, 2003, Mr. Wasserman has
served as a Director of American Entertainment Properties Corp.
and ACEP Finance, which are our indirect subsidiaries.
Mr. Wasserman is not a member of the Stratosphere’s
Board of Directors. Since December 1, 1998,
Mr. Wasserman has been a Director of National Energy Group,
Inc. In 2003, National Energy Group, Inc. became our subsidiary.
Mr. Wasserman is also a Director of Cadus Corporation, a
publicly traded biotechnology company. Affiliates of
Mr. Icahn are controlling shareholders of each of these
companies. On March 11, 2004, Mr. Wasserman was
appointed, and in June 2004, elected to the Board of Directors
of Triarc Companies, Inc. a publicly traded diversified holding
company. Mr. Wasserman serves on the Audit and Compensation
Committees of Triarc.
Keith A. Meister has served as President and Chief
Executive Officer of API since August 2003 and of AREP Finance
since inception. He continues to serve as a senior investment
analyst of High River Limited Partnership, a company owned and
controlled by Mr. Icahn, a position he has held since June
2002. Mr. Meister is also a Senior Investment Analyst of
Icahn Partners LP and Icahn Partners Master Fund LP. He is
also a director of Icahn Fund Ltd., which is the feeder
fund of Icahn Partners Master Fund LP. Icahn Partners LP
and Icahn Partners Master Fund LP are private investment
funds controlled by Mr. Icahn. From March 2000 through
2001, Mr. Meister co-founded and served as co-president of
J Net Ventures, a venture capital fund focused on investments in
information technology and enterprise software businesses. From
1997 through 1999, Mr. Meister served as an investment
professional at Northstar Capital Partners, an opportunistic
real estate investment partnership. Prior to Northstar,
Mr. Meister served as an investment analyst in the
investment banking group at Lazard Freres. He also serves on the
Boards of Directors of the following companies: XO
Communications, Inc., a company that is majority-owned by
various entities controlled by Mr. Icahn; TransTexas Gas
Corporation; and Scientia Corporation, a private health care
venture company in which we hold less than a 10% equity
interest. Since December 29, 2003, Mr. Meister has
served as a Director of American Entertainment Properties Corp.
and ACEP Finance, which are our indirect subsidiaries.
Martin L. Hirsch has served as a Vice President of API
since 1991 and of AREP Finance since inception. Mr. Hirsch
focuses on investment, management and disposition of real estate
properties and other assets. On March 23, 2000,
Mr. Hirsch was elected to serve as Executive Vice President
and Director of Acquisitions and
102
Development of API. From January 1986 to January 1991,
Mr. Hirsch was a Vice President of Integrated Resources,
Inc. where he was involved in the acquisition of commercial real
estate properties and asset management. In 1985 and 1986,
Mr. Hirsch was a Vice President of Hall Financial Group
where he was involved in acquiring and financing commercial and
residential properties. Mr. Hirsch has been a director of
National Energy Group, Inc. since 1998. Since September 29,
2000 Mr. Hirsch served as a director of GB Property Funding
Inc. from September 29, 2000 until July 22, 2004 and
of Greate Bay Hotel and Casino, Inc. from February 28, 2001
until July 22, 2004. Mr. Hirsch has served as a
Director of GB Holdings, Inc. which owns all of the outstanding
stock of Atlantic Coast Entertainment Holdings, Inc., which
through its wholly-owned subsidiary owns and operates The Sands
Hotel and Casino in Atlantic City, New Jersey and GB Property
Funding, Inc. Since July 22, 2004, Mr. Hirsch also
serves in the same capacity with Atlantic Coast Entertainment
Holdings, Inc.
John P. Saldarelli has served as Vice President,
Secretary and Treasurer of API since March 18, 1991 and as
Chief Financial Officer since June 2000 and of AREP Finance
since inception. Mr. Saldarelli was President of Bayswater
Realty Brokerage Corp. from June 1987 until November 19,
1993, and Vice President of Bayswater Realty & Capital
Corp. from September 1979 until April 15, 1993.
Mr. Saldarelli served as a Director of Stratosphere from
October, 1998 until May 2004. Mr. Saldarelli served as a
director of GB Property Funding, Inc. and Greate Bay Hotel and
Casino, Inc. from February 28, 2001 until July 22,
2004. Since February 28, 2001, Mr. Saldarelli has
served as a Director of GB Holdings, Inc. which owns all of the
outstanding stock of Atlantic Coast Entertainment Holdings,
Inc., which through its wholly-owned subsidiary owns and
operates The Sands Hotel and Casino in Atlantic City, New
Jersey. Since July 22, 2004, Mr. Saldarelli also
serves in the same capacity with Atlantic Coast Entertainment
Holdings, Inc.
Richard P. Brown has served as the President and Chief
Executive Officer of ACEP; and President, Chief Executive
Officer and a director of American Entertainment Properties
Corp. and ACEP Finance since inception. Mr. Brown has over
12 years experience in the gaming industry. Mr. Brown
has been the President and Chief Executive Officer of each of
the Stratosphere, Arizona Charlie’s Decatur and Arizona
Charlie’s Boulder since June 2002. From January 2001 to
June 2002, he served as Chief Operating Officer for all three
properties. Prior to joining Stratosphere Gaming Corp. in March
2000 as Executive Vice President of Marketing, Mr. Brown
held executive positions with Harrah’s Entertainment and
Hilton Hotels Corporation. Mr. Brown also serves as
President and Chief Executive Officer of GB Holdings, Inc.,
which owns and operates The Sands Hotel and Casino.
Bob G. Alexander has served as President and Chief
Executive Officer of NEG since November, 1998.
Mr. Alexander has served as President and Chief Executive
Officer and a director of TransTexas and Panaco since August
2003 and November 2004, respectively. A founder of Alexander
Energy Corporation, Mr. Alexander has served on the Board
of Directors of NEG since Alexander Energy Corporation merged
into NEG on August 29, 1996. From 1998 until the merger, he
served as Chairman of the Board, President and Chief Executive
Officer of Alexander Energy Corporation. From 1976 to 1980, he
served as Vice President and General Manager of the Northern
Division of Reserve Oil, Inc. and President of Basin Drilling
Corp., subsidiaries of Reserve Oil and Gas Company.
Audit Committee
James L. Nelson, William A. Leidesdorf and Jack G. Wasserman
serve on our audit committee. We believe that the audit
committee members are “independent” as defined in the
currently applicable listing standards of the New York Stock
Exchange. A copy of the audit committee charter is available on
our website at
www.areplp.com/files/pdf/audit committee charter.pdf
or may be obtained without charge by writing to American Real
Estate Partners, L.P., 100 South Bedford Road, Mount Kisco,
NY 10549, attention John P. Saldarelli.
Our audit committee meets formally at least once every quarter,
and more often if necessary. In addition to the functions set
forth in its charter, the audit committee reviews potential
conflicts of interest which may arise, between us and API and
its affiliates. The General Partner and its affiliates may not
receive duplicative fees.
103
The functions of our audit committee as set forth in the
Partnership Agreement include (1) the review of our
financial and accounting policies and procedures; (2) the
review of the results of audits of the books and records made by
our outside auditors, (3) the review of allocations of
overhead expenses in connection with the reimbursement of
expenses to API and its affiliates, and (4) the review and
approval of related party transactions and conflicts of interest
in accordance with the terms of our partnership agreement.
The audit committee, has confirmed that: (1) the audit
committee reviewed and discussed our 2004 audited financial
statements with management, (2) the audit committee has
discussed with our independent auditors the matters required to
be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AU §380), (3) the audit committee
has received the written disclosures and the letter from the
independent accountants required by Independence Standards Board
Standard No. 1; and (4) based on the review and
discussions referred to in clauses (1), (2) and (3) above,
the audit committee recommended to the Board of Directors that
our 2004 audited financial statements be included in this Annual
Report on Form 10-K.
Our Board of Directors has determined that we do not have an
“audit committee financial expert,” within the meaning
of Item 401(h) of Regulation S-K, serving on our audit
committee. We believe that each member of the audit committee is
financially literate and possesses sufficient experience, both
professionally and by virtue of his service as a director and
member of the audit committee of API, to be fully capable of
discharging his duties as a member of our audit committee.
However, none of the members of our audit committee has a
professional background in accounting or “preparing,
auditing, analyzing or evaluating financial statements”. If
our audit committee determines that it requires additional
financial expertise, it will either engage professional advisers
or seek to recruit a member who would qualify as an “audit
committee financial expert” within the meaning of
Item 401(h) of Regulation S-K.
Compensation Committee
James L. Nelson, William A. Leidesdorf and Jack G. Wasserman
serve on our compensation committee.
Code of Ethics
On October 25, 2004, our Board of Directors adopted a Code
of Ethics applicable to our principal executive officer,
principal financial officer and principal accounting officer. A
copy of the Code of Ethics is available on our website at
www.areplp.com/files/pdf/code of ethics.pdf
and may be obtained without charge by writing to American Real
Estate Partners, L.P., 100 South Bedford Road, Mount Kisco, NY
10549, attention: John P. Saldarelli.
Corporate Governance Guidelines
On October 25, 2004, API’s Board of Directors adopted
Corporate Governance Guidelines for AREP and its subsidiaries,
excluding NEG, which has its own separate set of guidelines. A
copy of the Corporate Governance Guidelines is available on our
website at
www.areplp.com/files/pdf/corporate governance.pdf
and may be obtained without charge by writing to American Real
Estate Partners, L.P., 100 South Bedford Road, Mount Kisco, NY
10549, attention: John P. Saldarelli.
Filing of Reports
To the best of our knowledge, no director, executive officer or
beneficial owner of more than 10% of AREP’s depositary
units failed to file on a timely basis reports required by
§16(a) of the Securities Exchange Act of 1934, as amended,
during the year ended December 31, 2004.
104
|
|
| Item 11. |
Executive Compensation.(1) |
The following table sets forth information in respect of the
compensation of the Chief Executive Officer and each of the
other most highly compensated executive officers of AREP as of
December 31, 2004 for services in all capacities to AREP
for the fiscal years ended December 31, 2004, 2003 and 2002.
SUMMARY COMPENSATION TABLE
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Annual Compensation | |
| |
|
| |
| |
|
|
|
All Other | |
| (a) |
|
|
|
Salary | |
|
Bonus | |
|
Compensation | |
| Name and Principal Position |
|
Year | |
|
($) | |
|
($) | |
|
($)(3) | |
| |
|
| |
|
| |
|
| |
|
| |
|
Keith A. Meister(2)
|
|
|
2004 |
|
|
|
227,308 |
|
|
|
— |
|
|
|
— |
|
| |
President and Chief Executive Officer |
|
|
2003 |
|
|
|
73,150 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
2002 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Martin L. Hirsch(2)(3)
|
|
|
2004 |
|
|
|
295,000 |
|
|
|
200,000 |
|
|
|
4,000 |
|
| |
Executive Vice President and Director of Acquisitions and
Development |
|
|
2003 |
|
|
|
269,923 |
|
|
|
50,000 |
|
|
|
4,000 |
|
| |
|
|
|
2002 |
|
|
|
231,000 |
|
|
|
24,500 |
|
|
|
3,667 |
|
|
John P. Saldarelli(2)(3)
|
|
|
2004 |
|
|
|
191,100 |
|
|
|
22,932 |
|
|
|
3,819 |
|
| |
Vice President, Chief Financial Officer, Secretary and |
|
|
2003 |
|
|
|
182,200 |
|
|
|
18,200 |
|
|
|
4,000 |
|
| |
Treasurer |
|
|
2002 |
|
|
|
182,000 |
|
|
|
8,400 |
|
|
|
3,666 |
|
|
Richard P. Brown
|
|
|
2004 |
|
|
|
461,155 |
|
|
|
250,000 |
|
|
|
8,335 |
|
| |
President and Chief Executive Officer, |
|
|
2003 |
|
|
|
316,154 |
|
|
|
20,000 |
|
|
|
8,315 |
|
| |
American Casino & Entertainment Properties LLC |
|
|
2002 |
|
|
|
274,988 |
|
|
|
20,000 |
|
|
|
6,459 |
|
|
Bob Alexander
|
|
|
2004 |
|
|
|
300,000 |
|
|
|
175,000 |
|
|
|
— |
|
| |
President and Chief Executive Officer, National Energy |
|
|
2003 |
|
|
|
300,000 |
|
|
|
150,000 |
|
|
|
— |
|
| |
Group, Inc. |
|
|
2002 |
|
|
|
300,000 |
|
|
|
— |
|
|
|
— |
|
|
|
| (1) |
Pursuant to applicable regulations, certain columns of the
Summary Compensation Table and each of the remaining tables have
been omitted, as there has been no compensation awarded to,
earned by or paid to any of the named executive officers by us,
or by API, which was subsequently reimbursed by us, required to
be reported in those columns or tables, excepted as noted below. |
| |
| (2) |
On August 18, 2003, Keith A. Meister was elected President
and Chief Executive Officer. Mr. Meister devotes
approximately 50% of his time to the performance of services for
AREP and its subsidiaries. Messrs. Saldarelli and Hirsch
devote all of their time to the performance of services for AREP
and its subsidiaries. |
| |
| (3) |
Represent matching contributions under AREP’s 401(k) plan.
In 2004, AREP made matching contributions to the employee’s
individual plan account in the amount of one-third
(1/3)
of the first six (6%) percent of gross salary contributed by the
employee. |
Each executive officer and director will hold office until his
successor is elected and qualified. Directors who are also audit
committee members receive quarterly fees of $7,500 in 2004 and
may receive additional compensation for special committee
assignments. In 2004, Messrs. Wasserman, Nelson and
Leidesdorf received audit and special committee fees of $50,030,
$41,217 and $41,020, respectively. Mr. Icahn does not
receive director’s fees or other fees or compensation from
us.
Each of our executive officers may perform services for our
affiliates which are reimbursed to us. However, Mr. Meister
devotes approximately 50% of his time, to services for our
businesses. He is compensated by affiliates of Mr. Icahn
for the services he provides in connection with their
businesses. His compensation from such affiliates includes a
base salary and additional compensation, including incentive
compensation.
There are no family relationships between or among any of our
directors and/or executive officers.
105
If distributions (which are payable in kind) are not made to the
holders of preferred units on any two payment dates, which need
not be consecutive, the holders of more than 50% of all
outstanding preferred units, including API and its affiliates,
voting as a class, will be entitled to appoint two nominees for
our Board of Directors. Holders of preferred units owning at
least 10% of all outstanding preferred units, including API and
its affiliates to the extent that they are holders of preferred
units, may call a meeting of the holders of preferred units to
elect such nominees. Once elected, the nominees will be
appointed to our Board of Directors by Mr. Icahn. As
directors, the nominees will, in addition to their other duties
as directors, be specifically charged with reviewing all future
distributions to the holders of our preferred units. Such
additional directors shall serve until the full distributions
accumulated on all outstanding preferred units have been
declared and paid or set apart for payment. If and when all
accumulated distributions on the preferred units have been
declared and paid or set aside for payment in full, the holders
of Preferred Units shall be divested of the special voting
rights provided by the failure to pay such distributions,
subject to revesting in the event of each and every subsequent
default. Upon termination of such special voting rights
attributable to all holders of preferred units with respect to
payment of distributions, the term of office of each director
nominated by the holders of preferred units pursuant to such
special voting rights shall terminate and the number of
directors constituting the entire Board of Directors shall be
reduced by the number of directors designated by the preferred
units. The holders of the preferred units have no other rights
to participate in our management and are not entitled to vote on
any matters submitted to a vote of the holders of depositary
units.
Employment Agreements
ACEP and Richard P. Brown, its President and Chief
Executive Officer, entered into a two-year employment agreement
effective April 1, 2004, or the Brown Agreement. The Brown
agreement provides that Mr. Brown will be paid a base
annual compensation of $500,000. The agreement also provides
that Mr. Brown will receive an annual bonus of up to 50% of
base compensation. The Brown Agreement further provides that if
Mr. Brown is terminated without “Cause” (as
defined in the Brown Agreement) or there is a “Change of
Control” as defined in the Brown Agreement), then
Mr. Brown will receive an immediate severance payment in
the amount equal to the then current Base Salary. Mr. Brown
was paid a bonus in 2004 for the year ended December 31,
2003 and a $250,000 bonus in 2005 for the year ended
December 31, 2004.
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management. |
As of March 1, 2005, affiliates of Mr. Icahn,
including High Coast Limited Partnership, a Delaware limited
partnership, owned 39,896,836 depositary units, or approximately
86.5% of the outstanding depositary units, and 8,900,995
preferred units, or approximately 86.5% of the outstanding
preferred units. In light of this ownership position, the Board
of Directors has determined that we are a “controlled
company” for the purposes of the New York Stock
Exchange’s listing standards and are, therefore, not
required to have a majority of independent directors or to have
compensation and nominating committees consisting entirely of
independent directors. Our API’s Board of Directors
presently consists of a majority of independent directors and
the audit committee consists entirely of independent directors.
The affirmative vote of unitholders holding more than 75% of the
total number of all depositary units then outstanding, including
depositary units held by API and its affiliates, is required to
remove API. Thus, since Mr. Icahn, through affiliates,
holds approximately 86.5% of the depositary units outstanding,
API will not be able to be removed pursuant to the terms of our
partnership agreement without Mr. Icahn’s consent.
Moreover, under the partnership agreement, the affirmative vote
of API and unitholders owning more than 50% of the total number
of all outstanding depositary units then held by unitholders,
including affiliates of Mr. Icahn, is required to approve,
among other things, selling or otherwise disposing of all or
substantially all of our assets in a single sale or in a related
series of multiple sales, our dissolution or electing to
continue AREP in certain instances, electing a successor general
partner, making certain amendments to the partnership agreement
or causing us, in our capacity as sole limited partner of AREH,
to consent to certain proposals submitted for the approval of
the limited partners of AREH. Accordingly, as affiliates of
Mr. Icahn hold in excess of 50% of the depositary units
outstanding, Mr. Icahn, through affiliates, will have
effective control over such approval rights.
106
The following table provides information, as of March 1,
2005, as to the beneficial ownership of the depositary units and
preferred units for each director of API and all directors and
executive officers of API, as a group.
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|
Beneficial | |
|
|
|
Beneficial | |
|
|
| |
|
Ownership of | |
|
Percent | |
|
Ownership of | |
|
Percent | |
| Name of Beneficial Owner |
|
Depositary Units | |
|
of Class | |
|
Preferred Units | |
|
of Class | |
| |
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| |
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| |
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| |
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| |
|
Carl C. Icahn(1)
|
|
|
39,896,836 |
(2) |
|
|
86.5% |
|
|
|
8,900,995 |
|
|
|
86.5% |
(2) |
|
All directors and executive officers, as a group
(seven persons)
|
|
|
39,896,836 |
(2) |
|
|
86.5% |
|
|
|
8,900,995 |
|
|
|
86.5% |
(2) |
|
|
| (1) |
Carl C. Icahn, through affiliates, is the beneficial owner of
the 39,896,836 depositary units set forth above and may also be
deemed to be the beneficial owner of the 700 depositary units
owned of record by API Nominee Corp., which in accordance with
state law are in the process of being turned over to the
relevant state authorities as unclaimed property; however,
Mr. Icahn disclaims such beneficial ownership. The
foregoing is exclusive of a 1.99% ownership interest which API
holds by virtue of its 1% general partner interest in each of us
and AREH. Furthermore, pursuant to a registration rights
agreement entered into by affiliates of Mr. Icahn we have
agreed to pay any expenses incurred in connection with two
demand and unlimited piggy-back registrations requested by
affiliates of Mr. Icahn. |
| |
| (2) |
Does not include up to 16,275,863 depositary units that may be
issued upon the closing of the pending acquisitions described in
“Item 1 — Business — “Pending
Acquisitions.”” If all such units were issued, then
Mr. Icahn would be the beneficial owner of the outstanding
46,172,699 depositary units, representing approximately 90.1% of
the depositary units. |
Mr. Icahn, through certain affiliates, currently owns 100%
of API and approximately 86.5% of the 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. Icahn’s affiliates, we 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, or ACF, is the sponsor of several pension
plans that are underfunded by a total of approximately
$33.0 million on an ongoing actuarial basis and
$149 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 a member of the ACF 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. This reporting obligation could cause us to seek to
delay or reconsider the occurrence of such reportable events.
Starfire, 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
107
indemnity provides, among other things, that so long as such
contingent liabilities exist and could be imposed on AREP,
Starfire will not make any distributions to its stockholders
that would reduce its net worth to below $250 million.
Nonetheless, Starfire may not be able to fund its
indemnification obligations to us.
|
|
| Item 13. |
Certain Relationships and Related Transactions. |
Related Transactions with our General Partner and its
Affiliates
|
|
|
Preferred and Depositary Units |
Mr. Icahn, in his capacity as majority unitholder, will not
receive any additional benefit with respect to distributions and
allocations of profits and losses not shared on a pro rata basis
by all other unitholders. In addition, Mr. Icahn has
confirmed to us that neither he nor any of his affiliates will
receive any fees from us in consideration for services rendered
in connection with non-real estate related investments by us. We
may determine to make investments in which Mr. Icahn or his
affiliates have independent investments in such assets. We may
enter into other transactions with API and its affiliates,
including, without limitation, buying and selling assets from or
to API or its affiliates and participating in joint venture
investments in assets with API or its affiliates, whether real
estate or non-real estate related, provided the terms of all
such transactions are fair and reasonable to us. Furthermore, it
should be noted that our partnership agreement provides that API
and its affiliates are permitted to have other business
interests and may engage in other business ventures of any
nature whatsoever, and may compete directly or indirectly with
our business. Mr. Icahn and his affiliates currently invest
in and perform investment management services with respect to
assets that may be similar to those we may invest in and intend
to continue to do so; pursuant to the partnership agreement,
however, we shall not have any right to participate therein or
receive or share in any income or profits derived therefrom.
Pursuant to a registration rights agreement, Mr. Icahn has
certain registration rights with regard to the preferred units.
For the years ended December 31, 2004 and 2003, we made no
payments with respect to the depositary units owned by API.
However, in 2004 and 2003, API was allocated approximately
$3.3 million and approximately $1.2 million,
respectively, of our net earnings (exclusive of the earnings of
NEG and the Arizona Charlie’s entities allocated to API
prior to the acquisitions of NEG and the Arizona Charlie’s
entities) as a result of its combined 1.99% general partner
interests in us and AREH.
On March 31, 2003, Mr. Icahn received 403,673
preferred units as part of our scheduled annual preferred unit
distribution and received an additional 423,856 preferred units
on March 31, 2004 as part of such scheduled annual
preferred unit distribution.
Pursuant to a registration rights agreement, Mr. Icahn has
certain registration rights with regard to the depositary units.
Purchase
of Debt
On December 6, 2004, AREP Oil & Gas, which is our
indirect subsidiary, pursuant to a purchase agreement and
related assignment and assumption agreement, each dated as of
that date, with Thornwood, purchased $27.5 million
aggregate principal amount of the TransTexas Notes. The purchase
price for the TransTexas Notes was $28.2 million, which
equaled the principal amount of the TransTexas Notes plus
accrued but unpaid interest. The TransTexas Notes are payable in
five annual installments, the first four of which are of
$5 million, with the final installment of the unpaid
principal payable on August 28, 2008. Interest is payable
semi-annually on March 1 and September 1, at the rate
of 10% per annum. The TransTexas Notes are secured by a
first priority lien on all of TransTexas’ assets. Thornwood
and TransTexas each is controlled by Mr. Icahn.
On December 6, 2004, AREP Oil & Gas, pursuant to a
membership interest purchase agreement and related assignment
and assumption agreement, each dated as of that date, by and
among AREP Oil & Gas, as purchaser, and Arnos, High
River and Hopper Investments, as sellers, purchased all of the
membership
108
interests of Mid River for an aggregate purchase price of
$38.1 million. The assets of Mid River consisted of
$38.0 million principal amount of the Panaco Debt. The
purchase price for the membership interests in Mid River equaled
the outstanding principal amount of the Panaco Debt, plus
accrued but unpaid interest. The principal is payable in 27
equal quarterly installments of $1.4 million commencing on
March 15, 2005, through and including September 15,
2011. Interest is payable quarterly at a rate per annum equal to
the LIBOR daily floating rate plus four percent. The term loan
is secured by first priority liens on all of Panaco’s
assets. Each of the sellers and Panaco is controlled by
Mr. Icahn.
Each of the purchases described above was separately approved by
our audit committee. Our audit committee was advised as to each
transaction by independent financial advisors and legal counsel.
Our audit committee received fairness opinions which opined
that, as of the date of each transaction, the consideration to
be paid by AREP Oil & Gas was fair, from a financial
point of view, to AREP.
NEG
Holding Ownership
NEG owns a membership interest in NEG Holding. The other
membership interest in NEG Holding is held by Gascon. Gascon is
the managing member of NEG Holding. NEG Holding owns NEG
Operating which is engaged in the business of oil and gas
exploration and production with properties located on-shore in
Texas, Louisiana, Oklahoma and Arkansas. NEG Operating owns
interests in wells managed by NEG. Under the NEG Holding
operating agreement, NEG is to receive guaranteed payments of
approximately $32.0 million and a priority distribution of
approximately $148.6 million before Gascon receives any
distributions. The NEG Holding operating agreement contains a
provision that allows Gascon, or its successor, at any time, in
its sole discretion, to redeem NEG’s membership interest in
NEG Holding at a price equal to the fair market value of the
interest determined as if NEG Holding had sold all of its assets
for fair market value and liquidated. A determination of the
fair market value of such assets will be made by an independent
third party jointly engaged by Gascon and NEG.
Management
Agreements
The management and operation of each of NEG Operating,
TransTexas and Panaco is undertaken by NEG pursuant to a
separate management agreement with each. In 2004, NEG recorded
management fees of $6.2 million, $4.7 million and
$0.7 million from NEG Operating, TransTexas and Panaco,
respectively.
On January 21, 2005, we entered into a purchase agreement
with Gascon, Cigas and Astral Gas pursuant to which we will
purchase Gascon’s membership interest in NEG Holding in
consideration for up to 11,344,828 depositary units, valued at
$29.00 per unit, or an aggregate of up to
$329.0 million. The number of depositary units to be issued
was based on NEG Holding’s estimates of its and its
subsidiaries’ oil and gas reserves. The reserve estimates
are subject to confirmation by independent oil and gas reserve
engineers. Alternatively, if we do not obtain the consent of NEG
Operating’s bank lenders or refinance such debt, we will
purchase all of Gascon’s general partnership interests
owned by Cigas and Astral Gas for the same consideration
described above. The only material asset of Gascon consists of
its managing membership interest in NEG Holding. Gascon, Cigas
and Astral are controlled by Mr. Icahn.
On January 21, 2005, National Onshore, an indirect
wholly-owned subsidiary of AREP Oil & Gas, entered into
an agreement and plan of merger with Highcrest, pursuant to
which TransTexas will merge with and into National Onshore for a
purchase price of up to $180.0 million in cash. The
consideration to be paid by us was based on TransTexas’
estimates of its oil and gas reserves. The reserve estimates are
subject to confirmation by independent oil and gas reserve
engineers and the amount of the consideration to be paid is
subject to a reduction, but not an increase in accordance with
the reserves determined by the engineers. Highcrest is
controlled by Mr. Icahn.
On January 21, 2005, National Offshore, an indirect
wholly-owned subsidiary of AREP, entered into an agreement and
plan of merger with Highcrest and Arnos, pursuant to which
Panaco will merge with and into National Offshore in
consideration for up to 4,310,345 depositary units, valued at
$29.00 per unit, or an
109
aggregate of up to $125.0 million. The number of depositary
units to be issued was based on Panaco’s estimates of its
oil and gas reserves, 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, is
subject to reduction based upon Panaco’s oil and gas
reserve reports as of January 21, 2005, to be prepared by
an independent reserve engineering firm. Highcrest and Arnos are
controlled by Mr. Icahn.
Each of the acquisition agreements entered into on
January 21, 2005 was separately approved by our audit
committee. Our audit committee was advised as to each
transaction by independent financial advisors and legal counsel.
Our audit committee obtained fairness options which opined that,
as of the date of each transaction, the consideration to be paid
by the respective purchasers was fair, from a financial point of
view, to AREP.
|
|
|
Hotel and Casino Operations |
On January 5, 2004, ACEP, our wholly-owned subsidiary,
entered into an agreement to acquire two Las Vegas hotels and
casinos, Arizona Charlie’s Decatur and Arizona
Charlie’s Boulder from Mr. Icahn and an entity
affiliated with Mr. Icahn, for aggregate consideration of
$125.9 million. The closing of the acquisition occurred on
May 26, 2004. The terms of the acquisition were approved by
our audit committee, which received an opinion from its
financial advisors as to the fairness of the consideration to be
paid from a financial point of view.
As of May 26, 2004, we have entered into an intercompany
services arrangement with Atlantic Coast Entertainment Holdings,
Inc., the owner of The Sands Hotel and Casino in Atlantic City,
New Jersey, which is controlled by affiliates of Mr. Icahn.
We are compensated based upon an allocation of salaries plus an
overhead charge of 15% of the salary allocation, and
reimbursement of reasonable out-of-pocket expenses. During 2004,
we billed for services provided in an amount equal to
approximately $387,500.
As of December 31, 2004, we were owed approximately
$388,000 for reimbursable expenses from related parties.
On December 27, 2004, AREP Sands, pursuant to a note
purchase agreement, dated as of that date, with Barberry and
Cyprus, purchased $37.0 million principal amount of
3% Notes due 2008 issued by Atlantic Holdings for cash
consideration of $36.0 million. Interest on the notes is
payable in kind, accreting annually at a rate of 3%. The notes
are convertible, under certain circumstances, into
65.909 shares of common stock of Atlantic Holdings for each
$1,000 of principal amount of such notes and are secured by all
existing and future assets of Atlantic Holdings and ACE Gaming.
Each of Cyprus and Barberry is controlled by Mr. Icahn.
The purchase described above was approved by our audit
committee. Our audit committee received advice from its
independent financial advisors and legal counsel. Our audit
committee received a fairness opinion from its financial
advisors to the effect that, as of the date of the transaction,
the consideration to be paid by AREP Sands for the notes was
fair, from a financial point of view, to AREP.
On January 21, 2005, we entered into a purchase agreement
with Cyprus, pursuant to which we will acquire approximately
41.2% of the outstanding common stock of GB Holdings and
warrants to purchase, upon the occurrence of certain events,
approximately 11.3% of the fully diluted common stock of
Atlantic Holdings in consideration for 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 up to
$6.0 million, if GB Holdings meets certain earnings targets
during 2005 and 2006.
The purchase agreement entered into as of January 21, 2005
was separately approved by our audit committee. Our audit
committee was advised as to this transaction by independent
financial advisors and legal counsel. Our audit committee
received a fairness opinion which opined that, as of the date of
this transaction, the consideration to be paid by AREP was fair,
from a financial point of view, to AREP.
110
|
|
|
Partnership Provisions Concerning Property
Management |
API and its affiliates may receive fees in connection with the
acquisition, sale, financing, development, construction,
marketing and management of new properties acquired by us. As
development and other new properties are acquired, developed,
constructed, operated, leased and financed, API or its
affiliates may perform acquisition functions, including the
review, verification and analysis of data and documentation with
respect to potential acquisitions, and perform development and
construction oversight and other land development services,
property management and leasing services, either on a day-to-day
basis or on an asset management basis, and may perform other
services and be entitled to fees and reimbursement of expenses
relating thereto, provided the terms of such transactions are
fair and reasonable to us in accordance with our partnership
agreement and customary to the industry. It is not possible to
state precisely what role, if any, API or any of its affiliates
may have in the acquisition, development or management of any
new investments. Consequently, it is not possible to state the
amount of the income, fees or commissions API or its affiliates
might be paid in connection therewith since the amount thereof
is dependent upon the specific circumstances of each investment,
including the nature of the services provided, the location of
the investment and the amount customarily paid in such locality
for such services. Subject to the specific circumstances
surrounding each transaction and the overall fairness and
reasonableness thereof to us, the fees charged by API and its
affiliates for the services described below generally will be
within the ranges set forth below:
|
|
|
| |
• |
Property Management and Asset Management Services. To the extent
that we acquire any properties requiring active management
(e.g., operating properties that are not net-leased) or asset
management services, including on site services, we may enter
into management or other arrangements with API or its
affiliates. Generally, it is contemplated that under property
management arrangements, the entity managing the property would
receive a property management fee (generally 3% to 6% of gross
rentals for direct management, depending upon the location) and
under asset management arrangements, the entity managing the
asset would receive an asset management fee (generally .5% to 1%
of the appraised value of the asset for asset management
services, depending upon the location) in payment for its
services and reimbursement for costs incurred. |
| |
| |
• |
Brokerage and Leasing Commissions. We also may pay affiliates of
API real estate brokerage and leasing commissions (which
generally may range from 2% to 6% of the purchase price or
rentals depending on location; this range may be somewhat higher
for problem properties or lesser-valued properties). |
| |
| |
• |
Lending Arrangements. API or its affiliates may lend money to,
or arrange loans for, us. Fees payable to API or its affiliates
in connection with such activities include mortgage brokerage
fees (generally .5% to 3% of the loan amount), mortgage
origination fees (generally .5% to 1.5% of the loan amount) and
loan servicing fees (generally .10% to .12% of the loan amount),
as well as interest on any amounts loaned by API or its
affiliates to us. |
| |
| |
• |
Development and Construction Services. API or its affiliates may
also receive fees for development services, generally 1% to 4%
of development costs, and general contracting services or
construction management services, generally 4% to 6% of
construction costs. |
There were not any fees paid under these provisions during 2004,
2003 or 2002.
Other Related Transactions
As of December, 2004, we owned approximately
443,000 shares, or 4.4%, of common stock of Philip Services
Corporation and $0.1 million principal amount of unsecured,
subordinated payment-in-kind debt. The debt matures
December 31, 2010 and bears interest at 3.6% per
annum. Philip is an affiliate of Mr. Icahn.
For the years ended December 31, 2004 and 2003, we paid
approximately $325,000 and $273,000, respectively, to an
affiliate of API for telecommunication services, XO
Communications, Inc.
In 1997, we entered into a license agreement for a portion of
office space from an affiliate of API. Pursuant to the license
agreement, we have the non-exclusive use of approximately
2,275 square feet for which
111
we pay monthly rent of $11,185 plus 10.77% of certain
“additional rent.” The agreement which expired in May
2004, has been extended on a month-to-month basis. For the year
ended December 31, 2004, we paid an affiliate of API
approximately $162,000, of rent in connection with this
licensing agreement. The terms of such license agreement were
reviewed and approved by our audit committee.
We may also enter into other transactions with API and its
affiliates, including, without limitation, buying and selling
properties and borrowing and lending funds from or to API or its
affiliates, joint venture developments and issuing securities to
API or its affiliates in exchange for, among other things,
assets that they now own or may acquire in the future, provided
the terms of such transactions are fair and reasonable to us.
API is also entitled to reimbursement by us for all allocable
direct and indirect overhead expenses, including, but not
limited to, salaries and rent, incurred in connection with the
conduct of our business.
In addition, our employees may, from time to time, provide
services to affiliates of API, with us being reimbursed
therefor. Reimbursement to us by such affiliates in respect of
such services is subject to review and approval by our audit
committee. For the year ended December 31, 2004, we
received approximately $80,000 for such services. Also, an
affiliate of API provided certain administrative services to us
for the amount of approximately $82,000 in the year ended
December 31, 2004.
|
|
| Item 14. |
Principal Accounting Fees and Services. |
The following tables summarize Grant Thornton LLP and KPMG LLP
Fees For Professional Services Rendered for AREP and its
consolidated subsidiaries:
Summary of Grant Thornton LLP Fees for Professional Services
Rendered for the
Year Ended December 31, 2004
| |
|
|
|
|
|
Audit fees(1)
|
|
$ |
1,010,100 |
|
|
Audit related fees(2)
|
|
|
333,015 |
|
| |
|
|
|
|
Total fees
|
|
$ |
1,343,115 |
|
| |
|
|
|
Summary of KPMG LLP Fees For Professional Services Rendered
for the
Year Ended December 31, 2003
| |
|
|
|
|
|
| |
|
2003 | |
| |
|
| |
|
Audit fees(3)
|
|
$ |
735,200 |
|
|
Audit related fees(4)
|
|
|
634,300 |
|
|
Tax fees(5)
|
|
|
180,400 |
|
| |
|
|
|
| |
Total fees
|
|
$ |
1,549,900 |
|
| |
|
|
|
|
|
| (1) |
Services related to audit of annual consolidated financial
statements and internal controls, review of quarterly financial
statements, review of reports filed with the SEC and other
services. |
| |
| (2) |
Services related to limited reviews, consents, assistance with
review of offering documents and registration statement filed
with the SEC. |
| |
| (3) |
Services relating to audit of the 2003 consolidated financial
statements, review of quarterly financial statements and limited
reviews, consents, assistance with the review of documents filed
with the SEC and other services. |
| |
| (4) |
Services relating primarily to 2003 audits of GB Holdings
financial statements, employee benefit plans, regulatory
compliance procedures and other services to us and our
consolidated subsidiaries. |
| |
| (5) |
Services relating to review and preparation of federal and state
tax returns. |
112
In accordance with AREP’s Amended and Restated Audit
Committee Charter adopted on March 12, 2004, the Audit
Committee is required to approve in advance any and all audit
services and permitted non-audit services provided to AREP and
its consolidated subsidiaries by its independent auditors
(subject to the de minimis exception of
Section 10A(i)(1)(B) of the Exchange Act), all as
required by applicable law or listing standards. All of the fees
in 2004 and 2003 were pre-approved by the Audit Committee. For
the fiscal years ended December 31, 2004 and 2003, none of
the services described above under the captions “Audit
Related Fees” or “Tax Fees” was covered by the
de minimus exception.
PART IV
|
|
| Item 15. |
Exhibits, Financial Statement Schedules. |
(a)(1) Financial Statements:
The following financial statements of American Real Estate
Partners, L.P. are included in Part II, Item 8:
| |
|
|
|
|
| |
|
Page |
| |
|
Number |
| |
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
58 |
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
59 |
|
|
Consolidated Balance Sheets — December 31, 2004
and 2003
|
|
|
60 |
|
|
Consolidated Statements of Earnings — Years ended
December 31, 2004, 2003 and 2002
|
|
|
61 |
|
|
Consolidated Statements of Changes in Partners’ Equity and
Comprehensive Income — Years ended
December 31, 2004, 2003 and 2002
|
|
|
62 |
|
|
Consolidated Statements of Cash Flows — Years ended
December 31, 2004, 2003 and 2002
|
|
|
63 |
|
|
Notes to Consolidated Financial Statements
|
|
|
65 |
|
(a)(2)Financial Statement Schedules:
| |
|
|
|
|
|
Schedule III — Real Estate Owned and Revenues Earned
(by tenant or guarantor, as applicable)
|
|
|
118 |
|
All other Financial Statement schedules have been omitted
because the required financial information is not applicable or
the information is shown in the Financial Statements or Notes
thereto.
| |
|
|
|
|
| Exhibit | |
|
|
| Index | |
|
|
| | |
|
|
| |
3 |
.1 |
|
Certificate of Limited Partnership of American Real Estate
Partners, L.P. (“AREP”) dated February 17, 1987
(incorporated by reference to Exhibit No. 3.1 to
AREP’s Form 10-Q for the quarter ended March 31, 2004
(SEC File No. 1-9516), filed on May 10, 2004). |
| |
3 |
.2 |
|
Amended and Restated Agreement of Limited Partnership of AREP,
dated as of May 12, 1987 (incorporated by reference to
Exhibit No. 3.2 to AREP’s Form 10-Q for the quarter
ended March 31, 2004 (SEC File No. 1-9516), filed on
May 10, 2004). |
| |
3 |
.3 |
|
Amendment No. 1 to the Amended and Restated Agreement of
Limited Partnership of AREP, dated February 22, 1995
(incorporated by reference to Exhibit 3.3 to AREP’s
Form 10-K for the year ended December 31, 1994 (SEC File
No. 1-9516), filed on March 31, 1995). |
| |
3 |
.4 |
|
Certificate of Limited Partnership of American Real Estate
Holdings Limited Partnership (“AREH”), dated
February 17, 1987, as amended pursuant to First Amendment
thereto, dated March 10, 1987 (incorporated by reference to
Exhibit 3.5 to AREP’s Form 10-Q for the quarter ended
March 31, 2004 (SEC File No. 1-9516), filed on
May 10, 2004). |
113
| |
|
|
|
|
| Exhibit | |
|
|
| Index | |
|
|
| | |
|
|
| |
3 |
.5 |
|
Amended and Restated Agreement of Limited Partnership of AREH,
dated as of July 1, 1987 (incorporated by reference to
Exhibit 3.5 to AREP’s Form 10-Q for the quarter ended
March 31, 2004 (SEC File No. 1-9516), filed on
May 10, 2004). |
| |
3 |
.6 |
|
Amendment No. 2 to the Amended and Restated Agreement of
Limited Partnership of AREP, dated as of August 16, 1996
(incorporated by reference to Exhibit 10.1 to AREP’s
Form 8-K (SEC File No. 1-9516), filed on August 16,
1996). |
| |
3 |
.7 |
|
Amendment No. 1 to the Amended and Restated Agreement of
Limited Partnership of AREH, dated August 16, 1996
(incorporated by reference to Exhibit 10.2 to AREP’s Form
8-K (SEC File No. 1-9516), filed on August 16, 1996). |
| |
3 |
.8 |
|
Amendment No. 3 to the Amended and Restated Agreement of
Limited Partnership of AREP, dated May 9, 2002
(incorporated by reference to Exhibit 3.8 to AREP’s
Form 10-K for the year ended December 31, 2002 (SEC File
No. 1-9516), filed on March 31, 2003). |
| |
3 |
.9 |
|
Amendment No. 2 to the Amended and Restated Agreement of
Limited Partnership of AREH, dated June 14, 2002
(incorporated by reference to Exhibit 3.9 to AREP’s
Form 10-K for the year ended December 31, 2002 (SEC File
No. 1-9516), filed on March 31, 2003). |
| |
4 |
.1 |
|
Depositary Agreement among AREP, American Property Investors,
Inc. and Registrar and Transfer Company, dated as of
July 1, 1987 (incorporated by reference to Exhibit 4.1
to AREP’s Form 10-Q for the quarter ended March 31,
2004 (SEC File No. 1-9516), filed on May 10, 2004). |
| |
4 |
.2 |
|
Amendment No. 1 to the Depositary Agreement dated as of
February 22, 1995 (incorporated by reference to
Exhibit 4.2 to AREP’s Form 10-K for the year ended
December 31, 1994 (SEC File No. 1-9516), filed on
March 31, 1995). |
| |
4 |
.3 |
|
Specimen Certificate representing Depositary Units. |
| |
4 |
.4 |
|
Form of Application for Transfer of Depositary Units. |
| |
4 |
.5 |
|
Specimen Certificate representing Preferred Units (incorporated
by reference to Exhibit No. 4.9 to AREP’s
Form S-3 (SEC File No. 33-54767), filed on
February 22, 1995). |
| |
4 |
.6 |
|
Indenture, dated as of January 29, 2004, among American
Casino & Entertainment Properties LLC (“ACEP”),
American Casino & Entertainment Properties Finance Corp.,
(“ACEP Finance”), the guarantors from time to time
party thereto and Wilmington Trust Company, as Trustee (the
“Trustee”), incorporated by reference to Exhibit 4.1
to ACEP’s Form S-4 (SEC File No. 333-118149), filed on
August 12, 2004). |
| |
4 |
.7 |
|
Form of ACEP and ACEP Finance 7.85% Note (incorporated by
reference to Exhibit 4.10 to AREP’s Form 10-Q for the
quarter ended June 30, 2004 (SEC File No. 1-9516),
filed on August 9, 2004). |
| |
4 |
.8 |
|
Registration Rights Agreement, dated as of January 29,
2004, among ACEP, ACEP Finance, the guarantors party thereto and
Bear, Stearns & Co. Inc. (incorporated by reference to
Exhibit 4.4 to ACEP’s Form S-4 (SEC File
No. 333-118149), filed on August 12, 2004). |
| |
4 |
.9 |
|
Indenture, dated as of May 12, 2004, among AREP, American
Real Estate Finance Corp. (“AREP Finance”), AREH and
Wilmington Trust Company, as Trustee, (incorporated by reference
to Exhibit 4.1 to AREP’s Form S-4 (SEC File
No. 333-118021), filed on August 6, 2004). |
| |
4 |
.10 |
|
Form of AREP and AREP Finance
81/8% Note
(incorporated by reference to Exhibit 4.2 to AREP’s
Form S-4 (SEC File No. 333-118021), filed on August 6,
2004). |
| |
4 |
.11 |
|
Registration Rights Agreement, dated as of May 12, 2004,
among AREP, AREP Finance, AREH and Bear, Stearns & Co.
Inc. (incorporated by reference to Exhibit 4.3 to
AREP’s Form S-4 (SEC File No. 333-118021), filed on
August 6, 2004). |
| |
4 |
.12 |
|
Indenture, dated as of February 7, 2005, among AREP, AREP
Finance and AREH, as Guarantors, and Wilmington Trust Company,
as Trustee (incorporated by reference to Exhibit 4.9 to
AREP’s Form 8-K (SEC File No. 1-9516), filed on
February 10, 2005). |
114
| |
|
|
|
|
| Exhibit | |
|
|
| Index | |
|
|
| | |
|
|
| |
4 |
.13 |
|
Form of AREP and AREP
Finance 71/8%
Senior Note (incorporated by reference to Exhibit 4.10 to
AREP’s Form 8-K (SEC File No. 1-09516), filed on
February 10, 2005). |
| |
4 |
.14 |
|
Registration Rights Agreement, dated as of February 7,
2005, among AREP, AREP Finance and AREH, and Bear, Stearns &
Co. Inc. and Jefferies & Company, Inc. (incorporated by
reference to Exhibit 4.11 to AREP’s Form 8-K (SEC File No.
1-9516), filed on February 10, 2005). |
| |
10 |
.1 |
|
Distribution Reinvestment Plan |
| |
10 |
.2 |
|
Registration Rights Agreement between AREP and X LP (now
known as High Coast Limited Partnership) |
| |
10 |
.3 |
|
Amended and Restated Agency Agreement (incorporated by reference
to Exhibit 10.12 to Form 10-K for the year ended
December 31, 1994 (SEC File No. 1-9516), filed on
March 31, 1995). |
| |
10 |
.4 |
|
Service Mark License Agreement, by and between Becker Gaming,
Inc. and Arizona Charlie’s, Inc., dated as of
August 1, 2000 (incorporated by reference to ACEP’s
Form 10-K (SEC File No. 333-118149), filed on
March 16, 2005. |
| |
10 |
.5 |
|
Management Agreement, dated September 12, 2001, by and
between National Energy Group, Inc. (“NEG”) and NEG
Operating LLC (incorporated by reference to Exhibit 99.4 to
NEG’s Form 8-K (SEC File No. 000-19136), filed on
September 27, 2001). |
| |
10 |
.6 |
|
Pledge Agreement and Irrevocable Proxy, dated December 29,
2003, made by NEG in favor of Bank of Texas, N.A. (incorporated
by reference to Exhibit 10.3 of NEG’s Form 8-K (SEC
File No. 000-19036), filed on January 14, 2004). |
| |
10 |
.7 |
|
Credit Agreement, dated as of January 29, 2004, by and
among ACEP, certain subsidiaries of ACEP, the several lenders
from time to time parties thereto and Bear Stearns Corporate
Lending Inc., as Syndication Agent and Administrative Agent
(incorporated by reference to Exhibit 10.1 to ACEP’s Form
S-4 (SEC File No. 333-118149), filed on August 12,
2004). |
| |
10 |
.8 |
|
Pledge and Security Agreement, dated as of May 26, 2004, by
and among ACEP, ACEP Finance, certain subsidiaries of ACEP and
Bear Stearns Corporate Lending Inc. (incorporated by reference
to Exhibit 10.2 to ACEP’s Form S-4 (SEC File No.
333-118149), filed on August 12, 2004). |
| |
10 |
.9 |
|
Employment Agreement, effective as of April 1, 2004, by and
between ACEP and Richard P. Brown (incorporated by reference to
Exhibit 10.4 to ACEP’s Form S-4 (SEC File
No. 333-118149), filed on August 12, 2004). |
| |
10 |
.10 |
|
First Amendment to Credit Agreement, dated as of
January 29, 2004 by and among ACEP, as the Borrower,
certain subsidiaries of the Borrower, as Guarantors, The Several
Lenders, Bear Stearns Corporate Lending Inc. as Syndication
Agent, and Bear Stearns Corporate Lending Inc., as
Administrative Agent, dated as of May 26, 2004, Bear,
Stearns & Co. Inc., as Sole Lead Arranger and Sole
Bookrunner (incorporated by reference to Exhibit 10.6 to
ACEP’s Form S-4 (SEC File No. 333-118149), filed
on October 12, 2004). |
| |
10 |
.11 |
|
Management Agreement, dated November 16, 2004, by and
between NEG and Panaco, Inc. (“Panaco”) (incorporated
by reference to Exhibit 10.13 to NEG’s Form 10-Q (SEC File
No. 000-19136), filed on November 15, 2004). |
| |
10 |
.12 |
|
Management Agreement, dated August 28, 2003, by and between
NEG and TransTexas Gas Corporation (“TransTexas”)
(incorporated by reference to Exhibit 10.1 to NEG’s
Form 8-K (SEC File No. 000-19136), filed on September 10,
2003). |
| |
10 |
.13 |
|
Purchase Agreement for Notes Issued by TransTexas, dated
December 6, 2004, by and between Thornwood Associates LP
(“Thornwood”) and AREP Oil & Gas LLC
(“AREP Oil & Gas”)(incorporated by reference to
Exhibit 99.1 to AREP’s Form 8-K (SEC File
No. 1-9516), filed on December 10, 2004). |
115
| |
|
|
|
|
| Exhibit | |
|
|
| Index | |
|
|
| | |
|
|
| |
10 |
.14 |
|
Assignment and Assumption Agreement, dated December 6,
2004, by and between Thornwood and AREP Oil & Gas
(incorporated by reference to Exhibit 99.2 to AREP’s
Form 8-K (SEC File No. 1-9516), filed on December 10,
2004). |
| |
10 |
.15 |
|
Membership Interest Purchase Agreement, dated as of
December 6, 2004, by and among AREP Oil & Gas,
Arnos Corp., High River and Hopper Investments LLC (incorporated
by reference to Exhibit 99.3 to AREP’s Form 8-K (SEC
File No. 1-9516), filed on December 10, 2004). |
| |
10 |
.16 |
|
Assignment and Assumption Agreement, dated December 6,
2004, by and among AREP Oil & Gas, Arnos Corp., High
River and Hopper Investments LLC (incorporated by reference to
Exhibit 99.4 to AREP’s Form 8-K (SEC File
No. 1-9516), filed on December 10, 2004). |
| |
10 |
.17 |
|
Amended and Restated Oil & Gas Term Loan Agreement by
and among TransTexas, Galveston Bay Pipeline Company, Galveston
Bay Processing Corporation and Thornwood, dated August 28,
2003 (incorporated by reference to Exhibit 99.5 to
AREP’s Form 8-K (SEC File No. 1-9516), filed on
December 10, 2004). |
| |
10 |
.18 |
|
Amended and Restated Security and Pledge Agreement, dated August
2003, by and among TransTexas, Galveston Bay Pipeline Company,
Galveston Bay Processing Corporation and Thornwood (incorporated
by reference to Exhibit 99.6 to AREP’s Form 8-K (SEC
File No. 1-9516), filed on December 10, 2004). |
| |
10 |
.19 |
|
Term Loan and Security Agreement among Panaco, Mid River LLC and
Lenders Named Therein, dated as of November 16, 2004
(incorporated by reference to Exhibit 99.7 to AREP’s
Form 8-K (SEC File No. 1-9516), filed on December 10,
2004). |
| |
10 |
.20 |
|
Note Purchase Agreement, dated as of December 27, 2004, by
and among AREP Sands Holding LLC, Barberry Corp., and Cyprus,
LLC (incorporated by reference to Exhibit 99.1 to
AREP’s Form 8-K (SEC File No. 1-9516), filed on
December 30, 2004). |
| |
12 |
|
|
Statements re computation of ratios. |
| |
14 |
.1 |
|
Code of Business Conduct and Ethics incorporated by reference to
Exhibit 99.2 to AREP’s Form 10-Q for the quarter ended
September 30, 2004 (SEC File No. 1-9516), filed on
November 9, 2004). |
| |
21 |
|
|
List of Subsidiaries. |
| |
31 |
.1 |
|
Certification of Principal Executive Officer pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002. |
| |
31 |
.2 |
|
Certification of Principal Financial Officer pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002. |
| |
32 |
.1 |
|
Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
32 |
.2 |
|
Certification of Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
99 |
.1 |
|
Corporate Governance Guidelines (incorporated by reference to
Exhibit 99.1 to AREP’s Form 10-Q for the quarter ended
September 30, 2004 (SEC File No. 1-9516), filed on
November 9, 2004). |
116
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
| |
American Real Estate
Partners, L.P.
|
| |
| |
By: American Property
Investors, Inc.
|
| |
General
Partner
|
Date: March 16,
2005
|
|
| |
|
| |
Keith A. Meister, |
| |
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
in the capacities indicated with respect to American Property
Investors, Inc., the general partner of American Real Estate
Partners, L.P., and on behalf of the registrant and on the dates
indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ Keith A. Meister
(Keith A. Meister) |
|
President and Chief Executive Officer |
|
March 16, 2005 |
| |
/s/ John P. Saldarelli
(John P. Saldarelli) |
|
Vice President, Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal Accounting Officer) |
|
March 16, 2005 |
| |
/s/ Carl C. Icahn
(Carl C. Icahn) |
|
Chairman of the Board |
|
March 16, 2005 |
| |
/s/ William A.
Leidesdorf
(William A. Leidesdorf) |
|
Director |
|
March 16, 2005 |
| |
/s/ James L. Nelson
(James L. Nelson) |
|
Director |
|
March 16, 2005 |
| |
/s/ Jack G. Wasserman
(Jack G. Wasserman) |
|
Director |
|
March 16, 2005 |
117
Schedule III
Page 1
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership
REAL ESTATE OWNED AND REVENUES EARNED
| |
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| |
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Part 2 — Revenues earned for the Year Ended | |
| |
|
|
|
|
|
|
|
Part 1 — Real Estate Owned at December 31, 2004 — Accounted for Under the: | |
|
December 31, 2004 | |
| |
|
|
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| |
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| |
| |
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Operating Method | |
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Financing Method | |
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| |
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| |
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| |
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| |
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Rent due and | |
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Accrued or | |
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Expended for | |
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| |
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Amount | |
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Received in | |
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Minimum Lease | |
|
Total | |
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Interest, | |
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| |
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Carried at | |
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Advance at | |
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Payments Due | |
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Revenue | |
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Depreciation, | |
|
Net Income | |
| |
|
|
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No. of | |
|
Amount of | |
|
Initial Cost | |
|
Cost of | |
|
Close of | |
|
Reserve for | |
|
End of | |
|
Net | |
|
and Accrued at | |
|
Applicable | |
|
Taxes, and | |
|
Applicable | |
| |
|
State | |
|
Locations | |
|
Encumbrances | |
|
to Company | |
|
Improvements | |
|
Period | |
|
Depreciation | |
|
Period | |
|
Investment | |
|
End of Period | |
|
to Period | |
|
Other Expenses | |
|
to Period | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
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| |
|
| |
|
| |
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| |
|
| |
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| |
|
COMMERCIAL PROPERTY LAND AND BUILDING
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Acme Markets, Inc. and FPBT of Penn
|
|
|
PA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
329,559 |
(3) |
|
$ |
13,739 |
(3) |
|
$ |
315,820 |
|
| |
Alabama Power Company
|
|
|
AL |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,889 |
|
|
|
(13,675 |
) |
|
|
58,564 |
|
| |
Amer Stores, Eckerd & Marburn
|
|
|
NJ |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,454 |
(3) |
|
|
8,518 |
(3) |
|
|
36,936 |
|
| |
Atrium
|
|
|
VA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,002,409 |
(3) |
|
|
1,682,710 |
(3) |
|
|
319,699 |
|
| |
Best Products Co., Inc.
|
|
|
VA |
|
|
|
1 |
|
|
|
|
|
|
$ |
3,376,815 |
|
|
$ |
(350,000 |
) |
|
$ |
3,026,815 |
|
|
$ |
257,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,217 |
|
|
|
487,522 |
|
|
|
(373,305 |
) |
| |
Chesebrough-Pond ’s Inc.
|
|
|
CT |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,839 |
(3) |
|
|
(9,000 |
)(3) |
|
|
63,839 |
|
| |
Collins Foods International, Inc.
|
|
|
OR |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,379 |
(3) |
|
|
1,300 |
(3) |
|
|
9,079 |
|
| |
Collins Foods International, Inc.
|
|
|
CA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,637 |
(3) |
|
|
0 |
(3) |
|
|
5,637 |
|
| |
Dillon Companies, Inc.
|
|
|
MO |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,369 |
(3) |
|
|
0 |
(3) |
|
|
23,369 |
|
| |
Dragon court
|
|
|
MA |
|
|
|
1 |
|
|
|
|
|
|
|
3,744,706 |
|
|
|
37,571 |
|
|
|
3,782,277 |
|
|
|
308,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,148 |
|
|
|
718,750 |
|
|
|
(575,602 |
) |
| |
Duke Power Co.
|
|
|
NC |
|
|
|
1 |
|
|
|
|
|
|
|
3,464,225 |
|
|
|
|
|
|
|
3,464,225 |
|
|
|
458,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
797,177 |
|
|
|
114,705 |
|
|
|
682,472 |
|
| |
Easco Corp.
|
|
|
NC |
|
|
|
1 |
|
|
|
|
|
|
|
1,046,012 |
|
|
|
|
|
|
|
1,046,012 |
(2) |
|
|
66,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396,250 |
|
|
|
8,244 |
|
|
|
388,006 |
|
| |
European American Bank and Trust Co.
|
|
|
NY |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,491 |
(3) |
|
|
175,603 |
(3) |
|
|
(17,112 |
) |
| |
Farwell Bldg
|
|
|
MN |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,675 |
(3) |
|
|
(215,173 |
)(3) |
|
|
815,848 |
|
| |
First National Supermarkets, Inc.
|
|
|
CT |
|
|
|
1 |
|
|
$ |
19,576,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,937,655 |
|
|
|
|
|
|
|
1,779,799 |
|
|
|
1,148,329 |
|
|
|
631,470 |
|
| |
Fisher Scientific Company
|
|
|
IL |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,086 |
(3) |
|
|
0 |
(3) |
|
|
56,086 |
|
| |
Forte Hotels International, Inc.
|
|
|
NJ |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441,288 |
(3) |
|
|
7,747 |
(3) |
|
|
433,541 |
|
| |
Fox Grocery Company
|
|
|
WV |
|
|
|
1 |
|
|
|
|
|
|
|
1,919,486 |
|
|
|
|
|
|
|
1,919,486 |
|
|
|
13,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211,197 |
|
|
|
13,375 |
|
|
|
197,822 |
|
| |
Gino’s, Inc.
|
|
|
OH |
|
|
|
1 |
|
|
|
|
|
|
|
314,012 |
|
|
|
|
|
|
|
314,012 |
|
|
|
28,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,489 |
|
|
|
10,090 |
|
|
|
24,399 |
|
| |
Golf Road
|
|
|
IL |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364,321 |
(3) |
|
|
(9,173 |
)(3) |
|
|
373,494 |
|
| |
Grand Union Co.
|
|
|
NY |
|
|
|
1 |
|
|
|
|
|
|
|
874,765 |
|
|
|
|
|
|
|
874,765 |
|
|
|
104,090 |
|
|
$ |
45 |
|
|
|
|
|
|
|
|
|
|
|
108,000 |
|
|
|
20,818 |
|
|
|
87,182 |
|
| |
Grand Union Co.
|
|
|
VA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,828 |
(3) |
|
|
1,805 |
(3) |
|
|
12,023 |
|
| |
Whalen
|
|
|
NY |
|
|
|
1 |
|
|
|
|
|
|
|
7,934,020 |
|
|
|
|
|
|
|
7,934,020 |
(2) |
|
|
226,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,050 |
|
|
|
813,152 |
|
|
|
(801,102 |
) |
| |
Gunite
|
|
|
IN |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
(3) |
|
|
66,930 |
(3) |
|
|
(66,930 |
) |
| |
G.D. Searle & Co.
|
|
|
MN |
|
|
|
1 |
|
|
|
|
|
|
|
339,358 |
|
|
|
|
|
|
|
339,358 |
|
|
|
172,501 |
|
|
|
(3,083 |
) |
|
|
|
|
|
|
|
|
|
|
37,000 |
|
|
|
2,562 |
|
|
|
34,438 |
|
| |
G.D. Searle & Co.
|
|
|
IL |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,168 |
(3) |
|
|
8,550 |
(3) |
|
|
28,618 |
|
| |
Integra A Hotel and Restaurant Co.
|
|
|
AL |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,984 |
(3) |
|
|
2,646 |
(3) |
|
|
125,338 |
|
| |
Integra A Hotel and Restaurant Co.
|
|
|
IN |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,272 |
(3) |
|
|
204 |
(3) |
|
|
45,068 |
|
| |
Integra A Hotel and Restaurant Co.
|
|
|
OH |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,770 |
(3) |
|
|
0 |
(3) |
|
|
39,770 |
|
| |
Integra A Hotel and Restaurant Co.
|
|
|
MO |
|
|
|
1 |
|
|
|
|
|
|
|
414,887 |
|
|
|
|
|
|
|
414,887 |
|
|
|
17,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,818 |
|
|
|
10,376 |
|
|
|
81,442 |
|
| |
Integra A Hotel and Restaurant Co.
|
|
|
TX |
|
|
|
1 |
|
|
|
|
|
|
|
438,097 |
|
|
|
(2,616 |
) |
|
|
435,481 |
(2) |
|
|
16,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,960 |
|
|
|
0 |
|
|
|
103,960 |
|
| |
Integra A Hotel and Restaurant Co.
|
|
|
MI |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,475 |
(3) |
|
|
204 |
(3) |
|
|
62,271 |
|
| |
Intermountain Color
|
|
|
KY |
|
|
|
1 |
|
|
|
|
|
|
|
560,444 |
|
|
|
|
|
|
|
560,444 |
|
|
|
523,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,802 |
|
|
|
5,453 |
|
|
|
92,349 |
|
| |
J.C. Penney Company, Inc.
|
|
|
MA |
|
|
|
1 |
|
|
|
|
|
|
|
2,484,262 |
|
|
|
|
|
|
|
2,484,262 |
|
|
|
1,987,410 |
|
|
|
(41,707 |
) |
|
|
|
|
|
|
|
|
|
|
250,244 |
|
|
|
3,850 |
|
|
|
246,394 |
|
| |
Kings Buffet
|
|
|
FL |
|
|
|
1 |
|
|
|
|
|
|
|
910,425 |
|
|
|
|
|
|
|
910,425 |
|
|
|
42,803 |
|
|
|
(279 |
) |
|
|
|
|
|
|
|
|
|
|
117,000 |
|
|
|
39,061 |
|
|
|
77,939 |
|
| |
K-Mart Corporation
|
|
|
LA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
31,394 |
|
|
|
(31,394 |
) |
| |
K-Mart Corporation
|
|
|
WI |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
(3) |
|
|
65,866 |
(3) |
|
|
(65,866 |
) |
| |
K-Mart Corporation
|
|
|
MN |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
(3) |
|
|
85,348 |
(3) |
|
|
(85,348 |
) |
| |
K-Mart Corporation
|
|
|
IA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
973,484 |
|
|
|
|
|
|
|
93,963 |
|
|
|
26,423 |
|
|
|
67,540 |
|
| |
K-Mart Corporation
|
|
|
FL |
|
|
|
1 |
|
|
|
|
|
|
|
2,636,000 |
|
|
|
|
|
|
|
2,636,000 |
(2) |
|
|
1,899,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251,420 |
|
|
|
6,815 |
|
|
|
244,605 |
|
| |
K-Mart Corporation
|
|
|
FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
735 |
|
|
|
(735 |
) |
| |
K-Mart Corporation
|
|
|
IL |
|
|
|
1 |
|
|
|
|
|
|
|
600,000 |
|
|
|
|
|
|
|
600,000 |
|
|
|
31,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,322 |
|
|
|
58,800 |
|
|
|
3,522 |
|
| |
Kobacker Stores, Inc.
|
|
|
MI |
|
|
|
2 |
|
|
|
|
|
|
|
112,225 |
|
|
|
|
|
|
|
112,225 |
|
|
|
|
|
|
|
1,068 |
|
|
|
106,341 |
|
|
$ |
2,412 |
|
|
|
24,142 |
|
|
|
461 |
|
|
|
23,681 |
|
| |
Kobacker Stores, Inc.
|
|
|
KY |
|
|
|
1 |
|
|
|
|
|
|
|
88,364 |
|
|
|
|
|
|
|
88,364 |
|
|
|
|
|
|
|
769 |
|
|
|
64,103 |
|
|
|
1,115 |
|
|
|
15,853 |
|
|
|
231 |
|
|
|
15,622 |
|
| |
Kobacker Stores, Inc.
|
|
|
OH |
|
|
|
4 |
|
|
|
|
|
|
|
198,031 |
|
|
|
|
|
|
|
198,031 |
|
|
|
|
|
|
|
1,851 |
|
|
|
187,753 |
|
|
|
4,117 |
|
|
|
48,933 |
|
|
|
461 |
|
|
|
48,472 |
|
| |
Landmark Bancshares Corporation
|
|
|
MO |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,303,464 |
|
|
|
|
|
|
|
482,092 |
|
|
|
0 |
|
|
|
482,092 |
|
| |
Louisiana Power and Light Company
|
|
|
LA |
|
|
|
6 |
|
|
|
|
|
|
|
5,636,053 |
|
|
|
|
|
|
|
5,636,053 |
|
|
|
637,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,240,853 |
|
|
|
154,203 |
|
|
|
1,086,650 |
|
| |
Louisiana Power and Light Company
|
|
|
LA |
|
|
|
7 |
|
|
|
|
|
|
|
7,015,989 |
|
|
|
|
|
|
|
7,015,989 |
|
|
|
727,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,299,275 |
|
|
|
174,669 |
|
|
|
1,124,606 |
|
| |
Marsh Supermarkets, Inc.
|
|
|
IN |
|
|
|
1 |
|
|
|
|
|
|
|
5,001,933 |
|
|
|
|
|
|
|
5,001,933 |
|
|
|
3,229,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
506,300 |
|
|
|
131,479 |
|
|
|
374,821 |
|
| |
Mid-South
|
|
|
TN |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
771,125 |
(3) |
|
|
535,186 |
(3) |
|
|
235,939 |
|
| |
Montgomery Ward, Inc.
|
|
|
PA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,267 |
(3) |
|
|
(12,221 |
)(3) |
|
|
168,488 |
|
118
Schedule III
Page 2
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership
REAL ESTATE OWNED AND REVENUES EARNED
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Part 2 — Revenues earned for the Year Ended | |
| |
|
|
|
|
|
|
|
Part 1 — Real Estate Owned at December 31, 2004 — Accounted for Under the: | |
|
December 31, 2004 | |
| |
|
|
|
|
|
|
|
| |
|
| |
| |
|
|
|
|
|
|
|
Operating Method | |
|
Financing Method | |
|
|
| |
|
|
|
|
|
|
|
| |
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
Rent Due | |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
and Accrued | |
|
|
|
|
|
Expended for | |
|
|
| |
|
|
|
|
|
|
|
|
|
Amount | |
|
|
|
or Received | |
|
|
|
Minimum Lease | |
|
Total | |
|
Interest, | |
|
|
| |
|
|
|
|
|
|
|
|
|
Carried at | |
|
|
|
in Advance at | |
|
|
|
Payments Due | |
|
Revenue | |
|
Depreciation, | |
|
Net Income | |
| |
|
|
|
No. of | |
|
Amount of | |
|
Initial Cost | |
|
Cost of | |
|
Close of | |
|
Reserve for | |
|
End of | |
|
Net | |
|
and Accrued at | |
|
Applicable | |
|
Taxes, and | |
|
Applicable | |
| |
|
State | |
|
Locations | |
|
Encumbrances | |
|
to Company | |
|
Improvements | |
|
Period | |
|
Depreciation | |
|
Period | |
|
Investment | |
|
End of Period | |
|
to Period | |
|
Other Expenses | |
|
to Period | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
COMMERCIAL PROPERTY LAND AND BUILDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Montgomery Ward, Inc.
|
|
|
NJ |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,765 |
(3) |
|
|
3,227 |
(3) |
|
|
110,538 |
|
| |
Morrison, Inc.
|
|
|
AL |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
(3) |
|
|
44,213 |
(3) |
|
|
(44,213 |
) |
| |
Morrison, Inc.
|
|
|
GA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,680 |
|
|
|
29,053 |
|
|
|
62,627 |
|
| |
Morrison, Inc.
|
|
|
VA |
|
|
|
1 |
|
|
|
|
|
|
|
904,766 |
|
|
|
|
|
|
|
904,766 |
(2) |
|
|
32,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
39,460 |
|
|
|
(39,460 |
) |
| |
Morrison, Inc.
|
|
|
VA |
|
|
|
1 |
|
|
|
|
|
|
|
861,134 |
|
|
|
|
|
|
|
861,134 |
|
|
|
46,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
21,793 |
|
|
|
(21,793 |
) |
| |
North Carolina National Bank
|
|
|
SC |
|
|
|
2 |
|
|
|
|
|
|
|
1,450,047 |
|
|
|
|
|
|
|
1,450,047 |
|
|
|
671,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,238 |
|
|
|
80,407 |
|
|
|
(24,169 |
) |
| |
North Carolina National Bank
|
|
|
SC |
|
|
|
1 |
|
|
|
|
|
|
|
153,365 |
|
|
|
|
|
|
|
153,365 |
(2) |
|
|
103,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
3,851 |
|
|
|
(3,851 |
) |
| |
Occidental Petroleum Corp.
|
|
|
CA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
38 |
|
|
|
(38 |
) |
| |
Ohio Power Co. Inc.
|
|
|
OH |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,053,550 |
|
|
|
|
|
|
|
290,655 |
|
|
|
0 |
|
|
|
290,655 |
|
| |
Park West
|
|
|
KY |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
641,691 |
(3) |
|
|
428,744 |
(3) |
|
|
212,947 |
|
| |
Park West UPS
|
|
|
KY |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
932,538 |
(3) |
|
|
596,187 |
(3) |
|
|
336,351 |
|
| |
Penske Corp.
|
|
|
OH |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
(3) |
|
|
65,756 |
(3) |
|
|
(65,756 |
) |
| |
Pneumo Corp.
|
|
|
OH |
|
|
|
1 |
|
|
|
|
|
|
|
1,629,713 |
|
|
|
|
|
|
|
1,629,713 |
|
|
|
123,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243,750 |
|
|
|
54,793 |
|
|
|
188,957 |
|
| |
Portland General Electric Company
|
|
|
OR |
|
|
|
1 |
|
|
|
31,096,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,903,530 |
|
|
|
|
|
|
|
3,984,278 |
|
|
|
2,526,316 |
|
|
|
1,457,962 |
|
| |
Rayovac
|
|
|
WI |
|
|
|
1 |
|
|
|
14,855,137 |
|
|
|
22,065,852 |
|
|
|
|
|
|
|
22,065,852 |
(2) |
|
|
2,243,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,788,657 |
|
|
|
1,224,533 |
|
|
|
1,564,124 |
|
| |
Safeway Stores, Inc.
|
|
|
LA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,984 |
(3) |
|
|
1,545 |
(3) |
|
|
47,439 |
|
| |
Sams
|
|
|
MI |
|
|
|
1 |
|
|
|
|
|
|
|
8,844,225 |
|
|
|
|
|
|
|
8,844,225 |
(2) |
|
|
2,380,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,245,569 |
|
|
|
4,241 |
|
|
|
1,241,328 |
|
| |
Smith’s Management Corp.
|
|
|
NV |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
810 |
|
|
|
(810 |
) |
| |
Southland Corporation
|
|
|
FL |
|
|
|
4 |
|
|
|
|
|
|
|
862,367 |
|
|
|
|
|
|
|
862,367 |
|
|
|
516,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,359 |
|
|
|
3,313 |
|
|
|
97,046 |
|
| |
Staples
|
|
|
NY |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,332 |
(3) |
|
|
21,304 |
(3) |
|
|
115,028 |
|
| |
Stone Container
|
|
|
WI |
|
|
|
1 |
|
|
|
5,696,064 |
|
|
|
9,028,574 |
|
|
|
|
|
|
|
9,028,574 |
(2) |
|
|
1,526,831 |
|
|
|
(75,748 |
) |
|
|
|
|
|
|
|
|
|
|
903,041 |
|
|
|
670,448 |
|
|
|
232,593 |
|
| |
Stop & Shop
|
|
|
NY |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,100 |
(3) |
|
|
0 |
(3) |
|
|
137,100 |
|
| |
Stop & Shop
|
|
|
NJ |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,565 |
(3) |
|
|
45 |
(3) |
|
|
55,520 |
|
| |
Stop “N Shop Co., Inc.
|
|
|
VA |
|
|
|
1 |
|
|
|
|
|
|
|
2,158,099 |
|
|
|
|
|
|
|
2,158,099 |
|
|
|
115,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,255 |
|
|
|
207,934 |
|
|
|
(98,679 |
) |
| |
Super Foods Services, Inc.
|
|
|
MI |
|
|
|
1 |
|
|
|
3,819,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,303,219 |
|
|
|
|
|
|
|
895,025 |
|
|
|
356,606 |
|
|
|
538,419 |
|
| |
Telecom Properties, Inc.
|
|
|
OK |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
506 |
|
|
|
(506 |
) |
| |
Telecom Properties, Inc.
|
|
|
KY |
|
|
|
1 |
|
|
|
|
|
|
|
340,321 |
|
|
|
|
|
|
|
340,321 |
|
|
|
3,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,000 |
|
|
|
3,686 |
|
|
|
32,314 |
|
| |
The A&P Company
|
|
|
MI |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
(3) |
|
|
72,842 |
(3) |
|
|
(72,842 |
) |
| |
Tire Distribution Systems Inc.
|
|
|
TN |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,583 |
(3) |
|
|
150 |
(3) |
|
|
4,433 |
|
| |
Tops Market
|
|
|
NY |
|
|
|
1 |
|
|
|
|
|
|
|
262,357 |
|
|
|
|
|
|
|
262,357 |
|
|
|
30,311 |
|
|
|
(15,727 |
) |
|
|
|
|
|
|
|
|
|
|
31,453 |
|
|
|
6,062 |
|
|
|
25,391 |
|
| |
Toys “R” Us, Inc.
|
|
|
TX |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
5,077 |
|
|
|
(5,077 |
) |
| |
Waban
|
|
|
NY |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,122 |
(3) |
|
|
22,972 |
(3) |
|
|
238,150 |
|
| |
Wetterau, Inc.
|
|
|
PA |
|
|
|
1 |
|
|
|
|
|
|
|
400,000 |
|
|
|
|
|
|
|
400,000 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
44,785 |
|
|
|
(44,785 |
) |
| |
Wetterau, Inc.
|
|
|
NJ |
|
|
|
1 |
|
|
|
|
|
|
|
747,116 |
|
|
|
|
|
|
|
747,116 |
|
|
|
57,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,800 |
|
|
|
25,671 |
|
|
|
125,129 |
|
| |
Wickes Companies, Inc.
|
|
|
CA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,565 |
(3) |
|
|
(12,192 |
)(3) |
|
|
78,757 |
|
|
RESIDENTIAL PROPERTY LAND AND BUILDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Crown Cliffs
|
|
|
AL |
|
|
|
1 |
|
|
|
6,926,225 |
|
|
|
11,550,899 |
|
|
|
112,579 |
|
|
|
11,663,478 |
(1)(2) |
|
|
4,107,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,078,098 |
|
|
|
1,650,167 |
|
|
|
427,931 |
|
|
COMMERCIAL PROPERTY — LAND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foodarama Supermarkets, Inc.
|
|
|
NY |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,232 |
(3) |
|
|
4,002 |
(3) |
|
|
9,230 |
|
| |
Foodarama Supermarkets, Inc.
|
|
|
PA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000 |
(3) |
|
|
4,002 |
(3) |
|
|
7,998 |
|
| |
Gino’s, Inc.
|
|
|
PA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,751 |
(3) |
|
|
4,002 |
(3) |
|
|
2,749 |
|
| |
Gino’s, Inc.
|
|
|
MA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,751 |
(3) |
|
|
4,002 |
(3) |
|
|
2,749 |
|
| |
Gino’s, Inc.
|
|
|
NJ |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,751 |
(3) |
|
|
4,002 |
(3) |
|
|
2,749 |
|
| |
J.C. Penney Company, Inc.
|
|
|
NY |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
917 |
(3) |
|
|
0 |
(3) |
|
|
917 |
|
119
Schedule III
Page 3
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership
REAL ESTATE OWNED AND REVENUES EARNED
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Part 2 — Revenues Earned for the Year Ended | |
| |
|
|
|
|
|
|
|
Part 1 — Real Estate Owned at December 31, 2004 — Accounted for Under the: | |
|
December 31, 2004 | |
| |
|
|
|
|
|
|
|
| |
|
| |
| |
|
|
|
|
|
|
|
Operating Method | |
|
Financing Method | |
|
|
| |
|
|
|
|
|
|
|
| |
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
Rent Due | |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
and Accrued | |
|
|
|
|
|
Expended for | |
|
|
| |
|
|
|
|
|
|
|
|
|
Amount | |
|
|
|
or Received | |
|
|
|
Minimum Lease | |
|
|
|
Interest, | |
|
|
| |
|
|
|
|
|
|
|
|
|
Carried at | |
|
|
|
in Advance at | |
|
|
|
Payments Due | |
|
Total Revenue | |
|
Depreciation, | |
|
Net Income | |
| |
|
|
|
No. of | |
|
Amount of | |
|
Initial Cost to | |
|
Cost of | |
|
Close of | |
|
Reserve for | |
|
End of | |
|
Net | |
|
and Accrued at | |
|
Applicable to | |
|
Taxes, and | |
|
Applicable to | |
| |
|
State | |
|
Locations | |
|
Encumbrances | |
|
Company | |
|
Improvements | |
|
Period | |
|
Depreciation | |
|
Period | |
|
Investment | |
|
End of Period | |
|
Period | |
|
Other Expenses | |
|
Period | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
COMMERCIAL PROPERTY LAND AND BUILDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMERCIAL PROPERTY — BUILDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
AT&T
|
|
|
CA |
|
|
|
1 |
|
|
|
|
|
|
|
2,569,705 |
|
|
|
2,830 |
|
|
|
2,572,535 |
(2) |
|
|
82,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
462,931 |
|
|
|
153,631 |
|
|
|
309,300 |
|
| |
Bank of America
|
|
|
GA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,581,575 |
|
|
|
|
|
|
|
265,158 |
|
|
|
23,000 |
|
|
|
242,158 |
|
| |
Baptist Hospital 1
|
|
|
TN |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
614,762 |
|
|
|
506,345 |
|
|
|
108,417 |
|
| |
Baptist Hospital 2
|
|
|
TN |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,172 |
|
|
|
184,120 |
|
|
|
44,052 |
|
| |
Harwood Square
|
|
|
IL |
|
|
|
1 |
|
|
|
|
|
|
|
6,952,206 |
|
|
|
257,158 |
|
|
|
7,209,364 |
(2) |
|
|
4,186,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
795,016 |
|
|
|
57,952 |
|
|
|
737,064 |
|
| |
Safeway Stores, Inc.
|
|
|
CA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,885 |
(3) |
|
|
0 |
(3) |
|
|
13,885 |
|
| |
Toys “R” Us, Inc.
|
|
|
RI |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
745,050 |
|
|
|
10,430 |
|
|
|
72,394 |
|
|
|
0 |
|
|
|
72,394 |
|
| |
United Life & Accident Ins. Co.
|
|
|
NH |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,894,284 |
|
|
|
(43,667 |
) |
|
|
252,370 |
|
|
|
5,207 |
|
|
|
247,163 |
|
| |
Wickes Companies, Inc.
|
|
|
PA |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,138,678 |
|
|
|
|
|
|
|
527,221 |
|
|
|
902 |
|
|
|
526,319 |
|
| |
North Moore
|
|
|
NY |
|
|
|
1 |
|
|
|
9,925,579 |
|
|
|
|
|
|
|
14,583,060 |
|
|
|
14,583,060 |
|
|
|
416,659 |
|
|
|
(49,172 |
) |
|
|
|
|
|
|
|
|
|
|
1,122,237 |
|
|
|
1,110,043 |
|
|
|
12,194 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
91,895,527 |
|
|
|
119,890,855 |
|
|
|
14,640,582 |
|
|
|
134,531,437 |
|
|
|
27,392,745 |
|
|
|
(181,983 |
) |
|
|
89,192,686 |
|
|
|
(25,593 |
) |
|
|
33,514,240 |
|
|
|
16,644,625 |
|
|
|
16,869,615 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS HELD FOR SALE-OPERATING REAL ESTATE
|
|
|
|
|
|
|
|
|
|
|
(27,477,426 |
) |
|
|
(74,523,721 |
) |
|
|
(369,951 |
) |
|
|
(74,893,672 |
) |
|
|
(16,872,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,355,177 |
) |
|
|
(8,137,718 |
) |
|
|
(8,217,459 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
64,418,101 |
|
|
|
45,367,134 |
|
|
|
14,270,631 |
|
|
|
59,637,765 |
|
|
|
10,520,226 |
|
|
|
(181,983 |
) |
|
|
89,192,686 |
|
|
|
(25,593 |
) |
|
|
17,159,063 |
|
|
|
8,506,907 |
|
|
|
8,652,156 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS CURRENT PORTION
|
|
|
|
|
|
|
|
|
|
|
(3,700,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,912,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HOTEL AND RESORT OPERATING PROPERTIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
New Seabury
|
|
|
MA |
|
|
|
|
|
|
|
|
|
|
|
37,087,739 |
|
|
|
954,952 |
|
|
|
38,042,691 |
|
|
|
9,148,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,848,167 |
|
|
|
10,056,181 |
|
|
|
(208,014 |
) |
| |
Holiday Inn
|
|
|
FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,602,255 |
(3) |
|
|
1,297,717 |
(3) |
|
|
304,538 |
|
| |
Bayswater
|
|
|
FL |
|
|
|
|
|
|
|
|
|
|
|
5,310,365 |
|
|
|
79,105 |
|
|
|
5,389,470 |
|
|
|
719,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,002,000 |
|
|
|
2,618,000 |
|
|
|
384,000 |
|
| |
Grand Harbor
|
|
|
FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,893,964 |
|
|
|
16,893,964 |
|
|
|
326,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,626,869 |
|
|
|
7,169,226 |
|
|
|
(1,542,357 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
42,398,104 |
|
|
|
17,928,021 |
|
|
|
60,326,125 |
|
|
|
10,194,353 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
20,079,291 |
|
|
|
21,141,124 |
|
|
|
(1,061,833 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS HELD FOR SALE-HOTEL AND RESORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,602,255 |
) |
|
|
(1,297,717 |
) |
|
|
(304,538 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
$ |
60,718,101 |
|
|
$ |
87,765,238 |
|
|
$ |
32,198,652 |
|
|
$ |
119,963,890 |
|
|
$ |
20,714,579 |
|
|
$ |
(181,983 |
) |
|
$ |
85,280,686 |
|
|
$ |
(25,593 |
) |
|
$ |
35,636,099 |
|
|
$ |
28,350,314 |
|
|
$ |
7,285,785 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
The Company owns a 70% interest in the joint venture which owns
this property. |
| |
| (2) |
Such properties are being classified as held for sale at
12/31/04. |
| |
| (3) |
Sold in 2004 and included in discontinued operations. |
120
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
REAL ESTATE OWNED AND REVENUES EARNED
Year Ended December 31, 2004 (in $000’s)
1a. A reconciliation of the total amount at which real
estate owned, accounted for under the operating method and hotel
and resort operating properties, was carried at the beginning of
the period, with the total at the close of the period, is shown
below:
| |
|
|
|
|
|
Balance — January 1, 2004
|
|
$ |
161,158 |
|
|
Additions during period
|
|
|
32,866 |
|
|
Reclassifications during period from financing leases
|
|
|
1,919 |
|
|
Write downs
|
|
|
(350 |
) |
|
Reclassifications during period to assets held for sale
|
|
|
(74,720 |
) |
|
Disposals during period
|
|
|
(909 |
) |
| |
|
|
|
|
Balance — December 31, 2004
|
|
$ |
119,964 |
|
| |
|
|
|
b. A reconciliation of the total amount of accumulated
depreciation at the beginning of the period, with the total at
the close of the period, is shown below:
| |
|
|
|
|
|
Balance — January 1, 2004
|
|
$ |
43,189 |
|
|
Depreciation during period
|
|
|
5,274 |
|
|
Disposals during period
|
|
|
(42 |
) |
|
Reclassifications during period to assets held for sale
|
|
|
(27,706 |
) |
| |
|
|
|
|
Balance — December 31, 2004
|
|
$ |
20,715 |
|
| |
|
|
|
Depreciation on properties accounted for under the operating
method is computed using the straight-line method over the
estimated life of the particular property or property
components, which range from 20 to 45 years.
2. A reconciliation of the total amount at which real
estate owned, accounted for under the financing method, was
carried at the beginning of the period, with the total at the
close of the period, is shown below:
| |
|
|
|
|
|
Balance — January 1, 2004
|
|
$ |
137,356 |
|
|
Reclassifications during period to operating properties
|
|
|
(1,919 |
) |
|
Disposals during period
|
|
|
(42,044 |
) |
|
Amortization of unearned income
|
|
|
9,880 |
|
|
Minimum lease rentals received
|
|
|
(14,080 |
) |
| |
|
|
|
|
Balance — December 31, 2004
|
|
$ |
89,193 |
|
| |
|
|
|
3. The aggregate cost of real estate owned for Federal
income tax purposes is $209,193 before accumulated depreciation.
121
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
REAL ESTATE OWNED AND REVENUES
EARNED — (Continued)
Year Ended December 31, 2004 (in $000’s)
|
|
|
| |
4. |
Net income applicable to the period in Schedule III is
reconciled with net earnings as follows: |
| |
|
|
|
|
|
|
Net income applicable to financing and operating leases and
hotel and resort operating properties
|
|
$ |
7,225 |
|
|
Net income applicable to hotel and casino operations
|
|
|
36,649 |
(1) |
|
Net income applicable to land, house and condominium sales
|
|
|
6,355 |
|
|
Net income applicable to oil and gas operations
|
|
|
28,186 |
(2) |
|
Add:
|
|
|
|
|
| |
Interest income on U.S. Government and Agency Obligations
and other investments
|
|
|
44,418 |
|
| |
Dividend and unallocated other income
|
|
|
3,133 |
|
| |
|
|
|
| |
|
|
125,966 |
|
| |
|
|
|
|
Deduct expenses not allocated:
|
|
|
|
|
| |
General and administrative expenses
|
|
|
9,806 |
|
| |
Non-mortgage interest expense
|
|
|
37,195 |
|
| |
Other
|
|
|
7,914 |
|
| |
|
|
|
| |
|
|
54,915 |
|
| |
|
|
|
|
Operating income after income taxes
|
|
|
71,051 |
|
|
Gain on sale of marketable equity and debt securities
|
|
|
40,159 |
|
|
Gain on sale of real estate
|
|
|
5,262 |
|
|
Impairment loss on equity interest in GB Holdings,
Inc.
|
|
|
(15,600 |
) |
|
Unrealized losses in securities sold sort
|
|
|
(23,619 |
) |
| |
|
|
|
|
Income from continuing operations
|
|
|
77,253 |
|
| |
|
|
|
|
Discontinued Operations:
|
|
|
|
|
| |
Total Income from discontinued operations
|
|
|
83,720 |
|
| |
|
|
|
|
Net Earnings
|
|
$ |
160,973 |
|
| |
|
|
|
|
|
| (1) |
Includes depreciation expense of $23,516 and $10,100 of income
tax expense. |
| |
| (2) |
Includes income tax expense of $6,663. |
122
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
REAL ESTATE OWNED AND REVENUES EARNED
Year Ended December 31, 2003 (in $000’s)
1a. A reconciliation of the total amount at which real
estate owned, accounted for under the operating method and hotel
and resort operating properties was carried at the beginning of
the period, with the total at the close of the period, is shown
below:
| |
|
|
|
|
|
Balance — January 1, 2003
|
|
$ |
303,460 |
|
|
Additions during period
|
|
|
1,675 |
|
|
Reclassifications during period from financing leases
|
|
|
5,065 |
|
|
Reclassifications during period to held for sale
|
|
|
(146,416 |
) |
|
Disposals during period
|
|
|
(2,626 |
) |
| |
|
|
|
|
Balance December 31, 2003
|
|
$ |
161,158 |
|
| |
|
|
|
b. A reconciliation of the total amount of accumulated
depreciation at the beginning of the period, with the total at
the close of the period, is shown below:
| |
|
|
|
|
|
Balance — January 1, 2003
|
|
$ |
54,978 |
|
|
Depreciation during period
|
|
|
8,605 |
|
|
Reclassifications during period to held for sale
|
|
|
(20,153 |
) |
|
Disposals during period
|
|
|
(241 |
) |
| |
|
|
|
|
Balance — December 31, 2003
|
|
$ |
43,189 |
|
| |
|
|
|
Depreciation on properties accounted for under the operating
method is computed using the straight-line method over the
estimated useful life of the particular property or property
components, which range from 5 to 45 years.
2. A reconciliation of the total amount at which real
estate owned, accounted for under the financing method, was
carried at the beginning of the period, with the total close of
the period, is shown below:
| |
|
|
|
|
|
Balance — January 1, 2003
|
|
$ |
155,458 |
|
|
Reclassifications during period to operating properties
|
|
|
(5,065 |
) |
|
Disposals during period
|
|
|
(7,708 |
) |
|
Amortization of unearned income
|
|
|
13,115 |
|
|
Minimum lease rentals received
|
|
|
(18,444 |
) |
| |
|
|
|
|
Balance — December 31, 2003
|
|
$ |
137,356 |
|
| |
|
|
|
3. The aggregate cost of real estate owned for Federal
income tax purposes is $377,539 before accumulated depreciation.
4. Net income applicable to the period in Schedule III
is reconciled with net earnings as follows:
| |
|
|
|
|
|
Net income applicable to financing and operating leases and
hotel and resort operating properties
|
|
$ |
11,631 |
|
|
Net income applicable to hotel and casino operations
|
|
|
24,064 |
(1) |
|
Net income applicable to land, house and condominium sales
|
|
|
4,136 |
|
|
Net income applicable to NEG, Inc.
|
|
|
19,522 |
(2) |
123
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
REAL ESTATE OWNED AND REVENUES
EARNED — (Continued)
Year Ended December 31, 2003 (in $000’s)
| |
|
|
|
|
|
|
Add:
|
|
|
|
|
| |
Interest income on U.S. Government and Agency Obligations
and other investments
|
|
|
22,583 |
|
| |
Dividend and unallocated other income
|
|
|
3,061 |
|
| |
|
|
|
| |
|
|
84,997 |
|
| |
|
|
|
|
Deduct expenses not allocated:
|
|
|
|
|
| |
General and administrative expenses
|
|
|
6,850 |
|
| |
Nonmortgage interest expense
|
|
|
2,449 |
|
| |
Other
|
|
|
5,912 |
|
| |
|
|
|
| |
|
|
15,211 |
|
| |
|
|
|
|
Operating income after income taxes
|
|
|
69,786 |
|
|
Gain on sale of real estate
|
|
|
7,121 |
|
|
Write down of marketable equity and debt securities and other
investments
|
|
|
(19,759 |
) |
|
Loss on sale of other assets
|
|
|
(1,503 |
) |
|
Gain on sale of marketable equity and debt securities
|
|
|
2,607 |
|
| |
|
|
|
|
Income from continuing operations
|
|
|
58,252 |
|
| |
|
|
|
| |
Total income from discontinued operations
|
|
|
11,772 |
|
| |
|
|
|
| |
Net earnings
|
|
$ |
70,024 |
|
| |
|
|
|
|
|
| (1) |
Includes depreciation expense of $20,222 and income tax benefit
of $1,798. |
| |
| (2) |
Includes income tax expense of $225 and interest expense of
$11,165. |
124
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
REAL ESTATE OWNED AND REVENUES EARNED
Year Ended December 31, 2002 (in $000’s)
1a. A reconciliation of the total amount at which real
estate owned, accounted for under the operating method and hotel
and resort operating properties, was carried at the beginning of
the period, with the total at the close of the period, is shown
below:
| |
|
|
|
|
|
Balance — January 1, 2002
|
|
$ |
273,887 |
|
|
Additions during period
|
|
|
20,886 |
|
|
Reclassifications during period from financing leases
|
|
|
13,503 |
|
|
Write downs
|
|
|
(1,992 |
) |
|
Disposals during period
|
|
|
(2,824 |
) |
| |
|
|
|
|
Balance — December 31, 2002
|
|
$ |
303,460 |
|
| |
|
|
|
b. A reconciliation of the total amount of accumulated
depreciation at the beginning of the period, with the total at
the close of the period, is shown below:
| |
|
|
|
|
|
Balance — January 1, 2002
|
|
$ |
48,057 |
|
|
Depreciation during period
|
|
|
7,105 |
|
|
Disposals during period
|
|
|
(184 |
) |
| |
|
|
|
|
Balance — December 31, 2002
|
|
$ |
54,978 |
|
| |
|
|
|
Depreciation on properties accounted for under the operating
method is computed using the straight-line method over the
estimated useful life of the particular property or property
components, which range from 7 to 45 years.
2. A reconciliation of the total amount at which real
estate owned, accounted for under the financing method, was
carried at the beginning of the period, with the total close of
the period, is shown below:
| |
|
|
|
|
|
Balance — January 1, 2002
|
|
$ |
176,757 |
|
|
Reclassifications during period
|
|
|
(13,503 |
) |
|
Write downs
|
|
|
(257 |
) |
|
Disposals during period
|
|
|
(1,560 |
) |
|
Amortization of unearned income
|
|
|
14,722 |
|
|
Minimum lease rentals received
|
|
|
(20,663 |
) |
|
Other
|
|
|
(38 |
) |
| |
|
|
|
|
Balance — December 31, 2002
|
|
$ |
155,458 |
|
| |
|
|
|
3. The aggregate cost of real estate owned for Federal
income tax purposes is $382,208 before accumulated depreciation.
125
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
REAL ESTATE OWNED AND REVENUES
EARNED — (Continued)
Year Ended December 31, 2002 (in $000’s)
4. Net income applicable to the period in Schedule III
is reconciled with net earnings as follows:
| |
|
|
|
|
|
|
Net income applicable to financing and operating leases and
hotel and resort operating properties
|
|
$ |
12,628 |
|
|
Net income applicable to hotel and casino operations
|
|
|
6,845 |
(1) |
|
Net income applicable to land, house and condominium sales
|
|
|
20,384 |
|
|
Net income applicable to NEG Inc.
|
|
|
9,415 |
(2) |
|
Add:
|
|
|
|
|
| |
Interest income on U.S. Government and Agency Obligations
and other investments
|
|
|
30,569 |
|
| |
Dividend and unallocated other income
|
|
|
2,720 |
|
| |
|
|
|
| |
|
|
82,561 |
|
| |
|
|
|
|
Deduct expenses not allocated:
|
|
|
|
|
| |
General and administrative expenses
|
|
|
7,029 |
|
| |
Non-mortgage interest expense
|
|
|
5,306 |
|
| |
Other
|
|
|
1,505 |
|
| |
|
|
|
| |
|
|
13,840 |
|
| |
|
|
|
|
Operating income after income taxes
|
|
|
68,721 |
|
|
Gain on sale of real estate
|
|
|
8,990 |
|
|
Write down of equity securities
|
|
|
(8,476 |
) |
|
Loss on sale of other assets
|
|
|
(353 |
) |
|
Loss on limited partnership interests
|
|
|
(3,750 |
) |
|
Minority interest in net earnings of Stratosphere Corporation
|
|
|
(1,943 |
) |
| |
|
|
|
|
Income from continuing operations
|
|
|
63,189 |
|
| |
|
|
|
| |
Total income from discontinued operations
|
|
|
7,507 |
|
| |
|
|
|
| |
Net earnings
|
|
$ |
70,696 |
|
| |
|
|
|
|
|
| (1) |
Includes depreciation expense of $20,209 and income tax expense
of $4,970. |
| |
| (2) |
Includes income tax expense of $5,068 and interest expense of
$18,964. |
126
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
REAL ESTATE OWNED AND RESERVE FOR DEPRECIATION BY STATE
(Accounted for Under the Operating Method)
December 31, 2004 (in $000’s)
| |
|
|
|
|
|
|
|
|
| |
|
Amount at Which | |
|
|
| |
|
Carried at Close | |
|
Reserve for | |
| State |
|
of Year | |
|
Depreciation | |
| |
|
| |
|
| |
|
Florida
|
|
$ |
24,057 |
|
|
$ |
1,606 |
|
|
Illinois
|
|
|
600 |
|
|
|
32 |
|
|
Indiana
|
|
|
5,002 |
|
|
|
3,229 |
|
|
Kentucky
|
|
|
989 |
|
|
|
527 |
|
|
Louisiana
|
|
|
12,621 |
|
|
|
1,365 |
|
|
Massachusetts
|
|
|
44,310 |
|
|
|
11,444 |
|
|
Michigan
|
|
|
112 |
|
|
|
0 |
|
|
Minnesota
|
|
|
339 |
|
|
|
173 |
|
|
Missouri
|
|
|
415 |
|
|
|
17 |
|
|
New Jersey
|
|
|
747 |
|
|
|
58 |
|
|
New York
|
|
|
15,751 |
|
|
|
551 |
|
|
North Carolina
|
|
|
3,464 |
|
|
|
459 |
|
|
Ohio
|
|
|
2,142 |
|
|
|
151 |
|
|
South Carolina
|
|
|
1,450 |
|
|
|
671 |
|
|
Virginia
|
|
|
6,046 |
|
|
|
419 |
|
|
West Virginia
|
|
|
1,919 |
|
|
|
13 |
|
| |
|
|
|
|
|
|
| |
|
$ |
119,964 |
|
|
$ |
20,715 |
|
| |
|
|
|
|
|
|
127
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
REAL ESTATE OWNED BY STATE
(Accounted for Under the Financing Method)
December 31, 2004 (in $000’s)
| |
|
|
|
|
| |
|
Net | |
| State |
|
Investment | |
| |
|
| |
|
Connecticut
|
|
$ |
18,938 |
|
|
Georgia
|
|
|
2,583 |
|
|
Iowa
|
|
|
973 |
|
|
Kentucky
|
|
|
64 |
|
|
Michigan
|
|
|
8,410 |
|
|
Missouri
|
|
|
3,303 |
|
|
New Hampshire
|
|
|
2,894 |
|
|
Ohio
|
|
|
3,241 |
|
|
Oregon
|
|
|
45,903 |
|
|
Pennsylvania
|
|
|
2,139 |
|
|
Rhode Island
|
|
|
745 |
|
| |
|
|
|
| |
|
$ |
89,193 |
|
| |
|
|
|
128