##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-Q (Mark One) x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to Commission File Number 000-50689   BH/RE, L.L.C.  NEVADA
(State or Other Jurisdiction
of Incorporation or Organization)
    
    84-1622334
(I.R.S. Employer
Identification Number)885 Third Avenue
34th Floor
New York, New York
(Address of Principal Executive Offices)
    
    10022
(Zip Code)
 (212) 371-2211
(Registrants Telephone Number, Including Area Code)   Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes o No x Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x As of July 30, 2004, 50% of the Registrants voting membership interests
were held by each of Robert Earl and Douglas P. Teitelbaum, and 50% of the
Registrants equity membership interests were held by each of BH Casino and
Hospitality, Inc. and OCS Consultants, Inc.




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BH/RE, L.L.C. AND SUBSIDIARIES
Table of Contents PART
I  FINANCIAL INFORMATION
    
    
    3ITEM 1. FINANCIAL STATEMENTS
    
    
    3BH/RE, L.L.C. And Subsidiaries (A Development Stage Company)
    
    
    3Condensed
Consolidated Balance Sheets
    
    
    3Condensed
Consolidated Statements Of Operations (Unaudited)
    
    
    4Condensed
Consolidated Statements Of Cash Flows (Unaudited)
    
    
    5Notes To Consolidated Financial Statements (Unaudited)
    
    
    6Aladdin Gaming, LLC And Subsidiaries
    
    
    9Condensed Consolidated Balance Sheets
    
    
    9Condensed Consolidated Statements Of Operations (Unaudited)
    
    
    10Condensed Consolidated Statements Of Cash Flows (Unaudited)
    
    
    11Notes To Condensed Consolidated Financial
Statements (Unaudited)
    
    
    12ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    16ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    22ITEM 4. CONTROLS AND PROCEDURES
    
    
    22FORWARD LOOKING STATEMENTS
    
    
    22PART II    OTHER INFORMATION
    
    
    23ITEM 5. OTHER INFORMATION
    
    
    23BH/RE, L.L.C. And Subsidiaries
    
    
    23Unaudited Pro Forma Condensed Consolidated Balance
Sheet (As Of March 31, 2004)
    
    
    24Unaudited Pro Forma Condensed Consolidated Statement
Of Operations (For The Year Ended December 31, 2003)
    
    
    25Unaudited Pro Forma Condensed Consolidated Statement
Of Operations (For The Quarter Ended March 31, 2004)
    
    
    26Notes To Unaudited Pro Forma Condensed Consolidated Financial Statements
    
    
    27ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
    
    
    29SIGNATURES
    
    
    30Certification of Robert Earl Pursuant to Section 302Certification of Douglas P. Teitelbaum Pursuant to Section 302Certification of Thomas Avallone Pursuant to Section 302Certification Pursuant to Section 906
  2




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PART I  FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS 
 BH/RE, L.L.C. AND SUBSIDIARIES (A Development Stage Company)
 
 CONDENSED CONSOLIDATED
BALANCE SHEETS March 31,
    
    December 31,2004(unaudited)
    
    2003(In thousands)ASSETSOTHER ASSETS  NON CURRENTRestricted cash  long term
    
    $
    10,086
    
    
    $
    10,061Deferred acquisition costs
    
    
    4,496
    
    
    
    3,225TOTAL ASSETS
    
    $
    14,582
    
    
    $
    13,286LIABILITIES AND MEMBERS DEFICITCURRENT LIABILITIESDue to affiliates
    
    $
    14,565
    
    
    $
    13,008TOTAL LIABILITIES
    
    
    14,565
    
    
    
    13,008COMMITMENTS
AND CONTINGENCIESMINORITY INTERESTS
    
    
    1,513
    
    
    
    1,509MEMBERS ACCUMULATED DEFICIT
DURING THE DEVELOPMENT STAGE
    
    
    (1,496
    )
    
    
    (1,231
    )TOTAL LIABILITIES AND MEMBERS DEFICIT
    
    $
    14,582
    
    
    $
    13,286
 See accompanying notes to
unaudited condensed consolidated financial statements. 3




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BH/RE, L.L.C. AND SUBSIDIARIES
(A Development Stage Company) 
 CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED) For the Period fromMarch 31, 2003(date of formation)Three Months ended
    
    throughMarch 31, 2004
    
    March 31, 2004(In thousands)EXPENSESPre-opening
    
    $
    (286
    )
    
    $
    (1,569
    )OTHER INCOME (EXPENSE)Interest income
    
    
    25
    
    
    
    86Minority interest
    
    
    (4
    )
    
    
    (13
    )NET LOSS
    
    $
    (265
    )
    
    $
    (1,496
    )
 See accompanying notes to
unaudited condensed consolidated financial statements. 4




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BH/RE, L.L.C. AND SUBSIDIARIES
(A Development Stage Company) 
 CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED) For the Period fromMarch 31, 2003(date of formation)Three Months ended
    
    throughMarch 31, 2004
    
    March 31, 2004(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    (265
    )
    
    $
    (1,496
    )
    
    
    
    
    
    
    
    


CASH FLOWS FROM INVESTING ACTIVITIESChanges in restricted cash
    
    
    (25
    )
    
    
    (10,086
    )Minority interest
    
    
    4
    
    
    
    1,513Net cash used in investing activities
    
    
    (21
    )
    
    
    (8,573
    )CASH FLOWS FROM INVESTING ACTIVITIESAdvances from affiliates
    
    
    1,557
    
    
    
    14,565Deferred acquisition costs
    
    
    (1,271
    )
    
    
    (4,496
    )Net cash provided from financing activities
    
    
    286
    
    
    
    10,069NET INCREASE (DECREASE) IN CASH
    
    
    
    
    
    
    CASH, BEGINNING OF THE PERIOD
    
    
    
    
    
    
    CASH, END OF THE PERIOD
    
    $
    
    
    
    $
    
 See accompanying notes to
unaudited condensed consolidated financial statements. 5




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BH/RE, L.L.C. AND SUBSIDIARIES
(A Development Stage Company) 
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION Organization BH/RE, L.L.C. and its subsidiaries (BH/RE) were formed to acquire,
operate and renovate the Aladdin Resort and Casino located in Las Vegas,
Nevada, which we refer to in this report as the Aladdin. BH/RE is a Nevada limited liability
company and was organized on March 31, 2003. Since formation, neither BH/RE nor
any of its subsidiaries has conducted any operations other than in connection
with the proposed Aladdin acquisition. BH/RE is a holding company and we do not
expect BH/RE to have any material operations. BH/RE was formed by BH Casino and Hospitality, Inc. (BHCH I) and OCS
Consultants, Inc. BHCH I is controlled by Douglas P. Teitelbaum, a managing
principal of Bay Harbour Management, L.C. Bay Harbour Management is an
SEC-registered investment management firm. BH Casino and Hospitality was formed
by Mr. Teitelbaum for the purpose of holding investments in BH/RE by funds
managed by Bay Harbour Management. OCS is wholly owned and controlled by Robert
Earl and holds Mr. Earls investment in BH/RE. Mr. Earl is the founder,
chairman and chief executive officer of Planet Hollywood
International, Inc. and Mr. Teitelbaum is
a director of Planet Hollywood. Together, Mr. Earl, a trust for the benefit of
Mr. Earls children and affiliates of Bay Harbour Management own substantially
all of the equity of Planet Hollywood. Mr. Earl disclaims beneficial ownership
of any equity of Planet Hollywood owned by the trust. BH/RE is a holding
company that owns 85% of EquityCo, L.L.C. The remaining 15% of EquityCo is
owned by a subsidiary of Starwood Hotels and Resorts Worldwide, Inc. MezzCo,
L.L.C. is a wholly owned subsidiary of EquityCo, and OpBiz L.L.C. is a wholly
owned subsidiary of MezzCo. Planned Acquisition of the Aladdin The Aladdin is currently owned and operated by Aladdin Gaming, LLC, which
is a debtor-in-possession under Chapter 11 of the United States Bankruptcy
Code. Aladdin Gaming commenced its bankruptcy case in the United States
Bankruptcy Court for the District of Nevada, Southern Division on September 28,
2001. On April 23, 2003, OpBiz and Aladdin Gaming entered into a purchase
agreement pursuant to which OpBiz agreed to acquire the Aladdin. Under the
purchase agreement and pursuant to an order of the Bankruptcy Court, Aladdin
Gaming conducted an auction to sell the Aladdin. On June 20, 2003, the
Bankruptcy Court declared OpBiz the winner of that auction and, on August 29,
2003, the Bankruptcy Court entered an order confirming Aladdin Gamings plan of
reorganization and authorizing Aladdin Gaming to complete the sale of the
Aladdin to OpBiz under the purchase agreement. The purchase agreement provides that, subject to certain conditions, OpBiz
will acquire substantially all of the real and personal property owned or used
by Aladdin Gaming to operate the Aladdin, and will receive $15 million of
working capital from Aladdin Gaming, including at least $10 million of cash.
OpBiz will pay the purchase price for the Aladdin by issuing new secured notes
to Aladdin Gamings secured creditors and will assume various contracts and
leases entered into by Aladdin Gaming in connection with its operation of the
Aladdin and certain of Aladdin Gamings liabilities, including Aladdin Gamings
energy service obligation to the third party owner of the central utility plant
that supplies hot and cold water and emergency power to the Aladdin. At March
31, 2004, the energy service obligation was $34.4 million. Upon the completion
of the Aladdin acquisition, OpBiz will issue $510 million of new secured notes
to Aladdin Gamings secured creditors under an Amended and Restated Loan and
Facilities Agreement with a group of lenders and The Bank of New York, Asset
Solutions Division, as administrative and collateral agent, which we refer to
in this report as the Credit Agreement. OpBiz has also agreed to simultaneously
make a $14 million cash payment to those secured creditors to reduce the
principal amount of the notes to $496 million and obtain a release of their
lien on a four-acre parcel of undeveloped property that we will acquire from
Aladdin Gaming. We presently intend to develop this property into a vacation
resort ownership or similar project. OpBiz will also provide either cash or a
letter of credit in the amount of $90 million to fund the costs of the planned
renovations to the Aladdin. Before OpBiz can complete the Aladdin acquisition, we must receive certain
approvals from various Nevada gaming authorities and under the
Hart-Scott-Rodino Act. As a result, the completion of the Aladdin acquisition
may be delayed or may not occur. BH/RE and each of its subsidiaries are
required to be registered with and licensed or found suitable by the Nevada
gaming authorities in connection with the Aladdin acquisition. Our officers
and managers, including Mr. Earl, Mr. Teitelbaum and Michael V. Mecca, the
president and chief executive officer of OpBiz, as well as Barry Sternlicht
(the chairman and chief executive officer of Starwood) and Theodore Darnall
(the executive vice president of hotel operations of Starwood and a manager of
EquityCo), must also be licensed or found suitable by the Nevada gaming
authorities in connection with the Aladdin acquisition. As of the date of this
report, gaming applications had been filed by each of these persons or
entities. After the end of the period covered by this report we were informed
that the Nevada gaming authorities have scheduled
hearings on these applications during August of 2004; however, the
required approvals have not been obtained. In addition, certain other senior
executives of Starwood have filed applications with the Nevada gaming
authorities, but are not required to be found suitable in order for us to
receive the approvals required in connection with the Aladdin acquisition.
However, the Nevada gaming authorities may determine to investigate the
suitability of these other senior executives of Starwood at a later time. Aladdin Gaming may terminate the purchase agreement
if any required gaming application is withdrawn or denied, or if all necessary
approvals of the Nevada gaming authorities have not been obtained by August 29,
2004. Although we expect that the Nevada gaming authorities will hold all
required hearings before August 29, 2004, we cannot assure you that we will be
able to obtain all of the approvals from the Nevada gaming authorities by that
date. Additionally, the order of the Nevada gaming commission granted such
licenses may contain restrictions on our operations and our ability to engage
in certain transactions, including paying dividends and making distributions.
If we do not have all of our gaming approvals by August 29, 2004, OpBiz may
extend the termination date of the purchase agreement by up to 90 days by
increasing its existing cash deposit by up to $2.5 million. Applications for
approval under the Hart-Scott-Rodino Act were filed in July 2004. The purchase agreement provides that OpBiz will assume substantially all
of Aladdin Gamings pre-petition contracts and leases and any post-petition
contracts or leases to which OpBiz does not object. The purchase agreement provides that OpBiz will offer employment to
all of Aladdin Gamings employees, other than executive management, on terms
and conditions substantially similar to their current employment terms and
conditions. Plan of Operations We expect that OpBiz, a subsidiary of BH/RE, will complete the acquisition
of the Aladdin in the third quarter of 2004. Following completion of the
Aladdin acquisition, OpBiz will begin a renovation project which, when
complete, will transform the Aladdin into the Planet Hollywood Resort and
Casino, which we refer to as the PH Resort. In connection with the proposed
renovation of the Aladdin, OpBiz has entered into an agreement with Planet
Hollywood International, Inc. and certain of its subsidiaries to, among other
things, license Planet Hollywoods trademarks, memorabilia and other
intellectual property. OpBiz has also entered into an agreement with Sheraton
Operating Corporation, a subsidiary of Starwood, pursuant to which Sheraton
will provide hotel management, marketing and reservation services for the hotel
that will comprise a portion of the PH Resort. Development Stage Risk Factors As a development stage company, BH/RE has risks that could impact its
ability to successfully complete the acquisition. In addition, prior to the
completion of the acquisition, BH/RE has to secure several state and local
government regulatory agency approvals, including, but not limited to, securing
a state gaming license for the ownership and operation of the PH Resort. Interim Financial Statements The
accompanying condensed consolidated financial statements included herein have
been prepared by the management of BH/RE, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the Untied States
have been condensed or omitted pursuant to such rules and regulations. BH/RE
believes that the disclosures are adequate to make the information presented
not misleading. In the opinion of management, all adjustments (which include
normal recurring adjustments) necessary for a fair presentation of the results
for the interim periods have been made. The results for the three-month period
ended March 31, 2004 are not indicative of results to be expected for the full
fiscal year nor the results subsequent to the acquisition. These
unaudited financial

statements should be read in conjunction with the audited financial statements
and notes thereto for the period from March 31, 2003 (date of formation) 6




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through December 31, 2003, included in
BH/REs Registration Statement on Form 10 (File No.
000-50689) filed with the
Securities and Exchange Commission on April 16, 2004. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Restricted Cash Restricted cash consists of an escrow deposit of approximately $10.1
million which will be applied toward the $90 million of cash commitments for
our planned renovations to the Aladdin. Deferred Acquisition Costs BH/RE capitalized approximately $4.5 million in direct external costs
related to the Aladdin acquisition as of March 31, 2004. These costs will be
included as part of the purchase price after the Aladdin acquisition is
complete. Recent Accounting Pronouncements In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. The objective of FIN 46 is to
improve financial reporting by companies involved with variable interest
entities. FIN 46 changes certain consolidation requirements by requiring a
variable interest entity to be consolidated by a company that is subject to a
majority of the risk of loss from the variable interest entitys activities or
receive a majority of the entitys residual returns or both. The adoption of
FIN 46 did not have a material impact on the consolidated financial statements
of BH/RE. 3. MEMBERSHIP INTERESTS As
of March 31, 2004, BH/REs membership interests
had not been unitized and BH/REs members do not presently intend to
unitize these
membership interests. Accordingly, management of BH/RE has
excluded earnings per share data required pursuant to Statement of Financial
Accounting Standard No. 128 Earnings Per Share because management believes
that such disclosures would not be meaningful to the financial statement
presentation. 7




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4. RELATED PARTY TRANSACTIONS Due to Affiliates Since our formation, certain members or affiliates of BH/RE have paid
expenses related to the Aladdin acquisition and funded deposits under the
purchase agreement on behalf of BH/RE and its subsidiaries. Such advances
consist of the following: March 31, 2004
    
    December 31, 2003(In thousands)BHCH I
    
    $
    8,521
    
    
 $
    7,633Planet Hollywood
    
    
    1,794
    
    
    
    1,125OCS
    
    
    4,250
    
    
    
    4,250$
    14,565
    
    
    $
    13,008
 Upon completion of the Aladdin acquisition, $4.25 million of advances from
each of BHCH I and OCS, which were used to fund the deposit required of OpBiz
under the purchase agreement, will be contributed to BH/RE as capital.
Additionally, upon completion of the Aladdin acquisition, the advances made by
BHCH I and Planet Hollywood to pay transaction fees will be repaid by BH/RE. 5. COMMITMENTS AND CONTINGENCIES Employment Agreement In
April 2003, OpBiz entered into an employment contract with its president and chief
executive officer, Michael V. Mecca, for a five-year term that began
on May
11, 2003. The agreement provides for a base salary of $450,000, a performance
based bonus incentive and an option to purchase equity interests in MezzCo
equal to 3% of the equity of OpBiz. Litigation BH/RE is not currently a party to any legal proceedings. 6. SUBSEQUENT EVENTS BH/RE BH/RE currently plans to admit BH Casino and
Hospitality II, L.L.C., as a non-voting equity member in connection with the closing of the acquisition of
the Aladdin. BHCH II was formed in July of 2004 to provide additional
equity capital to BH/RE. BHCH II is controlled by Douglas P.
Teitelbaum. We presently expect BHCH II to provide BH/RE with a $13
million cash capital contribution on or before the closing of the Aladdin
acquisition. Assuming this capital contribution is made, the non-voting equity interests in BH/RE will be owned 40.75% by
BHCH I, 18.5% by BHCH II and 40.75% by OCS. There has been no change in the
voting interests in BH/RE. 8




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ALADDIN GAMING, LLC AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS


March 31,
    
    December 31,2004(unaudited)
    
    2003(In thousands)AssetsCURRENT ASSETS:Cash and cash equivalents
    
    $
    46,482
    
    
    $
    38,240Restricted cash and cash equivalents
    
    
    4,230
    
    
    
    4,189Receivables from related parties
    
    
    37
    
    
    
    38Accounts receivable, net
    
    
    12,068
    
    
    
    13,369Inventories
    
    
    1,537
    
    
    
    1,920Prepaid expenses
    
    
    5,146
    
    
    
    5,596Deposits
    
    
    2,728
    
    
    
    2,885Total current assets
    
    
    72,228
    
    
    
    66,237PROPERTY AND EQUIPMENT, net
    
    
    496,885
    
    
    
    496,370OTHER ASSETS
    
    
    916
    
    
    
    923Note Receivable
    
    
    333
    
    
    
    668Total assets
    
    $
    570,362
    
    
    $
    564,198Liabilities
and Members DeficitCURRENT LIABILITIES:Current portion of energy service obligation
    
    $
    1,164
    
    
    $
    1,132Accounts payable
    
    
    2,170
    
    
    
    3,910Accrued payroll and related expenses
    
    
    13,580
    
    
    
    12,946Accrued interest
    
    
    323
    
    
    
    332Other accrued expenses
    
    
    15,615
    
    
    
    16,179Total current liabilities
    
    
    32,852
    
    
    
    34,499OTHER LIABILITIES:Energy
Service Obligation- net of current portion
    
    
    33,257
    
    
    
    33,558Liabilities subject to compromise
    
    
    541,239
    
    
    
    549,513Total liabilities
    
    
    607,348
    
    
    
    617,570COMMITMENTS AND CONTINGENCIESMEMBERS DEFICIT:Preferred membership interest
    
    
    221,500
    
    
    
    221,500Common membership interest
    
    
    173,870
    
    
    
    173,870Accumulated deficit
    
    
    (432,356
    )
    
    
    (448,742
    )Total
Members Deficit
    
    
    (36,986
    )
    
    
    (53,372
    )Total
liabilities and Members Deficit
    
    $
    570,362
    
    
    $
    564,198


See accompanying notes to unaudited condensed consolidated financial statements.

9



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ALADDIN GAMING, LLC AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED) Three months endedMarch 31,2004
    
    2003(in thousands)REVENUESCasino
    
    
    $29,389
    
    
    $
    27,485Hotels
    
    
    28,512
    
    
    
    25,403Food and beverage
    
    
    18,903
    
    
    
    17,252Other revenue
    
    
    4,124
    
    
    
    3,903GROSS REVENUE
    
    
    80,928
    
    
    
    74,043Less promotional allowances
    
    
    (7,572
    )
    
    
    (6,751
    )NET REVENUES
    
    
    73,356
    
    
    
    67,292COSTS AND EXPENSESCasino
    
    
    18,148
    
    
    
    16,652Hotel
    
    
    7,523
    
    
    
    6,768Food and beverage
    
    
    10,156
    
    
    
    9,165Other operating expense
    
    
    3,435
    
    
    
    2,894Selling, general and administrative
    
    
    15,193
    
    
    
    14,786Depreciation and amortization
    
    
    
    
    
    
    12,006Total costs and expenses
    
    
    54,455
    
    
    
    62,271INCOME FROM OPERATIONS
    
    
    18,901
    
    
    
    5,021OTHER INCOMEInterest income
    
    
    
    
    
    
    Interest expense
    
    
    968
    
    
    
    1,019Total other expenses
    
    
    968
    
    
    
    1,019REORGANIZATION ITEMS
    
    
    1,549
    
    
    
    2,804NET INCOME
    
    
    $16,384
    
    
    
    $1,198
 See accompanying notes to unaudited condensed consolidated financial statements. 10




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ALADDIN GAMING, LLC AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


Three months endedMarch 31,2004
    
    2003(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    17,743
    
    
    $
    20,287CASH PAYMENTS FOR REORGANIZATION ITEMS
    
    
    (773
    )
    
    
    (8,653
    )CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITIES
    
    
    (554
    )
    
    
    218CASH FLOWS USED IN FINANCING ACTIVITIESRepayment of long term debt
    
    
    (270
    )
    
    
    (3,212
    )Adequate protection payments  GECC
    
    
    (1,875
    )
    
    
    Adequate protection payments  Secured Lenders
    
    
    (6,029
    )
    
    
    Net cash used in financing activities
    
    
    (8,174
    )
    
    
    (3,212
    )NET INCREASE IN CASH
    
    
    8,242
    
    
    
    8,640CASH, BEGINNING OF PERIOD
    
    
    38,240
    
    
    
    22,431CASH, END OF PERIOD
    
    $
    46,482
    
    
    $
    31,071


See accompanying notes to unaudited condensed consolidated financial statements.

11



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ALADDIN GAMING, LLC AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BUSINESS The condensed consolidated financial statements include the accounts of
Aladdin Gaming, LLC and its wholly owned inactive subsidiaries, which include
Aladdin Music Holdings, LLC and Aladdin Music, LLC. Significant intercompany
accounts are eliminated in consolidation. Aladdin Gaming, LLC, a Nevada limited liability company (Gaming or the
Company), was formed on January 24, 1997. The Company is wholly owned by
Aladdin Gaming Holdings, LLC, a Nevada limited liability company (Gaming
Holdings). Gaming Holdings is owned by Aladdin Gaming Enterprises, Inc.
(Gaming Enterprises), a Nevada corporation (25%), Sommer Enterprises, LLC
(Sommer Enterprises), a Nevada limited liability company (31%), London Clubs
International, plc (London Clubs), through its subsidiary London Clubs
Nevada, Inc. (LCNI) (40%), GAI, LLC, a Nevada limited liability company (3%),
and Jose Rueda (0.2%). Aladdin Holdings, LLC, a Delaware limited liability
company (Holdings), indirectly holds a majority interest in Gaming Holdings.
The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer
(the Sommer Trust), which holds a 95% interest in Holdings, and GW Vegas,
LLC, a Nevada limited liability company (GW) and a wholly owned subsidiary of
Trust Company of the West (TCW), which holds a 5% interest in Holdings. The Company term is 100 years. The Company owns the Aladdin Resort and Casino (Aladdin) located in Las
Vegas, Nevada. The Aladdin includes a 2,567-room hotel, offering deluxe
guestrooms, resort guestrooms, suites, luxury rooms and mega suites. In
addition, the hotel has an outdoor pool area and an approximately 32,000-square
foot spa that is leased to a third party. Aladdins 116,000-square foot casino
contains approximately 1,900 slot machines, 50 table games, keno and a
sports-book facility on its main floor and includes a 15,000-square foot luxury
gaming section on its mezzanine level with approximately 20 high denomination
table games and 75 high denomination slot machines. In addition, Gaming has
approximately 950 unused slot machines. The Aladdin has seven restaurants, including a Chinese restaurant leased
to P.F. Changs, a buffet, a sushi bar, a 24-hour casual dining facility, an
Italian restaurant, a steak and seafood restaurant and a poolside snack bar, as
well as a nightclub and several lounges. In addition, Gaming operates a
Starbucks Coffee franchise. The Aladdin also has gift and merchandise shops
operated by a third party. The Aladdin also has over 75,000 square feet of
convention, trade show and meeting facilities, including a 37,000-square foot
main ballroom, 10,000 square feet of pre-function space and 16,000 square feet
of breakout space in 18 separate rooms. The Aladdin includes an approximately 7,000-seat Theater for the
Performing Arts (TPA). The TPA is used for award shows, live music events and
theatrical performances. The Aladdin also has unfinished space for an
approximately 1,300-seat theater on a mezzanine level above the casino.
Currently, the Company operates an approximately 400-seat showroom in the
theater space. 2. BASIS OF PRESENTATION The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. On September 28, 2001 (the Petition
Date), Gaming filed a voluntary petition for Chapter 11 reorganization
(Chapter 11) pursuant to the United States Bankruptcy Code (Bankruptcy
Code) with the United States Bankruptcy Court for the District of Nevada,
Southern Division (the Bankruptcy Court). As of March 31, 2004, the
Companys members deficit of $37.0 million, and its status as a
debtor-in-possession operating under Chapter 11 Bankruptcy Court protection
give rise to substantial doubt about the Companys ability to continue as a
going concern. Management of the Company believes that the conditions included
in the Purchase Agreement with OpBiz (discussed below) will be met and the sale
will close in 2004. The accompanying financial statements do not 12




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##### Table of Contents



include any adjustments that may be necessary if the Company is not able
to emerge from Chapter 11 and continue as a going concern. The American Institute of Certified Public Accountants Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code(SOP 90-7) provides guidance for financial reporting by
entities that have filed petitions under the Bankruptcy Code and expect to
reorganize under Chapter 11. Under SOP 90-7, the financial statements of an
entity in a Chapter 11 reorganization proceeding should distinguish
transactions and events that are directly associated with the reorganization
from those subject to compromise (see Note 5). Additional liabilities may arise
as a result of rejection of executory contracts and unexpired leases, or the
Bankruptcy Courts resolution of claims for contingencies and other disputed
amounts. The accompanying condensed consolidated financial statements are unaudited
and have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations, although management of Gaming
believes that the disclosures are adequate to make the information presented
not misleading. In the opinion of management of Gaming, all adjustments (which
include normal recurring adjustments) necessary for a fair presentation of
results for the interim periods covered by the accompanying condensed
consolidated financial statements have been made. Gamings results of
operations for the three-month period ended March 31, 2004 are not necessarily
indicative of results to be expected for the full fiscal year. These
unaudited condensed
consolidated financial statements should be read in conjunction with Gamings
financial statements and notes thereto for the year ended December 31, 2003, as
included in the Form 10 Registration (File No. 000-50689) of BH/RE, L.L.C. (BH/RE),
filed with the Securities and Exchange Commission on April 16, 2004 (the Form 10). 3. PENDING SALE OF THE ALADDIN TO OPBIZ On April 23, 2003, OpBiz, L.L.C., a Nevada limited liability company
(OpBiz), and Gaming entered into a Purchase and Sale Agreement (Purchase
Agreement) pursuant to which OpBiz agreed to acquire substantially all of the
assets of the Aladdin. Under the Purchase Agreement and pursuant to an order of
the Bankruptcy Court, Gaming conducted an auction to sell the Aladdin. On June
20, 2003, the Bankruptcy Court declared OpBiz the winner of that auction and,
on August 29, 2003, the Bankruptcy Court entered an order confirming Gamings
plan of reorganization and authorized Gaming to complete the sale of the assets
to OpBiz under the Purchase Agreement. Upon consummation of the plan of
reorganization, all remaining assets of Gaming will be transferred to a new
entity that will be controlled by Gamings pre-petition secured lenders. The Purchase Agreement provides that, subject to certain conditions, OpBiz
will acquire substantially all of the real and personal property owned or used
by Gaming to operate the Aladdin, and will receive $15 million of working
capital from Gaming, including at least $10 million of cash. OpBiz will pay the
purchase price for the Aladdin by issuing $510 million of secured notes to
Gamings secured creditors and will assume various contracts and leases entered
into by Gaming in connection with its operation of the Aladdin and certain of
Gamings liabilities, including Gamings energy service obligation to Northwind
Aladdin, LLC, (Northwind) the third party owner of the central utility plant
that supplies hot and cold water and emergency power to the Aladdin. OpBiz has
also agreed to simultaneously make a $14 million cash payment to Gamings
secured creditors to reduce the principal amount of the secured notes to $496
million and obtain a release of their lien on certain real property to be
acquired from Gaming. OpBiz will also provide either cash or a letter of credit
in the amount of $90 million to fund the costs of the planned renovations to
the Aladdin. Gaming may terminate the Purchase Agreement if any of the gaming
applications required to be filed by OpBiz and various related entities in
connection with the acquisition of the Aladdin are withdrawn or denied, or if
OpBiz and such related parties have not obtained all necessary approvals of the
Nevada gaming authorities required to complete the acquisition of the Aladdin
by August 29, 2004. OpBiz may extend this termination date by up to 90 days by
increasing its existing cash deposit under the Purchase Agreement by up to $2.5
million. The Purchase Agreement provides that OpBiz will assume substantially all
of Gamings pre-petition contracts and leases and any post-petition contracts
or leases to which OpBiz does not object. 13




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##### Table of Contents



4. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. The objective of FIN 46 is to
improve financial reporting by companies involved with variable interest
entities. FIN 46 changes certain consolidation requirements by requiring a
variable interest entity to be consolidated by a company that is subject to a
majority of the risk of loss from the variable interest entitys activities or
receive a majority of the entitys residual returns or both. The adoption of
FIN 46 did not have a material impact on the consolidated financial
statements of the Company. 5. LIABILITIES SUBJECT TO COMPROMISE Liabilities subject to compromise under reorganization proceedings
consisted of the following: March 31,
    
    December 31,2004
    
    2003(In thousands)Accounts payable trade
    
    $
    948
    
    
    $
    1,319Accrued interest
    
    
    6,647
    
    
    
    6,647Accrued interest  interest rate collars
    
    
    2,794
    
    
    
    2,794Other accrued expenses
    
    
    7,461
    
    
    
    7,461Bank credit facility
    
    
    434,736
    
    
    
    434,736FF&E facility
    
    
    15,822
    
    
    
    15,822FF&E lease
    
    
    39,297
    
    
    
    41,172Related party payable
    
    
    14,420
    
    
    
    14,420Interest rate collars payable
    
    
    19,114
    
    
    
    25,142$
    541,239
    
    
    $
    549,513
 14




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##### Table of Contents



6. REORGANIZATION ITEMS Reorganization items consisted of the following: March 31,2004
    
    2003(In thousands)Professional fees
    
    $
    592
    
    
    $
    2,856Interest earned on accumulated cash during
Chapter 11 proceedings
    
    
    (48
    )
    
    
    (32
    )Extinguishment of pre-petition debt
    
    
    
    
    
    
    (20
    )Management retention expense
    
    
    957
    
    
    
    Claim valuation
    
    
    48
    
    
    
    Other
    
    
    
    
    
    
    $
    1,549
    
    
    $
    2,804
 Professional fees related to the reorganization are subject to Bankruptcy
Court approval and are expensed as incurred. 7. COMMITMENT AND CONTINGENCIES Litigation The
Uriah and Nu Floor mechanics liens, which are discussed in Note 15 to
Gaming's Audited Financial Statements for the fiscal year ended
December 31, 2003 filed with the Form 10, were voluntarily
released in June 2004. The Company is involved in various legal proceedings relating to its
business. While any proceeding or litigation has an element of uncertainty, the
Companys management believes that the final outcome of these matters is not
likely to have a material adverse effect upon its results of operations or
financial position. 15




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS Introduction and Corporate Organization BH/RE and its subsidiaries were formed to acquire, operate and renovate
the Aladdin Resort and Casino located in Las Vegas, Nevada, which we refer to
in this report as the Aladdin. We expect that OpBiz, L.L.C., an indirect
subsidiary of BH/RE, will complete the acquisition of the Aladdin in the third
quarter of 2004. Following completion of the Aladdin acquisition, OpBiz will
begin a renovation project which, when complete, will transform the Aladdin
into the Planet Hollywood Resort and Casino, which we refer to in this report
as the PH Resort. In connection with the proposed renovation of the Aladdin,
OpBiz has entered into an agreement with Planet Hollywood International, Inc.
and certain of its subsidiaries to, among other things, license Planet
Hollywoods trademarks, memorabilia and other intellectual property. OpBiz has
also entered into an agreement with Sheraton Operating Corporation, a
subsidiary of Starwood Hotels and Resorts Worldwide, Inc., pursuant to which
Sheraton will provide hotel management, marketing and reservation services for
the hotel that will comprise a portion of the PH Resort. BH/RE
was formed by BH Casino and Hospitality, Inc., which we refer to in
this report as BHCH I, and OCS Consultants, Inc. BHCH I is controlled by
Douglas P. Teitelbaum, a managing principal of Bay Harbour Management, L.C.
Bay Harbour Management is an SEC-registered investment management firm. BHCH I
was formed by Mr. Teitelbaum for the purpose of holding investments in BH/RE by
funds managed by Bay Harbour Management. OCS is wholly owned and controlled by
Robert Earl and holds Mr. Earls investment in BH/RE. Mr. Earl is the founder,
chairman and chief executive officer of Planet Hollywood and Mr. Teitelbaum is
a director of Planet Hollywood. Together, Mr. Earl, a trust for the benefit of
Mr. Earls children and affiliates of Bay Harbour Management own substantially
all of the equity of Planet Hollywood. Mr. Earl disclaims beneficial ownership
of any equity of Planet Hollywood owned by the trust. BH/RE is a holding company that owns 85% of EquityCo, L.L.C. The
remaining 15% of EquityCo is owned by a subsidiary of Starwood. MezzCo, L.L.C.
is a wholly owned subsidiary of EquityCo, and OpBiz is a wholly owned
subsidiary of MezzCo. In this report, the terms we and our refer to BH/RE
and its subsidiaries. Planned Acquisition of the Aladdin The Aladdin is currently owned and operated by Aladdin Gaming, LLC, which
is a debtor-in-possession under Chapter 11 of the United States Bankruptcy
Code. Aladdin Gaming commenced its bankruptcy case in the United States
Bankruptcy Court for the District of Nevada, Southern Division on September 28,
2001. On April 23, 2003, OpBiz and Aladdin Gaming entered into a purchase
agreement pursuant to which OpBiz agreed to acquire the Aladdin. Under the
purchase agreement and pursuant to an order of the Bankruptcy Court, Aladdin
Gaming conducted an auction to sell the Aladdin. On June 20, 2003, the
Bankruptcy Court declared OpBiz the winner of that auction and, on August 29,
2003, the Bankruptcy Court entered an order confirming Aladdin Gamings plan of
reorganization and authorizing Aladdin Gaming to complete the sale of the
Aladdin to OpBiz under the purchase agreement. The purchase agreement provides that, subject to certain conditions, OpBiz
will acquire substantially all of the real and personal property owned or used
by Aladdin Gaming to operate the Aladdin, and will receive $15 million of
working capital from Aladdin Gaming, including at least $10 million of cash.
OpBiz will pay the purchase price for the Aladdin by issuing new secured notes
to Aladdin Gamings secured creditors and will assume various contracts and
leases entered into by Aladdin Gaming in connection with its operation of the
Aladdin and certain of Aladdin Gamings liabilities, including Aladdin Gamings
energy service obligation to the third party owner of the central utility plant
that supplies hot and cold water and emergency power to the Aladdin. At March
31, 2004, the energy service obligation was $34.4 million. Upon the completion
of the Aladdin acquisition, OpBiz will issue $510 million of new secured notes
to Aladdin Gamings secured creditors under an Amended and Restated Loan and
Facilities Agreement with a group of lenders and The Bank of New York, Asset
Solutions Division, as administrative and collateral agent, which we refer to
in this report as the Credit Agreement. OpBiz has also agreed to
simultaneously make a $14 million cash payment to those secured creditors to
reduce the principal amount of the notes to $496 million and obtain a release
of their lien on a four-acre parcel of undeveloped property that we will
acquire from Aladdin Gaming. We presently intend to develop this property into
a vacation resort or similar project. OpBiz will also provide either
cash or a letter of credit in the amount of $90 million to fund the costs of
the planned renovations to the Aladdin. Before OpBiz can complete the Aladdin acquisition, we must receive certain
approvals from various Nevada gaming authorities and under the
Hart-Scott-Rodino Act. As a result, the completion of the Aladdin acquisition
may be delayed or may not occur. BH/RE and each of its subsidiaries are
required to be registered with and licensed or found suitable by the Nevada
gaming authorities in connection with the Aladdin acquisition. Our officers
and managers, including Mr. Earl, Mr. Teitelbaum and Michael V. Mecca, the
president and chief executive officer of OpBiz, as well as Barry Sternlicht
(the chairman and chief executive officer of Starwood) and Theodore Darnall
(the executive vice president of hotel operations of Starwood and a manager of
EquityCo), must also be licensed or found suitable by the Nevada gaming
authorities in connection with the Aladdin acquisition. As of the date of this
report, gaming applications had been filed by each of these persons or
entities. After the end of the period covered by this report we were informed
that the Nevada gaming authorities have scheduled hearings on these
applications during August of 2004; however, the required approvals have not
been obtained. In addition, certain other senior executives of
Starwood have filed applications with the Nevada gaming authorities, but are not
required to be found suitable in order for us to receive the approvals required
in connection with the Aladdin acquisition. However, the Nevada gaming
authorities may determine to investigate the suitability of these other senior
executives of Starwood at a later time. Aladdin Gaming may
terminate the purchase agreement if any required gaming application is
withdrawn or denied, or if all necessary approvals of the Nevada gaming
authorities have not been obtained by August 29, 2004. Although we expect that
the Nevada gaming authorities will hold all required hearings before August 29,
2004, we cannot assure you that we will be able to obtain all of the approvals
from the Nevada gaming authorities by that date. Additionally, the order of
the Nevada gaming commission granting such licenses may contain restrictions on
our operations and our ability to engage in certain transactions, including
paying dividends and making distributions. If we do not have all of our gaming approvals by August 29, 2004, OpBiz may extend
the termination date of the purchase agreement by up to 90 days by increasing
its existing cash deposit by up to $2.5 million. Applications for approval
under the Hart-Scott-Rodino Act were filed in July 2004. The purchase agreement provides that OpBiz will assume substantially all
of Aladdin Gamings pre-petition contracts and leases and any post-petition
contracts or leases to which OpBiz does not object. The purchase agreement provides that OpBiz will offer employment to
all of Aladdin Gamings employees, other than executive management, on terms
and conditions substantially similar to their current employment terms and
conditions. Overview of
Managements Discussion and Analysis of Financial Condition and
Results of Operations Set forth below is a discussion of the financial condition and results of
operations of BH/RE and our subsidiaries for the periods covered in the report
and since our formation in March 2003, and the historical financial condition
and results of operations of Aladdin Gaming, and its
wholly owned inactive subsidiaries for the periods covered in the consolidated
financial statements of Aladdin Gaming contained in this report. The
historical financial statements of Aladdin Gaming, the related managements discussion of financial condition and results of
operations, and the unaudited pro forma condensed consolidated
financial statements and related notes, are included in this report
because of the planned acquisition of the Aladdin by OpBiz. The
historical financial results of Aladdin Gaming are not indicative of its
current financial condition or of the financial condition and results of
operations of BH/RE and its subsidiaries following the completion of the
Aladdin acquisition. Upon completion of the Aladdin acquisition, our
subsidiary, OpBiz, will:  
    
    incur indebtedness under the Credit Agreement;
    
    install new senior management to oversee the operations of
the Aladdin;
    
    manage the Hotel under the Sheraton brand name pursuant to
the hotel management contract with Sheraton;
    
    commence renovations to convert the Aladdin into the PH
Resort;
    
    operate the PH Resort and incur fees under the licensing
agreement with Planet Hollywood; and
    
    implement its business strategy. Our results of operations will be subject to these
events and other significant business, economic, regulatory and competitive
uncertainties and contingencies, some of which are beyond our control. The following managements discussion and analysis of financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and the related notes to consolidated financial statements
of BH/RE and Aladdin Gaming, respectively and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included in BH/REs Form
10 Registration Statement (File No. 000-50689) filed with
the Securities and Exchange Commission on April 16, 2004 and the unaudited condensed financial statements and notes thereto included
in Part I, Item 1 of this report. BH/RE BH/RE and its subsidiaries were formed in March 2003 solely to acquire,
renovate and operate the Aladdin. Since our formation, our activities have
been limited to negotiating various agreements related to our planned
acquisition and operation of, and renovations to, the Aladdin. Results of Operations Since our formation, we have had no operations other than negotiating the
Aladdin acquisition and developing our plans to renovate the Aladdin and
transform it into the PH Resort. BH/RE and its subsidiaries are development
stage companies and our consolidated financial statements reflect historical
results that are not indicative of our operations following the Aladdin
acquisition. Since our formation, we have incurred costs related primarily to
legal and consulting fees and other expenses incurred in connection with
negotiating various agreements related to the purchase of the Aladdin and
related operating and financing transactions, and costs related to our planned
renovation and re-theming of the Aladdin. 16




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##### Table of Contents



BH/RE and each of its subsidiaries is a limited liability company and each
of them will be treated as a partnership for federal income tax purposes.
Accordingly, we have not recorded any provision for federal income taxes in our
consolidated financial statements because the taxable income or loss for BH/RE
and each of its subsidiaries will be included in the income tax returns of the
relevant members. If we are successful in obtaining the mezzanine
financing described below, MezzCo will elect to be taxed as a corporation and we will subsequently
record provisions for federal income tax on our consolidated financial
statements beginning in the period in which such election is effective. Liquidity and Capital Resources Since our formation, we have funded our liquidity needs through advances
from the members of BH/RE and certain of their affiliates and capital
contributions from Starwood. Our liquidity needs have been limited to funding
the ongoing fees and expenses related to our planned acquisition of the Aladdin and
related financing transactions and the deposit required under the purchase
agreement. Our expenses have been funded by advances from BHCH I and Planet Hollywood.
Advances made by BHCH I and by Planet Hollywood will be repaid at the
closing of the Aladdin acquisition from proceeds of the mezzanine financing incurred by MezzCo, if any, and capital
contributions from the holders of our equity membership interests. We
will require approximately $623.0 million to complete the Aladdin
acquisition, including funding for our planned $90 million of renovation costs and payment of related financing costs,
transaction fees and expenses, which we expect will be approximately $9.0
million (excluding any additional fees and expenses related to the mezzanine
financing described below). These funds will be provided through (i) borrowings
of $510 million under the Credit Agreement and (ii) $113.0 million in cash,
including the $10 million represented by the deposit under the purchase
agreement, proceeds from mezzanine financing incurred by MezzCo, if
any, or capital contributions from the holders of our equity membership
interests, Starwood, or their respective affiliates.  Our cash
requirements include $14 million to fund the lien release payment required by the Credit Agreement. As of
the date of filing of this report, we are
in negotiations with a group of lenders regarding a
mezzanine financing. MezzCo would be the borrower under this
financing arrangement. If such negotiations are successful, we
anticipate that the proceeds of that financing will be used to make capital
contributions to OpBiz to fund, in part, the planned renovations to
Aladdin (and therefore reduce the capital commitment of BH/RE), to pay certain fees and expenses
incurred in connection with such financing, our acquisition of the Aladdin, and
related transactions, and to make the $14 million lien release
payment. We cannot assure you that we will ultimately succeed
in obtaining such financing. Under
the purchase agreement, when we acquire the Aladdin we will also
acquire $15 million of working capital, including at least
$10 million of cash, and assume Aladdin Gamings energy service
obligations and various other obligations of Aladdin Gaming under
assumed contracts. The $510 million of borrowings under the Credit Agreement will be
evidenced by $500 million of Term Loan A notes and $10 million of Term Loan B
notes. At the closing of the Aladdin acquisition, we have agreed to make a $14
million cash payment to the holders of Term Loan A notes to reduce the
principal amount of the Term Loan A notes to $486 million and obtain a release
of their lien on the four acre parcel of vacant property that we will
acquire from Aladdin Gaming. BH/RE and Starwood have committed to invest $70 million and $20 million,
respectively, to complete the Aladdin acquisition and fund OpBizs plans to
renovate the Aladdin. BH/REs capital contributions will be funded by the
holders of our equity membership interests and may be reduced by the proceeds
of mezzanine financing incurred by MezzCo, if any. In addition, BH/RE plans to
fund transaction costs, which we estimate will be approximately $9.0 million
(excluding any additional fees and expenses related to mezzanine financing
described above), through the additional contributions of capital, proceeds
from mezzanine financing incurred by MezzCo, if any, and advances or loans from
BHCH I and OCS or their affiliates. Aladdin Gaming is currently meeting its liquidity needs with cash
generated from operations. Following the Aladdin acquisition, we will have
greater liquidity requirements than Aladdin Gaming. For example, we will be
required to pay interest under the Credit Agreement and we plan to commence our
renovations to transform the Aladdin into the PH Resort. We believe that, following the Aladdin acquisition, cash generated
from operations, the capital to be invested in OpBiz at the closing and the
working capital, including the cash, we will acquire from Aladdin Gaming under
the purchase agreement 17




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##### Table of Contents



will be adequate to meet the anticipated working capital, capital
expenditure, renovation and debt service obligations of OpBiz for the first 12
months after the Aladdin acquisition. We may have other liquidity needs, such
as interest or debt repayment obligations in respect of mezzanine financing
incurred by MezzCo, if any, tax distributions to the members of EquityCo and
BH/RE and operating expenses of BH/RE, EquityCo and MezzCo. The Credit
Agreement provides that OpBiz will be permitted to make tax distributions, but
we may not have access to OpBizs cash flow or cash balances to make other
distributions to MezzCo, EquityCo and BH/RE. We would have to seek additional
funds from the holders of our equity membership interests, or Starwood, or seek
funding from outside sources, to pay such obligations. None of our voting or
equity members, or Starwood, is obligated to provide us with such funding and
we cannot assure you that outside funding will be available to us at all or on
acceptable terms. There can be no assurance that we have accurately estimated our liquidity
needs, or that we will not experience unforeseen events that may materially
increase our need for liquidity to fund our operations or capital expenditure
programs or decrease the amount of cash generated from our operations. We
expect to experience a reduction in cash generated by our operations during our
planned renovations to the Aladdin and have negotiated the terms of the Credit
Agreement to address those anticipated reductions. For example,
the covenant in the Credit Agreement requiring OpBiz to achieve specified levels of earnings
before interest, taxes, depreciation and amortization, or EBITDA, during the first two years of the Credit Agreement is significantly
below the Aladdins current EBITDA levels. Also, the interest rate during the
first three years of the Credit Agreement is lower than the interest rate in
the last three years. Aladdin Gaming Results of Operations In the following discussion, the term management refers solely to the
management of Aladdin Gaming. Although we have had discussions with management
of Aladdin Gaming regarding the business, assets, condition and prospects of
the Aladdin and the discussion below, we did not prepare the following
discussion nor have we made any independent verification of the matters
described below. The historical financial results of Aladdin Gaming are not
indicative of our current financial condition or our financial condition and
results of operations following the completion of the Aladdin acquisition. Aladdin Gaming was formed in 1997 to construct and operate the Aladdin.
Until August 2000, Aladdin Gaming was in the development stage and did not have
any historical operating income. The Aladdin opened in August 2000. For the
balance of 2000, Aladdin Gaming incurred significant expenses and reported a
net operating loss of $42.3 million. In response to these net operating losses,
management refocused its marketing and advertising efforts, made significant
management changes and reconfigured the Casino floor in an effort to enhance
profitability. Aladdin Gaming also implemented labor reduction initiatives and
cost management strategies. As a result of these changes, Aladdin Gamings
financial results improved in the first quarter of 2001. However, Aladdin
Gaming was unable to meet its debt service requirements, and its financial
condition further deteriorated after the dramatic decline in Las Vegas tourism
following the terrorist attacks on September 11, 2001. Aladdin Gaming filed its
bankruptcy case in late September 2001. Since filing for bankruptcy, management
has continued to focus on effective marketing and cost management strategies,
which, combined with the rebound in overall tourism in Las Vegas, has resulted
in steady improvements to revenues and operating income. Aladdin Gaming has agreed to sell substantially all of its assets to OpBiz
pursuant to the purchase agreement and Aladdin Gamings plan of reorganization.
As a result of the approval of the sale to OpBiz, Aladdin Gaming reviewed its
assets for impairment and has recognized an impairment loss because the sale
price for the assets under the purchase agreement is less than the carrying
value of its net assets. See   2004 Compared to 2003  Income
from
Operations. Key Metrics Aladdin Gamings financial results are highly dependent upon the number of
customers that visit the Casino and the price of Hotel rooms and amenities.
Although business on the Las Vegas Strip is generally not seasonal, certain
holidays and events attract large numbers of visitors to Las Vegas and can
significantly impact revenues and profitability of properties like the Aladdin.
The majority of Aladdin Gamings business is derived from tourists and
conventions. Approximately one-third of Aladdin Gamings revenues come from
gaming, one-third from Hotel business and one-third from sales of food and
beverage and other amenities. 18




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Management uses several key metrics to evaluate Aladdin Gamings financial
results. These metrics include win, which represents the amount of gaming
revenues that are retained, and hold, which represents the amount of the win
as a percentage of amounts wagered. Measures for non-gaming revenues include
hotel occupancy, which is the number of rooms rented, including rooms that
are provided on a complimentary basis, during a given period expressed as a
percentage of the number of available rooms, and average daily room rate,
which is the average amount of revenue per rented room per day. The following discussion presents an analysis of Aladdin Gamings results
of operations for the three months ended March 31, 2004 and 2003. Three months ended March
31, 2004 compared to three months ended March 31, 2003 Net Revenues Three Months Ended
March 31,2004
    
    2003
    
    Variance
    
    Percentage(In thousands, except percentages)Casino
    
    $
    29,389
    
    
    $
    27,485
    
    
    $
    1,904
    
    
    
    6.9
    %Hotel
    
    
    28,512
    
    
    
    25,403
    
    
    
    3,109
    
    
    
    12.2
    %Food and Beverage
    
    
    18,903
    
    
    
    17,252
    
    
    
    1,651
    
    
    
    9.6
    %Entertainment and Other
Income
    
    
    4,124
    
    
    
    3,903
    
    
    
    221
    
    
    
    5.7
    %Gross
Revenues
    
    
    80,928
    
    
    
    74,043
    
    
    
    6,885
    
    
    
    9.3
    %Promotional Allowances
    
    
    (7,572
    )
    
    
    (6,751
    )
    
    
    (821
    )
    
    
    (12.2
    )%Net Revenues
    
    $
    73,356
    
    
    $
    67,292
    
    
    $
    6,064
    
    
    
    9.0
    %
 Net revenues increased $6.1 million, or 9.0%, quarter-over-quarter as a
result of increases in both gaming and non-gaming revenues. The increase in
gaming revenues was driven by the expansion and more effective use of the
Casino marketing database and promotional activities and higher pedestrian
traffic resulting from the closure of the monorail station connecting the MGM
Grand Hotel and Casino and Ballys Casino and Hotel. The monorail station
closed temporarily in January 2003 and diverted additional pedestrian traffic
through the Aladdins south entrance. Management believes that the additional
pedestrian traffic had a positive impact on Aladdin Gamings revenues. The
monorail station resumed operations on July 15, 2004. Aladdin Gamings
management expects the reopening of the monorail station may negatively impact
Casino operations. The improvement in non-gaming revenues was attributable to
a higher hotel occupancy and average daily room rates during the first quarter
of 2004 as compared to the same period in 2003, mostly due to higher demand for
hotel rooms resulting from higher levels of tourist and convention business at
the Aladdin and in Las Vegas generally. Casino
revenues were up $1.9 million in the first three months of 2004
versus the same period in 2003, led by
improvements in slot machine revenues of $1.7 million. In 2004, management
continued to focus on maximizing the profitability of slot machines by
implementing ticket-in/ticket-out technology and installing more popular slot
machines. As of March 31, 2004, approximately 45% of the Aladdins slot
machines were equipped with ticket-in/ticket-out technology. Slot machine
revenues also benefited from the expansion of the casino marketing database,
which resulted in more revenues from special events and promotions. As a
result, the gross win per slot machine per day increased to $119 during the
first quarter of 2004 from $105 in the first quarter of 2003. Hotel occupancy and average daily room rates for the first quarter of 2004
were 98% and $126, compared to 98% and $113 during the comparable period of
2003. Higher demand for Las Vegas hotel rooms in general and increased
marketing has allowed Aladdin Gamings management to increase the average daily
rate. The improvements in average daily room rate was the dominant factor for
the increase in Hotel revenues of $3.1 million, or 10.9%, quarter-over-quarter. Food and beverage revenues increased $1.7 million in the first quarter of
2004 as compared to the same period in 2003. The increase was due to price and volume increases at
the Spice Market Buffet and Zanzibar Cafe in 2004, which were driven by
increased marketing and promotional efforts. 19




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##### Table of Contents



Income from Operations Three Months EndedMarch 31,2004
    
    2003
    
    Variance
    
    Percentage(In thousands, except percentages)Net Revenues
    
    $
    73,356
    
    
    $
    67,292
    
    
    $
    6,064
    
    
    
    9.0
    %Costs & Expenses:Casino
    
    
    18,148
    
    
    
    16,652
    
    
    
    1,496
    
    
    
    9.0
    %Hotel
    
    
    7,523
    
    
    
    6,768
    
    
    
    755
    
    
    
    11.2
    %Food and Beverage
    
    
    10,156
    
    
    
    9,165
    
    
    
    991
    
    
    
    10.8
    %Other Operating Expenses
    
    
    3,435
    
    
    
    2,894
    
    
    
    541
    
    
    
    18.7
    %Selling, General and
Administrative
    
    
    15,193
    
    
    
    14,786
    
    
    
    407
    
    
    
    2.7
    %Depreciation and
Amortization
    
    
    
    
    
    
    12,006
    
    
    
    (12,006
    )
    
    
    (100.0
    %)Total Costs and
Expenses
    
    
    54,455
    
    
    
    62,271
    
    
    
    (7,816
    )
    
    
    (12.6
    %)Income from Operations
    
    $
    18,901
    
    
    $
    5,021
    
    
    $
    13,880
    
    
    
    276.4
    %
 Income from operations increased to $19.0 million for the first quarter of
2004 from $5.0 million for the first quarter of 2003. On August 29, 2003, the
Bankruptcy Court confirmed Aladdin Gamings plan of reorganization and approved
the Purchase Agreement with OpBiz. As a result, the Company classified
substantially all of its assets as assets held for sale and ceased recording
depreciation expense which contributed significantly to the improvement in
income from operations. Overall, operating costs and expenses decreased $7.8 million, or 12.6%.
The decrease resulted primarily from the absence of depreciation expense for
the first quarter of 2004. Aladdin Gamings continuing operating costs and
expenses increased $4.2 million, primarily due to promotional
expenses for the
casino and increased personnel expenses. Interest Expense Interest expense of $0.1 million related to the energy service obligation
was recorded for the first quarters of 2004 and 2003. As a result of the Chapter
11 filing, Aladdin Gaming has ceased accruing interest on the bank credit
facility and the FF&E facility. Reorganization Items In accordance with the American Institute of Certified Public Accountants
Statement of Position (SOP) 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code, Aladdin Gaming has separately
reported reorganization items. Reorganization items in the first quarter of
each of 2004 and 2003 consisted primarily of professional fees and management
retention costs. Liquidity and Capital Resources 2004
    
    2003(In thousands)Cash flows from (used in) operating
activities before reorganization items
    
    $
    17,743
    
    
    $
    20,287Cash flows used in reorganization items
    
    
    (773
    )
    
    
    (8,653
    )Cash flows (used in) from investing
activities
    
    
    (554
    )
    
    
    218Cash flows (used in) from financing
activities
    
    
    (8,174
    )
    
    
    (3,212
    )
 Since commencing its bankruptcy case, Aladdin Gaming has relied on cash
flow from operations to fund its liquidity needs. Management expects cash flows
from operations will be sufficient to fund liquidity and capital 20




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##### Table of Contents



maintenance requirements until the anticipated completion of the Aladdin
acquisition by OpBiz. Cash flows from operating activities have steadily improved since
2001 as a result of the factors described above. Aladdin Gamings investing
activities have been limited during its bankruptcy case. Cash flows used in
investing activities includes payments for construction and fixed assets of
$514,000 and $803,000 respectively, in the first three months of 2004 and 2003.
In the first quarter of each of 2004 and 2003, cash flows from financing
activities consisted of adequate protection payments and payments in respect of
the energy service obligation to Northwind Aladdin of $8.2 million and $3.2
million, respectively. Since filing for bankruptcy, Aladdin Gaming has not made
any principal or interest payments on pre-petition debt, except for the energy
service obligation and adequate protection payments. As a result of Aladdin Gaming filing for bankruptcy, substantially all of
its pre-petition debt was classified as liabilities subject to compromise.
Aladdin Gamings pre-petition debt consists of a bank credit facility with
various financial institutions, an interest rate collar payable related to
interest rate collar agreements entered into in connection with the bank credit
facility that were terminated on the bankruptcy petition date, the gaming
equipment term loan, the capital lease facility and the energy service
obligation. Amounts payable under the energy service agreement include operational
charges and debt service and equity return payments. During Aladdin Gamings
bankruptcy case several controversies arose regarding the nature of the energy
service agreement and related agreements. These disputes were settled in
December 2002. Under the settlement and in accordance with an order of the
Bankruptcy Court, Aladdin Gaming has assumed the energy service agreement and
related agreements and is paying the obligations under the terms reached in the
settlement. Critical Accounting Policies and Estimates Aladdin Gaming prepares its consolidated financial statements in
conformity with accounting principles generally accepted in the United States.
Certain of its accounting policies require that management apply significant
judgment in defining the appropriate assumptions for calculating financial
estimates. By their nature, these judgments are subject to an inherent degree
of uncertainty. Judgments made by management are based on their historical
experience, terms of existing contracts, observance of trends in the industry,
information provided by customers and information available from other outside
sources, as appropriate. There can be no assurance that actual results will
conform to these estimates. Management believes the policies and estimates
described below have a significant impact on issues that are inherently
uncertain. Bad Debt Reserves Management reserves an estimated amount for receivables that may not be
collected. These bad debt reserves are estimated using a combination of
specific reserves and various percentages applied to aged receivables based
upon the judgment of management. Management considers historical collection
rates along with customer relationships in determining specific reserves. To
the extent world events such as economic downturns, war or further terrorist
attacks impact the ability of Aladdin Gamings customers to pay the
receivables, the reserves of Aladdin Gaming could be inadequate. However, the
majority of Aladdin Gamings Casino receivables relate to domestic play.
Consequently, management believes its Casino receivables are less exposed to
the impact of some of these events. Notwithstanding, management believes its
current reserve is appropriate and reasonable based upon its experience. Property and Equipment Aladdin Gaming has significant capital invested in its property and
equipment, which represented approximately 87% of total assets as of March 31,
2004. Management makes judgements to determine the estimated useful lives of
assets, salvage values to be assigned to assets and if or when an asset has
been impaired. The accuracy of these estimates affects the amount of
depreciation expense recognized in Aladdin Gamings financial results and
whether Aladdin Gaming has a gain or loss on the disposal of the asset. Management assigns useful lives to its assets based on its standard
policy, which management believes is representative of the useful life of each
category of assets. Management reviews the carrying value of its property and
equipment whenever events and circumstances indicate that the carrying value of
an asset may not be 21




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##### Table of Contents



recoverable from the estimated future cash flows expected to result from
its use and eventual disposition. The factors considered by management in
performing this assessment include current operating results, trends and
prospects, as well as the effect of obsolescence, demand, competition and other
economic factors. As described above, due to the transactions contemplated by
the purchase agreement, Aladdin Gaming recorded an impairment loss in the third
quarter of 2003 and ceased recording depreciation expense as of August 2003. Self-Funded Employee Health Care Insurance
Program Aladdin Gamings employee health care benefits program is self-funded up
to a maximum amount per claim. Management bases accruals for the cost of its
program on claims filed and estimates of claims incurred but not reported.
Management considers historical loss experience and certain unusual claims in
estimating these liabilities. Management believes the use of this method to
account for these liabilities provides a consistent and effective way to
measure these highly judgmental accruals; however, changes in health care
costs, accident or illness frequency and severity and other factors can
materially affect the estimate for these liabilities. Management continually
monitors the potential for changes in estimates, evaluates its insurance
accruals and adjusts its recorded provisions. Recently Issued Accounting Standards In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. The objective of FIN 46 is to
improve financial reporting by companies involved with variable interest
entities. FIN 46 changes certain consolidation requirements by requiring a
variable interest entity to be consolidated by a company that is subject to a
majority of the risks of loss from the variable interest entitys activities or
receive a majority of the entitys residual returns or both. The adoption of
FIN 46 did not have a material impact on the consolidated financial
statements of the Company. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. As a result of Aladdin Gaming filing its bankruptcy petition,
Aladdin Gaming does not incur interest charges associated with its borrowings
and, therefore, is not subject to changes in variable rate debt. 
 ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, we were a development
stage company and as such, our management, under the supervision and with the
participation of its managers and its acting Chief Financial Officer are
developing a system of disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) and
will perform an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures after they have been implemented. There
have been no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. Because we
have not yet completed our acquisition of the Aladdin, our internal
control over financial reporting did not extend to the financial
reporting of Aladdin Gaming. 
 FORWARD LOOKING STATEMENTS This report contains forward-looking statements that do not relate to
historical or current facts or situations. You can identify forward-looking
statements by terminology such as may, will, should, would, could,
believe, expect, anticipate, estimate, intend, plan, continues,
the negative of these terms or other similar terms. Forward-looking statements
include statements relating to the Aladdin acquisition, the renovation of the
Aladdin into the PH Resort, our business strategy and operating plans, our
expectations concerning future operations, profitability, liquidity and capital
resources and our other current and future plans. Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. If one or more of the assumptions 22




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##### Table of Contents



underlying our forward-looking statements proves incorrect, our actual
results, levels of activity, performance or achievements could differ
significantly from those expressed in, or implied by, the forward-looking
statements contained in this report. Therefore, you should not place undue
reliance on our forward-looking statements. Except as required by law, we do
not intend to update or revise any of our forward-looking statements after the
date of this report. Our
acquisition of the Aladdin and planned operations are subject to a
number of risks. Please refer to the discussion of "Risk Factors" in
"Item 1. Business" of the Form 10. 
 PART II    OTHER INFORMATION 
 ITEM 5. OTHER INFORMATION 
 BH/RE, L.L.C. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated balance sheet of
BH/RE and its subsidiaries as of March 31, 2004 and unaudited pro forma
statement of operations for the year ended December 31, 2003 and three months
ended March 31, 2004, give effect to the Aladdin acquisition and the financing
of the Aladdin acquisition as if they occurred, for balance sheet purposes, on
March 31, 2004 and, for statement of operations purposes, on January 1, 2003.
The unaudited pro forma financial statements are not necessarily indicative of
the results that would have been reported had such transactions actually
occurred on the dates specified, nor are they indicative of our future results of operations or financial condition. The unaudited pro
forma financial statements are based on and should be read in conjunction with,
and are qualified in their entirety by, the historical financial statements and
notes thereto of BH/RE, and the historical financial statements and notes
thereto of Aladdin Gaming (including Managements Discussion and Analysis of
Financial Condition and Results of Operations included in this
report, and
the Registration Statement on Form 10 filed by BH/RE with the SEC on April 16,
2004. (File No. 000-50689) 23




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BH/RE, L.L.C. AND SUBSIDIARIES 
 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (As of March 31, 2004)
 Pro Forma
    
    BH/REAladdin
    
    
    
    
    
    Adjustments
    
    Pro FormaGaming
    
    BH/RE
    
    (See Note 2)
    
    As Adjusted(In thousands)ASSETSCash and cash equivalents
    
    $
    46,482
    
    
    $
    
    
    
    $
    (23,720
    )(a)
    
    $
    21,266(1,496
    )(b)Restricted cash and cash equivalents
    
    
    4,230
    
    
    
    
    
    
    
    (4,230
    )(c)(1)
    
    
    Receivables from related parties
    
    
    37
    
    
    
    
    
    
    
    (37
    )(d)
    
    
    Accounts
receivablenet of allowance
for doubtful accounts
    
    
    12,068
    
    
    
    
    
    
    
    
    
    
    
    12,068Inventory
    
    
    1,537
    
    
    
    
    
    
    
    
    
    
    
    1,537Prepaid expenses
    
    
    5,146
    
    
    
    
    
    
    
    (4,078
    )(c)(2)
    
    
    1,068Deposits
    
    
    2,728
    
    
    
    
    
    
    
    (175
    )(c)(3)
    
    
    2,553Total current assets
    
    
    72,228
    
    
    
    
    
    
    
    (33,736
    )
    
    
    38,492Restricted
cashlong term
    
    
    
    
    
    
    10,086
    
    
    
    79,914
    (e)
    
    
    90,000Property and
equipmentnet
    
    
    496,885
    
    
    
    
    
    
    
    7,188
    (f)
    
    
    504,073Other assets  net of accumulated
amortization
    
    
    1,249
    
    
    
    4,496
    
    
    
    (4,496
    )(g)
    
    
    1,249Total assets
    
    $
    570,362
    
    
    $
    14,582
    
    
    $
    48,870
    
    
    $
    633,814LIABILITIES AND MEMBERS
EQUITYCurrent portion of energy service
obligation
    
    $
    1,164
    
    
    $
    
    
    
    $
    
    
    
    $
    1,164Accounts payable  trade
    
    
    2,170
    
    
    
    
    
    
    
    
    
    
    
    2,170Accrued expenses and other current
liabilities
    
    
    29,518
    
    
    
    
    
    
    
    (6,713
    )(c)(4)
    
    
    22,805Total current liabilities
    
    
    32,852
    
    
    
    
    
    
    
    (6,713
    )
    
    
    26,139Energy service obligation  net of
current portion
    
    
    33,257
    
    
    
    
    
    
    
    
    
    
    
    33,257Due to Affiliates
    
    
    
    
    
    
    14,565
    
    
    
    (14,565
    )(d)
    
    
    Liabilities subject to compromise
    
    
    541,239
    
    
    
    
    
    
    
    (541,239
    )(h)
    
    
    Credit facility
    
    
    
    
    
    
    
    
    
    
    476,901
    (i)
    
    
    462,901(14,000
    )(j)Other long term liabilities
    
    
    
    
    
    
    
    
    
    
    14,000
    (j)
    
    
    14,000Total liabilities
    
    
    607,348
    
    
    
    14,565
    
    
    
    (85,616
    )
    
    
    536,297Commitments and contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    
    
    
    
    1,513
    
    
    
    18,500
    (d)
    
    
    20,013Members equityMembership interest
    
    
    395,370
    
    
    
    
    
    
    
    (395,370
    )(k)
    
    
    79,00010,000
    (e)69,000
    (e)Accumulated deficit
    
    
    (432,356
    )
    
    
    (1,496
    )
    
    
    432,356
    (k)
    
    
    (1,496
    )Total members equity
    
    
    (36,986
    )
    
    
    (1,496
    )
    
    
    115,986
    
    
    
    77,504Total liabilities and members equity
    
    $
    570,362
    
    
    $
    14,582
    
    
    $
    48,870
    
    
    $
    633,814
 See accompanying notes to unaudited pro forma condensed consolidated
financial statements. 24




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##### Table of Contents



BH/RE, L.L.C. AND SUBSIDIARIES 
 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (For the Year Ended December 31, 2003)
 Pro Forma
    
    BH/REAladdin
    
    
    
    
    
    Adjustments
    
    Pro FormaGaming
    
    BH/RE
    
    (See Note 3)
    
    As Adjusted(In thousands)RevenuesCasino
    
    $
    110,642
    
    
    $
    
    
    
    $
    
    
    
    $
    110,642Hotel
    
    
    95,836
    
    
    
    
    
    
    
    
    
    
    
    95,836Food and beverage
    
    
    68,084
    
    
    
    
    
    
    
    
    
    
    
    68,084Other
    
    
    18,378
    
    
    
    
    
    
    
    
    
    
    
    18,378Gross revenues
    
    
    292,940
    
    
    
    
    
    
    
    
    
    
    
    292,940Less: promotional allowances
    
    
    (26,400
    )
    
    
    
    
    
    
    
    
    
    
    (26,400
    )Net revenues
    
    
    266,540
    
    
    
    
    
    
    
    
    
    
    
    266,540ExpensesCasino
    
    
    62,626
    
    
    
    
    
    
    
    
    
    
    
    62,626Hotel
    
    
    28,913
    
    
    
    
    
    
    
    4,246
    (a)
    
    
    33,159Food and beverage
    
    
    44,032
    
    
    
    
    
    
    
    
    
    
    
    44,032Other
    
    
    14,344
    
    
    
    
    
    
    
    
    
    
    
    14,344Selling, general and administrative
    
    
    61,701
    
    
    
    1,283
    
    
    
    (443
    )(b)
    
    
    65,8193,278
    (c)Impairment of long-lived assets
    
    
    29,478
    
    
    
    
    
    
    
    
    
    
    
    29,478Depreciation and amortization
    
    
    43,495
    
    
    
    
    
    
    
    17,500
    (d)
    
    
    60,995Total costs and expenses
    
    
    284,589
    
    
    
    1,283
    
    
    
    24,581
    
    
    
    310,453Loss from operations
    
    
    (18,049
    )
    
    
    (1,283
    )
    
    
    (24,581
    )
    
    
    (43,913
    )Interest income (expense), net
    
    
    (9,953
    )
    
    
    52
    
    
    
    (31,388
    )(e)
    
    
    (35,291
    )5,998
    (f)Loss before reorganization items
    
    
    (28,002
    )
    
    
    (1,231
    )
    
    
    (49,971
    )
    
    
    (79,204
    )Reorganization items
    
    
    (12,103
    )
    
    
    
    
    
    
    12,103
    (g)
    
    
    Net loss
    
    $
    (40,105
    )
    
    $
    (1,231
    )
    
    $
    (37,868
    )
    
    $
    (79,204
    )
 See accompanying notes to unaudited pro forma condensed consolidated financial statements. 25




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##### Table of Contents



BH/RE, L.L.C. AND SUBSIDIARIES 
 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (For the Quarter Ended March 31, 2004)
 Pro Forma
    
    BH/REAladdin
    
    
    
    
    
    Adjustments
    
    Pro FormaGaming
    
    BH/RE
    
    (See Note 3)
    
    As Adjusted(In thousands)RevenuesCasino
    
    $
    29,389
    
    
    $
    
    
    
    $
    
    
    
    $
    29,389Hotel
    
    
    28,512
    
    
    
    
    
    
    
    
    
    
    
    28,512Food and beverage
    
    
    18,903
    
    
    
    
    
    
    
    
    
    
    
    18,903Other
    
    
    4,124
    
    
    
    
    
    
    
    
    
    
    
    4,124Gross revenues
    
    
    80,928
    
    
    
    
    
    
    
    
    
    
    
    80,928Less: promotional allowances
    
    
    (7,572
    )
    
    
    
    
    
    
    
    
    
    
    (7,572
    )Net revenues
    
    
    73,356
    
    
    
    
    
    
    
    
    
    
    
    73,356ExpensesCasino
    
    
    18,148
    
    
    
    
    
    
    
    
    
    
    
    18,148Hotel
    
    
    7,523
    
    
    
    
    
    
    
    1,192
    (a)
    
    
    8,715Food and beverage
    
    
    10,156
    
    
    
    
    
    
    
    
    
    
    
    10,156Other
    
    
    3,435
    
    
    
    
    
    
    
    
    
    
    
    3,435Selling, general and administrative
    
    
    15,193
    
    
    
    286
    
    
    
    (111
    )(b)
    
    
    16,273905
    (c)Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    16,308
    (d)
    
    
    16,308Total costs and expenses
    
    
    54,455
    
    
    
    286
    
    
    
    18,294
    
    
    
    73,035Loss from operations
    
    
    18,901
    
    
    
    (286
    )
    
    
    (18,294
    )
    
    
    321Interest income (expense), net
    
    
    (968
    )
    
    
    21
    
    
    
    (7,847
    )(e)
    
    
    (7,294
    )1,500
    (f)Loss before reorganization items
    
    
    17,933
    
    
    
    (265
    )
    
    
    (24,641
    )
    
    
    (6,973
    )Reorganization items
    
    
    (1,549
    )
    
    
    
    
    
    
    1,549
    (g)
    
    
    Net loss
    
    $
    16,384
    
    
    $
    (265
    )
    
    $
    (23,092
    )
    
    $
    (6,973
    )
 See accompanying notes to unaudited pro forma condensed consolidated financial statements. 26




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BH/RE, L.L.C. AND SUBSIDIARIES 
 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS The following notes to unaudited pro forma condensed consolidated
financial statements give effect to the Aladdin acquisition financing and the
Aladdin acquisition as if they had occurred, for balance sheet purposes, on
March 31, 2004 and, for statement of operations purposes, on January 1, 2003
and 2004. 1. The pro forma purchase price is calculated as
follows: Amount(In thousands)Fair value of acquisition (i)
    
    $
    511,322Estimated transaction fees and expenses
    
    
    9,000Total
    
    $
    520,322
 The preliminary allocation of the pro forma purchase price is as follows: Amount(In thousands)Net working capital (ii)
    
    $
    15,000Land
    
    
    39,126Buildings, furniture, fixtures and equipment
    
    
    464,947Other assets
    
    
    1,249Total
    
    $
    520,322
 The final purchase price and its allocation will be based on appraisals
and estimates by management and is expected to be completed within one year of
the completion of the Aladdin acquisition.  (i)
    
    Represents the estimated fair
value of the assets to be acquired
from Aladdin Gaming and the
assumption of the energy service
obligation.(ii)
    
    Represents net working capital
(including cash) to be transferred
by Aladdin Gaming as part of the
Aladdin acquisition. 2. The following is a brief description of the
adjustments to the pro forma balance sheet to reflect the
Aladdin acquisition as if it had occurred March 31, 2004.  (a)
    
    Represents cash to be
retained by Aladdin Gaming.(b)
    
    Represents cash paid for
reimbursements for transaction
fees and expenses paid by
affiliates on behalf of BH/RE.(c)
    
    Represents the portions of
the following assets and
liabilities that will be retained by Aladdin Gaming:  (1)
    
    restricted cash(2)
    
    prepaid expenses(3)
    
    deposits 27




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(4)
    
    accrued liabilities  (d)
    
    Represents the elimination
of related party payables and
receivables that will be retained by Aladdin Gaming.(e)
    
    Represents capital
contributions by holders of
the equity membership
interests of BH/RE and
Starwood for the planned
renovation of the Aladdin into
the PH Resort and transaction
fees and expenses.(f)
    
    Represents an adjustment
to property and equipment
based on the purchase price
allocation. Depreciation has
been computed using the
straight-line method over the
following useful lives:
building and leasehold
improvements  39 years;
furniture and equipment  five
years; and energy service
asset  17 to 20 years.(g)
    
    Represents the transaction
fees and expenses that will be
capitalized in connection with
the funding of the acquisition
of the Aladdin.(h)
    
    Represents elimination of liabilities
subject to compromise.(i)
    
    Represents the Aladdin
acquisition financing
consisting of $510 million
senior secured notes that bear
interest at three-month LIBOR
plus a margin (as defined in
the Credit Agreement) and
mature six years from the
issue date. The senior secured
notes have been discounted by
$33 million to reflect their
estimated fair value, which is
based on the fair value of the
assets acquired and the
assumption of the energy
service obligation.(j)
    
    In connection with the
Aladdin acquisition financing
described in note 2(i), OpBiz
will be required to make a $14
million cash payment to the
holders of the senior secured
notes to reduce the principal
amount of the notes to $496
million and to obtain a
release of the lien on a four acre parcel of
vacant property that we will acquire from Aladdin Gaming. We
presently intend to
develop a vacation resort
ownership or similar project
on that property. It is
assumed that the $14 million
will be obtained through
additional debt financing.(k)
    
    Represents the elimination
of members equity and
accumulated deficit of Aladdin
Gaming. 3. The following is a brief description of the
adjustments to the pro forma statement of operations to
reflect the Aladdin acquisition as if it had occurred January
1, 2003 and 2004.  (a)
    
    Represents an adjustment
for the Sheraton hotel
management fee. OpBiz has
entered into a management
contract with Sheraton to
assist in the management,
operation and promotion of the
Hotel and to permit the use of
the Sheraton brand and
trademarks in the promotion of
the Hotel for a fee of 4% of
gross Hotel and Hotel related
operating revenues and 2% of
gross rental revenues from
third party leases in the
Hotel, plus certain
centralized service fees that
have not been included in the
adjustment.(b)
    
    Represents an adjustment
for an employment contract
that will be eliminated
pursuant to the purchase
agreement.(c)
    
    Represents an adjustment
for fees related to the
licensing agreement between
OpBiz and Planet Hollywood.
The agreement grants OpBiz a
license to use the Planet
Hollywood marks, Internet
domain names that incorporate
the Planet Hollywood marks and
Planet Hollywoods collection
of memorabilia for a fee of
1.75% of non-Casino revenues.
In general, the license fees
become payable after OpBiz
begins operating as the PH
Resort. The licensing
agreement expires in 2028 with
options to extend the term for
three successive 10-year
terms.(d)
    
    Represents an adjustment
to reflect the estimated
annual depreciation expense
related to the acquired
assets. 28




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(e)
    
    Represents the estimated
interest expense and debt
discount amortization related
to the $510 million senior
secured notes. The interest
rate is based on a variable
LIBOR index. An increase of
1/8 of a percentage point in
the average LIBOR rate would
increase BH/REs annual
interest cost by approximately
$625,000.(f)
    
    Represents historical
interest costs that will be
eliminated as a result of the
Aladdin acquisition.(g)
    
    Represents an adjustment
to eliminate the
reorganization items. 4. Other explanatory notes: Since BH/RE is a limited liability company, there is no provision for
federal income taxes. Since
BH/RE will not unitize its membership interests, loss per membership unit
data has not been presented because management of BH/RE believes this
information would not be meaningful to the pro forma financial
statement presentation. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:  31.1
    
    Certifications of Robert Earl pursuant to §302 of
the Sarbanes-Oxley Act of 2002 (filed herewith).31.2
    
    Certifications of Douglas P. Teitelbaum pursuant
to §302 of the Sarbanes-Oxley Act of 2002 (filed herewith).31.3
    
    Certifications of Thomas Avallone pursuant to
§302 of the Sarbanes-Oxley Act of 2002 (filed herewith).32.1
    
    Certification pursuant to 18 U.S.C. §1350, as
adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002
(filed herewith). (b) Reports on Form 8-K:  None. 29




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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 thereunto duly authorized. BH/RE, L.L.C.August 4, 2004
    By:
    /s/ Thomas AvalloneThomas AvalloneActing Chief Financial Officer 31