UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): June 29, 2005
American Real Estate Partners, L.P.
Delaware | 1-9516 | 13-3398766 | ||||||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||
100 South Bedford Road, Mt. Kisco, NY | 10549 | ||||
(Address of principal executive offices) | (Zip Code) | ||||
Registrant’s telephone number, including area code:(914) 242-7700
N/A
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
On July 6, 2005, we filed a Form 8-K under Item 2.01 to report the completion of the acquisitions of Panaco, Inc., a membership interest in NEG Holding LLC and securities of GB Holdings, Inc. and Atlantic Coast Entertainment Holdings, Inc. In response to parts (a) and (b) of Item 9.01 of such Form 8-K, we stated that we would file the required financial information by amendment, as permitted by Item 9.01. This Form 8-K amendment is being filed to provide the financial statements of NEG Holding LLC, Panaco, Inc., GB Holdings, Inc. and Atlantic Coast Entertainment Holdings, Inc. and pro forma financial data for American Real Estate Partners, L.P.
Section 9 – Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
The following financial statements of NEG Holding LLC, Panaco, Inc., GB Holdings, Inc. and Atlantic Coast Entertainment Holdings, Inc. are filed on the pages listed below.
NEG Holding LLC | ||||
Report of Independent Registered Public Accounting Firm | F-1 | |||
Report of Independent Registered Public Accounting Firm | F-2 | |||
Consolidated Balance Sheets as of December 31, 2004 and 2003 | F-3 | |||
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002 | F-4 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 | F-5 | |||
Consolidated Statements of Members’ Equity for the years ended December 31, 2004, 2003 and 2002 | F-6 | |||
Notes to Consolidated Financial Statements | F-7 | |||
Consolidated Balance Sheet as of March 31, 2005 (unaudited) | F-22 | |||
Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 (unaudited) | F-23 | |||
Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited) | F-24 | |||
Consolidated Statements of Members’ Equity for the three months ended March 31, 2005 (unaudited) | F-25 | |||
Notes to Consolidated Financial Statements for the three months ended March 31, 2005 and 2004 (unaudited) | F-26 | |||
Panaco, Inc. | ||||
Report of Independent Registered Public Accounting Firm | F-31 | |||
Balance Sheets as of December 31, 2004 and Debtor-In-Possession as of December 31, 2003 | F-32 | |||
Statements of Operations for the years ended December 31, 2004, 2003 and 2002 | F-33 | |||
Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2004, 2003 and 2002 | F-34 | |||
Statement of Cash Flows for the years ended December 31, 2004, 2003 and 2002. | F-35 | |||
Notes to Financial Statements | F-36 | |||
Balance Sheet as of March 31, 2005 (unaudited) | F-53 | |||
Statements of Operations for the three months ended March 31, 2005 and 2004 (unaudited) | F-54 | |||
Statements of Changes in Stockholders’ Equity as December 31, 2004 and March 31, 2005 (unaudited) | F-55 |
Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited) | F-56 | |||
Notes to Financial Statements for the three months ended March 31, 2005 and 2004 (unaudited) | F-57 | |||
GB Holdings, Inc. and Subsidiaries | ||||
Report of Independent Registered Public Accounting Firm | F-63 | |||
Consolidated Balance Sheets as of December 31, 2004 and 2003 | F-64 | |||
Consolidated Statement of Operations for the years ended December 31, 2004, 2003 and 2002 | F-65 | |||
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2004, 2003 and 2002 | F-66 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2004 2003 and 2002 | F-67 | |||
Notes to Consolidated Financial Statements | F-68 | |||
Schedule II: Valuation and Qualifying Accounts | F-83 | |||
Condensed Consolidated Balance Sheets as of March 31, 0205 (unaudited) and December 31, 2004 | F-84 | |||
Condensed Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 (unaudited) | F-85 | |||
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited) | F-86 | |||
Notes to Condensed Consolidated Financial Statements | F-87 | |||
Atlantic Coast Entertainment Holdings, Inc. and Subsidiary | ||||
Report of Independent Registered Public Accounting Firm | F-90 | |||
Combined Balance Sheets (Restated) as of December 31, 2004 and 2003 | F-91 | |||
Combined Statements of Operations (Restated) for the Years Ended December 31, 2004, 2003 and 2002 | F-92 | |||
Combined Statements of Shareholder’s Equity (Restated) for the Years Ended December 31, 2004, 2003 and 2002 | F-93 | |||
Combined Statements of Cash Flows (Restated) for the Year Ended December 31, 2004, 2003 and 2002 | F-94 | |||
Notes to Combined Financial Statements | F-95 | |||
Condensed Combined Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004 (Restated) | F-111 | |||
Condensed Combined Statements of Operations for the three months ended March 31, 2005 and 2004 (Restated)(unaudited) | F-112 | |||
Condensed Combined Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (Restated)(unaudited) | F-113 | |||
Notes to Condensed Combined Financial Statements | F-114 | |||
(b) Pro forma financial information. | ||||
The following required pro forma financial data are filed on the pages listed below. | ||||
Unaudited Pro Forma Consolidated Financial Data for American Real Estate Partners, L.P. and Subsidiaries | A-1 | |||
Pro Forma Condensed Consolidated Balance Sheet at March 31, 2005 | A-2 | |||
Pro Forma Condensed Consolidated Statement of Earnings for the three months ended March 31, 2005 | A-4 |
Pro Forma Condensed Consolidated Statement of Earnings for the year ended December 31, 2004 | A-6 | |||
Pro Forma Condensed Consolidated Statement of Earnings for the year ended December 31, 2003 | A-7 | |||
Pro Forma Condensed Consolidated Statement of Earnings for the year ended December 31, 2002 | A-8 | |||
Notes to Unaudited Pro Forma Condensed Consolidated Financial Data | A-9 |
/s/Grant Thornton LLP |
F-1
/s/ KPMG LLP |
F-2
December 31, | ||||||||||
2004 | 2003 | |||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 882,841 | $ | 15,401,433 | ||||||
Accounts receivable — oil and natural gas sales | 18,220,105 | 13,214,537 | ||||||||
Accounts receivable — joint interest and other (net of allowance of $104,000 in 2004 & 2003) | 495,272 | 485,083 | ||||||||
Notes receivable — other (net of allowance of $790,000 in 2004) | 489,389 | 1,220,960 | ||||||||
Derivative broker deposit | — | 1,700,000 | ||||||||
Drilling prepayments | 858,114 | 1,106,871 | ||||||||
Other | 2,200,156 | 286,399 | ||||||||
Total current assets | 23,145,877 | 33,415,283 | ||||||||
Oil and natural gas properties, at cost (full cost method): | ||||||||||
Subject to ceiling limitation | 573,069,515 | 507,250,803 | ||||||||
Accumulated depreciation, depletion, and amortization | (343,485,274 | ) | (322,443,045 | ) | ||||||
Net oil and natural gas properties | 229,584,241 | 184,807,758 | ||||||||
Other property and equipment | 5,055,490 | 4,838,114 | ||||||||
Accumulated depreciation | (4,063,781 | ) | (3,746,317 | ) | ||||||
Net other property and equipment | 991,709 | 1,091,797 | ||||||||
Note receivable | 3,090,000 | 1,827,000 | ||||||||
Equity investment | 2,379,108 | 1,698,000 | ||||||||
Other long term assets | 1,082,504 | 964,500 | ||||||||
Total assets | $ | 260,273,439 | $ | 223,804,338 | ||||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable — trade | $ | 10,239,384 | $ | 2,879,138 | ||||||
Accounts payable — affiliate | 1,595,235 | 411,731 | ||||||||
Accounts payable — revenue | 4,104,029 | 3,964,530 | ||||||||
Prepayments from partners | 90,186 | 265,871 | ||||||||
Other | 77,593 | 136,707 | ||||||||
Derivative financial instruments | 6,349,714 | 6,595,475 | ||||||||
Total current liabilities | 22,456,141 | 14,253,452 | ||||||||
Long term liabilities: | ||||||||||
Note payable | 83,031 | 592,889 | ||||||||
Gas balancing | 897,852 | 818,621 | ||||||||
Credit facility | 51,833,624 | 43,833,624 | ||||||||
Asset retirement obligation | 3,055,240 | 3,268,381 | ||||||||
Derivative financial instruments | 7,766,144 | — | ||||||||
Members’ equity | 174,181,407 | 161,037,371 | ||||||||
Total liabilities and members’ equity | $ | 260,273,439 | $ | 223,804,338 | ||||||
F-3
Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Revenues: | ||||||||||||||
Oil and natural gas sales | $ | 76,677,224 | $ | 75,740,373 | $ | 35,319,918 | ||||||||
Field operations | 326,960 | 297,069 | 403,933 | |||||||||||
Plant operations | 1,723,305 | 1,568,502 | 177,049 | |||||||||||
Total revenue | 78,727,489 | 77,605,944 | 35,900,900 | |||||||||||
Costs and expenses: | ||||||||||||||
Lease operating | 13,505,366 | 11,501,303 | 8,508,744 | |||||||||||
Field operations | 334,443 | 397,669 | 420,188 | |||||||||||
Plant operations | 680,066 | 577,003 | 68,767 | |||||||||||
Oil and natural gas production taxes | 5,732,265 | 5,770,865 | 1,874,854 | |||||||||||
Depreciation, depletion and amortization | 21,385,529 | 23,442,797 | 15,509,106 | |||||||||||
Accretion of asset retirement obligation | 261,471 | 242,752 | — | |||||||||||
Amortization of loan cost | 494,386 | — | — | |||||||||||
General and administrative | 4,919,525 | 4,833,546 | 5,682,804 | |||||||||||
Total costs and expenses | 47,313,051 | 46,765,935 | 32,064,463 | |||||||||||
Operating income | 31,414,438 | 30,840,009 | 3,836,437 | |||||||||||
Other income (expense): | ||||||||||||||
Interest expense | (2,222,009 | ) | (1,538,048 | ) | (96,491 | ) | ||||||||
Interest income and other, net | 299,327 | 472,337 | 1,245,204 | |||||||||||
Interest income from affiliate | 149,650 | 114,867 | 546,228 | |||||||||||
Commitment fee income | — | 125,000 | 175,000 | |||||||||||
Equity in loss on investment | (518,892 | ) | (102,000 | ) | — | |||||||||
Dividend expense | — | — | (145,200 | ) | ||||||||||
Gain (loss) on sale of securities | — | (953,790 | ) | 8,711,915 | ||||||||||
Unrealized loss on financial instruments/short sale | — | — | (346,992 | ) | ||||||||||
Income before cumulative effect of change in accounting principle | 29,122,514 | 28,958,375 | 13,926,101 | |||||||||||
Cumulative effect of change in accounting principle | — | 1,911,705 | — | |||||||||||
Net income | $ | 29,122,514 | $ | 30,870,080 | $ | 13,926,101 | ||||||||
F-4
Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Operating Activities | |||||||||||||
Net income | $ | 29,122,514 | $ | 30,870,080 | $ | 13,926,101 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||
Depreciation, depletion and amortization | 21,385,529 | 23,442,797 | 15,509,106 | ||||||||||
Change in fair market value of derivative contracts | 7,520,383 | 2,987,013 | 3,608,462 | ||||||||||
Unrealized loss on financial instruments/short sale | — | — | 346,992 | ||||||||||
Gain (loss) on sale of assets | (6,136 | ) | — | 7,058 | |||||||||
Equity in loss on investment | 518,892 | 102,000 | — | ||||||||||
Accretion of asset retirement obligation | 261,471 | 242,752 | — | ||||||||||
Provision for doubtful account | 790,000 | — | — | ||||||||||
Amortization of note costs | 494,386 | — | — | ||||||||||
Cumulative effect of change in accounting principle | — | (1,911,705 | ) | — | |||||||||
Changes in operating assets and liabilities: | |||||||||||||
Accounts receivable | (5,078,989 | ) | (1,296,013 | ) | (2,069,815 | ) | |||||||
Notes receivable | (1,258,198 | ) | (1,831,802 | ) | (2,774,968 | ) | |||||||
Drilling prepayments | 248,758 | (380,288 | ) | (457,565 | ) | ||||||||
Derivative broker deposit | 1,700,000 | 100,000 | (1,800,000 | ) | |||||||||
Other current assets | (2,086,257 | ) | (26,215 | ) | 912,577 | ||||||||
Accounts payable and accrued liabilities | 8,017,822 | 493,730 | (566,450 | ) | |||||||||
Net cash provided by operating activities | 61,630,175 | 52,792,349 | 26,641,498 | ||||||||||
Investing Activities | |||||||||||||
Oil and natural gas exploration and development expenditures | (67,487,412 | ) | (36,034,277 | ) | (18,106,385 | ) | |||||||
Longfellow Ranch acquisition | — | — | (51,037,347 | ) | |||||||||
Purchases of other property and equipment | (245,250 | ) | (149,897 | ) | (222,039 | ) | |||||||
Increase in restricted cash | — | — | (346,992 | ) | |||||||||
Proceeds from sales of oil and natural gas properties | 1,202,263 | 1,436,016 | 1,434,212 | ||||||||||
Equity investment | (1,200,000 | ) | (1,800,000 | ) | — | ||||||||
Net cash used in investing activities | (67,730,399 | ) | (36,548,158 | ) | (68,278,551 | ) | |||||||
Financing Activities | |||||||||||||
Proceeds from Arnos credit facility | — | 46,756,377 | — | ||||||||||
Repayment of Arnos credit facility | — | (46,756,377 | ) | — | |||||||||
Proceeds from Mizuho credit facility | 8,000,000 | 43,833,624 | — | ||||||||||
Loan issuance costs | (439,890 | ) | (951,697 | ) | — | ||||||||
Guaranteed Payment to member | (15,978,478 | ) | (18,228,781 | ) | (21,652,819 | ) | |||||||
Priority Amount distribution to member | — | (40,506,072 | ) | — | |||||||||
Net cash used in financing activities | (8,418,368 | ) | (15,852,926 | ) | (21,652,819 | ) | |||||||
Increase (decrease) in cash and cash equivalents | (14,518,592 | ) | 391,265 | (63,289,872 | ) | ||||||||
Cash and cash equivalents at beginning of period | 15,401,433 | 15,010,168 | 78,300,040 | ||||||||||
Cash and cash equivalents at end of period | $ | 882,841 | $ | 15,401,433 | $ | 15,010,168 | |||||||
Supplemental Cash Flow Information | |||||||||||||
Interest paid in cash | $ | 1,713,136 | $ | 1,537,127 | $ | 96,491 | |||||||
Distribution of member note payable | $ | — | $ | 10,939,750 | $ | — | |||||||
F-5
Members’ | |||||
Equity | |||||
Balance at December 31, 2001 | $ | 207,568,612 | |||
Guaranteed Payment to member | (21,652,819 | ) | |||
Net income | 13,926,101 | ||||
Balance at December 31, 2002 | $ | 199,841,894 | |||
Guaranteed Payment to member | (18,228,781 | ) | |||
Priority Amount distribution to member | (51,445,822 | ) | |||
Net income | 30,870,080 | ||||
Balance at December 31, 2003 | $ | 161,037,371 | |||
Guaranteed Payment to member | (15,978,478 | ) | |||
Net income | 29,122,514 | ||||
Balance at December 31, 2004 | $ | 174,181,407 | |||
F-6
1. | Background |
National Energy | ||||||||||||
Group, Inc. | Gascon | Total | ||||||||||
Current assets | $ | 11,535,745 | $ | 97,183,477 | $ | 108,719,222 | ||||||
Net oil and natural gas properties | 84,983,139 | 30,573,625 | 115,556,764 | |||||||||
Hedge assets | 4,807,689 | — | 4,807,689 | |||||||||
Intercompany receivable | — | 4,783,737 | 4,783,737 | |||||||||
Total assets | $ | 101,326,573 | $ | 132,540,839 | $ | 233,867,412 | ||||||
Current liabilities | $ | 4,157,430 | $ | 2,657,190 | $ | 6,814,620 | ||||||
Long-term liabilities | 940,033 | 1,377,782 | 2,317,815 | |||||||||
Intercompany payable | 4,783,737 | — | 4,783,737 | |||||||||
Members’ equity | 91,445,373 | 128,505,867 | 219,951,240 | |||||||||
Total liabilities and members’ equity | $ | 101,326,573 | $ | 132,540,839 | $ | 233,867,412 | ||||||
F-7
2. | Significant Accounting Policies |
Consolidation |
Accounting Estimates |
Cash and Cash Equivalents |
Oil and Natural Gas Properties |
F-8
Other Property and Equipment |
Income Taxes |
Financial Instruments |
Accounts Receivable |
F-9
Revenue Recognition |
Natural Gas Production Imbalances |
Comprehensive Income |
Derivatives |
2004 | 2003 | 2002 | ||||||||||
Gross cash receipts | $ | 1,327,200 | $ | 14,924 | $ | 1,246,080 | ||||||
Gross cash payments | $ | 13,694,010 | $ | 8,681,198 | $ | 2,430 | ||||||
Valuation loss | $ | 7,520,383 | $ | 2,987,013 | $ | 3,608,462 |
F-10
Production | ||||||||||||||||
Date of Contract | Volume/Month | Month | Floor | Ceiling | ||||||||||||
August 2002 | 30,000 Bbls | 2003 | $ | 23.55 | $ | 26.60 | ||||||||||
August 2002 | 300,000 MMBTU | 2003 | $ | 3.25 | $ | 4.62 | ||||||||||
November 2002 | 300,000 MMBTU | 2003 | $ | 3.50 | $ | 4.74 | ||||||||||
November 2002 | 300,000 MMBTU | 2004 | $ | 3.35 | $ | 4.65 | ||||||||||
November 2002 | 300,000 MMBTU | 2005 | $ | 3.25 | $ | 4.60 | ||||||||||
November 2003 | 45,000 Bbls | 2004 | $ | 26.63 | $ | 29.85 | ||||||||||
February 2005 | 16,000 Bbls | 2006 | $ | 41.75 | $ | 45.40 | ||||||||||
February 2005 | 120,000 MMBTU | 2006 | $ | 6.00 | $ | 7.28 |
Fixed | ||||||||||||||||||||
Type Contract | Production Month | Volume per | Price | Floor | Ceiling | |||||||||||||||
Fixed price | February - March 2004 | 400,000 MMBTU | $ | 6.915 | $ | — | $ | — | ||||||||||||
Fixed price | April - June 2004 | 400,000 MMBTU | $ | 5.48 | $ | — | $ | — | ||||||||||||
Fixed price | July - September 2004 | 400,000 MMBTU | $ | 5.38 | $ | — | $ | — | ||||||||||||
No Cost Collars | October - December 2004 | 400,000 MMBTU | $ | — | $ | 5.25 | $ | 5.85 | ||||||||||||
No Cost Collars | 2005 | 300,000 MMBTU | $ | — | $ | 4.75 | $ | 5.45 | ||||||||||||
No Cost Collars | 2006 | 500,000 MMBTU | $ | — | $ | 4.50 | $ | 5.00 | ||||||||||||
No Cost Collars | 2005 | 250,000 MMBTU | $ | — | $ | 6.00 | $ | 8.70 | ||||||||||||
No Cost Collars | 2005 | 25,000 Bbls | $ | — | $ | 43.60 | $ | 45.80 |
F-11
Recent Accounting Pronouncements |
3. | Management Agreement |
F-12
4. | Acquisitions |
F-13
Pro Forma | ||||||
Year Ended | ||||||
December 31, | ||||||
2002 | ||||||
(Unaudited) | ||||||
Revenues: | ||||||
Oil and natural gas sales | $ | 47,659 | ||||
Plant operations | 1,515 | |||||
Field operations | 404 | |||||
Total revenue | 49,578 | |||||
Costs and expenses: | ||||||
Oil and natural gas production taxes | (2,414 | ) | ||||
Lease operating | (12,250 | ) | ||||
Depreciation and depletion | (20,206 | ) | ||||
Plant operations expense | (529 | ) | ||||
Field operations | (420 | ) | ||||
General and administrative | (5,683 | ) | ||||
Total expense | (41,502 | ) | ||||
Operating income | $ | 8,076 | ||||
Net income | $ | 14,557 | ||||
5. | Investments/Note Receivable |
F-14
6. | Credit Facilities |
F-15
7. | Commitments and Contingencies |
(a) $20,500 in post bond premiums alleged to be owed for certain plugging and abandonment liabilities associated with the oil and gas properties sold to Osprey, | |
(b) $5,422 in expenses associated with NEG’s bond claim, | |
(c) $53,226 in attorneys fees, |
F-16
(d) $24,617 in administrative expenses paid to the American Arbitration Association, | |
(e) an order requiring Osprey to post and maintain an acceptable replacement bond, | |
(f) a finding that Osprey’s counterclaim in the amount of $15 million was without merit, and | |
(g) a ruling that Osprey is entitled to no recovery of any damages or expenses associated with NEG’s bond claim or Osprey’s counterclaim. |
8. | Asset Retirement Obligation |
F-17
Balance as of January 1, 2003 | $ | 3,034,395 | ||||
Add: | Accretion | 242,752 | ||||
Additions | 89,548 | |||||
Revisions | 9,396 | |||||
Less: | Settlements | (57,008 | ) | |||
Dispositions | (50,702 | ) | ||||
Balance as of December 31, 2003 | $ | 3,268,381 | ||||
Add: | Accretion | 261,471 | ||||
Additions | 93,838 | |||||
Less: | Revisions | (250,650 | ) | |||
Settlements | (24,354 | ) | ||||
Dispositions | (293,446 | ) | ||||
Balance as of December 31, 2004 | $ | 3,055,240 | ||||
9. | Distributions under the Holding LLC Operating Agreement |
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 includes all outstanding debt owed to entities owned or controlled by Carl C. Icahn, including the amount of the Company’s 10.75% Senior Notes. 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 distribution previously made by the Company 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 the Company 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 the NEG’s and Gascon’s respective capital accounts. (Capital accounts as defined in the Holding LLC Operating Agreement). |
F-18
10. | Crude Oil and Natural Gas Producing Activities |
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Acquisition of properties | $ | — | $ | — | $ | 49,049,174 | ||||||
Exploration costs | 29,006,772 | 6,950,706 | 1,072,997 | |||||||||
Development costs | 38,480,640 | 29,083,572 | 16,124,610 | |||||||||
Depletion rate per Mcfe | $ | 1.28 | $ | 1.25 | $ | 1.29 |
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Plains Marketing and Transportation | $ | 19,786,979 | $ | 15,666,690 | $ | 12,512,767 | ||||||
Crosstex Energy Services, Inc. | 5,080,974 | 9,225,086 | 4,843,756 | |||||||||
Riata Energy, Inc. | 29,884,850 | 30,420,624 | — | |||||||||
Seminole Energy Services | 19,572,461 | 7,215,735 | — |
11. | Supplementary Crude Oil and Natural Gas Reserve Information (Unaudited) |
F-19
Crude Oil | Natural Gas | ||||||||
(Barrels) | (Thousand | ||||||||
Cubic Feet) | |||||||||
December 31, 2001 | 5,158,883 | 82,431,275 | |||||||
Purchases of reserves in place | 30,436 | 34,196,450 | |||||||
Sales of reserves in place | (223,214 | ) | — | ||||||
Extensions and discoveries | 28,892 | 14,403,643 | |||||||
Revisions of previous estimates | 842,776 | (636,931 | ) | ||||||
Production | (629,100 | ) | (7,827,100 | ) | |||||
December 31, 2002 | 5,208,673 | 122,567,337 | |||||||
Purchase of reserves in place | — | — | |||||||
Sales of reserves in place | (25,399 | ) | (744,036 | ) | |||||
Extensions and discoveries | 494,191 | 61,637,828 | |||||||
Revisions of previous estimates | (7,092 | ) | (2,419,969 | ) | |||||
Production | (628,923 | ) | (13,436,865 | ) | |||||
December 31, 2003 | 5,041,450 | 167,604,295 | |||||||
Purchase of reserves in place | — | — | |||||||
Sales of reserves in place | (15,643 | ) | (344,271 | ) | |||||
Extensions and discoveries | 445,636 | 33,350,666 | |||||||
Revisions of previous estimates | (30,249 | ) | 15,441,298 | ||||||
Production | (565,100 | ) | (13,106,103 | ) | |||||
December 31, 2004 | 4,876,094 | 202,945,885 | |||||||
Proved developed reserves: | |||||||||
December 31, 2002 | 3,539,450 | 92,382,411 | |||||||
December 31, 2003 | 4,096,596 | 104,207,660 | |||||||
December 31, 2004 | 3,798,341 | 111,126,829 |
F-20
December 31, | ||||||||
2004 | 2003 | |||||||
Future cash inflows | $ | 1,466,369,163 | $ | 1,184,869,747 | ||||
Future production and development costs | (489,331,736 | ) | (374,829,047 | ) | ||||
Future net cash flows | 977,037,427 | 810,040,700 | ||||||
10% annual discount for estimated timing of cash flows | (442,213,801 | ) | (353,980,596 | ) | ||||
Standardized measure of discounted future net cash flows | $ | 534,823,626 | $ | 456,060,104 | ||||
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Purchases of reserves | $ | — | $ | — | $ | 102,916,472 | ||||||
Sales of reserves in place | (1,375,463 | ) | (2,475,742 | ) | (2,509,704 | ) | ||||||
Sales and transfers of crude oil and natural gas produced, net of production costs | (83,004,073 | ) | (57,424,780 | ) | (31,115,247 | ) | ||||||
Net changes in prices and production costs | 31,039,998 | 44,711,900 | 112,380,701 | |||||||||
Development costs incurred during the period and changes in estimated future development costs | (81,370,910 | ) | (75,286,532 | ) | (45,230,813 | ) | ||||||
Extensions and discoveries, less related costs | 118,570,850 | 211,324,414 | 43,640,702 | |||||||||
Revisions of previous quantity estimates | 49,194,080 | (6,789,000 | ) | 8,510,824 | ||||||||
Accretion of discount | 45,606,010 | 31,063,232 | 11,312,180 | |||||||||
Changes in production rates (timing) and other | 103,030 | 304,290 | (2,394,593 | ) | ||||||||
Net change | $ | 78,763,522 | $ | 145,427,782 | $ | 197,510,522 | ||||||
F-21
March 31, 2005 | ||||||
(Unaudited) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 10,999,200 | ||||
Accounts receivable — oil and natural gas sales | 17,388,724 | |||||
Accounts receivable — joint interest and other | 216,496 | |||||
Notes receivable — other, (net allowance of $790,000) | 488,415 | |||||
Drilling prepayments | 793,558 | |||||
Other | 1,104,408 | |||||
Total current assets | 30,990,801 | |||||
Oil and natural gas properties, at cost (full cost method): | ||||||
Subject to ceiling limitation | 594,136,210 | |||||
Accumulated depreciation, depletion, and amortization | (349,909,614 | ) | ||||
Net oil and natural gas properties | 244,226,596 | |||||
Other property and equipment | 5,143,947 | |||||
Accumulated depreciation | (4,154,948 | ) | ||||
Net other property and equipment | 988,999 | |||||
Note receivable | 3,090,000 | |||||
Equity investment | 2,169,566 | |||||
Other long term assets | 962,696 | |||||
Total assets | $ | 282,428,658 | ||||
Current liabilities: | ||||||
Accounts payable — trade | $ | 6,423,198 | ||||
Accounts payable — affiliate | 369,722 | |||||
Accounts payable — revenue | 4,158,627 | |||||
Prepayments from partners | 87,754 | |||||
Other current liabilities | 806,885 | |||||
Derivative financial instruments | 23,852,452 | |||||
Total current liabilities | 35,698,638 | |||||
Long term liabilities: | ||||||
Gas balancing | 897,853 | |||||
Credit facility | 66,833,624 | |||||
Asset retirement obligation | 3,116,344 | |||||
Derivative financial instruments | 12,883,768 | |||||
Members’ equity | 162,998,431 | |||||
Total liabilities and members’ equity | $ | 282,428,658 | ||||
F-22
Three Months Ended March 31, | ||||||||||
2005 | 2004 | |||||||||
(Unaudited) | ||||||||||
Revenues: | ||||||||||
Oil and natural gas sales | $ | 2,346,633 | $ | 25,017,234 | ||||||
Field operations | 80,630 | 79,161 | ||||||||
Plant operations | 442,609 | 472,786 | ||||||||
Total revenue | 2,869,872 | 25,569,181 | ||||||||
Costs and expenses: | ||||||||||
Lease operating | 3,883,238 | 3,126,587 | ||||||||
Field operations | 78,371 | 90,494 | ||||||||
Plant operations | 174,442 | 125,548 | ||||||||
Oil and natural gas production taxes | 1,695,128 | 1,349,374 | ||||||||
Depreciation, depletion and amortization | 6,515,506 | 5,352,006 | ||||||||
Accretion of asset retirement obligation | 61,104 | 63,807 | ||||||||
General and administrative | 556,457 | 824,295 | ||||||||
Total costs and expenses | 12,964,246 | 10,932,111 | ||||||||
Operating income (loss) | (10,094,374 | ) | 14,637,070 | |||||||
Other income (expense): | ||||||||||
Interest expense | (728,809 | ) | (483,166 | ) | ||||||
Amortization of debt issuance costs | (172,890 | ) | (111,809 | ) | ||||||
Interest income and other, net | 22,639 | 89,249 | ||||||||
Interest income from affiliate | — | 35,803 | ||||||||
Interest in loss of equity investee | (209,542 | ) | — | |||||||
Net income (loss) | $ | (11,182,976 | ) | $ | 14,167,147 | |||||
F-23
Three Months Ended March 31, | |||||||||
2005 | 2004 | ||||||||
(Unaudited) | |||||||||
Operating Activities | |||||||||
Net income (loss) | $ | (11,182,976 | ) | $ | 14,167,147 | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||
Depreciation, depletion and amortization | 6,515,506 | 5,352,006 | |||||||
Change in fair market value of derivative contracts | 22,620,363 | (2,688,548 | ) | ||||||
Amortization of debt issuance costs | 172,890 | 111,809 | |||||||
Interest in loss of equity investee | 209,543 | — | |||||||
Accretion of asset retirement obligation | 61,104 | 63,807 | |||||||
Changes in operating assets and liabilities: | |||||||||
Accounts receivable | 1,111,132 | (1,064,720 | ) | ||||||
Notes receivable | — | (1,207,198 | ) | ||||||
Drilling prepayments | 64,556 | 254,227 | |||||||
Derivative broker deposit | — | 1,700,000 | |||||||
Other current assets | 1,095,752 | (20,439 | ) | ||||||
Accounts payable and accrued liabilities | (4,343,276 | ) | 1,626,714 | ||||||
Net cash provided by operating activities | 16,324,594 | 18,294,805 | |||||||
Investing Activities | |||||||||
Oil and natural gas exploration and development expenditures | (21,189,663 | ) | (10,869,942 | ) | |||||
Purchases of other property and equipment | (88,457 | ) | (38,467 | ) | |||||
Proceeds from sales of oil and natural gas properties | 122,967 | — | |||||||
Equity investment | — | (1,200,000 | ) | ||||||
Net cash used in investing activities | (21,155,153 | ) | (12,108,409 | ) | |||||
Financing Activities | |||||||||
Proceeds from Mizuho credit facility | 15,000,000 | — | |||||||
Proceeds from advance from affiliate | 5,000,000 | — | |||||||
Repayment of advance from affiliate | (5,000,000 | ) | — | ||||||
Loan issuance costs | (53,082 | ) | (328,599 | ) | |||||
Net cash (used in) provided by financing activities | 14,946,918 | (328,599 | ) | ||||||
Increase in cash and cash equivalents | 10,116,359 | 5,857,797 | |||||||
Cash and cash equivalents at beginning of period | 882,841 | 15,401,433 | |||||||
Cash and cash equivalents at end of period | $ | 10,999,200 | $ | 21,259,230 | |||||
Supplemental Cash Flow Information | |||||||||
Interest paid in cash | $ | 247,022 | $ | 148,979 | |||||
F-24
Members’ | ||||
Equity | ||||
(Unaudited) | ||||
Balance at December 31, 2004 | $ | 174,181,407 | ||
Net loss for the three months ended March 31, 2005 | (11,182,976 | ) | ||
Balance at March 31, 2005 | $ | 162,998,431 | ||
F-25
1. | Background |
2. | Basis of Presentation |
3. | Recent Accounting Pronouncements |
F-26
4. | Derivatives |
F-27
5. | Management Fees |
6. | Investment in Petrosource |
7. | Credit Facilities |
F-28
8. | Note Receivable |
9. | Commitments and Contingencies |
F-29
(a) $20,500 in post bond premiums alleged to be owed for certain plugging and abandonment liabilities associated with the oil and gas properties sold to Osprey, | |
(b) $5,422 in expenses associated with our bond claim, | |
(c) $53,226 in attorneys fees, | |
(d) $24,617 in administrative expenses paid to the American Arbitration Association, | |
(e) an order requiring Osprey to post and maintain an acceptable replacement bond, | |
(f) a finding that Osprey’s counterclaim in the amount of $15 million was without merit, and | |
(g) a ruling that Osprey is entitled to no recovery of any damages or expenses associated with the Company’s bond claim or Osprey’s counterclaim. |
F-30
/s/Pannell Kerr Forster of Texas, P.C. |
F-31
December 31, | ||||||||||
2004 | 2003 | |||||||||
ASSETS | ||||||||||
Current assets | ||||||||||
Cash | $ | 23,753,000 | $ | 3,152,000 | ||||||
Restricted cash | — | 8,716,000 | ||||||||
Accounts receivable, net of allowance of $5,947,000 and $5,847,000 as of December 31, 2004 and December 31, 2003, respectively | 8,641,000 | 8,233,000 | ||||||||
Accounts receivable — other | 1,841,000 | — | ||||||||
Prepaid expenses and other current assets | 4,652,000 | 1,001,000 | ||||||||
Deferred taxes, net | 1,943,000 | — | ||||||||
Total current assets | 40,830,000 | 21,102,000 | ||||||||
Property, plant and equipment | ||||||||||
Oil and natural gas properties, successful efforts method of accounting | 326,733,000 | 323,001,000 | ||||||||
Less accumulated depreciation, depletion and amortization | (263,140,000 | ) | (246,803,000 | ) | ||||||
Oil and natural gas properties, net | 63,593,000 | 76,198,000 | ||||||||
Pipelines and other property, plant and equipment | 26,114,000 | 26,303,000 | ||||||||
Less accumulated depreciation | (17,789,000 | ) | (16,023,000 | ) | ||||||
Pipelines and other property, plant and equipment, net | 8,325,000 | 10,280,000 | ||||||||
Other assets | ||||||||||
Restricted deposits | 23,519,000 | 18,234,000 | ||||||||
Deferred taxes, net | 21,341,000 | — | ||||||||
Total assets | $ | 157,608,000 | $ | 125,814,000 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||
Liabilities not subject to compromise | ||||||||||
Current liabilities | ||||||||||
Accounts payable and accrued liabilities | $ | 13,517,000 | $ | 6,506,000 | ||||||
Accounts payable — related party | 555,000 | — | ||||||||
Interest payable — related party | 288,000 | — | ||||||||
Interest payable | — | 220,000 | ||||||||
Income tax payable | 157,000 | — | ||||||||
Current maturities of long-term debt — related party | 5,429,000 | — | ||||||||
Revolving credit facility | — | 35,272,000 | ||||||||
Total current liabilities | 19,946,000 | 41,998,000 | ||||||||
Long-term debt — related party, net of current maturities | 32,571,000 | — | ||||||||
Deferred credits | 263,000 | 556,000 | ||||||||
Asset retirement obligation | 49,538,000 | 43,933,000 | ||||||||
Total liabilities not subject to compromise | 102,318,000 | 86,487,000 | ||||||||
Liabilities subject to compromise | ||||||||||
Accounts payable and accrued liabilities | — | 19,838,000 | ||||||||
Interest payable | — | 3,115,000 | ||||||||
Natural gas imbalance payable | — | 1,311,000 | ||||||||
Senior notes due 2004 | — | 100,000,000 | ||||||||
Total liabilities subject to compromise | — | 124,264,000 | ||||||||
Commitments and contingencies | — | — | ||||||||
Stockholders’ equity (deficit) | ||||||||||
Preferred shares, $0.01 par value, 5,000,000 shares authorized at December 31, 2003; no shares issued and outstanding at December 31, 2003 (see Note 1) | — | — | ||||||||
New common shares, $0.01 par value, 1,000,000 shares authorized; 1,000 shares issued and outstanding as of December 31, 2004 | — | — | ||||||||
Old common shares, $0.01 par value, 100,000,000 shares authorized; 24,359,695 shares issued and outstanding as of December 31, 2003 | — | 247,000 | ||||||||
Additional paid-in capital | 121,140,000 | 69,089,000 | ||||||||
Accumulated deficit | (65,850,000 | ) | (154,273,000 | ) | ||||||
Total stockholders’ equity (deficit) | 55,290,000 | (84,937,000 | ) | |||||||
Total liabilities and stockholders’ deficit | $ | 157,608,000 | $ | 125,814,000 | ||||||
F-32
Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Oil and natural gas sales | $ | 51,234,000 | $ | 50,160,000 | $ | 39,065,000 | ||||||||
Costs and expenses: | ||||||||||||||
Lease operating expenses and ad valorem taxes | 14,040,000 | 17,218,000 | 14,508,000 | |||||||||||
Production taxes | 711,000 | 1,021,000 | 720,000 | |||||||||||
Geological and geophysical expenses | 76,000 | 105,000 | 119,000 | |||||||||||
Depletion, depreciation and amortization | 19,008,000 | 12,812,000 | 36,986,000 | |||||||||||
Impairment of oil and natural gas properties | — | — | 23,291,000 | |||||||||||
General and administrative expenses | 2,284,000 | 2,290,000 | 3,550,000 | |||||||||||
Management fees and other — related party | 884,000 | — | — | |||||||||||
Bad debt expense | 100,000 | 1,896,000 | 510,000 | |||||||||||
Accretion of asset retirement obligation | 3,132,000 | 2,843,000 | — | |||||||||||
Gain on expiration of production payment | — | (2,249,000 | ) | — | ||||||||||
Total cost and expenses | 40,235,000 | 35,936,000 | 79,684,000 | |||||||||||
Operating income (loss) | 10,999,000 | 14,224,000 | (40,619,000 | ) | ||||||||||
Other income (expense): | ||||||||||||||
Interest income | 684,000 | 274,000 | 500,000 | |||||||||||
Other income | 48,000 | — | — | |||||||||||
Interest expense | (912,000 | ) | (2,929,000 | ) | (9,298,000 | ) | ||||||||
Interest expense — related party | (1,605,000 | ) | — | — | ||||||||||
Loss on sale of assets | (76,000 | ) | — | — | ||||||||||
Total other expense. net | (1,861,000 | ) | (2,655,000 | ) | (8,798,000 | ) | ||||||||
Income (loss) before reorganization costs, income taxes and cumulative effect of accounting change | 9,138,000 | 11,569,000 | (49,417,000 | ) | ||||||||||
Reorganization costs: | ||||||||||||||
Deferred debt costs | — | — | (962,000 | ) | ||||||||||
Professional fees | (3,794,000 | ) | (2,898,000 | ) | (1,296,000 | ) | ||||||||
Loss on restructuring of debt — related party | (3,561,000 | ) | — | — | ||||||||||
Gain on restructuring of senior notes due 2004 | 51,268,000 | — | — | |||||||||||
Gain on restructuring of payables | 12,495,000 | — | — | |||||||||||
Income (loss) before cumulative effect of accounting change | 65,546,000 | 8,671,000 | (51,675,000 | ) | ||||||||||
Income tax benefit, net | 22,877,000 | — | — | |||||||||||
Cumulative effect of accounting change, net of tax | — | (12,149,000 | ) | — | ||||||||||
Net income (loss) | $ | 88,423,000 | $ | (3,478,000 | ) | $ | (51,675,000 | ) | ||||||
Basic and diluted earnings (loss) per share (see Note 2): | ||||||||||||||
Income (loss) before cumulative effect of accounting change | $ | 0.36 | $ | (2.12 | ) | |||||||||
Cumulative effect of accounting change, net of tax | (0.50 | ) | — | |||||||||||
Net loss | $ | (0.14 | ) | $ | (2.12 | ) | ||||||||
Basic and diluted weighted average common shares outstanding | 24,359,695 | 24,359,695 | ||||||||||||
F-33
Number of | Number of | Common | Total | |||||||||||||||||||||
New Common | Old Common | Share Par | Additional | Accumulated | Stockholders’ | |||||||||||||||||||
Shares | Shares | Value | Paid-In Capital | Deficit | Equity (Deficit) | |||||||||||||||||||
Balance, December 31, 2001 | — | 24,359,695 | $ | 247,000 | $ | 69,089,000 | $ | (99,120,000 | ) | $ | (29,784,000 | ) | ||||||||||||
Net loss | — | — | — | — | (51,675,000 | ) | (51,675,000 | ) | ||||||||||||||||
Balance, December 31, 2002 | — | 24,359,695 | 247,000 | 69,089,000 | (150,795,000 | ) | (81,459,000 | ) | ||||||||||||||||
Net loss | — | — | — | — | (3,478,000 | ) | (3,478,000 | ) | ||||||||||||||||
Balance, December 31, 2003 | — | 24,359,695 | 247,000 | 69,089,000 | (154,273,000 | ) | (84,937,000 | ) | ||||||||||||||||
Cancellation Old Common Stock | — | (24,359,695 | ) | (247,000 | ) | 247,000 | — | — | ||||||||||||||||
Issuance of New Common Stock | 1,000 | — | — | 51,804,000 | — | 51,804,000 | ||||||||||||||||||
Net income | — | — | — | — | 88,423,000 | 88,423,000 | ||||||||||||||||||
Balance, December 31, 2004 | 1,000 | — | $ | — | $ | 121,140,000 | $ | (65,850,000 | ) | $ | 55,290,000 | |||||||||||||
F-34
Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Cash flows from operating activities | |||||||||||||
Net income (loss) | $ | 88,423,000 | $ | (3,478,000 | ) | $ | (51,675,000 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided from operating activities | |||||||||||||
Depletion, depreciation and amortization | 19,008,000 | 12,812,000 | 36,986,000 | ||||||||||
Impairment of oil and natural gas properties | — | — | 23,291,000 | ||||||||||
Deferred income taxes | (23,284,000 | ) | — | — | |||||||||
Loss on sale of assets | 76,000 | — | — | ||||||||||
Unrealized loss on derivative instruments | 903,000 | — | — | ||||||||||
Loss on restructuring of debt — related party | 3,561,000 | — | — | ||||||||||
Gain on restructuring of senior notes due 2004 | (51,268,000 | ) | — | — | |||||||||
Gain on restructuring of payables | (12,495,000 | ) | — | — | |||||||||
Allowance for doubtful accounts | 100,000 | 1,896,000 | 510,000 | ||||||||||
Accretion of asset retirement obligation | 3,132,000 | 2,843,000 | — | ||||||||||
Deferred debt costs | — | — | 962,000 | ||||||||||
Gain on expiration of production payment | — | (2,249,000 | ) | — | |||||||||
Cumulative effect of accounting change | — | 12,149,000 | — | ||||||||||
Changes in operating assets and liabilities | |||||||||||||
Accounts receivable | (508,000 | ) | (1,353,000 | ) | (924,000 | ) | |||||||
Accounts receivable — other | (1,841,000 | ) | — | — | |||||||||
Prepaid expenses and other current assets | (3,651,000 | ) | 20,000 | (103,000 | ) | ||||||||
Accounts payable and accrued liabilities | (3,278,000 | ) | (5,306,000 | ) | (3,560,000 | ) | |||||||
Accounts payable — related party | 555,000 | — | — | ||||||||||
Natural gas imbalance payable | (1,311,000 | ) | 154,000 | 8,000 | |||||||||
Deferred credits | (293,000 | ) | (397,000 | ) | (552,000 | ) | |||||||
Interest payable | 1,385,000 | (661,000 | ) | 1,132,000 | |||||||||
Income taxes payable | 157,000 | — | — | ||||||||||
Net cash provided by operating activities | 19,371,000 | 16,430,000 | 6,075,000 | ||||||||||
Cash flows from investing activities | |||||||||||||
Capital expenditures | (1,994,000 | ) | (3,875,000 | ) | (6,494,000 | ) | |||||||
Proceeds from property sale | 150,000 | — | — | ||||||||||
Increase in restricted deposits | (5,285,000 | ) | (4,907,000 | ) | (2,316,000 | ) | |||||||
Asset retirement obligation | (207,000 | ) | (1,028,000 | ) | — | ||||||||
Net cash used in investing activities | (7,336,000 | ) | (9,810,000 | ) | (8,810,000 | ) | |||||||
Cash flows from financing activities | |||||||||||||
Proceeds from borrowings of debt | — | — | 8,101,000 | ||||||||||
Repayment of debt | (150,000 | ) | (2,450,000 | ) | (3,250,000 | ) | |||||||
Net cash provided by (used in) financing activities | (150,000 | ) | (2,450,000 | ) | 4,851,000 | ||||||||
Net increase in cash | 11,885,000 | 4,170,000 | 2,116,000 | ||||||||||
Decrease (increase) in restricted cash | 8,716,000 | (8,716,000 | ) | — | |||||||||
Cash at beginning of year | 3,152,000 | 7,698,000 | 5,582,000 | ||||||||||
Cash at end of year | $ | 23,753,000 | $ | 3,152,000 | $ | 7,698,000 | |||||||
Supplemental Disclosure of Cash Flow Information: | |||||||||||||
Interest paid | $ | 1,129,000 | $ | 3,590,000 | $ | 8,166,000 | |||||||
Income taxes paid | $ | 272,000 | $ | — | $ | — | |||||||
Supplemental Non-cash Investing and Financing Activities: | |||||||||||||
Oil and natural gas properties for asset retirement obligation | $ | 2,680,000 | $ | 26,344,000 | $ | — | |||||||
Interest payable — related party converted to debt principal | $ | 1,317,000 | $ | — | $ | — | |||||||
Senior notes due 2004 and accrued interest converted to new common stock and additional paid-in capital | $ | 51,804,000 | $ | — | $ | — | |||||||
Old common stock converted to additional paid-in capital | $ | 247,000 | $ | — | $ | — |
F-35
Note 1 — | Voluntary Petition for Relief Under Chapter 11 Bankruptcy |
• | Revolving Credit Facility: the holder of the claim received a new note, the principal amount of which will be paid over seven years, | |
• | Senior Notes: 49% of the Senior Notes were settled for a cash payment equal to 2.5% of the face value of the Senior Notes; 51% of the Senior Notes were converted into 100% of the equity of the reorganized Company, | |
• | Unsecured Creditors: received a cash payment equal to 10% of their allowed claim. | |
• | Equity: the pre-confirmation shares of common stock (the “Old Common Stock”) are deemed to be of no value and were cancelled. The equity of the reorganized Company became owned by the 51% Senior Note holders. |
F-36
Note 2 — | Summary of Significant Accounting Policies |
Nature of business |
Significant Accounting Policies |
Basis of Presentation |
Oil and Natural Gas Properties and Depreciation, Depletion and Amortization |
F-37
Revenue Recognition |
Earnings Per Share |
Cash and Cash Equivalents |
Stock-Based Compensation |
F-38
2004 | 2003 | 2002 | ||||||||||
Net income (loss) — as reported | $ | 88,423,000 | $ | (3,478,000 | ) | $ | (51,675,000 | ) | ||||
Plus: stock-based compensation expense determined using the intrinsic value of the option at the measurement date | — | — | — | |||||||||
Less: stock-based employee compensation determined under fair value method for all awards granted to employees | — | (34,000 | ) | (77,000 | ) | |||||||
Net income (loss) — pro forma | $ | 88,423,000 | $ | (3,512,000 | ) | $ | (51,752,000 | ) | ||||
Basic and diluted net income (loss) per share — as reported | $ | (0.14 | ) | $ | (2.12 | ) | ||||||
Basic and diluted net income (loss) per share — pro forma | $ | (0.14 | ) | $ | (2.12 | ) | ||||||
Fair Value |
Asset Retirement Obligations |
Restricted cash |
F-39
Accounts Receivable |
Pipelines and Other Property, Plant and Equipment |
Amortization of Deferred Debt Costs |
Natural gas Imbalances |
Derivative Instruments and Hedging Activities |
F-40
Date of Contract | Volume/Month | Beginning | Ending | Floor | Ceiling | |||||||||||||||
November 2004 | 25,000 Bbls | January 2005 | December 2005 | $ | 42.50 | $ | 46.00 | |||||||||||||
November 2004 | 150,000 MMBTU | January 2005 | December 2005 | $ | 6.00 | $ | 8.35 |
Income Taxes |
Environmental Liabilities |
F-41
Concentration of Credit Risk |
Use of Estimates |
Recently Issued Accounting Pronouncements |
Note 3 — | Asset Retirement Obligations |
F-42
2004 | 2003 | |||||||
ARO at beginning of period | $ | 43,933,000 | $ | 42,118,000 | ||||
Revision of estimate | 2,680,000 | — | ||||||
Liabilities settled | (207,000 | ) | (1,028,000 | ) | ||||
Accretion expense | 3,132,000 | 2,843,000 | ||||||
ARO at end of period | $ | 49,538,000 | $ | 43,933,000 | ||||
Note 4 — | Restricted Deposits |
F-43
Year Ended December 31, | ||||
2005 | $ | 3,200,000 | ||
2006 | 3,200,000 | |||
2007 | 3,200,000 | |||
2008 | 3,200,000 | |||
2009 | 3,200,000 | |||
Thereafter | 2,000,000 | |||
$ | 18,000,000 | |||
Note 5 — | Debt |
2004 | 2003 | ||||||||
Subject to compromise: | |||||||||
10.625% Senior Notes due 2004 | $ | — | $ | 100,000,000 | |||||
Not subject to compromise: | |||||||||
Revolving Credit Facility due 2003 | $ | — | $ | 35,272,000 | |||||
Term loan due 2011 — related party | 38,000,000 | — | |||||||
Total long-term debt | 38,000,000 | 35,272,000 | |||||||
Less current maturities | (5,429,000 | ) | (35,272,000 | ) | |||||
Long-term debt, less current maturities | $ | 32,571,000 | $ | — | |||||
Senior Notes |
F-44
Revolving Credit Facility |
Term Loan |
Production Payment |
F-45
Long-Term | ||||
Year Ended December 31, | Debt | |||
2005 | $ | 5,429,000 | ||
2006 | 5,429,000 | |||
2007 | 5,429,000 | |||
2008 | 5,429,000 | |||
2009 | 5,429,000 | |||
Thereafter | 10,855,000 | |||
$ | 38,000,000 | |||
Note 6 — | Major Customers |
Note 7 — | Income Taxes |
2004 | 2003 | 2002 | ||||||||||
Current | $ | (407,000 | ) | $ | — | $ | — | |||||
Deferred | 23,284,000 | — | — | |||||||||
$ | 22,877,000 | $ | — | $ | — | |||||||
2004 | 2003 | 2002 | ||||||||||
Statutory federal income tax rate expense (benefit) | 35 | % | 35 | % | (35 | )% | ||||||
Other | — | % | 11 | % | 1 | % | ||||||
Change in valuation allowance | (70 | )% | (46 | )% | 34 | % | ||||||
(35 | )% | — | % | — | % | |||||||
F-46
2004 | 2003 | |||||||||
Deferred tax assets | ||||||||||
Net operating loss carryforwards | $ | 14,917,000 | $ | 38,393,000 | ||||||
Asset retirement obligation accretion | 6,343,000 | 6,516,000 | ||||||||
Fixed asset basis differences | — | 3,152,000 | ||||||||
Allowance for bad debts | 2,081,000 | 2,046,000 | ||||||||
State taxes | 795,000 | 2,615,000 | ||||||||
AMT tax credits | 610,000 | 290,000 | ||||||||
Total deferred tax assets | 24,746,000 | 53,012,000 | ||||||||
Less valuation allowance | — | (53,012,000 | ) | |||||||
Total net deferred tax assets | 24,746,000 | — | ||||||||
Deferred tax liabilities | ||||||||||
Fixed asset basis differences | (1,324,000 | ) | — | |||||||
Natural gas balancing | (138,000 | ) | — | |||||||
Total deferred tax liabilities | (1,462,000 | ) | — | |||||||
Net deferred tax assets (liabilities) | $ | 23,284,000 | $ | — | ||||||
Note 8 — | Stock Options |
F-47
2004 | 2003 | 2002 | |||||||||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||||||||
Average | Average | Average | |||||||||||||||||||||||
Exercise | Exercise | Exercise | |||||||||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | ||||||||||||||||||||
Outstanding at beginning of year | 100,000 | $ | 1.92 | 225,000 | $ | 1.92 | 425,000 | $ | 1.92 | ||||||||||||||||
Granted | — | — | — | — | — | — | |||||||||||||||||||
Exercised | — | — | — | — | — | — | |||||||||||||||||||
Forfeited | — | — | — | — | (200,000 | ) | 1.92 | ||||||||||||||||||
Cancelled | (100,000 | ) | 1.92 | (125,000 | ) | 1.92 | — | — | |||||||||||||||||
Outstanding at end of year | — | — | 100,000 | 1.92 | 225,000 | 1.92 | |||||||||||||||||||
Exercisable at end of year | — | — | 60,000 | $ | 1.92 | 90,000 | $ | 1.92 | |||||||||||||||||
Unexercisable at end of year | — | — | 40,000 | 1.92 | 135,000 | 1.92 |
Note 9 — | Related Party Transactions |
• | At December 31, 2004, the balance sheet reflects a term loan payable of $38 million, and related interest payable of $0.3 million. During the year ended December 31, 2004, the Company recorded interest expense of $1.6 million and a loss on restructuring of debt of $3.6 million associated with this related party. | |
• | The Company entered into a Management Agreement with an entity pursuant to the Bankruptcy Court’s Order confirming the effective date of the Plan. In exchange for management services provided by that entity, the Company pays a monthly fee equal to the actual direct and indirect administrative overhead costs that the entity incurs in operating and administering the Company’s oil and natural gas properties plus 15% of such costs. The Company recorded $0.7 million in management fee expense under this agreement and $0.2 of general and administrative expense for the year ended December 31, 2004. At December 31, 2004 the balance sheet reflects accounts payable of $0.6 million owed under the agreement. |
F-48
Note 11 — | Subsequent Events |
Note 12 — | Supplemental Information Related to Oil and Natural Gas Producing Activities (Unaudited) |
Capitalized Costs |
2004 | 2003 | |||||||
Developed oil and natural gas properties | $ | 326,733,000 | $ | 323,001,000 | ||||
Unevaluated oil and natural gas properties | — | — | ||||||
Pipelines and other production equipment | 26,114,000 | 25,554,000 | ||||||
Accumulated depletion, depreciation and amortization | (280,929,000 | ) | (262,077,000 | ) | ||||
Net capitalized costs(1) | $ | 71,918,000 | $ | 86,478,000 | ||||
(1) | Included in net capitalized costs is approximately $30 million of net ARO asset recorded in 2003 relating to the cumulative effect of adopting SFAS No. 143 on January 1, 2003 (see Note 3) and $2.7 million of net ARO asset recorded in 2004 as a result of a revision in estimate. |
Costs Incurred |
2004 | 2003 | 2002 | |||||||||||
Property acquisition costs, proved | $ | — | $ | — | $ | — | |||||||
Property acquisition costs, unproved | — | — | — | ||||||||||
Exploration expenses | — | — | — | ||||||||||
Development costs | 1,994,000 | 3,875,000 | 6,494,000 | ||||||||||
Asset retirement cost(1) | 207,000 | 1,028,000 | — | ||||||||||
Total cost incurred | $ | 2,201,000 | $ | 4,903,000 | $ | 6,494,000 | |||||||
F-49
(1) | Excluded from asset retirement cost in 2003 is $26.3 million of asset retirement obligation asset recorded in 2003 related to the cumulative effect of adopting SFAS No. 143 on January 1, 2003 (see Note 3). Excluded from asset retirement cost in 2004 is $2.7 million of asset retirement obligation asset recorded in 2004 related to a revision in estimate. |
Results of Operations |
2004 | 2003 | 2002 | ||||||||||||
Oil and natural gas revenues | $ | 51,234,000 | $ | 50,160,000 | $ | 39,065,000 | ||||||||
Operating expenses: | ||||||||||||||
Lease operating expenses and ad valorem taxes | 14,040,000 | 17,218,000 | 14,508,000 | |||||||||||
Production taxes | 711,000 | 1,021,000 | 720,000 | |||||||||||
Geological and geophysical expenses | 76,000 | 105,000 | 119,000 | |||||||||||
Depletion expense | 16,441,000 | 10,007,000 | 33,589,000 | |||||||||||
Depreciation of pipelines and other production equipment | 2,567,000 | 2,468,000 | 2,468,000 | |||||||||||
Accretion expense | 3,132,000 | 2,843,000 | — | |||||||||||
Impairment of oil and natural gas properties | — | — | 23,291,000 | |||||||||||
Results of operations from oil and natural gas producing activities | $ | 14,267,000 | $ | 16,498,000 | $ | (35,630,000 | ) | |||||||
Quantities of Oil and Natural gas Reserves |
Oil | Natural gas | |||||||
(BBLS) | (MCF) | |||||||
Proved developed and undeveloped reserves: | ||||||||
Estimated reserves as of December 31, 2001 | 7,853,303 | 66,940,028 | ||||||
Production | (916,030 | ) | (5,621,901 | ) | ||||
Extensions and discoveries | 35,901 | 39,000 | ||||||
Sale of minerals in-place | — | — | ||||||
Revisions of previous estimates | (270,378 | ) | (14,058,034 | ) | ||||
Estimated reserves as of December 31, 2002 | 6,702,796 | 47,299,093 |
F-50
Oil | Natural gas | |||||||
(BBLS) | (MCF) | |||||||
Production | (689,318 | ) | (5,043,527 | ) | ||||
Extensions and discoveries | 151,197 | 1,026,000 | ||||||
Sale of minerals in-place | (78,761 | ) | (1,908,300 | ) | ||||
Revisions of previous estimates | (106,515 | ) | (2,594,770 | ) | ||||
Estimated reserves as of December 31, 2003 | 5,979,399 | 38,778,496 | ||||||
Production | (643,404 | ) | (3,938,379 | ) | ||||
Extensions and discoveries | — | — | ||||||
Sale of minerals in-place | (43,663 | ) | (3,695 | ) | ||||
Revisions of previous estimates | (88,733 | ) | (8,854,673 | ) | ||||
Estimated reserves as of December 31, 2004 | 5,203,599 | 25,981,749 | ||||||
Proved developed reserves: | ||||||||
December 31, 2002 | 2,062,680 | 8,057,440 | ||||||
December 31, 2003 | 1,600,376 | 5,115,501 | ||||||
December 31, 2004 | 2,746,047 | 14,145,700 | ||||||
Standardized Measure of Discounted Future Net Cash Flows |
F-51
2004 | 2003 | 2002 | ||||||||||||
Future cash inflows | $ | 382,805,375 | $ | 425,695,797 | $ | 431,912,125 | ||||||||
Future costs: | ||||||||||||||
Production | (109,972,000 | ) | (139,335,808 | ) | (125,247,373 | ) | ||||||||
Development and ARO | (103,386,010 | ) | (89,551,310 | ) | (91,096,741 | ) | ||||||||
Future production and development costs | (213,358,010 | ) | (228,887,118 | ) | (216,344,114 | ) | ||||||||
Net cash flows before tax | 169,447,365 | 196,808,679 | 215,568,011 | |||||||||||
Future income tax expense(1) | (32,979,000 | ) | — | — | ||||||||||
Future net cash flows | 136,468,365 | 196,808,679 | 215,568,011 | |||||||||||
10% discount for estimated timing of future cash flows | (61,229,531 | ) | (60,564,618 | ) | (71,565,128 | ) | ||||||||
Standardized measure of discounted future net cash flows | $ | 75,238,834 | $ | 136,244,061 | $ | 144,002,883 | ||||||||
(1) | Prior to the year ended December 31, 2004, it was determine by management that the likelihood for the Company to have taxable income in the future was uncertain thus no future income tax expense was provided (see Note 7). |
Changes Relating to the Standardized Measure of Discounted Future Net Cash Flows |
2004 | 2003 | 2002 | ||||||||||||
Beginning of year balance | $ | 136,244,061 | $ | 144,002,883 | $ | 89,242,543 | ||||||||
Changes due to current year operations: | ||||||||||||||
Sales, net of production costs | (36,483,000 | ) | (31,921,000 | ) | (23,837,000 | ) | ||||||||
Sales of minerals in place | (5,365,497 | ) | (4,264,894 | ) | — | |||||||||
Development costs incurred | 1,994,000 | 3,875,000 | 6,494,000 | |||||||||||
Extensions and discoveries, net of future production and development costs | — | 1,286,545 | 358,972 | |||||||||||
Changes due to revisions of standardized variables: | ||||||||||||||
Sales prices, net of production costs | 56,915,433 | 15,264,428 | 115,325,081 | |||||||||||
Revisions of previous quantity estimates | (38,312,699 | ) | (8,306,671 | ) | (36,822,411 | ) | ||||||||
Estimated future development costs | (26,166,440 | ) | (2,059,901 | ) | (16,156,317 | ) | ||||||||
Income taxes(1) | (24,097,000 | ) | — | — | ||||||||||
Accretion of discount | 13,624,406 | 14,400,288 | 8,924,254 | |||||||||||
Production rates (timing) and other | (3,114,430 | ) | 3,967,383 | 473,761 | ||||||||||
Net increase (decrease) | (61,005,227 | ) | (7,758,822 | ) | 54,760,340 | |||||||||
End of year balance | $ | 75,238,834 | $ | 136,244,061 | $ | 144,002,883 | ||||||||
(1) | Prior to the year ended December 31, 2004, it was determine by management that the likelihood for the Company to have taxable income in the future was uncertain thus no future income tax expense was provided (see Note 7). |
F-52
ASSETS | ||||||
(unaudited) | ||||||
Current assets | ||||||
Cash | $ | 9,721,125 | ||||
Accounts receivable, net of allowance of $5,947,000 | 7,885,023 | |||||
Hedge deposits | 3,600,000 | |||||
Advances to affiliate | 10,000,000 | |||||
Prepaid expenses and other current assets | 4,552,886 | |||||
Deferred taxes, net | 3,440,605 | |||||
Total current assets | 39,199,639 | |||||
Property, plant and equipment | ||||||
Oil and natural gas properties, successful efforts method of accounting | 266,150,858 | |||||
Less accumulated depreciation, depletion and amortization | (212,470,520) | |||||
Oil and natural gas properties, net | 53,680,338 | |||||
Pipelines and other property, plant and equipment | 22,057,363 | |||||
Less accumulated depreciation | (15,036,406) | |||||
Pipelines and other property, plant and equipment, net | 7,020,957 | |||||
Other assets | ||||||
Restricted deposits | 19,631,786 | |||||
Deferred taxes, net | 21,340,236 | |||||
Total assets | $ | 140,872,956 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | $ | 9,803,917 | ||||
Accounts payable — related party | 277,292 | |||||
Interest payable — related party | 207,177 | |||||
Hedge liability | 4,980,264 | |||||
Income tax payable | 155,953 | |||||
Current maturities of long-term debt — related party | 5,428,572 | |||||
Total current liabilities | 20,853,175 | |||||
Long-term debt — related party, net of current maturities | 31,214,285 | |||||
Deferred credits | 263,250 | |||||
Asset retirement obligation | 33,600,348 | |||||
Hedge Liability | 2,257,960 | |||||
Commitments and contingencies | ||||||
Stockholders’ equity | ||||||
New Common shares, $0.01 par value, 1,000,000 shares authorized; 1,000 shares issued and outstanding as of March 31, 2005 | 10 | |||||
Additional paid-in capital | 121,140,455 | |||||
Accumulated deficit | (68,456,527) | |||||
Total stockholders’ equity | 52,683,938 | |||||
Total liabilities and stockholders’ equity | $ | 140,872,956 | ||||
F-53
Three Months Ended | ||||||||||
March 31, | ||||||||||
2005 | 2004 | |||||||||
(Unaudited) | ||||||||||
Oil and natural gas sales | $ | 6,474,008 | $ | 12,155,652 | ||||||
Costs and expenses: | ||||||||||
Lease operating expenses | 3,132,010 | 3,144,885 | ||||||||
Production taxes | 209,938 | 191,173 | ||||||||
Geological and geophysical expenses | 75,804 | 14,980 | ||||||||
Depletion, depreciation and amortization | 3,662,254 | 3,729,647 | ||||||||
Bad debt expense | — | 120,532 | ||||||||
General and administrative expenses | 529,851 | 421,685 | ||||||||
Management fees and other — related party | 1,017,402 | — | ||||||||
Accretion of asset retirement obligation | 823,734 | 758,711 | ||||||||
Total cost and expenses | 9,450,993 | 8,381,613 | ||||||||
Operating income (loss) | (2,976,985 | ) | 3,774,039 | |||||||
Other income (expense): | ||||||||||
Interest income and other | 131,721 | 62,286 | ||||||||
Bankruptcy (costs) benefit | 60,000 | (1,084,445 | ) | |||||||
Interest expense — related party | (604,444 | ) | (655,541 | ) | ||||||
Loss on sale of assets | (714,764 | ) | — | |||||||
Total other expense. | (1,127,487 | ) | (1,677,700 | ) | ||||||
Net Income (loss) before income taxes | (4,104,472 | ) | 2,096,339 | |||||||
Income tax benefit (expense), net | 1,497,722 | — | ||||||||
Net income (loss) | $ | (2,606,750 | ) | $ | 2,096,339 | |||||
Basic and diluted earnings (loss) per share (see Note 4): | ||||||||||
Net income (loss) per share | $ | (2,606.75 | ) | $ | .09 | |||||
Basic and diluted weighted average New common shares outstanding | 1,000 | |||||||||
Basic and diluted weighted average Old common shares outstanding | 24,359,695 | |||||||||
F-54
New Common | ||||||||||||||||||||
Shares | Total | |||||||||||||||||||
Additional | Accumulated | Stockholders’ | ||||||||||||||||||
Shares | Amount | Paid-In Capital | Deficit | Equity | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Balance, December 31, 2004 | 1,000 | $ | 10 | $ | 121,140,455 | $ | (65,849,777 | ) | $ | 55,290,688 | ||||||||||
Net loss for the three month period ended March 31, 2005 | — | — | — | (2,606,750 | ) | (2,606,750 | ) | |||||||||||||
Balance, March 31, 2005 | 1,000 | $ | 10 | $ | 121,140,455 | $ | (68,456,527 | ) | $ | 52,683,938 | ||||||||||
F-55
Three Months Ended | |||||||||
March 31, | |||||||||
2005 | 2004 | ||||||||
(Unaudited) | |||||||||
Cash flows from operating activities | |||||||||
Net income (loss) | $ | (2,606,750 | ) | $ | 2,096,339 | ||||
Adjustments to reconcile net income (loss) to net cash provided from operating activities | |||||||||
Depletion, depreciation and amortization | 3,662,254 | 3,729,647 | |||||||
Deferred income taxes | (1,497,722 | ) | — | ||||||
Loss on sale of assets | 714,764 | — | |||||||
Unrealized loss on derivative instruments | 6,335,507 | — | |||||||
Allowance for doubtful accounts | — | 120,532 | |||||||
Accretion of asset retirement obligation | 823,734 | 758,711 | |||||||
Changes in operating assets and liabilities | |||||||||
Accounts receivable | 2,201,089 | 274,787 | |||||||
Hedge deposit | (3,600,000 | ) | — | ||||||
Prepaid expenses and other current assets | 494,831 | 676,251 | |||||||
Accounts payable and accrued liabilities | (3,167,943 | ) | (1,503,185 | ) | |||||
Accounts receivable — related party | (10,000,000 | ) | — | ||||||
Natural gas imbalance payable | — | (809,872 | ) | ||||||
Other | (832,578 | ) | (87,750 | ) | |||||
Net cash provided by (used in) operating activities | (7,472,814 | ) | 5,255,460 | ||||||
Cash flows from investing activities | |||||||||
Capital expenditures | (4,683,666 | ) | (131,013 | ) | |||||
Proceeds from property sale, net | (518,480 | ) | 150,000 | ||||||
Increase in restricted deposits | — | (875,437 | ) | ||||||
Net cash used in investing activities | (5,202,146 | ) | (856,450 | ) | |||||
Cash flows from financing activities Repayment of debt | (1,357,143 | ) | (150,000 | ) | |||||
Net cash used in financing activities | (1,357,143 | ) | (150,000 | ) | |||||
Net increase (decrease) in cash | (14,032,103 | ) | 4,249,010 | ||||||
Decrease (increase) in restricted cash | — | (5,272,641 | ) | ||||||
Cash at beginning of period | 23,753,229 | 3,152,122 | |||||||
Cash at end of period | $ | 9,721,126 | $ | 2,128,491 | |||||
Supplemental Disclosure of Cash Flow Information: | |||||||||
Interest paid | $ | 682,812 | $ | 641,530 | |||||
Income taxes paid | $ | — | $ | 52,000 |
F-56
Note 1 — | Basis of Presentation |
Note 2 — | Voluntary Petition for Relief Under Chapter 11 Bankruptcy |
• | Revolving Credit Facility: the holder of the claim received a new note, the principal amount of which will be paid over seven years, |
F-57
• | Senior Notes: 49% of the Senior Notes were settled for a cash payment equal to 2.5% of the face value of the Senior Notes; 51% of the Senior Notes were converted into 100% of the equity of the reorganized Company, | |
• | Unsecured Creditors: received a cash payment equal to 10% of their allowed claim. | |
• | Equity: the pre-confirmation shares of common stock (the “Old Common Stock”) are deemed to be of no value and were cancelled. The equity of the reorganized Company became owned by the 51% Senior Note holders. |
Note 3 — | Sale of West Delta Property |
Book Value at | |||||
March 10, 2005 | |||||
Assets transferred to purchaser: | |||||
Net book value of West Delta properties | $ | (12,238,020 | ) | ||
Escrow account — West Delta | (4,720,060 | ) | |||
Cash payment — purchase price adjustment | (518,480 | ) | |||
Liabilities assumed by purchaser: | |||||
West Delta asset retirement obligation | 16,761,796 | ||||
Loss on sale of West Delta | $ | (714,764 | ) | ||
Note 4 — | Earnings per Share |
F-58
Note 5 — | Derivative Instruments and Hedging Activities |
F-59
Date of Contract | Volume/Month | Beginning | Ending | Floor | Ceiling | |||||||||||||||
November 2004 | 25,000 Bbls | January 2005 | December 2005 | $ | 42.50 | $ | 46.00 | |||||||||||||
November 2004 | 150,000 MMBTU | January 2005 | December 2005 | $ | 6.00 | $ | 8.35 | |||||||||||||
February 2005 | 5,000 Bbls | March 2005 | December 2005 | $ | 44.50 | $ | 48.00 | |||||||||||||
February 2005 | 40,000 MMBTU | March 2005 | December 2005 | $ | 6.05 | $ | 7.30 | |||||||||||||
February 2005 | 17,000 Bbls | January 2006 | December 2006 | $ | 41.65 | $ | 45.25 | |||||||||||||
February 2005 | 140,000 MMBTU | January 2006 | December 2006 | $ | 6.00 | $ | 7.25 |
Note 6 — | Asset Retirement Obligations |
Three Month Period Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
ARO at the beginning of the period | $ | 49,538,410 | $ | 43,932,452 | ||||
Sales (see note 3) | (16,761,796 | ) | — | |||||
Accretion expense | 823,734 | 758,711 | ||||||
ARO at the end of the period | $ | 33,600,348 | $ | 44,691,163 | ||||
Note 7 — | Income Taxes |
F-60
Note 8 — | Commitments and Contingencies |
Restricted Deposits |
Year Ended | ||||
December 31, | ||||
2005 (remaining) | $ | 2,400,000 | ||
2006 | 3,200,000 | |||
2007 | 3,200,000 | |||
2008 | 3,200,000 | |||
2009 | 3,200,000 | |||
Thereafter | 2,000,000 | |||
$ | 17,200,000 | |||
F-61
Note 9 — | Related Party Transactions |
• | At March 31, 2005, the balance sheet reflects a term loan payable of $38.6 million, and related interest payable of $0.2 million. During the three month period ended March 31, 2005, the Company recorded interest expense of $0.6 million associated with this related party. | |
• | The Company entered into a Management Agreement with an entity pursuant to the Bankruptcy Court’s Order confirming the effective date of the Plan. In exchange for management services provided by that entity, the Company pays a monthly fee equal to the actual direct and indirect administrative overhead costs that the entity incurs in operating and administering the Company’s oil and natural gas properties plus 15% of such costs. The Company recorded $1.0 million in management fee expense under this agreement for the three month period ended March 31, 2005. At March 31, 2005, the balance sheet reflects accounts payable of $0.3 million owed under the agreement. | |
• | As of March 31, 2005, the Company had $10 million in outstanding advances to TransTexas, Inc., an entity owned or controlled by Mr. Icahn. The advances are non-interest bearing. |
F-62
/s/KPMG LLP |
F-63
As of December 31, | ||||||||||
2004 | 2003 | |||||||||
ASSETS | ||||||||||
Current Assets: | ||||||||||
Cash and cash equivalents | $ | 12,756,000 | $ | 33,454,000 | ||||||
Accounts receivable, net of allowances of $3,862,000 and $5,918,000, respectively | 5,223,000 | 5,247,000 | ||||||||
Inventories | 2,499,000 | 2,222,000 | ||||||||
Deferred financing costs | 2,260,000 | 762,000 | ||||||||
Insurance deposits | 3,017,000 | — | ||||||||
Prepaid expenses and other current assets | 1,689,000 | 3,946,000 | ||||||||
Total current assets | 27,444,000 | 45,631,000 | ||||||||
Property and Equipment: | ||||||||||
Land | 54,344,000 | 54,344,000 | ||||||||
Buildings and improvements | 88,147,000 | 88,249,000 | ||||||||
Equipment | 73,675,000 | 64,722,000 | ||||||||
Construction in progress | 2,040,000 | 2,111,000 | ||||||||
218,206,000 | 209,426,000 | |||||||||
Less — accumulated depreciation and amortization | (46,566,000 | ) | (40,013,000 | ) | ||||||
Property and equipment, net | 171,640,000 | 169,413,000 | ||||||||
Other Assets: | ||||||||||
Obligatory investments, net of allowances of $12,500,000 and $11,340,000, respectively | 11,647,000 | 10,705,000 | ||||||||
Other assets | 6,227,000 | 1,814,000 | ||||||||
Total other assets | 17,874,000 | 12,519,000 | ||||||||
$ | 216,958,000 | $ | 227,563,000 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
Current Liabilities: | ||||||||||
Current portion debt | $ | 43,741,000 | $ | — | ||||||
Current portion capital leases | 248,000 | — | ||||||||
Accounts payable | 7,082,000 | 6,815,000 | ||||||||
Accrued liabilities — | ||||||||||
Payroll and related expenses | 4,379,000 | 4,241,000 | ||||||||
Interest | 1,216,000 | 3,092,000 | ||||||||
Gaming obligations | 3,363,000 | 2,725,000 | ||||||||
Insurance | 4,330,000 | 2,505,000 | ||||||||
Other | 2,175,000 | 2,821,000 | ||||||||
Total current liabilities | 66,534,000 | 22,199,000 | ||||||||
Long-Term Debt, net of current maturities | 66,259,000 | 110,000,000 | ||||||||
Non-current capital leases | 432,000 | — | ||||||||
Other Noncurrent Liabilities | 4,920,000 | 3,729,000 | ||||||||
Commitments and Contingencies | — | — | ||||||||
Warrants in Atlantic Coast Entertainment Holdings, Inc. | 43,587,000 | — | ||||||||
Shareholders’ Equity: | ||||||||||
Preferred stock, $.01 par value per share; 5,000,000 shares authorized; 0 shares outstanding | — | — | ||||||||
Common Stock, $.01 par value per share; 20,000,000 shares authorized; 10,000,000 shares issued and outstanding | 100,000 | 100,000 | ||||||||
Additional paid-in capital | 81,313,000 | 124,900,000 | ||||||||
Accumulated deficit | (46,187,000 | ) | (33,365,000 | ) | ||||||
Total shareholders’ equity | 35,226,000 | 91,635,000 | ||||||||
$ | 216,958,000 | $ | 227,563,000 | |||||||
F-64
Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Revenues: | |||||||||||||
Casino | $ | 157,643,000 | $ | 154,813,000 | $ | 175,065,000 | |||||||
Rooms | 10,908,000 | 10,994,000 | 11,143,000 | ||||||||||
Food and beverage | 21,898,000 | 21,962,000 | 23,330,000 | ||||||||||
Other | 3,940,000 | 3,914,000 | 3,735,000 | ||||||||||
194,389,000 | 191,683,000 | 213,273,000 | |||||||||||
Less — promotional allowances | (23,146,000 | ) | (23,934,000 | ) | (23,356,000 | ) | |||||||
Net revenues | 171,243,000 | 167,749,000 | 189,917,000 | ||||||||||
Expenses: | |||||||||||||
Casino | 50,467,000 | 52,657,000 | 59,971,000 | ||||||||||
Rooms | 3,397,000 | 2,677,000 | 3,639,000 | ||||||||||
Food and beverage | 7,930,000 | 8,481,000 | 10,343,000 | ||||||||||
Other | 870,000 | 1,297,000 | 1,222,000 | ||||||||||
Selling, general and administrative | 90,423,000 | 90,010,000 | 93,871,000 | ||||||||||
Depreciation and amortization | 14,898,000 | 14,123,000 | 13,292,000 | ||||||||||
Provision for obligatory investments | 1,165,000 | 1,434,000 | 1,521,000 | ||||||||||
Loss on impairment of fixed assets | — | — | 1,282,000 | ||||||||||
Loss on disposal of assets | 152,000 | 28,000 | 185,000 | ||||||||||
Total expenses | 169,302,000 | 170,707,000 | 185,326,000 | ||||||||||
Income (loss) from operations | 1,941,000 | (2,958,000 | ) | 4,591,000 | |||||||||
Non-operating income (expense): | |||||||||||||
Interest income | 422,000 | 627,000 | 1,067,000 | ||||||||||
Interest expense | (11,115,000 | ) | (12,581,000 | ) | (12,195,000 | ||||||||
Debt restructuring costs | (3,084,000 | ) | (1,843,000 | ) | — | ||||||||
Total non-operating expense, net | (13,777,000 | ) | (13,797,000 | ) | (11,128,000 | ) | |||||||
Loss before income taxes | (11,836,000 | ) | (16,755,000 | ) | (6,537,000 | ) | |||||||
Income tax provision | (986,000 | ) | (958,000 | ) | (784,000 | ) | |||||||
Net loss | $ | (12,822,000 | ) | $ | (17,713,000 | ) | $ | (7,321,000 | ) | ||||
Basic/diluted loss per common share | $ | (1.28 | ) | $ | (1.77 | ) | $ | (0.73 | ) | ||||
Basic/diluted weighted average common shares outstanding | 10,000,000 | 10,000,000 | 10,000,000 | ||||||||||
F-65
Common Stock | ||||||||||||||||||||
Additional | Accumulated | |||||||||||||||||||
Shares | Amount | Paid-In Capital | Deficit | Total | ||||||||||||||||
BALANCE, December 31, 2001 | 10,000,000 | $ | 100,000 | $ | 124,900,000 | $ | (8,331,000 | ) | $ | 116,669,000 | ||||||||||
Net Loss | — | — | — | (7,321,000 | ) | (7,321,000 | ) | |||||||||||||
BALANCE, December 31, 2002 | 10,000,000 | $ | 100,000 | $ | 124,900,000 | $ | (15,652,000 | ) | $ | 109,348,000 | ||||||||||
Net Loss | — | — | — | (17,713,000 | ) | (17,713,000 | ) | |||||||||||||
BALANCE, December 31, 2003 | 10,000,000 | $ | 100,000 | $ | 124,900,000 | $ | (33,365,000 | ) | $ | 91,635,000 | ||||||||||
Net Loss | — | — | — | (12,822,000 | ) | (12,822,000 | ) | |||||||||||||
Dividend to common shareholders in the form of warrants, exercisable for 2,750,000 common shares of Atlantic Coast Entertainment Holdings, Inc. | — | — | (43,587,000 | ) | — | (43,587,000 | ) | |||||||||||||
BALANCE, December 31, 2004 | 10,000,000 | $ | 100,000 | $ | 81,313,000 | $ | (46,187,000 | ) | $ | 35,226,000 | ||||||||||
F-66
Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
OPERATING ACTIVITIES: | |||||||||||||
Net loss | $ | (12,822,000 | ) | $ | (17,713,000 | ) | $ | (7,321,000 | ) | ||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||||
Depreciation and amortization | 14,898,000 | 14,123,000 | 13,292,000 | ||||||||||
Provision for obligatory investments | 1,165,000 | 1,434,000 | 1,521,000 | ||||||||||
Loss on impairment of fixed assets | — | — | 1,282,000 | ||||||||||
Loss on disposal of assets | 152,000 | 28,000 | 185,000 | ||||||||||
Provision for doubtful accounts | 416,000 | 1,040,000 | 1,586,000 | ||||||||||
Decrease in deferred financing costs | 1,229,000 | — | — | ||||||||||
Increase in insurance deposits | (3,017,000 | ) | — | — | |||||||||
(Increase) decrease in accounts receivable | (392,000 | ) | (1,312,000 | ) | 2,349,000 | ||||||||
Increase (decrease) in accounts payable and accrued liabilities | 360,000 | (130,000 | ) | (3,080,000 | ) | ||||||||
Decrease (increase) in prepaid expenses and other current assets | 2,187,000 | (98,000 | ) | (426,000 | ) | ||||||||
Increase in other noncurrent assets | (929,000 | ) | (11,000 | ) | — | ||||||||
Increase in other noncurrent liabilities | 1,178,000 | 369,000 | 285,000 | ||||||||||
Net cash provided by (used in) operating activities | 4,425,000 | (2,270,000 | ) | 9,673,000 | |||||||||
INVESTING ACTIVITIES: | |||||||||||||
Purchase of property and equipment | (17,378,000 | ) | (12,825,000 | ) | (14,058,000 | ) | |||||||
Proceeds from disposition of assets | 308,000 | 110,000 | 320,000 | ||||||||||
Proceeds from sale of obligatory investments | 202,000 | 130,000 | 208,000 | ||||||||||
Purchase of obligatory investments | (2,308,000 | ) | (2,336,000 | ) | (2,496,000 | ) | |||||||
Net cash used in investing activities | (19,176,000 | ) | (14,921,000 | ) | (16,026,000 | ) | |||||||
FINANCING ACTIVITIES: | |||||||||||||
Proceeds from long-term debt | 758,000 | — | — | ||||||||||
Repayments of long-term debt | (79,000 | ) | — | (371,000 | ) | ||||||||
Cost of issuing long-term debt | (6,626,000 | ) | — | — | |||||||||
Net cash used in financing activities | (5,947,000 | ) | — | (371,000 | ) | ||||||||
Net decrease in cash and cash equivalents | (20,698,000 | ) | (17,191,000 | ) | (6,724,000 | ) | |||||||
Cash and cash equivalents at beginning of period | 33,454,000 | 50,645,000 | 57,369,000 | ||||||||||
Cash and cash equivalents at end of period | $ | 12,756,000 | $ | 33,454,000 | $ | 50,645,000 | |||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||||||||
Interest paid | $ | 10,744,000 | $ | 12,100,000 | $ | 12,128,000 | |||||||
Interest Capitalized | $ | 86,000 | $ | 300,000 | $ | 766,000 | |||||||
Income Taxes paid | $ | 1,051,000 | $ | 899,000 | $ | 1,764,000 | |||||||
Dividends to Common Shareholders in the form of Warrants in Atlantic Coast Entertainment Holdings, Inc. | $ | 43,587,000 | $ | — | $ | — | |||||||
Issuance of 3% Notes in exchange for 11% Notes | $ | 66,259,000 | $ | — | $ | — | |||||||
F-67
(1) | Organization, Business and Basis of Presentation |
F-68
F-69
(2) | Liquidity Matters |
(3) | Summary of Significant Accounting Policies |
Casino revenues, promotional allowances and departmental expenses |
F-70
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Allocation From: | ||||||||||||
Rooms | $ | 6,511,000 | $ | 7,360,000 | $ | 8,274,000 | ||||||
Food and Beverage | 16,116,000 | 16,482,000 | 17,399,000 | |||||||||
Other Operating | 2,294,000 | 2,070,000 | 1,324,000 | |||||||||
$ | 24,921,000 | $ | 25,912,000 | $ | 26,997,000 | |||||||
Allocation To: | ||||||||||||
Casino | $ | 3,846,000 | $ | 3,815,000 | $ | 4,186,000 | ||||||
Selling, General and Administrative | 21,075,000 | 22,097,000 | 22,811,000 | |||||||||
$ | 24,921,000 | $ | 25,912,000 | $ | 26,997,000 | |||||||
Cash and cash equivalents |
Allowance for doubtful accounts |
Inventories |
Property and equipment |
Buildings and improvements | 25 - 40 years | |
Operating equipment | 3 - 7 years |
F-71
Deferred financing costs |
Long-lived assets |
Accrued insurance |
F-72
Income taxes |
Loss per share |
Reclassifications |
(4) | Long-Term Debt |
As of December 31, | ||||||||
2004 | 2003 | |||||||
11% notes, due September 29, 2005(a) | $ | 43,741,000 | $ | 110,000,000 | ||||
3% Notes due July 22, 2008(b) | 66,259,000 | — | ||||||
Total indebtedness | 110,000,000 | 110,000,000 | ||||||
Less — current maturities | (43,741,000 | ) | — | |||||
Total long-term debt | $ | 66,259,000 | $ | 110,000,000 | ||||
(a) | In accordance with its approved plan of reorganization, GB Holdings through its then wholly-owned subsidiaries issued $110 million at 11% interest payable September 29, 2005 (“11% Notes”). Interest on the 11% Notes is payable on March 29 and September 29, beginning March 29, 2001. The outstanding principal is due on September 29, 2005. | |
The original indenture for the 11% Notes contained various provisions, which, among other things, restricted the ability of GB Holdings, and GBHC to incur certain senior secured indebtedness beyond certain limitations, and contained certain other limitations on the ability to merge, consolidate, or sell |
F-73
substantially all of their assets, to make certain restricted payments, to incur certain additional senior liens, and to enter into certain sale-leaseback transactions. | ||
In a Consent Solicitation Statement and Consent Form dated September 14, 2001, Property sought the consent of holders of the 11% Notes to make certain changes to the original indenture (the “Modifications”). The Modifications included, but were not limited to, a deletion of, or changes to, certain provisions the result of which would be (i) to permit GB Holdings and its subsidiaries to incur any additional indebtedness without restriction, to issue preferred stock without restriction, to make distributions in respect of preferred stock and to prepay indebtedness without restriction, to incur liens without restriction and to enter into sale-leaseback transactions without restriction, (ii) to add additional exclusions to the definition of “asset sales” to exclude from the restrictions on “asset sales” sale-leaseback transactions, conveyances or contributions to any entity in which GB Holdings or its subsidiaries has or obtains equity or debt interests, and transactions (including the granting of liens) made in accordance with another provision of the Modifications relating to collateral release and subordination or any documents entered into in connection with an “approved project” (a new definition included as part of the Modifications which includes, if approved by the Board of Directors of GB Holdings, incurrence of indebtedness or the transfer of assets to any person if GB Holdings or any of its subsidiaries has or obtain debt or equity interests in the transferee or any similar, related or associated event, transaction or activity) in which a release or subordination of collateral has occurred including, without limitation, any sale or other disposition resulting from any default or foreclosure, (iii) to exclude from the operation of covenants related to certain losses to collateral, any assets and any proceeds thereof, which have been subject to the release or subordination provisions of the Modifications, (iv) to permit the sale or other conveyances of Casino Reinvestment Development Authority (the “CRDA”) investments in accordance with the terms of a permitted security interest whether or not such sale was made at fair value, (v) to exclude from the operation of covenants related to the deposit into a collateral account of certain proceeds of “asset sales” or losses to collateral any assets and any proceeds thereof, which have been subject to the release or subordination provisions of the Modifications, (vi) to add new provisions authorizing the release or subordination of the collateral securing the 11% Notes in connection with, in anticipation of, as a result of, or in relation to, an “approved project”, and (vii) various provisions conforming the text of the original indenture to the intent of the preceding summary of the Modifications. | ||
(b) | On July 22, 2004, Atlantic Holdings consummated the Consent Solicitation and Offer to Exchange which it commenced and in which Atlantic Holdings offered to exchange its 3% Notes due July 22, 2008 for 11% Notes due September 29, 2005, issued by Property. Pursuant to the Consent Solicitation and Offer to Exchange, an aggregate principal amount of $66,258,970 of 11% Notes, representing 60.2% of the outstanding 11% Notes, were tendered to Atlantic Holdings, on a dollar for dollar basis, in exchange for an aggregate principal amount of $66,258,970 of 3% Notes. At the election of the holders of a majority in principal amount of the outstanding 3% Notes, each $1,000 principal amount of 3% Notes is payable in or convertible into 65.909 shares of Atlantic Holdings Common Stock, subject to adjustments for stock dividends, stock splits, recapitalizations and the like. As a result of the Transaction, the $43.7 million in 11% Notes are no longer secured by any property or equipment of the Company. Holders of the 11% Notes that tendered in the Consent Solicitation and Offer to Exchange also received their pro rata share of the aggregate consent fees ($6.6 million) at the rate of $100 per $1000 principal amount of the 11% Notes tendered, plus accrued interest ($2.3 million) on the 11% Notes tendered, which amounts were paid at the consummation of the Transaction. The exchange is being accounted for as a modification of debt. The consent fees paid are being amortized over the term of the 3% Notes using the effective yield method. All external costs associated with the issuance of the 3% Notes have been expensed. As indicated in the Consent Solicitation and Offer to Exchange, an aggregate of 10,000,000 warrants, issued by Atlantic Holdings, were distributed on a pro rata basis to the shareholders of GB Holdings upon the consummation of the Transaction. Such Warrants allow the holders to purchase, from Atlantic Holdings, at an exercise price of $.01 per share, an aggregate of 2,750,000 shares of Atlantic Holdings Common |
F-74
Stock and are only exercisable following the earlier of (a) either the 3% Notes being paid in cash or upon conversion, in whole or in part, into Atlantic Holdings Common Stock, (b) payment in full of the outstanding principal of the 11% Notes which have not been exchanged, or (c) a determination by a majority of the board of directors of Atlantic Holdings (including at least one independent director of Atlantic Holdings) that the Warrants may be exercised. The fair value of the warrants as of July 22, 2004 (date of issuance) was $43,587,000 (as determined by a third party valuation). An additional $4.9 million in legal, accounting, professionals and state transfer fees were expended related to the Transaction, of which $3.1 million and $1.8 million were charged to debt restructuring costs during 2004 and 2003, respectively. |
F-75
(5) | Income Taxes |
Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Federal income tax provision | $ | $ | $ | ||||||||||
Current | — | — | — | ||||||||||
Deferred | — | — | — | ||||||||||
State income tax provision | |||||||||||||
Current | (986,000 | ) | (958,000 | ) | (784,000 | ) | |||||||
Deferred | — | — | — | ||||||||||
$ | (986,000 | ) | $ | (958,000 | ) | $ | (784,000 | ) | |||||
F-76
2004 | 2003 | ||||||||||
Deferred tax assets: | |||||||||||
Bad debt reserve | $ | 1,578,000 | $ | 2,418,000 | |||||||
Deferred financing costs | — | 234,000 | |||||||||
Group insurance | 904,000 | 747,000 | |||||||||
Accrued vacation | 603,000 | 613,000 | |||||||||
Action cash awards accrual | 191,000 | 123,000 | |||||||||
Jackpot accrual | 407,000 | 298,000 | |||||||||
Medical reserve | 534,000 | 408,000 | |||||||||
Debt restructuring costs | — | 754,000 | |||||||||
CRDA | 6,293,000 | 5,724,000 | |||||||||
Federal and state net operating loss carryforward | 21,962,000 | 17,004,000 | |||||||||
Workers Compensation | 462,000 | — | |||||||||
Grantors trust income | 3,713,000 | 3,616,000 | |||||||||
Credit carryforwards | 3,345,000 | 3,385,000 | |||||||||
Other | 770,000 | 297,000 | |||||||||
Total deferred tax assets | 40,762,000 | 35,621,000 | |||||||||
Less valuation allowance | (24,209,000 | ) | (17,685,000 | ) | |||||||
Total deferred tax assets after valuation allowance | 16,553,000 | 17,936,000 | |||||||||
Deferred tax liabilities: | |||||||||||
Noncurrent: | |||||||||||
Depreciation of plant and equipment | (16,336,000 | ) | (17,812,000 | ) | |||||||
Deferred financing costs | (81,000 | ) | — | ||||||||
Other | (11,000 | ) | — | ||||||||
Chips and tokens | (125,000 | ) | (124,000 | ) | |||||||
Total deferred tax liabilities | (16,553,000 | ) | (17,936,000 | ) | |||||||
Net deferred tax assets (liabilities) | $ | — | $ | — | |||||||
F-77
Years Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Expected federal benefit | (35.0 | )% | (35.0 | )% | (35.0 | )% | ||||||
State taxes net of federal benefit | (0.4 | )% | (2.2 | )% | (1.6 | )% | ||||||
State tax rate correction | 0.0 | % | 3.9 | % | 0.0 | % | ||||||
Expired tax credit | 2.7 | % | 0.7 | % | 0.0 | % | ||||||
Permanent differences | 0.4 | % | 0.2 | % | 0.9 | % | ||||||
Tax credits | (6.2 | )% | (5.2 | )% | (13.2 | )% | ||||||
Deferred tax valuation allowance | 55.2 | % | 43.3 | % | 57.8 | % | ||||||
Other | (8.4 | )% | 0.0 | % | 3.1 | % | ||||||
8.3 | % | 5.7 | % | 12.0 | % | |||||||
(6) | Transactions with Related Parties |
F-78
(7) | New Jersey Regulations and Obligatory Investments |
F-79
(8) | Commitments and Contingencies |
Legal Proceedings |
Labor Relations |
F-80
(9) | Employee Retirement Savings Plan |
(10) | Disclosures about Fair Value of Financial Instruments |
December 31, 2004 | December 31, 2003 | ||||||||||||||||
Carrying | Carrying | ||||||||||||||||
Amount | Fair Value | Amount | Fair Value | ||||||||||||||
Financial Assets: | |||||||||||||||||
Cash and cash equivalents | $ | 12,756,000 | $ | 12,756,000 | $ | 33,454,000 | $ | 33,454,000 | |||||||||
Obligatory investments, net | 11,647,000 | 11,647,000 | 10,705,000 | 10,705,000 | |||||||||||||
Financial Liabilities: | |||||||||||||||||
Interest payable | 2,099,000 | 2,099,000 | 3,092,000 | 3,092,000 | |||||||||||||
11% Notes | 43,741,000 | 35,430,000 | 110,000,000 | 91,300,000 | |||||||||||||
3% Notes | 66,259,000 | 64,452,000 | — | — |
F-81
(11) | Leases |
Operating Leases | Capital Leases | |||||||||
2005 | $ | 1,967,000 | $ | 286,000 | ||||||
2006 | 1,998,000 | 286,000 | ||||||||
2007 | 1,998,000 | 188,000 | ||||||||
2008 | 1,998,000 | — | ||||||||
2009 | 1,998,000 | — | ||||||||
Thereafter | 6,434,000 | — | ||||||||
Total Minimum Lease Payments | $ | 16,393,000 | 760,000 | |||||||
Less imputed interest costs | (80,000 | ) | ||||||||
Present value of Net Minimum Capital Lease Payments | $ | 680,000 | ||||||||
(12) | Subsequent Events |
(13) | Selected Quarterly Financial Data (Unaudited) |
Quarter | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Year Ended December 31, 2004 | ||||||||||||||||
Net revenues | $ | 40,990,000 | $ | 44,570,000 | $ | 44,160,000 | $ | 41,523,000 | ||||||||
Income (loss) from operations | $ | 915,000 | $ | 1,911,000 | $ | 719,000 | $ | (1,604,000 | ) | |||||||
Net loss | $ | (3,140,000 | ) | $ | (2,493,000 | ) | $ | (3,124,000 | ) | $ | (4,065,000 | ) | ||||
Net loss per share | $ | (0.31 | ) | $ | (0.25 | ) | $ | (0.31 | ) | $ | (0.41 | ) | ||||
Year Ended December 31, 2003 | ||||||||||||||||
Net revenues | $ | 39,303,000 | $ | 45,464,000 | $ | 45,211,000 | $ | 37,771,000 | ||||||||
Income (loss) from operations | $ | (1,298,000 | ) | $ | 2,607,000 | $ | (144,000 | ) | $ | (4,123,000 | ) | |||||
Net loss | $ | (4,401,000 | ) | $ | (507,000 | ) | $ | (3,456,000 | ) | $ | (9,349,000 | ) | ||||
Net loss per share | $ | (0.44 | ) | $ | (0.05 | ) | $ | (0.35 | ) | $ | (0.93 | ) | ||||
F-82
Additions | ||||||||||||||||
Amounts | ||||||||||||||||
Balance of | Charged to | |||||||||||||||
Beginning of | Costs and | Balance at | ||||||||||||||
Period | Expenses | Deductions | End of Period | |||||||||||||
Year Ended December 31, 2004: | ||||||||||||||||
Allowance for doubtful accounts receivable | $ | 5,918,000 | $ | 416,000 | $ | (2,472,000 | )(1) | $ | 3,862,000 | |||||||
Allowance for obligatory investments | 11,340,000 | 1,165,000 | (5,000 | )(2) | 12,500,000 | |||||||||||
$ | 17,258,000 | $ | 1,581,000 | $ | (2,477,000 | ) | $ | 16,362,000 | ||||||||
Year Ended December 31, 2003: | ||||||||||||||||
Allowance for doubtful accounts receivable | $ | 11,301,000 | $ | 1,040,000 | $ | (6,423,000 | )(1) | $ | 5,918,000 | |||||||
Allowance for obligatory investments | 10,028,000 | 1,434,000 | (122,000 | )(2) | 11,340,000 | |||||||||||
$ | 21,329,000 | $ | 2,474,000 | $ | (6,545,000 | ) | $ | 17,258,000 | ||||||||
Year Ended December 31, 2002: | ||||||||||||||||
Allowance for doubtful accounts receivable | $ | 14,406,000 | $ | 1,586,000 | $ | (4,691,000 | )(1) | $ | 11,301,000 | |||||||
Allowance for obligatory investments | 9,290,000 | 1,521,000 | (783,000 | )(2) | 10,028,000 | |||||||||||
$ | 23,696,000 | $ | 3,107,000 | $ | (5,474,000 | ) | $ | 21,329,000 | ||||||||
(1) | Represents net write offs of uncollectible accounts. |
(2) | Represents write offs of obligatory investments in connection with the contribution of certain obligatory investments to CRDA approved projects. |
F-83
As of | ||||||||||
March 31, | December 31, | |||||||||
2005 | 2004 | |||||||||
(Unaudited) | ||||||||||
(In thousands) | ||||||||||
ASSETS | ||||||||||
Current Assets: | ||||||||||
Cash and cash equivalents | $ | 14,929 | $ | 12,756 | ||||||
Accounts receivable, net | 4,371 | 5,100 | ||||||||
Deferred financing costs | 2,237 | 2,260 | ||||||||
Other current assets | 9,813 | 7,328 | ||||||||
Total Current Assets | 31,350 | 27,444 | ||||||||
Property and equipment, net | 168,237 | 171,640 | ||||||||
Obligatory investments, net | 11,830 | 11,647 | ||||||||
Deferred financing costs | 3,970 | 4,509 | ||||||||
Other assets | 1,667 | 1,718 | ||||||||
Total Other Assets | 17,467 | 17,874 | ||||||||
TOTAL ASSETS | $ | 217,054 | $ | 216,958 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
Current Liabilities: | ||||||||||
Line of credit | $ | 4,000 | $ | — | ||||||
Current portion of long-term debt | 43,741 | 43,741 | ||||||||
Accounts payable — trade | 3,912 | 3,995 | ||||||||
Accrued expenses | 10,261 | 11,360 | ||||||||
Accrued payroll and related expenses | 7,503 | 6,819 | ||||||||
Related party payables | 588 | 371 | ||||||||
Current portion of capital lease obligation | 236 | 248 | ||||||||
Total Current Liabilities | 70,241 | 66,534 | ||||||||
Long-Term Liabilities: | ||||||||||
Long-term debt, less current portion | 66,259 | 66,259 | ||||||||
Capital lease obligations, less current portion | 385 | 432 | ||||||||
Other | 5,496 | 4,920 | ||||||||
Total Long-Term Liabilities | 72,140 | 71,611 | ||||||||
Commitments and Contingencies | ||||||||||
Warrants in Atlantic Coast Entertainment Holdings, Inc. | 43,587 | 43,587 | ||||||||
Shareholders’ Equity: | ||||||||||
Preferred stock, $.01 par value per share; 5,000,000 shares authorized; 0 shares outstanding | — | — | ||||||||
Common stock, $.01 par value share; 20,000,000 shares authorized; 10,000,000 shares issued and outstanding | 100 | 100 | ||||||||
Additional paid-in capital | 81,313 | 81,313 | ||||||||
Accumulated deficit | (50,327 | ) | (46,187 | ) | ||||||
Total Shareholders’ Equity | 31,086 | 35,226 | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 217,054 | $ | 216,958 | ||||||
F-84
Three Months | Three Months | ||||||||
Ended | Ended | ||||||||
March 31, 2005 | March 31, 2004 | ||||||||
(In thousands, except per share data) | |||||||||
(Unaudited) | |||||||||
REVENUES: | |||||||||
Casino | $ | 37,341 | $ | 38,119 | |||||
Hotel | 2,294 | 2,288 | |||||||
Food and beverage | 4,866 | 4,990 | |||||||
Other | 807 | 927 | |||||||
Gross Revenues | 45,308 | 46,324 | |||||||
Less promotional allowances | (5,343 | ) | (5,334 | ) | |||||
Net Revenues | 39,965 | 40,990 | |||||||
COSTS AND EXPENSES: | |||||||||
Casino | 11,827 | 12,214 | |||||||
Hotel | 703 | 655 | |||||||
Food and beverage | 1,566 | 2,027 | |||||||
Other operating expenses | 209 | 203 | |||||||
Selling, general and administrative | 22,925 | 21,041 | |||||||
Depreciation and amortization | 4,026 | 3,567 | |||||||
Provision for obligatory investments | 238 | 368 | |||||||
Gain on sale of assets | (4 | ) | — | ||||||
Total Costs And Expenses | 41,490 | 40,075 | |||||||
(LOSS) INCOME FROM OPERATIONS | (1,525 | ) | 915 | ||||||
OTHER INCOME (EXPENSE): | |||||||||
Interest income | 107 | 111 | |||||||
Interest expense | (2,451 | ) | (3,189 | ) | |||||
Debt restructuring costs | (24 | ) | (710 | ) | |||||
Total other expense, net | (2,368 | ) | (3,788 | ) | |||||
LOSS BEFORE INCOME TAXES | (3,893 | ) | (2,873 | ) | |||||
Provision for income taxes | 247 | 267 | |||||||
NET LOSS | $ | (4,140 | ) | $ | (3,140 | ) | |||
Basic/diluted loss per common share | $ | (0.41 | ) | $ | (0.31 | ) | |||
Weighted average common shares outstanding | 10,000,000 | 10,000,000 | |||||||
F-85
Three Months | Three Months | ||||||||
Ended | Ended | ||||||||
March 31, 2005 | March 31, 2004 | ||||||||
(In thousands) | |||||||||
(Unaudited) | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
Net Loss | $ | (4,140 | ) | $ | (3,140 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||
Depreciation and amortization | 4,026 | 3,567 | |||||||
Provision for obligatory investments | 238 | 368 | |||||||
Gain on sale of assets | (4 | ) | — | ||||||
Changes in operating assets and liabilities: | |||||||||
Accounts receivable, net | 729 | 94 | |||||||
Deferred financing costs | 595 | — | |||||||
Other current assets | (2,486 | ) | 900 | ||||||
Accounts payable and accrued expenses | (281 | ) | (4,612 | ) | |||||
Long-term liabilities | 576 | 56 | |||||||
Net Cash Used in Operating Activities | (747 | ) | (2,767 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
Acquisition of property and equipment | (571 | ) | (2,118 | ) | |||||
Purchase of obligatory investments | (553 | ) | (517 | ) | |||||
Cash proceeds from sale of property and equipment | 4 | 9 | |||||||
Cash proceeds from sale of obligatory investments | 132 | — | |||||||
Net Cash Used in Investing Activities | (988 | ) | (2,626 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
Net proceeds from borrowing on line of credit | 4,000 | — | |||||||
Deferred financing fees | (33 | ) | — | ||||||
Payments on capital lease obligation | (59 | ) | — | ||||||
Net Cash Provided by Financing Activities | 3,908 | — | |||||||
Net increase (decrease) in cash and cash equivalents | 2,173 | (5,393 | ) | ||||||
Cash and cash equivalents — beginning of period | 12,756 | 33,454 | |||||||
Cash and Cash Equivalents — End of Period | $ | 14,929 | $ | 28,061 | |||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||||
Cash paid for interest | $ | 2,494 | $ | 6,050 | |||||
Cash paid for income taxes | $ | 88 | $ | 88 | |||||
Interest capitalized | $ | 2 | $ | 28 | |||||
F-86
(1) | Organization, Business and Basis of Presentation |
Reclassifications |
F-87
(2) | Liquidity Matters |
(3) | Related Party Transactions |
(4) | Line of Credit |
F-88
(5) | Commitments and Contingencies |
F-89
/s/KPMG LLP |
F-90
As of December 31, | |||||||||
2004 | 2003 | ||||||||
(Restated) | (Restated) | ||||||||
(Dollars in thousands, except | |||||||||
share related data) | |||||||||
ASSETS | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 12,756 | $ | 16,904 | |||||
Accounts receivable, net | 5,100 | 5,247 | |||||||
Inventories | 2,499 | 2,222 | |||||||
Insurance deposits | 3,017 | — | |||||||
Prepaid expenses and other current assets | 2,017 | 4,150 | |||||||
Total current assets | 25,389 | 28,523 | |||||||
Property and Equipment: | |||||||||
Land | 54,344 | 54,344 | |||||||
Buildings and Improvements | 88,147 | 88,249 | |||||||
Equipment | 73,675 | 64,722 | |||||||
Construction in progress | 2,040 | 2,111 | |||||||
218,206 | 209,426 | ||||||||
Less — accumulated depreciation and amortization | (46,566 | ) | (40,013 | ) | |||||
Property and equipment, net | 171,640 | 169,413 | |||||||
Other assets: | |||||||||
Obligatory investments, net | 11,647 | 10,705 | |||||||
Deferred financing costs and other assets | 8,113 | 2,369 | |||||||
Total other assets | 19,760 | 13,074 | |||||||
$ | 216,789 | $ | 211,010 | ||||||
LIABILITIES AND SHAREHOLDER’S EQUITY | |||||||||
Current liabilities: | |||||||||
Current portion capital leases | $ | 248 | $ | — | |||||
Accounts payable | 6,710 | 6,815 | |||||||
Accounts payable-related party | 371 | 48 | |||||||
Accrued liabilities: | |||||||||
Accrued payroll and related expenses | 6,818 | 4,241 | |||||||
Gaming obligations | 3,173 | 2,725 | |||||||
Insurance | 1,891 | 2,505 | |||||||
Interest payable | — | 3,092 | |||||||
Other | 2,364 | 2,597 | |||||||
Total current liabilities | 21,575 | 22,023 | |||||||
Long-term debt | 66,259 | 110,000 | |||||||
Notes payable — related party | — | 21,900 | |||||||
Non-current capital leases | 432 | — | |||||||
Other Non-current Liabilities | 4,920 | 3,728 | |||||||
Commitments and Contingencies | |||||||||
Shareholder’s Equity: | |||||||||
Common stock, $0.1 par value per share; 20,000,000 shares authorized; 2,882,938 and 101 shares outstanding | 29 | — | |||||||
Additional paid-in capital | 126,550 | 89,660 | |||||||
Warrants outstanding | 43,587 | — | |||||||
Accumulated deficit | (46,563 | ) | (36,301 | ) | |||||
Total shareholder’s equity | 123,603 | 53,359 | |||||||
$ | 216,789 | $ | 211,010 | ||||||
F-91
'
Year Ended | Year Ended | Year Ended | ||||||||||||
December 31, | December 31, | December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||||
(Dollars in thousands, except share related data) | ||||||||||||||
Revenues: | ||||||||||||||
Casino | $ | 157,643 | $ | 154,813 | $ | 175,065 | ||||||||
Rooms | 10,908 | 10,994 | 11,143 | |||||||||||
Food and beverage | 21,898 | 21,962 | 23,330 | |||||||||||
Other | 3,940 | 3,914 | 3,735 | |||||||||||
194,389 | 191,683 | 213,273 | ||||||||||||
Less — promotional allowances | (23,146 | ) | (23,934 | ) | (23,356 | ) | ||||||||
Net revenues | 171,243 | 167,749 | 189,917 | |||||||||||
Expenses: | ||||||||||||||
Casino | 50,467 | 52,657 | 59,971 | |||||||||||
Rooms | 3,397 | 2,677 | 3,639 | |||||||||||
Food and beverage | 7,930 | 8,481 | 10,343 | |||||||||||
Other | 870 | 1,297 | 1,222 | |||||||||||
Selling, general and administrative | 90,285 | 89,864 | 93,697 | |||||||||||
Depreciation and amortization | 14,898 | 14,123 | 13,292 | |||||||||||
Provision for obligatory investments | 1,165 | 1,434 | 1,521 | |||||||||||
Loss on impairment of fixed assets | — | — | 1,282 | |||||||||||
Loss on disposal of assets | 152 | 28 | 185 | |||||||||||
Total expenses | 169,164 | 170,561 | 185,152 | |||||||||||
Income (loss) from operations | 2,079 | (2,812 | ) | 4,765 | ||||||||||
Non-operating income (expense): | ||||||||||||||
Interest income | 345 | 341 | 445 | |||||||||||
Interest expense | (8,883 | ) | (12,581 | ) | (12,195 | ) | ||||||||
Debt restructuring costs | (2,759 | ) | (1,843 | ) | — | |||||||||
Total non-operating expense, net | (11,297 | ) | (14,083 | ) | (11,750 | ) | ||||||||
Loss before income taxes | (9,218 | ) | (16,895 | ) | (6,985 | ) | ||||||||
Income tax provision | (1,044 | ) | (862 | ) | (784 | ) | ||||||||
Net loss | $ | (10,262 | ) | $ | (17,757 | ) | $ | (7,769 | ) | |||||
Basic/diluted loss per common share | $ | (3.56 | ) | $ | (6.16 | ) | $ | (2.69 | ) | |||||
Weighted average common shares outstanding | 2,882,938 | 2,882,938 | 2,882,938 | |||||||||||
F-92
Additional | ||||||||||||||||||||||||
Common Stock | Paid-In | Accumulated | ||||||||||||||||||||||
Shares | Amount | Capital | Warrants | Deficit | Total | |||||||||||||||||||
(Dollars in thousands, except share related data) | ||||||||||||||||||||||||
BALANCE, December 31, 2001 (Restated) | 100 | $ | — | $ | 89,659 | $ | — | $ | (10,775 | ) | $ | 78,884 | ||||||||||||
Net Loss | (7,769 | ) | (7,769 | ) | ||||||||||||||||||||
BALANCE, December 31, 2002 (Restated) | 100 | — | 89,659 | — | (18,544 | ) | 71,115 | |||||||||||||||||
Issuance of common shares | 1 | 1 | 1 | |||||||||||||||||||||
Net Loss | (17,757 | ) | (17,757 | ) | ||||||||||||||||||||
BALANCE, December 31, 2003 (Restated) | 101 | — | 89,660 | — | (36,301 | ) | 53,359 | |||||||||||||||||
Assumption of net liabilities by GB Holdings and issuance of common stock and warrants in connection with the Transaction | 2,882,837 | 29 | 41,663 | 43,587 | — | 85,279 | ||||||||||||||||||
Return of capital | (4,773 | ) | (4,773 | ) | ||||||||||||||||||||
Net Loss | (10,262 | ) | (10,262 | ) | ||||||||||||||||||||
BALANCE, December 31, 2004 (Restated) | 2,882,938 | $ | 29 | $ | 126,550 | $ | 43,587 | $ | (46,563 | ) | $ | 123,603 | ||||||||||||
F-93
Year Ended | Year Ended | Year Ended | |||||||||||||
December 31, 2004 | December 31, 2003 | December 31, 2002 | |||||||||||||
(Restated) | (Restated) | (Restated) | |||||||||||||
(In thousands) | |||||||||||||||
OPERATING ACTIVITIES: | |||||||||||||||
Net Loss | $ | (10,262 | ) | $ | (17,757 | ) | $ | (7,769 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||||||
Depreciation and amortization | 14,898 | 14,123 | 13,292 | ||||||||||||
Provision for obligatory investments | 1,165 | 1,434 | 1,521 | ||||||||||||
Provision for doubtful accounts | 416 | 1,040 | 1,586 | ||||||||||||
Loss on impairment of fixed assets | — | — | 1,282 | ||||||||||||
Loss on disposal of assets | 152 | 28 | 185 | ||||||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Accounts receivable | (269 | ) | (1,311 | ) | 2,332 | ||||||||||
Other current assets | (1,161 | ) | 464 | (272 | ) | ||||||||||
Noncurrent assets | 589 | 124 | — | ||||||||||||
Accounts payable and accrued liabilities | 3,668 | (861 | ) | (2,570 | ) | ||||||||||
Noncurrent liabilities | (368 | ) | 283 | (394 | ) | ||||||||||
Net cash provided by (used in) operating activities | 8,828 | (2,433 | ) | 9,193 | |||||||||||
INVESTING ACTIVITIES: | |||||||||||||||
Proceeds from sale of obligatory investments | 201 | 130 | 208 | ||||||||||||
Related party receivables | — | 24 | 29 | ||||||||||||
Purchase of obligatory investments | (2,308 | ) | (2,336 | ) | (2,496 | ) | |||||||||
Purchase of property and equipment | (16,620 | ) | (12,825 | ) | (14,058 | ) | |||||||||
Proceeds from disposition of assets | 308 | 110 | 320 | ||||||||||||
Net cash used in investing activities | (18,419 | ) | (14,897 | ) | (15,997 | ) | |||||||||
FINANCING ACTIVITIES: | |||||||||||||||
Related party payable | — | 15,399 | 6,501 | ||||||||||||
Cash transferred from GB Holdings | 16,920 | — | — | ||||||||||||
Repayments of long-term debt | — | — | (371 | ) | |||||||||||
Repayment of capital leases | (78 | ) | — | — | |||||||||||
Return of capital GB Holdings, Inc. | (4,773 | ) | — | — | |||||||||||
Cost of issuing long-term debt | (6,626 | ) | — | — | |||||||||||
Issuance of common stock | — | 1 | — | ||||||||||||
Net cash provided by financing activities | 5,443 | 15,400 | 6,130 | ||||||||||||
Net decrease in cash and cash equivalents | (4,148 | ) | (1,930 | ) | (674 | ) | |||||||||
Cash and cash equivalents at beginning of period | 16,904 | 18,834 | 19,508 | ||||||||||||
Cash and cash equivalents at end of period | $ | 12,756 | $ | 16,904 | 18,834 | ||||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||||||||||
Cash paid for income taxes | $ | 1,051 | $ | 899 | $ | 1,764 | |||||||||
Cash paid for interest | $ | 8,339 | $ | 12,100 | $ | 12,128 | |||||||||
Interest capitalized | $ | 86 | $ | 300 | $ | 766 | |||||||||
Assumption of net liabilities by GB Holdings in connection with the Transaction | $ | 68,359 | $ | — | $ | — | |||||||||
Purchase of equipment with capital lease | $ | 758 | $ | — | $ | — | |||||||||
Issuance of 3% Notes in exchange for 11% Notes | $ | 66,259 | $ | — | $ | — | |||||||||
F-94
(1) | Organization, Business and Basis of Presentation |
F-95
Basis of Presentation |
Current assets, primarily prepayments | $ | 266 | ||
Long-term debt, current | $ | 43,741 | ||
Note payable, related party | $ | 21,900 | ||
Accrued interest | $ | 2,984 |
(2) | Summary of Significant Accounting Policies |
F-96
Casino revenues, promotional allowances and departmental expenses — |
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2004 | 2003 | 2002 | ||||||||||
Allocation From: | ||||||||||||
Rooms | $ | 6,511 | $ | 7,360 | $ | 8,274 | ||||||
Food and Beverage | 16,116 | 16,482 | 17,399 | |||||||||
Other Operating | 2,294 | 2,070 | 1,324 | |||||||||
$ | 24,921 | $ | 25,912 | $ | 26,997 | |||||||
Allocation To: | ||||||||||||
Casino | $ | 3,846 | $ | 3,815 | $ | 4,186 | ||||||
Selling, General and Administrative | 21,075 | 22,097 | 22,811 | |||||||||
$ | 24,921 | $ | 25,912 | $ | 26,997 | |||||||
Cash and cash equivalents — |
Allowance for doubtful accounts — |
F-97
Inventories — |
Property and equipment — |
Buildings and improvements | 25-40 years | |||
Operating Equipment | 3-7 years |
Deferred financing costs — |
Long-lived assets — |
F-98
Accrued insurance — |
Income taxes — |
Loss per share — |
(3) Restatement |
F-99
December 31, 2004 | |||||||||
As Previously | |||||||||
Reported | As Restated | ||||||||
ASSETS | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 12,756 | $ | 12,756 | |||||
Accounts receivable, net | 5,223 | 5,100 | |||||||
Inventories | 2,499 | 2,499 | |||||||
Deferred financing costs | 2,094 | (1) | — | ||||||
Insurance deposits | 3,017 | 3,017 | |||||||
Prepaid expenses and other current assets | 1,686 | (1) | 2,017 | ||||||
Total current assets | 27,275 | 25,389 | |||||||
Property and Equipment: | |||||||||
Land | 54,344 | 54,344 | |||||||
Buildings and Improvements | 88,147 | 88,147 | |||||||
Equipment | 73,675 | 73,675 | |||||||
Construction in progress | 2,040 | 2,040 | |||||||
218,206 | 218,206 | ||||||||
Less-accumulated depreciation and amortization | (46,566 | ) | (46,566 | ) | |||||
Property and equipment, net | 171,640 | 171,640 | |||||||
Other assets: | |||||||||
Obligatory investments, net | 11,647 | 11,647 | |||||||
Deferred financing costs and other assets | 6,227 | (1) | 8,113 | ||||||
Total other assets | 17,784 | 19,760 | |||||||
$ | 216,789 | $ | 216,789 | ||||||
LIABILITIES AND SHAREHOLDER’S EQUITY | |||||||||
Current liabilities: | |||||||||
Current portion capital leases | $ | 248 | (3) | $ | 248 | ||||
Accounts payable | 7,082 | (2) | 6,710 | ||||||
Accounts payable-related party | — | (2) | 371 | ||||||
Accrued liabilities: | |||||||||
Accrued payroll and related expenses | 4,379 | (3) | 6,818 | ||||||
Gaming obligations | 3,363 | (3) | 3,173 | ||||||
Insurance | 4,330 | (3) | 1,891 | ||||||
Other | 2,173 | (3) | 2,364 | ||||||
Total current liabilities | 21,575 | 21,575 | |||||||
Long-term debt | 66,259 | 66,259 | |||||||
Non-current capital leases | 432 | 432 | |||||||
Other Non-current Liabilities | 4,920 | 4,920 | |||||||
Commitments and Contingencies | |||||||||
Shareholder’s Equity: | |||||||||
Common stock, $0.1 par value per share; 20,00,000 shares authorized; 2,882,938 shares outstanding | 29 | 29 | |||||||
Additional paid-in capital | 86,401 | (4) | 126,550 | ||||||
Warrants outstanding | 43,587 | 43,587 | |||||||
Accumulated deficit | (6,414 | )(4) | (46,563 | ) | |||||
Total shareholder’s equity | 123,603 | 123,603 | |||||||
$ | 216,789 | $ | 216,789 | ||||||
(1) | Amounts restated to properly classify deferred financing costs as other noncurrent assets. | |||
(2) | Amounts reclassified to disclose amounts payable to related parties. | |||
(3) | Amounts reclassified within accrued liabilities. | |||
(4) | Amounts restated to properly reflect balances on a combined basis. |
As Previously | ||||||||||
Reported | As Restated | |||||||||
Year ended December 31, 2004: | ||||||||||
Revenues: | ||||||||||
Casino | $ | 66,208 | $ | 157,643 | ||||||
Rooms | 5,054 | 10,908 | ||||||||
Food and Beverage | 9,830 | 21,898 | ||||||||
Other | 1,804 | 3,940 | ||||||||
82,896 | 194,389 | |||||||||
Less — promotional allowances | (10,323 | ) | (23,146 | ) | ||||||
Net revenues | 72,573 | 171,243 | ||||||||
Expenses: | ||||||||||
Casino | 22,250 | 50,467 | ||||||||
Rooms | 1,724 | 3,397 | ||||||||
Food and Beverage | 3,316 | 7,930 | ||||||||
Other | 402 | 870 | ||||||||
Selling, general and administrative | 41,142 | 90,285 | ||||||||
Depreciation and amortization | 6,844 | 14,898 | ||||||||
Provision for obligatory investments | 508 | 1,165 | ||||||||
Loss on disposal of assets | 187 | 152 | ||||||||
Total expenses | 76,373 | 169,164 | ||||||||
Income (loss) from operations | (3,800 | ) | 2,079 | |||||||
Non-operating income (expense): | ||||||||||
Interest income | 172 | 345 | ||||||||
Interest expense | (1,837 | ) | (8,883 | ) | ||||||
Debt restructuring costs | (475 | ) | (2,759 | ) | ||||||
Total non-operating expense, net | (2,140 | ) | (11,297 | ) | ||||||
Loss before income taxes | (5,940 | ) | (9,218 | ) | ||||||
Income tax provision | (474 | ) | (1,044 | ) | ||||||
Net loss | $ | (6,414 | ) | $ | (10,262 | ) | ||||
Basic/diluted loss per share | $ | (5.00 | ) | $ | (3.56 | ) | ||||
Weighted average common shares outstanding | 1,283,929 | 2,882,938 | ||||||||
F-100
Year Ended December 31, 2004 | ||||||||||||
As Previously | ||||||||||||
Reported | As Restated | |||||||||||
OPERATING ACTIVITIES: | ||||||||||||
Net Loss | $ | (6,414 | ) | $ | (10,262 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 6,844 | 14,898 | ||||||||||
Provision for obligatory investments | 508 | 1,165 | ||||||||||
Loss on disposal of assets | 187 | 152 | ||||||||||
Provision for doubtful accounts | 62 | 416 | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||
Decrease accounts receivable | (393 | ) | (269 | ) | ||||||||
Deferred financing costs | 821 | — | ||||||||||
Other current assets | (518 | ) | (1,161 | ) | ||||||||
Noncurrent assets | (538 | ) | 589 | |||||||||
Accounts payable and accrued liabilities | (1,529 | ) | 3,668 | |||||||||
Increase (decrease) noncurrent liabilities | 1,014 | (368 | ) | |||||||||
Net cash provided by operating activities | 44 | 8,828 | ||||||||||
INVESTING ACTIVITIES: | ||||||||||||
Proceeds from sale of obligatory investments | 201 | |||||||||||
Purchase of obligatory investments | (932 | ) | (2,308 | ) | ||||||||
Purchase of property and equipment | (10,269 | ) | (16,620 | ) | ||||||||
Proceeds from disposition of assets | 163 | 308 | ||||||||||
Net cash used in investing activities | (11,038 | ) | (18,419 | ) | ||||||||
FINANCING ACTIVITIES: | ||||||||||||
Cash transferred from GB Holdings | — | 16,920 | ||||||||||
Proceeds from capital leases | 758 | — | ||||||||||
Repayment of capital leases | (78 | ) | (78 | ) | ||||||||
Proceeds from capital contributions from GB Holdings, Inc. | 34,468 | — | ||||||||||
Return of capital GB Holdings, Inc. | (4,773 | ) | (4,773 | ) | ||||||||
Cost of issuing long-term debt | (6,626 | ) | (6,626 | ) | ||||||||
Net cash provided by financing activities | 23,749 | 5,443 | ||||||||||
Net increase (decrease) in cash and cash equivalents | 12,755 | (4,148 | ) | |||||||||
Cash and cash equivalents at beginning of period | 1 | 16,904 | ||||||||||
Cash and cash equivalents at end of period | $ | 12,756 | $ | 12,756 | ||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||
Cash paid for income taxes | $ | 355 | $ | 1,051 | ||||||||
Transfer of net assets from GB Holdings, Inc. | $ | 98,033 | $ | — | ||||||||
Cash paid for interest | $ | — | $ | 8,339 | ||||||||
Interest capitalized | $ | 15 | $ | 86 | ||||||||
Dividends to common shareholders in the form of Warrants in Atlantic Coast Entertainment Holdings, Inc. | $ | 43,587 | $ | — | ||||||||
Assumption of net liabilities by GB Holdings in connection with the Transaction | $ | — | $ | 68,359 | ||||||||
Purchase of equipment with capital lease | $ | — | $ | 758 | ||||||||
Issuance of 3% notes in exchange for 11% notes | $ | — | $ | 66,259 | ||||||||
F-101
(4) | Long-Term Debt |
As of December 31, | |||||||||
2004 | 2003 | ||||||||
11% Notes, due September 29, 2005(a) | $ | — | $ | 110,000 | |||||
3% Notes due July 22, 2008(b) | 66,259 | — | |||||||
Total long-term debt | $ | 66,259 | $ | 110,000 | |||||
(a) | In accordance with its approved plan of reorganization, GB Holdings through its then wholly-owned subsidiaries issued $110 million at 11% interest payable September 29, 2005 (“11% Notes”). Interest on the 11% Notes is payable on March 29 and September 29, beginning March 29, 2001. The outstanding principal is due on September 29, 2005. |
The original indenture for the 11% Notes contained various provisions, which, among other things, restricted the ability of GB Holdings, and GBHC to incur certain senior secured indebtedness beyond certain limitations, and contained certain other limitations on the ability to merge, consolidate, or sell substantially all of their assets, to make certain restricted payments, to incur certain additional senior liens, and to enter into certain sale-leaseback transactions. | |
In a Consent Solicitation Statement and Consent Form dated September 14, 2001, Property sought the consent of holders of the 11% Notes to make certain changes to the original indenture (the “Modifications”). The Modifications included, but were not limited to, a deletion of, or changes to, certain provisions the result of which would be (i) to permit GB Holdings and its subsidiaries to incur any additional indebtedness without restriction, to issue preferred stock without restriction, to make distributions in respect of preferred stock and to prepay indebtedness without restriction, to incur liens without restriction and to enter into sale-leaseback transactions without restriction, (ii) to add additional exclusions to the definition of “asset sales” to exclude from the restrictions on “asset sales” sale-leaseback transactions, conveyances or contributions to any entity in which GB Holdings or its subsidiaries has or obtains equity or debt interests, and transactions (including the granting of liens) made in accordance with another provision of the Modifications relating to collateral release and subordination or any documents entered into in connection with an “approved project” (a new definition included as part of the Modifications which includes, if approved by the Board of Directors of GB Holdings, incurrence of indebtedness or the transfer of assets to any person if GB Holdings or any of its subsidiaries has or obtain debt or equity interests in the transferee or any similar, related or associated event, transaction or activity) in which a release or subordination of collateral has occurred including, without limitation, any sale or other disposition resulting from any default or foreclosure, (iii) to exclude from the operation of covenants related to certain losses to collateral, any assets and any proceeds thereof, which have been subject to the release or subordination provisions of the Modifications, (iv) to permit the sale or other conveyances of Casino Reinvestment Development Authority investments in accordance with the terms of a permitted security interest whether or not such sale was made at fair value, (v) to exclude from the operation of covenants related to the deposit into a collateral account of certain proceeds of “asset sales” or losses to collateral any assets and any proceeds thereof, which have been subject to the release or subordination provisions of the Modifications, (vi) to add new provisions authorizing the release or subordination of the collateral securing the 11% Notes in connection with, in |
F-102
(b) | On July 22, 2004, Atlantic Holdings consummated the Consent Solicitation and Offer to Exchange which it commenced and in which Atlantic Holdings offered to exchange its 3% Notes due on July 22, 2008 for GB Holdings 11% Notes due on September 29, 2005, issued by Property. Pursuant to the Consent Solicitation and Offer to Exchange, an aggregate principal amount of $66,258,970 of GB Holdings 11% Notes were tendered to Atlantic Holdings, on a dollar for dollar basis, in exchange for an aggregate principal amount of $66,258,970 of 3% Notes. The $43,741,030 of 11% Notes that were not tendered to Atlantic Holdings remain an obligation of GB Holdings and are not an obligation of Atlantic Holdings as of December 31, 2004. At the election of the holders of a majority in principal amount of the outstanding 3% Notes, each $1,000 principal amount of 3% Notes is payable in or convertible into 65.909 shares of common stock, par value $.01 per share (“Atlantic Holdings Common Stock”) of Atlantic Holdings, subject to adjustments for stock dividends, stock splits, recapitalizations and the like. Holders of the GB Holdings 11% Notes that tendered in the Consent Solicitation and Offer to Exchange also received their pro rata share of the aggregate consent fees ($6.6 million) at the rate of $100 per $1,000 principal amount of the GB Holdings 11% Notes tendered, plus accrued interest ($2.3 million) on the GB Holdings 11% Notes tendered, which amounts were paid at the consummation of the Transaction. The exchange is being accounted for as a modification of debt. The consent fees paid are being amortized over the term of the 3% Notes using the effective yield method. All external costs associated with the issuance of the 3% Notes have been expensed. As indicated in the Consent Solicitation and Offer to Exchange, an aggregate of 10,000,000 warrants, issued by Atlantic Holdings, were distributed on a pro rata basis to the shareholders of GB Holdings upon the consummation of the Transaction. Such Warrants allow the holders to purchase from Atlantic Holdings, at an exercise price of $.01 per share, an aggregate of 2,750,000 shares of Atlantic Holdings Common Stock and are only exercisable following the earlier of (a) either the 3% Notes being paid in cash or upon conversion, in whole or in part, into Atlantic Holdings Common Stock, (b) payment in full of the outstanding principal of the GB Holdings 11% Notes which have not been exchanged, or (c) a determination by a majority of the board of directors of Atlantic Holdings (including at least one independent director of Atlantic Holdings) that the Warrants may be exercised. The fair value of the warrants as of July 22, 2004 (date of issuance) was $43,587,000. |
F-103
(5) | Income Taxes |
Years Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Federal income tax provision: | |||||||||||||
Current | $ | — | $ | — | $ | — | |||||||
Deferred | — | — | — | ||||||||||
State income tax provision: | |||||||||||||
Current | (1,044 | ) | (862 | ) | (784 | ) | |||||||
Deferred | — | — | — | ||||||||||
$ | (1,044 | ) | $ | (862 | ) | $ | (784 | ) | |||||
F-104
December 31, | ||||||||||
2004 | 2003 | |||||||||
Deferred tax assets: | ||||||||||
Bad debt reserve | $ | 1,578 | $ | 2,418 | ||||||
Deferred financing costs | — | 234 | ||||||||
Group insurance | 904 | 747 | ||||||||
Accrued vacation | 603 | 613 | ||||||||
Action cash awards accrual | 191 | 123 | ||||||||
Jackpot accrual | 407 | 298 | ||||||||
Medical reserve | 534 | 408 | ||||||||
Debt restructuring costs | — | 754 | ||||||||
Casino Reinvestment Development Authority | 6,293 | 5,724 | ||||||||
Federal and state net operating loss carryforward | 21,252 | 17,210 | ||||||||
Workers Compensation | 462 | — | ||||||||
Grantors trust income | 3,713 | 3,616 | ||||||||
Credit carryforwards | 3,345 | 3,385 | ||||||||
Other | 770 | 297 | ||||||||
Total deferred tax assets | 40,052 | 35,827 | ||||||||
Less valuation allowance | (23,499 | ) | (17,891 | ) | ||||||
Total deferred tax assets after valuation allowances | 16,553 | 17,936 | ||||||||
Deferred tax liabilities: | ||||||||||
Non-current: | ||||||||||
Depreciation of plant and equipment | (16,336 | ) | (17,812 | ) | ||||||
Deferred financing costs | (81 | ) | — | |||||||
Other | (11 | ) | — | |||||||
Chips and tokens | (125 | ) | (124 | ) | ||||||
Total deferred tax liabilities | (16,553 | ) | (17,936 | ) | ||||||
Net deferred tax assets (liabilities) | $ | — | $ | — | ||||||
F-105
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Expected federal benefit | (35.0 | )% | (35.0 | )% | (35.0 | )% | ||||||
State taxes net of federal benefit | (0.5 | )% | (2.0 | )% | (1.5 | )% | ||||||
State tax rate correction | 0.0 | % | 3.8 | % | 0.0 | % | ||||||
Expired tax credit | 3.5 | % | 0.7 | % | 0.0 | % | ||||||
Permanent differences | 0.6 | % | 0.2 | % | 0.8 | % | ||||||
Tax credits | (7.9 | )% | (5.1 | )% | (12.4 | )% | ||||||
Deferred tax valuation allowance | 60.8 | % | 43.1 | % | 59.3 | % | ||||||
Other | (10.8 | )% | 0.0 | % | 0.0 | % | ||||||
10.7 | % | 5.7 | % | 11.2 | % | |||||||
(6) | Transactions with Related Parties |
F-106
(7) | New Jersey Regulations and Obligatory Investments |
F-107
(8) | Commitments and Contingencies |
Legal Proceedings |
F-108
Labor Relations |
(9) | Employee Retirement Savings Plan |
(10) | Disclosures about Fair Value of Financial Instruments |
F-109
As of December 31, 2004 | As of December 31, 2003 | ||||||||||||||||
Carrying | Carrying | ||||||||||||||||
Amount | Fair Value | Amount | Fair Value | ||||||||||||||
Financial Assets: | |||||||||||||||||
Cash and Cash equivalents | $ | 12,756 | $ | 12,756 | $ | 16,904 | $ | 16,904 | |||||||||
Obligatory investments, net | 11,647 | 11,647 | 10,705 | 10,705 | |||||||||||||
Financial Liabilities: | |||||||||||||||||
Interest payable | 883 | 883 | 3,092 | 3,092 | |||||||||||||
11% Notes | — | — | 110,000 | 91,300 | |||||||||||||
3% Notes | 66,259 | 64,452 | — | — |
(11) | Leases |
Operating | Capital | |||||||||
Leases | Leases | |||||||||
2005 | $ | 1,967 | $ | 286 | ||||||
2006 | 1,998 | 286 | ||||||||
2007 | 1,998 | 188 | ||||||||
2008 | 1,998 | — | ||||||||
2009 | 1,998 | — | ||||||||
Thereafter | 6,434 | — | ||||||||
Total Minimum Lease Payments | $ | 16,393 | 760 | |||||||
Less imputed interest costs | (80 | ) | ||||||||
Present value of Net Minimum Capital Lease Payments | $ | 680 | ||||||||
(12) | Subsequent Events |
F-110
As of | As of | ||||||||||
March 31, 2005 | December 31, 2004 | ||||||||||
(Restated) | |||||||||||
(Dollars in thousands, except share related data) | |||||||||||
(Unaudited) | |||||||||||
ASSETS | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 14,929 | $ | 12,756 | |||||||
Accounts receivable, net | 4,371 | 5,100 | |||||||||
Other current assets | 10,016 | 7,533 | |||||||||
Total Current Assets | 29,316 | 25,389 | |||||||||
Property and equipment, net | 168,237 | 171,640 | |||||||||
Obligatory investments, net | 11,830 | 11,647 | |||||||||
Deferred financing costs and other assets | 7,557 | 8,113 | |||||||||
Total Other Assets | 19,387 | 19,760 | |||||||||
TOTAL ASSETS | $ | 216,940 | $ | 216,789 | |||||||
LIABILITIES AND SHAREHOLDER’S EQUITY | |||||||||||
Current Liabilities: | |||||||||||
Line of credit | $ | 4,000 | $ | — | |||||||
Accounts payable-trade | 5,271 | 6,710 | |||||||||
Accrued expenses | 8,886 | 7,428 | |||||||||
Accrued payroll and related expenses | 7,503 | 6,818 | |||||||||
Accounts payable-related party | 588 | 371 | |||||||||
Current portion of capital lease obligation | 236 | 248 | |||||||||
Total Current Liabilities | 26,484 | 21,575 | |||||||||
Long-Term Liabilities: | |||||||||||
Long-term debt, less current portion | 66,259 | 66,259 | |||||||||
Capital lease obligations, less current portion | 385 | 432 | |||||||||
Other | 5,496 | 4,920 | |||||||||
Total Long-Term Liabilities | 72,140 | 71,611 | |||||||||
Commitments and Contingencies | |||||||||||
Shareholder’s Equity: | |||||||||||
Common Stock, $.01 par value share; 20,000,000 shares authorized; 2,882,938 shares outstanding | 29 | 29 | |||||||||
Additional paid-in capital | 124,083 | 126,550 | |||||||||
Warrants outstanding | 43,587 | 43,587 | |||||||||
Accumulated deficit | (49,383 | ) | (46,563 | ) | |||||||
Total Shareholder’s Equity | 118,316 | 123,603 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY | $ | 216,940 | $ | 216,789 | |||||||
F-111
Three Months | Three Months | |||||||||
Ended | Ended | |||||||||
March 31, 2005 | March 31, 2004 | |||||||||
(Restated) | ||||||||||
(Dollars in thousands, except share related data) | ||||||||||
(Unaudited) | ||||||||||
REVENUES: | ||||||||||
Casino | $ | 37,341 | $ | 38,119 | ||||||
Hotel | 2,294 | 2,288 | ||||||||
Food and beverage | 4,866 | 4,990 | ||||||||
Other | 807 | 927 | ||||||||
Gross revenues | 45,308 | 46,324 | ||||||||
Less promotional allowances | (5,343 | ) | (5,334 | ) | ||||||
Net revenues | 39,965 | 40,990 | ||||||||
COSTS AND EXPENSES: | ||||||||||
Casino | 11,827 | 12,214 | ||||||||
Hotel | 703 | 655 | ||||||||
Food and beverage | 1,566 | 2,027 | ||||||||
Other | 209 | 203 | ||||||||
Selling, general and administrative | 22,864 | 21,016 | ||||||||
Depreciation and amortization | 4,026 | 3,567 | ||||||||
Provision for obligatory investments | 238 | 368 | ||||||||
Gain on sale of assets | (4 | ) | — | |||||||
Total costs and expenses | 41,429 | 40,050 | ||||||||
INCOME (LOSS) FROM OPERATIONS | (1,464 | ) | 940 | |||||||
OTHER INCOME (EXPENSE): | ||||||||||
Interest income | 107 | 71 | ||||||||
Interest expense | (1,193 | ) | (3,190 | ) | ||||||
Debt restructuring costs | (23 | ) | (710 | ) | ||||||
Total other expense, net | (1,109 | ) | (3,829 | ) | ||||||
LOSS BEFORE INCOME TAXES | (2,573 | ) | (2,889 | ) | ||||||
Provision for income taxes | 247 | 267 | ||||||||
NET LOSS | $ | (2,820 | ) | $ | (3,156 | ) | ||||
Basic/diluted loss per common share | $ | (0.98 | ) | $ | (1.09 | ) | ||||
Weighted average common shares outstanding | 2,882,938 | 2,882,938 | ||||||||
F-112
Three Months | Three Months | |||||||||
Ended | Ended | |||||||||
March 31, 2005 | March 31, 2004 | |||||||||
(Restated) | ||||||||||
(In thousands) | ||||||||||
(Unaudited) | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
Net Loss | $ | (2,820 | ) | $ | (3,156 | ) | ||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||
Depreciation and amortization | 4,026 | 3,567 | ||||||||
Provision for obligatory investments | 238 | 368 | ||||||||
Gain on sale of assets | (4 | ) | — | |||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable, net | 729 | 76 | ||||||||
Other assets | (1,946 | ) | 865 | |||||||
Accounts payable and accrued expenses | 704 | (4,584 | ) | |||||||
Other liabilities | 576 | 71 | ||||||||
Net cash provided by (used in) operating activities | 1,503 | (2,793 | ) | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
Acquisition of property and equipment | (571 | ) | (2,118 | ) | ||||||
Purchase of obligatory investments | (553 | ) | (517 | ) | ||||||
Cash proceeds from sale of property and equipment | 4 | — | ||||||||
Cash proceeds from sale of obligatory investments | 132 | 9 | ||||||||
Net cash used in investing activities | (988 | ) | (2,626 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
Proceeds from borrowing on line of credit | 4,000 | — | ||||||||
Debt Issuance Cost | (33) | — | ||||||||
Related party payables | 217 | 4,100 | ||||||||
Payments on capital lease obligation | (59 | ) | — | |||||||
Return of capital of GB Holdings, Inc. | (2,467 | ) | — | |||||||
Net cash provided by financing activities | 1,658 | 4,100 | ||||||||
Net increase (decrease) in cash and cash equivalents | 2,173 | (1,319 | ) | |||||||
Cash and cash equivalents — beginning of period | 12,756 | 16,904 | ||||||||
Cash and cash equivalents — end of period | $ | 14,929 | $ | 15,585 | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||
Cash paid for interest | $ | 89 | $ | 6,050 | ||||||
Cash paid for income taxes | $ | 88 | $ | 88 | ||||||
Interest capitalized | $ | 2 | $ | 28 | ||||||
F-113
Note 1. | Organization, Business and Basis of Presentation |
Basis of Presentation |
F-114
Note 2. | Restatement |
Note 3. | Transactions with Related Parties |
Note 4. | Line of Credit |
F-115
Note 5. | Commitments and Contingencies |
F-116
(i) The Acquisitions; and | |
(ii) The issuance of $480.0 million of Senior Notes due 2013 at an interest rate of 71/8% per annum in February 2005. |
A-1
Historical(1) | ||||||||||||||||||||||||||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||||||||||||||||||||||||
AREP | NEG | GB | Intercompany | Historical | Adjustments | Intercompany | ||||||||||||||||||||||||||||||||
(Supplemental)(2) | Holding | Panaco | Holdings | Adjustments | Combined | Acquisitions(1)(2) | Adjustments(3) | Pro Forma | ||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||
Current Assets | ||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,250,074 | $ | 10,999 | $ | 9,721 | $ | 14,929 | $ | $ | 1,285,723 | $ | (180,000 | ) | $ | $ | 1,105,723 | |||||||||||||||||||||
Investment in U.S. Government and Agency obligations | 68,894 | 68,894 | 68,894 | |||||||||||||||||||||||||||||||||||
Marketable equity and debt securities | 68,497 | 68,497 | 68,497 | |||||||||||||||||||||||||||||||||||
Due from brokers | 147,223 | 147,223 | 147,223 | |||||||||||||||||||||||||||||||||||
Restricted cash | 28,537 | 28,537 | 28,537 | |||||||||||||||||||||||||||||||||||
Receivables and other assets | 52,567 | 19,992 | 25,642 | 16,421 | (11,549 | ) | 103,073 | 103,073 | ||||||||||||||||||||||||||||||
Real estate leased to others under the financing method | 3,740 | 3,740 | 3,740 | |||||||||||||||||||||||||||||||||||
Properties held for sale | 33,995 | 33,995 | 33,995 | |||||||||||||||||||||||||||||||||||
Current portion of investment in debt securities of affiliates | 5,429 | (5,429 | ) | — | — | |||||||||||||||||||||||||||||||||
Current portion of deferred tax asset | 2,685 | 3,567 | 6,252 | 6,252 | ||||||||||||||||||||||||||||||||||
Total current assets | 1,661,641 | 30,991 | 38,930 | 31,350 | (16,978 | ) | 1,745,934 | (180,000 | ) | — | 1,565,934 | |||||||||||||||||||||||||||
Investment in U.S. Government and Agency obligations | 5,533 | 5,533 | 5,533 | |||||||||||||||||||||||||||||||||||
Other investments | 244,602 | 244,602 | 466,000 | (466,000 | ) | 244,602 | ||||||||||||||||||||||||||||||||
Land and construction-in- progress | 106,000 | 106,000 | 106,000 | |||||||||||||||||||||||||||||||||||
Real estate leased to others: | ||||||||||||||||||||||||||||||||||||||
Accounted for under the financing method | 75,949 | 75,949 | 75,949 | |||||||||||||||||||||||||||||||||||
Accounted for under the operating method, net | 51,127 | 51,127 | 51,127 | |||||||||||||||||||||||||||||||||||
Oil and gas properties, net | 180,241 | 245,216 | 96,319 | 521,776 | 521,776 | |||||||||||||||||||||||||||||||||
Hotel, casino and resort operating properties, net: | ||||||||||||||||||||||||||||||||||||||
Hotel and Casino | 288,890 | 168,237 | 457,127 | 457,127 | ||||||||||||||||||||||||||||||||||
Hotel and resorts | 46,041 | 46,041 | 46,041 | |||||||||||||||||||||||||||||||||||
Deferred finance costs and other assets | 24,831 | 4,052 | 19,632 | 17,467 | 65,982 | 65,982 | ||||||||||||||||||||||||||||||||
Long-term portion of investment in debt securities of affiliates | 91,864 | (91,864 | ) | — | — | |||||||||||||||||||||||||||||||||
Investment in NEG Holding LLC | 97,693 | (97,693 | ) | — | — | |||||||||||||||||||||||||||||||||
Equity interest in GB Holdings, Inc. | 9,138 | (9,138 | ) | — | — | |||||||||||||||||||||||||||||||||
Equity investment | — | 2,170 | 2,170 | 2,170 | ||||||||||||||||||||||||||||||||||
Deferred tax asset | 52,147 | 21,340 | 73,487 | 73,487 | ||||||||||||||||||||||||||||||||||
Total | $ | 2,935,697 | $ | 282,429 | $ | 176,221 | $ | 217,054 | $ | (215,673 | ) | $ | 3,395,728 | $ | 286,000 | $ | (466,000 | ) | $ | 3,215,728 | ||||||||||||||||||
A-2
Historical(1) | ||||||||||||||||||||||||||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||||||||||||||||||||||||
AREP | NEG | GB | Intercompany | Historical | Adjustments | Intercompany | ||||||||||||||||||||||||||||||||
(Supplemental)(2) | Holding | Panaco | Holdings | Adjustments | Combined | Acquisitions(1)(2) | Adjustments(3) | Pro Forma | ||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||
LIABILITIES AND PARTNERS’/ SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||||||||||||||||||||
Current portion of mortgages payable | $ | 4,205 | $ | $ | $ | $ | $ | 4,205 | $ | $ | $ | 4,205 | ||||||||||||||||||||||||||
Mortgages on properties held for sale | 20,372 | 20,372 | 20,372 | |||||||||||||||||||||||||||||||||||
Due to affiliate | 10,000 | (10,000 | ) | — | — | |||||||||||||||||||||||||||||||||
Line of credit | — | 4,000 | 4,000 | 4,000 | ||||||||||||||||||||||||||||||||||
Current portion note payable | — | 43,741 | 43,741 | 43,741 | ||||||||||||||||||||||||||||||||||
Current portion of long-term debt | — | 5,429 | (5,429 | ) | — | — | ||||||||||||||||||||||||||||||||
Accounts payable and other liabilities | 96,814 | 35,699 | 15,029 | 22,500 | (207 | ) | 169,835 | 169,835 | ||||||||||||||||||||||||||||||
Securities sold not yet purchased | 83,750 | 83,750 | 83,750 | |||||||||||||||||||||||||||||||||||
Total current liabilities | 215,141 | 35,699 | 20,458 | 70,241 | (15,636 | ) | 325,903 | — | — | 325,903 | ||||||||||||||||||||||||||||
Other liabilities | 28,133 | 13,782 | 2,258 | 5,881 | (1,342 | ) | 48,712 | 48,712 | ||||||||||||||||||||||||||||||
Mortgages payable: | ||||||||||||||||||||||||||||||||||||||
Real estate leased to others | 55,614 | 55,614 | 55,614 | |||||||||||||||||||||||||||||||||||
Senior secured notes payable and credit facility | 215,000 | 215,000 | 215,000 | |||||||||||||||||||||||||||||||||||
Senior unsecured notes payable, net | 350,679 | 350,679 | 350,679 | |||||||||||||||||||||||||||||||||||
Senior unsecured notes payable | 480,000 | 480,000 | 480,000 | |||||||||||||||||||||||||||||||||||
Long-term debt, net of current portion | — | 66,834 | 31,214 | 66,259 | (95,138 | ) | 69,169 | 69,169 | ||||||||||||||||||||||||||||||
Asset retirement obligation | 3,999 | 3,116 | 33,600 | 40,715 | 40,715 | |||||||||||||||||||||||||||||||||
Preferred limited partnership units | 108,006 | 108,006 | 108,006 | |||||||||||||||||||||||||||||||||||
Total long-term liabilities | 1,241,431 | 83,732 | 67,072 | 72,140 | (96,480 | ) | 1,367,895 | — | — | 1,367,895 | ||||||||||||||||||||||||||||
Warrants in Atlantic Coast Entertainment Holdings, Inc. | — | 43,587 | (43,587 | ) | — | — | ||||||||||||||||||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||||||||||||||||||
Minority interests | — | 16,808 | 16,808 | 16,808 | ||||||||||||||||||||||||||||||||||
Partners’/Shareholders Equity | ’ | |||||||||||||||||||||||||||||||||||||
Limited partners equity | 1,383,913 | 1,383,913 | 466,000 | (6,773 | ) | 1,843,140 | ||||||||||||||||||||||||||||||||
General partner equity | 107,133 | 107,133 | (433,230 | ) | (326,097 | ) | ||||||||||||||||||||||||||||||||
Treasury units at cost | (11,921 | ) | (11,921 | ) | (11,921 | ) | ||||||||||||||||||||||||||||||||
Shareholders’ equity | — | 162,998 | 88,691 | 31,086 | (76,778 | ) | 205,997 | (180,000 | ) | (25,997 | ) | — | ||||||||||||||||||||||||||
Partners’/ Shareholders’ equity | 1,479,125 | 162,998 | 88,691 | 31,086 | (76,778 | ) | 1,685,122 | 286,000 | (466,000 | ) | 1,505,122 | |||||||||||||||||||||||||||
Total | $ | 2,935,697 | $ | 282,429 | $ | 176,221 | $ | 217,054 | $ | (215,673 | ) | $ | 3,395,728 | $ | 286,000 | $ | (466,000 | ) | $ | 3,215,728 | ||||||||||||||||||
A-3
Historical(1) | |||||||||||||||||||||||||||||||||
AREP | NEG | GB | Intercompany | Historical | Debt | ||||||||||||||||||||||||||||
(Supplemental)(2) | Holding | Panaco | Holdings | Adjustments | Combined | Offering(5) | Pro Forma | ||||||||||||||||||||||||||
(In thousands, except unit and per unit data) | |||||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||
Hotel and casino operating income | $ | 82,838 | $ | $ | $ | 39,965 | $ | (136 | ) | $ | 122,667 | $ | $ | 122,667 | |||||||||||||||||||
Land, house and condominium sales | 8,279 | 8,279 | 8,279 | ||||||||||||||||||||||||||||||
Interest income on financing leases | 1,966 | 1,966 | 1,966 | ||||||||||||||||||||||||||||||
Interest income on U.S. Government and Agency obligations and other investments | 12,902 | 132 | 107 | (602 | ) | 12,539 | 12,539 | ||||||||||||||||||||||||||
Rental income | 2,035 | 2,035 | 2,035 | ||||||||||||||||||||||||||||||
Hotel and resort operating income | 5,563 | 5,563 | 5,563 | ||||||||||||||||||||||||||||||
Oil and gas operating income | 15,422 | 25,490 | 12,707 | 53,619 | 53,619 | ||||||||||||||||||||||||||||
Accretion of investment in NEG Holding LLC | 9,893 | (9,893 | ) | — | — | ||||||||||||||||||||||||||||
NEG management fee | 2,108 | (2,108 | ) | — | — | ||||||||||||||||||||||||||||
Dividend and other income | 4,206 | 4,206 | 4,206 | ||||||||||||||||||||||||||||||
Equity in losses of equity method investees | (986 | ) | 986 | — | — | ||||||||||||||||||||||||||||
144,226 | 25,490 | 12,839 | 40,072 | (11,753 | ) | 210,874 | — | 210,874 | |||||||||||||||||||||||||
Expenses: | |||||||||||||||||||||||||||||||||
Hotel and casino operating expenses | 57,624 | 37,468 | (304 | ) | 94,788 | 94,788 | |||||||||||||||||||||||||||
Cost of land, house and condominium sales | 7,047 | 7,047 | 7,047 | ||||||||||||||||||||||||||||||
Hotel and resort operating expenses | 5,405 | 5,405 | 5,405 | ||||||||||||||||||||||||||||||
Oil and gas operating expenses | 2,866 | 6,449 | 5,551 | (2,108 | ) | 12,758 | 12,758 | ||||||||||||||||||||||||||
Interest expense | 19,265 | 916 | 604 | 2,451 | (1,074 | ) | 22,162 | 3,575 | 25,737 | ||||||||||||||||||||||||
Depreciation, depletion and amortization | 16,167 | 6,688 | 4,842 | 4,026 | 31,723 | 31,723 | |||||||||||||||||||||||||||
General and administrative expenses | 7,610 | 7,610 | 7,610 | ||||||||||||||||||||||||||||||
Property expenses | 952 | 952 | 952 | ||||||||||||||||||||||||||||||
116,936 | 14,053 | 10,997 | 43,945 | (3,486 | ) | 182,445 | 3,575 | 186,020 | |||||||||||||||||||||||||
Operating income (loss) | 27,290 | 11,437 | 1,842 | (3,873 | ) | (8,267 | ) | 28,429 | (3,575 | ) | 24,854 | ||||||||||||||||||||||
Other gains and (losses): | |||||||||||||||||||||||||||||||||
Other losses | (180 | ) | (180 | ) | (180 | ) | |||||||||||||||||||||||||||
Unrealized gains on securities sold short | 21,704 | 21,704 | 21,704 | ||||||||||||||||||||||||||||||
Gain on sales and disposition of real estate and other assets | 186 | 4 | 190 | 190 | |||||||||||||||||||||||||||||
Debt restructuring/ reorganization costs | — | (24 | ) | (24 | ) | (24 | ) | ||||||||||||||||||||||||||
Change in fair value of derivative contracts | (9,813 | ) | (22,620 | ) | (6,336 | ) | (38,769 | ) | (38,769 | ) | |||||||||||||||||||||||
Minority interest | — | 932 | 932 | 932 | |||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 39,187 | (11,183 | ) | (4,494 | ) | (3,893 | ) | (7,335 | ) | 12,282 | (3,575 | ) | 8,707 | ||||||||||||||||||||
Income tax (expense) benefit | (4,782 | ) | 1,624 | (247 | ) | (3,405 | ) | (3,405 | ) | ||||||||||||||||||||||||
Income (loss) from continuing operations | $ | 34,405 | $ | (11,183 | ) | $ | (2,870 | ) | $ | (4,140 | ) | $ | (7,335 | ) | $ | 8,877 | $ | (3,575 | ) | $ | 5,302 | ||||||||||||
Income from continuing operations attributable to: | |||||||||||||||||||||||||||||||||
Limited partners | $ | 38,940 | $ | 10,416 | |||||||||||||||||||||||||||||
General partner | (4,535 | ) | (5,114 | ) | |||||||||||||||||||||||||||||
$ | 34,405 | $ | 5,302 | ||||||||||||||||||||||||||||||
Income from continuing operations per LP unit: | |||||||||||||||||||||||||||||||||
Basic earnings: | |||||||||||||||||||||||||||||||||
Income from continuing operations per LP unit | $ | 0.84 | $ | 0.17 | |||||||||||||||||||||||||||||
Weighted average units outstanding | 46,098,284 | 62,167,250 | |||||||||||||||||||||||||||||||
Diluted earnings: | |||||||||||||||||||||||||||||||||
Income from continuing operations per LP unit | $ | 0.81 | $ | 0.17 | |||||||||||||||||||||||||||||
Weighted average units and equivalent partnership units outstanding | 49,857,622 | 62,167,250 | |||||||||||||||||||||||||||||||
A-4
Other Pro Forma Adjustments | |||||||||||||||||||||||||||||||||||||||||
Panaco | |||||||||||||||||||||||||||||||||||||||||
Historical(1) | Intercompany | ||||||||||||||||||||||||||||||||||||||||
and | |||||||||||||||||||||||||||||||||||||||||
AREP | NEG | GB | Intercompany | Historical | Bankruptcy | Debt | Prior Debt | ||||||||||||||||||||||||||||||||||
(Supplemental)(2) | Holding | Holdings | Adjustments | Combined | Panaco(1) | Adjustment(4) | Offering(5) | Offering(6) | Pro Forma | ||||||||||||||||||||||||||||||||
(In thousands, except unit and per unit data) | |||||||||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 98,697 | 29,122 | (11,836 | ) | (25,280 | ) | 90,703 | 61,721 | (54,046 | ) | (35,263 | ) | (12,285 | ) | 50,830 | ||||||||||||||||||||||||||
Income tax (expense) benefit | (17,326 | ) | (986 | ) | (18,312 | ) | 22,877 | 4,565 | |||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | $ | 81,371 | $ | 29,122 | $ | (12,822 | ) | $ | (25,280 | ) | $ | 72,391 | $ | 84,598 | $ | (54,046 | ) | $ | (35,263 | ) | $ | (12,285 | ) | $ | 55,395 | ||||||||||||||||
Income from continuing operations attributable to: | |||||||||||||||||||||||||||||||||||||||||
Limited partners | $ | 71,456 | $ | 45,997 | |||||||||||||||||||||||||||||||||||||
General partner | 9,915 | 9,398 | |||||||||||||||||||||||||||||||||||||||
$ | 81,371 | $ | 55,395 | ||||||||||||||||||||||||||||||||||||||
Income from continuing operations per LP unit: | |||||||||||||||||||||||||||||||||||||||||
Basic earnings: | |||||||||||||||||||||||||||||||||||||||||
Income from continuing operations per LP unit | $ | 1.55 | $ | 0.74 | |||||||||||||||||||||||||||||||||||||
Weighted average units outstanding | 46,098,284 | 62,167,250 | |||||||||||||||||||||||||||||||||||||||
Diluted earnings: | |||||||||||||||||||||||||||||||||||||||||
Income from continuing operations per LP unit | $ | 1.48 | $ | 0.74 | |||||||||||||||||||||||||||||||||||||
Weighted average units and equivalent partnership units outstanding | 51,542,312 | 62,167,250 | |||||||||||||||||||||||||||||||||||||||
A-5
Other Pro Forma Adjustments | |||||||||||||||||||||||||||||||||||||||||
Panaco | |||||||||||||||||||||||||||||||||||||||||
Historical(1) | Intercompany | ||||||||||||||||||||||||||||||||||||||||
and | |||||||||||||||||||||||||||||||||||||||||
AREP | NEG | GB | Intercompany | Historical | Bankruptcy | Debt | Prior Debt | ||||||||||||||||||||||||||||||||||
(Supplemental)(2) | Holding | Holdings | Adjustments | Combined | Panaco(1) | Adjustment(4) | Offering(5) | Offering(6) | Pro Forma | ||||||||||||||||||||||||||||||||
(In thousands, except unit and per unit data) | |||||||||||||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||||||||||
Hotel and casino operating income | $ | 299,981 | $ | $ | 171,243 | $ | (359 | ) | $ | 470,865 | $ | $ | $ | $ | $ | 470,865 | |||||||||||||||||||||||||
Land, house and condominium sales | 26,591 | 26,591 | 26,591 | ||||||||||||||||||||||||||||||||||||||
Interest income on financing leases | 9,880 | 9,880 | 9,880 | ||||||||||||||||||||||||||||||||||||||
Interest income on U.S. Government and Agency obligations and other investments | 44,376 | 449 | 422 | (156 | ) | 45,091 | 684 | (684 | ) | 45,091 | |||||||||||||||||||||||||||||||
Rental income | 7,916 | 7,916 | 7,916 | ||||||||||||||||||||||||||||||||||||||
Hotel and resort operating income | 16,211 | 16,211 | 16,211 | ||||||||||||||||||||||||||||||||||||||
Accretion of investment in NEG Holding LLC | 34,432 | (34,432 | ) | — | — | ||||||||||||||||||||||||||||||||||||
NEG management fee | 6,887 | (6,887 | ) | — | — | ||||||||||||||||||||||||||||||||||||
Dividend and other income | 3,616 | 3,616 | 48 | 3,664 | |||||||||||||||||||||||||||||||||||||
Equity in losses of equity method investees | (2,113 | ) | (519 | ) | 2,113 | (519 | ) | (519 | ) | ||||||||||||||||||||||||||||||||
Oil and gas operating income | 58,419 | 78,727 | 137,146 | 51,234 | 188,380 | ||||||||||||||||||||||||||||||||||||
506,196 | 78,657 | 171,665 | (39,721 | ) | 716,797 | 51,966 | (684 | ) | — | — | 768,079 | ||||||||||||||||||||||||||||||
Expenses: | |||||||||||||||||||||||||||||||||||||||||
Hotel and casino operating expenses | 227,603 | 154,252 | (639 | ) | 381,216 | 381,216 | |||||||||||||||||||||||||||||||||||
Cost of land, house and condominium sales | 18,486 | 18,486 | 18,486 | ||||||||||||||||||||||||||||||||||||||
Hotel and resort operating expenses | 12,730 | 12,730 | 12,730 | ||||||||||||||||||||||||||||||||||||||
Interest expense | 49,669 | 2,716 | 11,115 | (4,754 | ) | 58,746 | 2,517 | (2,321 | ) | 35,263 | 12,285 | 106,490 | |||||||||||||||||||||||||||||
Depreciation, depletion and amortization | 68,291 | 21,647 | 14,898 | 104,836 | 25,965 | 130,801 | |||||||||||||||||||||||||||||||||||
General and administrative expenses | 20,952 | 20,952 | 20,952 | ||||||||||||||||||||||||||||||||||||||
Property expenses | 4,340 | 4,340 | 4,340 | ||||||||||||||||||||||||||||||||||||||
Oil and gas operating expenses | 13,816 | 25,172 | (6,162 | ) | 32,826 | 18,095 | (725 | ) | 50,196 | ||||||||||||||||||||||||||||||||
Provision for loss on real estate | 3,150 | 3,150 | 3,150 | ||||||||||||||||||||||||||||||||||||||
419,037 | 49,535 | 180,265 | (11,555 | ) | 637,282 | 46,577 | (3,046 | ) | 35,263 | 12,285 | 728,361 | ||||||||||||||||||||||||||||||
Operating income (loss) | 87,159 | 29,122 | (8,600 | ) | (28,166 | ) | 79,515 | 5,389 | 2,362 | (35,263 | ) | (12,285 | ) | 39,718 | |||||||||||||||||||||||||||
Other gains and (losses): | |||||||||||||||||||||||||||||||||||||||||
Gain on sale of other assets | 1,680 | 1,680 | 1,680 | ||||||||||||||||||||||||||||||||||||||
Gain on sale of marketable equity and debt securities and other investments | 40,159 | 40,159 | 40,159 | ||||||||||||||||||||||||||||||||||||||
Unrealized losses on securities sold short | (23,619 | ) | (23,619 | ) | (23,619 | ) | |||||||||||||||||||||||||||||||||||
Impairment loss on equity interest in GB Holdings, Inc. | (15,600 | ) | (15,600 | ) | (15,600 | ) | |||||||||||||||||||||||||||||||||||
Gain on retirement/ restructuring of debt | — | — | 51,268 | (51,268 | ) | — | |||||||||||||||||||||||||||||||||||
Gain on restructuring of payables | — | — | 12,495 | (12,495 | ) | — | |||||||||||||||||||||||||||||||||||
Gain (loss) on sale and disposition of real estate and other assets | 5,262 | (152 | ) | 5,110 | (76 | ) | 5,034 | ||||||||||||||||||||||||||||||||||
Severance tax refund | 4,468 | 4,468 | 4,468 | ||||||||||||||||||||||||||||||||||||||
Debt restructuring/ reorganization costs | — | (3,084 | ) | (3,084 | ) | (7,355 | ) | 7,355 | (3,084 | ) | |||||||||||||||||||||||||||||||
Minority interest | (812 | ) | 2,886 | 2,074 | 2,074 | ||||||||||||||||||||||||||||||||||||
A-6
Historical(1) | |||||||||||||||||||||
AREP | NEG | Intercompany | Historical | ||||||||||||||||||
(Supplemental)(2) | Holding | GB Holdings | Adjustments | Combined | |||||||||||||||||
(In $000’s) | |||||||||||||||||||||
Revenues: | |||||||||||||||||||||
Hotel and casino operating income | $ | 262,811 | $ | $ | 167,749 | $ | (191 | ) | $ | 430,369 | |||||||||||
Land, house and condominium sales | 13,265 | 13,265 | |||||||||||||||||||
Interest income on financing leases | 13,115 | 13,115 | |||||||||||||||||||
Interest income on U.S. Government and Agency | — | ||||||||||||||||||||
obligations and other investments | 22,592 | 587 | 627 | (115 | ) | 23,691 | |||||||||||||||
Rental income | 7,092 | 7,092 | |||||||||||||||||||
Hotel and resort operating income | 12,376 | 12,376 | |||||||||||||||||||
Accretion of investment in NEG Holding LLC | 30,142 | (30,142 | ) | — | |||||||||||||||||
NEG management fee | 6,629 | (6,629 | ) | — | |||||||||||||||||
Dividend and other income | 3,211 | 125 | 3,336 | ||||||||||||||||||
Equity in losses of equity method investees | (3,466 | ) | (102 | ) | 3,466 | (102 | ) | ||||||||||||||
Oil and gas operating income | 20,899 | 77,606 | 98,505 | ||||||||||||||||||
388,666 | 78,216 | 168,376 | (33,611 | ) | 601,647 | ||||||||||||||||
Expenses: | |||||||||||||||||||||
Hotel and casino operating expenses | 216,857 | 156,556 | (191 | ) | 373,222 | ||||||||||||||||
Cost of land, house and condominium sales | 9,129 | 9,129 | |||||||||||||||||||
Hotel and resort operating expenses | 8,773 | 8,773 | |||||||||||||||||||
Interest expense | 27,057 | 1,538 | 12,581 | (7,147 | ) | 34,029 | |||||||||||||||
Depreciation, depletion and amortization | 40,571 | 23,686 | 14,123 | 78,380 | |||||||||||||||||
General and administrative expenses | 14,081 | 14,081 | |||||||||||||||||||
Property expenses | 4,472 | 4,472 | |||||||||||||||||||
Oil and gas operating expenses | 5,028 | 23,080 | (6,629 | ) | 21,479 | ||||||||||||||||
Provision for loss on real estate | 750 | 750 | |||||||||||||||||||
326,718 | 48,304 | 183,260 | (13,967 | ) | 544,315 | ||||||||||||||||
Operating income (loss) | 61,948 | 29,912 | (14,884 | ) | (19,644 | ) | 57,332 | ||||||||||||||
Other gains and (losses): | |||||||||||||||||||||
Gain (loss) on sale of marketable equity and debt securities and other investments | 2,607 | (954 | ) | 1,653 | |||||||||||||||||
Loss on sale of other assets | (1,503 | ) | (28 | ) | (1,531 | ) | |||||||||||||||
Write-down of equity securities available for sale | (19,759 | ) | (19,759 | ) | |||||||||||||||||
Gain on sale and disposition of real estate | 7,121 | 7,121 | |||||||||||||||||||
Debt restructuring/reorganization costs | — | (1,843 | ) | (1,843 | ) | ||||||||||||||||
Minority interest | (1,266 | ) | 3,987 | 2,721 | |||||||||||||||||
Income (loss) from continuing operations before income taxes | 49,148 | 28,958 | (16,755 | ) | (15,657 | ) | 45,694 | ||||||||||||||
Income tax benefit (expense) | 16,750 | (958 | ) | 15,792 | |||||||||||||||||
Income (loss) from continuing operations | $ | 65,898 | $ | 28,958 | $ | (17,713 | ) | $ | (15,657 | ) | $ | 61,486 | |||||||||
Income from continuing operations attributable to: | |||||||||||||||||||||
Limited partners | $ | 48,573 | $ | 44,249 | |||||||||||||||||
General partner | 17,325 | 17,237 | |||||||||||||||||||
$ | 65,898 | $ | 61,486 | ||||||||||||||||||
Income from continuing operations per LP unit: | |||||||||||||||||||||
Basic earnings: | |||||||||||||||||||||
Income from continuing operations per LP unit | $ | 1.00 | $ | 0.72 | |||||||||||||||||
Weighted average units outstanding | 46,098,284 | 57,856,905 | |||||||||||||||||||
Diluted earnings: | |||||||||||||||||||||
Income from continuing operations per LP unit | $ | 0.94 | $ | 0.70 | |||||||||||||||||
Weighted average units and equivalent partnership units outstanding | 54,489,943 | 66,248,564 | |||||||||||||||||||
A-7
Historical(1) | ||||||||||||||||||||||
Intercompany | Historical | |||||||||||||||||||||
AREP | NEG Holding | GB Holdings | Adjustments | Combined | ||||||||||||||||||
(In thousands) | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Hotel and casino operating income | $ | 250,023 | $ | $ | $189,917 | $ | (28 | ) | 439,912 | |||||||||||||
Land, house and condominium sales | 76,024 | 76,024 | ||||||||||||||||||||
Interest income on financing leases | 14,722 | 14,722 | ||||||||||||||||||||
Interest income on U.S. Government and Agency obligations and other investments | 30,569 | 1,791 | 1,067 | (546 | ) | 32,881 | ||||||||||||||||
Rental income | 6,852 | 6,852 | ||||||||||||||||||||
Hotel and resort operating income | 12,921 | 12,921 | ||||||||||||||||||||
Accretion of investment in NEG Holding LLC | 32,879 | (32,879 | ) | — | ||||||||||||||||||
NEG management fee | 7,637 | (7,637 | ) | — | ||||||||||||||||||
Dividend and other income | 2,720 | 175 | 2,895 | |||||||||||||||||||
Equity in earnings of equity method investees | 305 | (305 | ) | — | ||||||||||||||||||
Oil and gas operating income | — | 35,901 | 35,901 | |||||||||||||||||||
434,652 | 37,867 | 190,984 | (41,395 | ) | 622,108 | |||||||||||||||||
Expenses: | ||||||||||||||||||||||
Hotel and casino operating expenses | 217,938 | 170,567 | (28 | ) | 388,477 | |||||||||||||||||
Cost of land, house and condominium sales | 54,640 | 54,640 | ||||||||||||||||||||
Hotel and resort operating expenses | 10,536 | 10,536 | ||||||||||||||||||||
Interest expense | 27,297 | 96 | 12,195 | (7,578 | ) | 32,010 | ||||||||||||||||
Depreciation, depletion and amortization | 23,646 | 15,509 | 13,292 | 52,447 | ||||||||||||||||||
General and administrative expenses | 14,134 | 14,134 | ||||||||||||||||||||
Property expenses | 3,862 | 3,862 | ||||||||||||||||||||
Oil and gas operating expenses | — | 16,556 | (7,637 | ) | 8,919 | |||||||||||||||||
Provision for loss on real estate | 3,212 | 3,212 | ||||||||||||||||||||
Loss on impairment of fixed assets | — | 1,282 | 1,282 | |||||||||||||||||||
355,265 | 32,161 | 197,336 | (15,243 | ) | 569,519 | |||||||||||||||||
Operating income(loss) | 79,387 | 5,706 | (6,352 | ) | (26,152 | ) | 52,589 | |||||||||||||||
Other gains and (losses): | ||||||||||||||||||||||
Gain on sale of marketable equity and debt securities and other investments | — | 8,712 | 8,712 | |||||||||||||||||||
Loss on sale of other assets | (353 | ) | (185 | ) | (538 | ) | ||||||||||||||||
Write-down of equity securities available for sale | (8,476 | ) | (8,476 | ) | ||||||||||||||||||
Gain on sale and disposition of real estate | 8,990 | 8,990 | ||||||||||||||||||||
Unrealized loss on financial instruments/short sale | — | (347 | ) | (347 | ) | |||||||||||||||||
Loss on limited partnership interests | (3,750 | ) | (3,750 | ) | ||||||||||||||||||
Dividend expense | — | (145 | ) | (145 | ) | |||||||||||||||||
Minority interest | (1,943 | ) | 1,648 | (295 | ) | |||||||||||||||||
Income(loss) from continuing operations before income taxes | 73,855 | 13,926 | (6,537 | ) | (24,504 | ) | 56,740 | |||||||||||||||
Income tax expense | (10,096 | ) | (784 | ) | (10,880 | ) | ||||||||||||||||
Income(loss) from continuing operations | $ | 63,759 | $ | 13,926 | $ | (7,321 | ) | $ | (24,504 | ) | $ | 45,860 | ||||||||||
Income(loss) from continuing operations attributable to: | ||||||||||||||||||||||
Limited partners | $ | 56,369 | $ | 38,826 | ||||||||||||||||||
General partner | 7,390 | 7,034 | ||||||||||||||||||||
$ | 63,759 | $ | 45,860 | |||||||||||||||||||
Income(loss) from continuing operations per LP unit: | ||||||||||||||||||||||
Basic earnings: | ||||||||||||||||||||||
Income from continuing operations | $ | 1.12 | $ | 0.59 | ||||||||||||||||||
Weighted average units outstanding | 46,098,284 | 57,856,905 | ||||||||||||||||||||
Diluted earnings: | ||||||||||||||||||||||
Income(loss) from continuing operations per LP unit | $ | 1.00 | $ | 0.57 | ||||||||||||||||||
Weighted average units and equivalent partnership units outstanding | 56,466,698 | 68,225,319 | ||||||||||||||||||||
A-8
• | The membership interest in NEG Holding for 11,344,828 Depositary Units valued at $329.0 million. | |
• | 100% of the equity of Panaco for 4,310,345 Depositary Units valued at $125.0 million. | |
• | Approximately 41.2% of the outstanding common stock of GB Holdings and approximately 11.3% of the fully diluted common stock of Atlantic Holdings for 413,793 Depositary Units valued at $12.0 million, plus 206,897 units valued at $6.0 million if certain earnings targets are met during 2005 and 2006. |
(a) | Pro Forma Condensed Consolidated Balance Sheet at March 31, 2005 |
• | The elimination of AREP’s $97.7 million investment in NEG Holding, since NEG Holding is now consolidated. | |
• | The elimination of AREP’s $9.1 million equity interest in GB Holdings, since GB Holdings is now consolidated. | |
• | The elimination of AREP’s $63.9 million investment in the Atlantic Holdings 3% Notes due 2008 or the Atlantic Holdings Notes, and the elimination of the corresponding debt of Atlantic Holdings. | |
• | The elimination of $2.2 million of deferred consent fees for both AREP and GB Holdings related to AREP’s consent, in July 2004, to an exchange of GB Holdings 11% notes due 2005 for the Atlantic Holdings Notes. | |
• | The elimination of AREP’s share of warrants in Atlantic Holdings, valued at $33.8 million. The warrants owned by AREP after the Acquisitions represent approximately 77.5% of the outstanding warrants. The remaining approximate 22.5% of the warrants in Atlantic Holdings, valued at $9.8 million, have been reclassified to minority interests. | |
• | The recording of the minority interest in GB Holdings of $7.0 million. | |
• | The elimination of AREP’s $36.6 million investment in the outstanding term loans of Panaco, Inc., or the Panaco Debt, plus accrued interest and the elimination of the corresponding debt of Panaco. | |
• | The elimination of a $10.0 million receivable/payable between AREP and Panaco. |
(b) | Pro Forma Condensed Consolidated Statement of Earnings for the Three Months Ended March 31, 2005 |
• | The elimination of AREP’s $9.9 million accretion of investment in NEG Holding, since NEG Holding is now consolidated. |
A-9
• | The elimination of AREP’s $1.0 million equity in losses of GB Holdings, since GB Holdings is now consolidated. | |
• | The elimination of AREP’s $2.1 million management fee from NEG Holding, since NEG Holding is now consolidated. | |
• | The elimination of a $0.1 million administrative charge between ACEP and GB Holdings. | |
• | The elimination of $0.2 million of amortization of deferred consent fees between AREP and GB Holdings. | |
• | The elimination of $0.5 million of related party interest expense paid by GB Holdings to Mr. Icahn and affiliates. | |
• | The recording of a credit to minority interest expense on GB Holdings of $0.9 million. | |
• | The elimination of $0.6 million of interest expense/income recorded by Panaco/ AREP on the term loans of Panaco. |
(c) | Pro Forma Condensed Consolidated Statement of Earnings for the Year Ended December 31, 2004 |
• | The elimination of AREP’s $34.4 million accretion of investment in NEG Holding, since NEG Holding is now consolidated. | |
• | The elimination of AREP’s $2.1 million equity in losses of GB Holdings, since GB Holdings is now consolidated. | |
• | The elimination of AREP’s $6.2 million management fee from NEG Holding, since NEG Holding is now consolidated. | |
• | The elimination of a $0.3 million administrative charge between ACEP and GB Holdings. | |
• | The elimination of $0.3 million of amortization of deferred consent fees between AREP and GB Holdings. | |
• | The elimination of $4.8 million of related party interest expense paid by GB Holdings to Mr. Icahn and affiliates. | |
• | The recording of a credit to minority interest expense on GB Holdings of $2.9 million. |
(d) | Pro Forma Condensed Consolidated Statement of Earnings for the Year Ended December 31, 2003 |
• | The elimination of AREP’s $30.1 million accretion of investment in NEG Holding, since NEG Holding is now consolidated. | |
• | The elimination of AREP’s $3.5 million equity in losses of GB Holdings, since GB Holdings is now consolidated. | |
• | The elimination of AREP’s $6.6 million management fee from NEG Holding, since NEG Holding is now consolidated. | |
• | The elimination of a $0.2 million administrative charge between ACEP, a consolidated subsidiary of AREP and GB Holdings. | |
• | The elimination of $0.1 million of interest income and expense between NEG Holding and NEG, Inc., a consolidated subsidiary of AREP. | |
• | The elimination of $7.0 million of related party interest expense paid by GB Holdings to Mr. Icahn and affiliates. | |
• | The recording of a credit to minority interest expense on GB Holdings of $4.0 million, representing 22.5% of the loss of GB Holdings. |
A-10
• | The elimination of AREP’s $32.9 million accretion of investment in NEG Holding, since NEG Holding is now consolidated. | |
• | The elimination of AREP’s $0.3 million equity in earnings of GB Holdings, since GB Holdings is now consolidated. | |
• | The elimination of AREP’s $7.6 million management fee from NEG Holding, since NEG Holding is now consolidated. | |
• | The elimination of $0.5 million of interest income and expense between NEG Holding and NEG. | |
• | The elimination of $7.0 million of related party interest expense paid by GB Holdings to Mr. Icahn and affiliates. | |
• | The recording of a debit to minority interest on GB Holdings of $2.9 million, representing 22.5% of the loss of GB Holdings. |
Pro Forma Condensed Consolidated Balance Sheet at March 31, 2005 |
• | The elimination of AREP’s $466 million pro forma investment in the Acquisitions. | |
• | The allocation of the change in equity as a result of the transaction between the general partner and the limited partners. |
• | The reduction of interest expense and interest income that results from the effect of its bankruptcy. | |
• | The elimination of related party interest expense following emergence from bankruptcy in November 2004. | |
• | The elimination of $0.7 million management fee paid to AREP, following emergence from bankruptcy. | |
• | The elimination of $51.3 million of gain on retirement/restructuring of debt, $12.5 million gain on restructuring of payables and $7.4 million debt restructuring/reorganization costs related to the emergence from bankruptcy. |
A-11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AMERICAN REAL ESTATE PARTNERS, L.P. (Registrant) | ||||||
By: | American Property Investors, Inc. General Partner | |||||
By: | /s/ John P. Saldarelli | |||||
John P. Saldarelli Vice President, Chief Financial Officer, Secretary and Treasurer | ||||||
Date: September 15, 2005 |