EX-99.1 4 v058731_ex99-1.htm Unassociated Document
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

 
 
 
The unaudited pro forma condensed results do not purport to be indicative of the financial position and results of operations that we will obtain in the future, or that we would have obtained if the sales were effective as of the dates indicated above. The pro forma adjustments are based upon currently available information and upon certain assumptions that we believe are reasonable. These unaudited pro forma condensed financial statements have been derived from, and should be read together with, our historical consolidated financial statements and notes thereto as of September 30, 2006 (unaudited) and for the nine months ended September 30, 2006 (unaudited) and for the year ended December 31, 2005. The historical consolidated financial statements and related notes thereto are included in our quarterly report on Form 10-Q for the nine months ended September 30, 2006 and our annual report on Form 10-K, as amended, for the year ended December 31, 2005.
 
 
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2006
(In $000s)
 
 
                            
       
 Pro Forma Adjustments
      
 Pro Forma Adjustments
          
ASSETS
  
Historical
  
 Sale of NEG Oil & Gas
      
 Sale of Gaming Properties
      
Pro Forma
  
Current assets:
                            
Cash and cash equivalents
  
$
280,706
  
$
1,015,000
   
(1)
 
$
224,804
   
(1)
 
$
1,520,510
  
Investments
    
1,037,198
                           
1,037,198
 
Inventories, net
    
279,523
                           
279,523
 
Trade, notes and other receivables, net
    
168,768
                           
168,768
 
Other current assets
    
121,406
   
(12,095
)
  
(2)
 
  
(16,138
 )   
(2)
 
  
93,173
  
Assets held for sale
    
1,304,988
   
(1,006,771
)
  
(3)
 
  
(252,599
)
  
(3)
 
  
45,618
 
                                       
Total current assets
    
3,192,589
   
(3,866
)
        
(43,933
 )         
3,144,790
  
                                       
Property, plant and equipment, net
    
804,681
                           
804,681
 
Investments
    
15,410
   
231,156
   
(1)
 
              
246,566
 
Intangible assets
    
26,553
                           
26,553
 
Other assets
    
64,081
                        50,000    
(1) 
    
114,081
  
 
                                      
Total assets
  
$
4,103,314
  
$
227,290
       
$
6,067
       
$
4,336,671
  
                                       
LIABILITIES AND PARTNERS' EQUITY
                                      
Current liabilities:
                                      
Accounts payable and accrued expenses
  
$
203,209
  
$
18,070
   
(4)
 
$
0
       
$
221,279
  
Current portion of long-term debt
    
18,752
                           
18,752
 
Margin liability on marketable securities
    
149,003
                           
149,003
 
Liabilities of discontinued operations held for sale
    
420,905
   
(385,725
)
  
(3)
 
  
(35,180
)
  
(3)
 
  
0
 
Other current liabilities
    
22,110
                                   
22,110
 
                                       
Total current liabilities
    
813,979
   
(367,655
)
        
(35,180
)
        
411,144
 
                                       
Long-term debt
    
1,185,911
                           
1,185,911
 
Other non-current liabilities
    
21,548
                           
21,548
 
Preferred limited partnership units:
    
116,238
                                    
116,238
 
Total long-term liabilities
    
1,323,697
   
0
         
0
         
1,323,697
 
Total Liabilities
    
2,137,676
   
(367,655
)
        
(35,180
)
        
1,734,841
 
                                       
Minority interests
    
266,338
   
35,000
   
(5)
 
  
1,900
   
(5)
 
  
303,238
 
                                                   
Partners' equity
    
1,699,300
   
559,945
   
(5)
 
  
39,347
   
(5)
 
  
2,298,592
 
                                       
Total liabilities and partners' equity
  
$
4,103,314
  
$
227,290
       
$
6,067
       
$
4,336,671
  
                                       
 
See accompanying notes
 
 
 AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
 UNAUDITED CONDENSED PRO FORMA STATEMENTS OF OPERATIONS
 YEAR ENDED DECEMBER 31, 2005
 (In $000s except per Unit amounts)
 
                 
   
Historical
  
 Pro Forma Adjustments (6)
  
 Pro Forma
  
Revenues:
                
Oil and Gas 
  
$
198,854
  
$
(198,854
)
$
0
 
Gaming 
    
490,321
   
(162,339
)
  
327,982
 
Real Estate 
    
100,637
         
100,637
 
Home Fashion 
    
472,681
         
472,681
 
     
1,262,493
   
(361,193
)
  
901,300
 
Expenses:
                    
Oil and Gas 
    
161,333
   
(161,333
)
  
0
 
Gaming 
    
430,142
   
(169,187
)
  
260,955
 
Real Estate 
    
79,291
         
79,291
 
Home Fashion 
    
495,110
         
495,110
 
Holding Company 
    
14,436
         
14,436
 
Acquisitions costs 
    
4,664
         
4,664
 
     
1,184,976
   
(330,520
)
  
854,456
 
                     
Operating income
    
77,517
   
(30,673
)
  
46,844
 
Other income (expense), net:
                    
Interest expense 
    
(104,014
)
  
23,876
   
(80,138
)
Interest income 
    
45,889
   
(18,342
)
  
27,547
 
Impairment charges on GB Holdings, Inc. 
    
(52,366
)
  
52,366
   
0
 
Other income (expense), net 
    
(10,062
)
  
391
   
(9,671
)
Income (loss) from continuing operations before income taxes
                    
  and minority interests 
    
(43,036
)
  
27,618
   
(15,418
)
Income tax (expense) benefit 
    
(21,092
)
  
2,922
   
(18,170
)
Minority interests 
    
13,822
   
(3,682
)
  
10,140
 
                     
Income (loss) from continuing operations
    
(50,306
)
  
26,858
   
(23,448
)
                     
Discontinued operations:
                    
Income (loss) from discontinued operations 
    
1,413
   
(26,858
)
  
(25,445
)
Gain on sales and disposition of real estate 
    
21,849
         
21,849
 
Income (loss) from discontinued operations
    
23,262
   
(26,858
)
  
(3,596
)
                     
Net earnings (loss)
  
$
(27,044
)
$
-
 
$
(27,044
)
                     
Net earnings (loss) attributable to:
                    
Limited partner 
  
$
(21,640
)
      
$
(21,640
)
General partner 
    
(5,404
)
        
(5,404
)
   
$
(27,044
)
      
$
(27,044
)
Net earnings (loss) per limited partnership unit:
                    
Basic  earnings: 
                    
Income (loss) from continuing operations 
  
$
(0.82
)
      
$
(0.33
)
Income (loss) from  discontinued  operations 
    
0.42
         
(0.07
)
Basic earnings (loss) per LP unit 
  
$
(0.40
)
      
$
(0.40
)
Weighted average limited partnership units outstanding:
    
54,085
         
54,085
 
Diluted  earnings: 
                    
Income (loss) from continuing operations 
  
$
(0.82
)
      
$
(0.33
)
Income (loss) from  discontinued  operations 
    
0.42
         
(0.07
)
Diluted earnings (loss) per LP unit 
  
$
(0.40
)
      
$
(0.40
)
Weighted average LP units and equivalent partnership units outstanding
    
54,085
         
54,085
 
                     
 
 See accompanying notes

 
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTE 1 - BASIS OF PRESENTATION

On November 21, 2006, our indirect wholly-owned subsidiary, AREP O & G Holdings LLC, consummated the sale of all of the issued and outstanding membership interests of NEG Oil & Gas LLC to Riata Energy, Inc., currently doing business as SandRidge Energy, Inc., or SandRidge, for consideration consisting of $1.025 billion in cash, 12,842,000 shares of SandRidge’s common stock, valued at $18 per share, and the repayment by SandRidge of $300.0 million of debt of NEG Oil & Gas. The agreement provides for an adjustment to the purchase price, within 60 days after the closing date, based on the amounts of net working capital and cash balances of NEG Oil & Gas that are greater or less than $0 and $50 million, respectively, as of the closing date.
 
On November 21, 2006, pursuant to an agreement dated October 25, 2006 among American Real Estate Holdings Limited Partnership, or AREH, NEG Oil & Gas and National Energy Group, Inc., or NEGI, our majority owned subsidiary, NEGI transferred its membership interest in NEG Holding LLC to NEG Oil & Gas in consideration of approximately $261.1 million. Of that amount, $149.6 million was used to repay the NEGI 10.75% senior notes due 2007, including principal and accrued interest, all of which was held by us.
 
On November 17, 2006, our indirect majority-owned subsidiary, Atlantic Coast Entertainment Holdings, Inc., ACE Gaming LLC, a New Jersey limited liability company and a wholly-owned subsidiary of Atlantic Coast which owns The Sands Hotel and Casino in Atlantic City, AREH, of which we are the 99% limited partner, and certain other entities owned by or affiliated with AREH completed the sale to Pinnacle Entertainment, Inc., of the outstanding membership interests in ACE and 100% of the equity interests in certain subsidiaries of AREH which own parcels of real estate adjacent to The Sands, including 7.7 acres of land adjacent to The Sands known as the Traymore site. The aggregate price was approximately $274.8 million, of which approximately $200.6 million was paid to Atlantic Coast and approximately $74.2 million was paid to affiliates of AREH for subsidiaries which own the Traymore site and the adjacent properties. Under the terms of the agreement, $50.0 million of the purchase price paid to Atlantic Coast was deposited into escrow pending satisfaction of certain conditions.

The unaudited pro forma consolidated financial statements reflect the pro forma effects of the sales of the oil and gas and Atlantic City Gaming operations as described above. The unaudited pro forma consolidated balance sheet as of September 30, 2006 has been prepared based upon the historical consolidated balance sheet of AREP assuming that the aforementioned transactions occurred on September 30, 2006. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2005 has been prepared based upon the historical consolidated statement of operations of AREP for such period assuming that the aforementioned transactions occurred on January 1, 2005.

NOTE 2 - DISCONTINUED OPERATIONS
 
As disclosed in Note 4 of the notes to the unaudited consolidated financial statements included in our quarterly report on Form 10-Q for the quarterly period ended September 30, 2006 filed with the SEC on November 9, 2006, in September 2006, we entered into agreements (a) with Pinnacle, pursuant to which Pinnacle agreed to acquire all of the outstanding membership interests in ACE, which owns The Sands, and 100% of the equity interests in certain subsidiaries of AREH which own parcels of real estate adjacent to The Sands and (b) a letter of intent and exclusivity agreement with SandRidge with respect to the potential sale of our interests in NEG Oil & Gas. As a result, the financial position and results of these operations included in the consolidated balance sheets as of September 30, 2006 and December 31, 2005 and consolidated statements of operations for the three and nine months ended September 30, 2006 and 2005, respectively, in our Form 10-Q were presented as assets and liabilities of discontinued operations held for sale in the consolidated balance sheets and discontinued operations in the consolidated statements of operations, respectively, for all periods presented in accordance with Statement of Financial Accounting Standards No. 144 (SFAS No. 144), “Accounting for the Impairment or Disposal of Long-Lived Assets.”
 
 
The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2005 included in this Form 8-K includes the pro forma adjustments to income from continuing operations assuming that the transactions described above occurred on January 1, 2005. In accordance with Rule 11-02 of Regulation S-X, a pro forma statement of operations for the nine months ended September 30, 2006 is not presented, as AREP’s oil and gas and Atlantic City operations were presented as discontinued operations in the unaudited statement of operations for such period included in the Form 10-Q for the quarterly period ended September 30, 2006.
 
NOTE 3 - PRO FORMA ADJUSTMENTS RELATING TO THE TRANSACTIONS

(1)  
Reflects:
a.  
Cash proceeds of $1.015 billion and 12,842,000 shares of SandRidge common stock (valued at $18.00 per share) received upon the closing of the sale of NEG Oil & Gas, as if such proceeds and shares had been received on September 30, 2006; and
b.  
The total consideration paid pursuant to the agreement with Pinnacle of approximately $274.8 million (of which approximately $200.6 million was paid to Atlantic Coast and approximately $74.2 million was paid to certain affiliates of AREH for the Traymore site and other adjacent properties), as if such proceeds had been received on September 30, 2006. Under the terms of the agreement, $50.0 million of the purchase price paid to Atlantic Coast was deposited into escrow pending satisfaction of certain conditions.
(2)  
Reflects expected utilization of deferred income tax assets relating to the estimated gain to be recognized by NEGI and Atlantic Coast.
(3)  
Reflects the elimination of the September 30, 2006 carrying value of the assets and liabilities of NEG Oil & Gas and the Atlantic City Gaming operations.
(4)  
Reflects:
a.  
The application of the $10.0 million paid by SandRidge upon signing the exclusivity agreement and letter of intent in September 2006 to the purchase price for NEG Oil & Gas; and
b.  
Estimated income taxes payable by NEGI of $28.1 million (net of utilization of deferred income tax assets) relating to the gain to be recognized by NEGI from the purchase by NEG Oil & Gas of NEGI’s membership interest in NEG Holding LLC.
(5)  
Reflects the amount of net gain on the transactions, less applicable income taxes and minority interests.
(6)  
Reflects the reversal of revenues and expenses included in income from continuing operations attributable to the sale of NEG Oil & Gas and the Atlantic City Gaming operations, respectively, net of income taxes.