** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

----

 

**FORM 10-Q**

 

**(MarkOne)**

 

| ý                                                      | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| ** **                                                  | ** ** | ** **                                                                                              |
| **For the quarterly period ended  September 30, 2005** |
|                                                        |       |                                                                                                    |
| **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.**

(Exact Name of Registrant as Specified in its Charter)

 

| **NEVADA**                               | ** ** | **84-1622334**         |
|------------------------------------------|------------|------------------------|
| (State or Other Jurisdiction             |       | (I.R.S. Employer       |
| of Incorporation or Organization)        |       | Identification Number) |
|                                     |       |                   |
| **885 Third Avenue**                     |       |                   |
| **34th Floor**                           |       |                   |
| **New York, New York**                   | ** ** | **10022**              |
| (Address of Principal Executive Offices) |       | (Zip Code)             |

 

**(212) 371-2211**

(Registrant’s Telephone Number, Including Area Code)

 

----

 

Indicateby check mark whether the Registrant (1) has filed all reports required bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.   Yes ý   No o

 

Indicateby check mark whether the Registrant is an accelerated filer (as defined inRule 12b-2 of the Securities Exchange Act of1934).   Yes o   No ý

 

Indicateby check mark whether the Registrant is a Shell Company (as defined in Rule12b-2 of the Exchange Act).    Yes o   No ý

 

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BH/RE, L.L.C. AND SUBSIDIARIES

Index

 
| PART I— FINANCIAL INFORMATION |       |
|-----------------------------------------|------------|
|                                    |       |   |   |
|                                    | ITEM 1.    | FINANCIAL STATEMENTS: |   |
|                                    |       |   |   |
|                                    |       | Condensed Consolidated Balance Sheets  (Unaudited) |   |
|                                    |       |   |   |
|                                    |       | Condensed Consolidated Statements Of  Operations (Unaudited) |   |
|                                    |       |   |   |
|                                    |       | Condensed Consolidated Statements Of Cash  Flows (Unaudited) |   |
|                                    |       |   |   |
|                                    |       | Notes To Condensed Consolidated Financial  Statements (Unaudited) |   |
|                                    |       |   |   |
|                                    | ITEM 2.    | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   |
|                                    |       |   |   |
|                                    | ITEM 3.    | QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK |   |
|                                    |       |   |   |
|                                    | ITEM 4.    | CONTROLS AND PROCEDURES |   |
|                                    |       |   |   |
| PART II — OTHER INFORMATION:  |       |
|                                    |       |   |   |
|                                    | ITEM 6.    | EXHIBITS |   |
|                                    |       |   |   |
|                                    | SIGNATURES |   |

 

2

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**PART I -FINANCIAL INFORMATION**

** **

**ITEM1.  FINANCIAL STATEMENTS**

** **

**BH/RE,L.L.C. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(amounts in thousands)**

 
| ** **                                     | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                     | ** ** | **2005**          | ** ** | **2004**         | ** ** |
| ** **                                     | ** ** | **(unaudited)**   | ** ** | ** **       | ** ** |
| ASSETS                                         |       |              |       |             |       |
| Current assets:                                |       |              |       |             |       |
| Cash and cash equivalents                      |       | $                 | 52,387     |             | $          | 37,016 |   |
| Receivables, net                               |       | 16,105            |       | 12,626           |       |
| Inventories                                    |       | 1,998             |       | 2,489            |       |
| Prepaid expenses                               |       | 5,198             |       | 5,253            |       |
| Deposits and other current assets              |       | 3,439             |       | 3,258            |       |
| Total current assets                           |       | 79,127            |       | 60,642           |       |
|                                           |       |              |       |             |       |
| Property and equipment,  net                   |       | 485,189           |       | 494,781          |       |
| Restricted cash and cash  equivalents          |       | 92,004            |       | 96,199           |       |
| Other assets, net                              |       | 9,775             |       | 11,761           |       |
| Total assets                                   |       | $                 | 666,095    |             | $          | 663,383 |   |
|                                           |       |              |       |             |       |
| LIABILITIES  AND MEMBERS’ EQUITY          |       |              |       |             |       |
|                                           |       |              |       |             |       |
| Current liabilities:                           |       |              |       |             |       |
| Current portion of long-term debt              |       | $                 | 1,381      |             | $          | 1,268 |   |
| Accounts payable                               |       | 3,081             |       | 2,095            |       |
| Due to affiliates                              |       | 1,445             |       | 1,887            |       |
| Accrued expenses and other current liabilities |       | 38,944            |       | 36,199           |       |
| Total current liabilities                      |       | 44,851            |       | 41,449           |       |
|                                           |       |              |       |             |       |
| Long-term debt, less  current portion          |       | 600,520           |       | 584,814          |       |
| Other long-term  liabilities                   |       | 4,208             |       | 4,375            |       |
| Total liabilities                              |       | 649,579           |       | 630,638          |       |
|                                           |       |              |       |             |       |
| Commitments and  contingencies                 |       |              |       |             |       |
|                                           |       |              |       |             |       |
| Minority interests                             |       | 16,705            |       | 19,132           |       |
|                                           |       |              |       |             |       |
| Members’ equity:                          |       |              |       |             |       |
| Member’s equity                           |       | 21,500            |       | 21,500           |       |
| Accumulated deficit                            |       | (21,689           | )          | (7,887           | )          |
| Total members’ equity                     |       | (189              | )          | 13,613           |       |
| Total liabilities and members’ equity     |       | $                 | 666,095    |             | $          | 663,383 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

3

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**BH/RE,L.L.C. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(amounts in thousands)**

**(unaudited)**

** **
| ** **                          | ** ** | ** **              | ** ** | ** **     | ** ** | **Predecessor** | ** ** |
|-------------------------------------|------------|-------------------------|------------|----------------|------------|-----------------|------------|
| ** **                          | ** ** | ** **              | ** ** | ** **     | ** ** | **Information** | ** ** |
| ** **                          | ** ** | ** **              | ** ** | ** **     | ** ** | **Two Months**  | ** ** |
| ** **                          | ** ** | **Three Months**        | ** ** | **Ended**      | ** ** |
| ** **                          | ** ** | **Ended September 30,** | ** ** | **August 31,** | ** ** |
| ** **                          | ** ** | **2005**                | ** ** | **2004**       | ** ** | **2004**        | ** ** |
|                                |       |                    |       |           |       |            |       |
| Operating revenues:                 |       |                    |       |           |       |            |       |
| Casino                              |       | $                       | 32,629     |           | $          | 10,094          |       | $ | 19,081 |   |
| Hotel                               |       | 25,522                  |       | 8,393          |       | 16,264          |       |
| Food and beverage                   |       | 18,823                  |       | 5,585          |       | 12,330          |       |
| Other                               |       | 4,201                   |       | 1,332          |       | 2,660           |       |
| Gross revenues                      |       | 81,175                  |       | 25,404         |       | 50,335          |       |
| Promotional allowances              |       | (6,802                  | )          | (2,195         | )          | (4,315          | )          |
| Net revenues                        |       | 74,373                  |       | 23,209         |       | 46,020          |       |
|                                |       |                    |       |           |       |            |       |
| Operating costs and  expenses:      |       |                    |       |           |       |            |       |
| Casino                              |       | 19,793                  |       | 5,875          |       | 12,126          |       |
| Hotel                               |       | 8,931                   |       | 2,852          |       | 5,738           |       |
| Food and beverage                   |       | 12,654                  |       | 3,683          |       | 7,755           |       |
| Other                               |       | 2,630                   |       | 877            |       | 2,292           |       |
| Selling, general and administrative |       | 19,443                  |       | 5,701          |       | 11,157          |       |
| Depreciation and amortization       |       | 5,944                   |       | 2,275          |       | —          |       |
| Preopening expenses                 |       | —                  |       | 731            |       | —          |       |
|                                |       | 69,395                  |       | 21,994         |       | 39,068          |       |
|                                |       |                    |       |           |       |            |       |
| Operating income                    |       | 4,978                   |       | 1,215          |       | 6,952           |       |
|                                |       |                    |       |           |       |            |       |
| Other income (expense):             |       |                    |       |           |       |            |       |
| Interest expense, net               |       | (14,240                 | )          | (3,960         | )          | (628            | )          |
| Minority interest                   |       | 1,277                   |       | 302            |       | —          |       |
| Gain on warrant valuation           |       | 2                       |       | —         |       | —          |       |
| Other income                        |       | 12                      |       | —         |       | —          |       |
| Reorganization costs                |       | —                  |       | —         |       | (2,475          | )          |
|                                |       | (12,949                 | )          | (3,658         | )          | (3,103          | )          |
|                                |       |                    |       |           |       |            |       |
| Pre-tax income (loss)               |       | (7,971                  | )          | (2,443         | )          | 3,849           |       |
| Benefit from income taxes           |       | 918                     |       | —         |       | —          |       |
| Net income (loss)                   |       | $                       | (7,053     | )              | $          | (2,443          | )          | $ | 3,849 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

4

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| ** **                          | ** ** | ** **              | ** ** | ** **     | ** ** | **Predecessor**  | ** ** |
|-------------------------------------|------------|-------------------------|------------|----------------|------------|------------------|------------|
| ** **                          | ** ** | ** **              | ** ** | ** **     | ** ** | **Information**  | ** ** |
| ** **                          | ** ** | ** **              | ** ** | ** **     | ** ** | **Eight Months** | ** ** |
| ** **                          | ** ** | **Nine Months**         | ** ** | **Ended**      | ** ** |
| ** **                          | ** ** | **Ended September 30,** | ** ** | **August 31,** | ** ** |
| ** **                          | ** ** | **2005**                | ** ** | **2004**       | ** ** | **2004**         | ** ** |
|                                |       |                    |       |           |       |             |       |
| Operating revenues:                 |       |                    |       |           |       |             |       |
| Casino                              |       | $                       | 96,869     |           | $          | 10,094           |       | $ | 77,774 |   |
| Hotel                               |       | 83,486                  |       | 8,393          |       | 71,705           |       |
| Food and beverage                   |       | 56,203                  |       | 5,585          |       | 49,231           |       |
| Other                               |       | 11,722                  |       | 1,332          |       | 10,713           |       |
| Gross revenues                      |       | 248,280                 |       | 25,404         |       | 209,423          |       |
| Promotional allowances              |       | (19,315                 | )          | (2,195         | )          | (18,783          | )          |
| Net revenues                        |       | 228,965                 |       | 23,209         |       | 190,640          |       |
|                                |       |                    |       |           |       |             |       |
| Operating costs and  expenses:      |       |                    |       |           |       |             |       |
| Casino                              |       | 54,407                  |       | 5,875          |       | 47,257           |       |
| Hotel                               |       | 30,472                  |       | 2,852          |       | 21,010           |       |
| Food and beverage                   |       | 38,112                  |       | 3,683          |       | 28,463           |       |
| Other                               |       | 6,473                   |       | 877            |       | 9,128            |       |
| Selling, general and administrative |       | 56,309                  |       | 5,701          |       | 40,957           |       |
| Depreciation and amortization       |       | 17,712                  |       | 2,275          |       | —           |       |
| Preopening expenses                 |       | —                  |       | 1,684          |       | —           |       |
|                                |       | 203,485                 |       | 22,947         |       | 146,815          |       |
|                                |       |                    |       |           |       |             |       |
| Operating income                    |       | 25,480                  |       | 262            |       | 43,825           |       |
|                                |       |                    |       |           |       |             |       |
| Other income (expense):             |       |                    |       |           |       |             |       |
| Interest expense, net               |       | (41,658                 | )          | (3,959         | )          | (2,541           | )          |
| Minority interest                   |       | 2,427                   |       | 302            |       | —           |       |
| Loss on warrant valuation           |       | (15                     | )          | —         |       | —           |       |
| Other income                        |       | 12                      |       | —         |       | —           |       |
| Reorganization costs                |       | —                  |       | —         |       | (6,648           | )          |
|                                |       | (39,234                 | )          | (3,657         | )          | (9,189           | )          |
|                                |       |                    |       |           |       |             |       |
| Pre-tax income (loss)               |       | (13,754                 | )          | (3,395         | )          | 34,636           |       |
| Provision for income taxes          |       | (48                     | )          | —         |       | —           |       |
| Net income (loss)                   |       | $                       | (13,802    | )              | $          | (3,395           | )          | $ | 34,636 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

5

----

 

**BH/RE,L.L.C. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(amounts in thousands)**

**(unaudited)**

** **
| ** **                                                                                | ** ** | ** **              | ** ** | ** **     | ** ** | **Predecessor**  | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------|------------|------------------|------------|
| ** **                                                                                | ** ** | ** **              | ** ** | ** **     | ** ** | **Information**  | ** ** |
| ** **                                                                                | ** ** | ** **              | ** ** | ** **     | ** ** | **Eight Months** | ** ** |
| ** **                                                                                | ** ** | **Nine Months**         | ** ** | **Ended**      | ** ** |
| ** **                                                                                | ** ** | **Ended September 30,** | ** ** | **August 31,** | ** ** |
| ** **                                                                                | ** ** | **2005**                | ** ** | **2004**       | ** ** | **2004**         | ** ** |
|                                                                                      |       |                    |       |           |       |             |       |
| Cash flows from operating  activities:                                                    |       |                    |       |           |       |             |       |
| Net income (loss)                                                                         |       | $                       | (13,802    | )              | $          | (3,395           | )          | $ | 34,636 |   |
| Adjustments to reconcile net income (loss) to net cash provided by operating  activities: |       |                    |       |           |       |             |       |
| Depreciation and amortization                                                             |       | 17,712                  |       | 2,275          |       | —           |       |
| Amortization of debt discount and issuance costs                                          |       | 5,240                   |       | 124            |       | —           |       |
| Minority interest                                                                         |       | (2,427                  | )          | (1,524         | )          | —           |       |
| Change in value of warrants                                                               |       | 37                      |       | —         |       | —           |       |
| Changes in assets and liabilities:                                                        |       |                    |       |           |       |             |       |
| Receivables, net                                                                          |       | (3,479                  | )          | (13,026        | )          | 2,439            |       |
| Inventories and prepaid expenses                                                          |       | 546                     |       | (3,822         | )          | 2,866            |       |
| Deposits and other current assets                                                         |       | (326                    | )          | (5,048         | )          | 651              |       |
| Accounts payable                                                                          |       | 986                     |       | 2,033          |       | (3,729           | )          |
| Accrued expenses and other current liabilities                                            |       | 2,303                   |       | 32,715         |       | (7,521           | )          |
| Net cash provided by operating activities                                                 |       | 6,790                   |       | 10,332         |       | 29,342           |       |
| Cash flows from investing  activities:                                                    |       |                    |       |           |       |             |       |
| Capital expenditures                                                                      |       | (7,115                  | )          | —         |       | —           |       |
| Restricted cash and cash equivalents                                                      |       | 4,195                   |       | (86,627        | )          | 76               |       |
| Acquisition of Aladdin Resort and Casino, net of cash acquired                            |       | —                  |       | (480,118       | )          | (986             | )          |
| Notes receivable                                                                          |       | —                  |       | (333           | )          | —           |       |
| Net cash used in investing activities                                                     |       | (2,920                  | )          | (567,078       | )          | (910             | )          |
| Cash flows from financing  activities:                                                    |       |                    |       |           |       |             |       |
| Payable-in-kind interest added to debt principal                                          |       | 12,429                  |       | —         |       | —           |       |
| Payments on CUP financing                                                                 |       | (928                    | )          | —         |       | —           |       |
| Borrowings under bank facility                                                            |       | —                  |       | 527,451        |       | —           |       |
| Payments under bank facility                                                              |       | —                  |       | (14,000        | )          | (731             | )          |
| Borrowings under CUP financing                                                            |       | —                  |       | 33,862         |       | —           |       |
| Member contributions                                                                      |       | —                  |       | 41,500         |       | —           |       |
| Debt issuance costs                                                                       |       | —                  |       | (9,035         | )          |             |       |
| Issuance of warrants                                                                      |       | —                  |       | 4,375          |       |             |       |
| Adequate protection payments - secured lenders                                            |       | —                  |       | —         |       | (32,250          | )          |
| Adequate protection payments - GECC                                                       |       | —                  |       | —         |       | (4,375           | )          |
| Net cash provided by (used in) financing activities                                       |       | 11,501                  |       | 584,153        |       | (37,356          | )          |
| Cash and cash equivalents:                                                                |       |                    |       |           |       |             |       |
| Increase in cash and cash equivalents                                                     |       | 15,371                  |       | 27,407         |       | (8,924           | )          |
| Balance, beginning of period                                                              |       | 37,016                  |       | —         |       | 38,240           |       |
| Balance, end of period                                                                    |       | $                       | 52,387     |           | $          | 27,407           |       | $ | 29,316 |   |
|                                                                                      |       |                    |       |           |       |             |       |
| Supplemental cash flow  disclosures:                                                      |       |                    |       |           |       |             |       |
| Cash paid for interest                                                                    |       | $                       | 23,331     |           | $          | 1,580            |       | $ | 2,885 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

6

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**BH/RE, L.L.C. AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

** **

##### **1.**                                      ORGANIZATION AND BASIS OF PRESENTATION

##### ** **

###### ***Organization***

###### *** ***

BH/RE, L.L.C.(“BH/RE” or “the Company”) is a holding company that owns 85% of EquityCo,L.L.C. (“EquityCo”). The remaining 15% of EquityCo is owned by a subsidiary ofStarwood Hotels & Resorts Worldwide, Inc. (“Starwood”). MezzCo,L.L.C. (“MezzCo”) is a wholly owned subsidiary of EquityCo, and OpBiz, L.L.C. (“OpBiz”)is a wholly owned subsidiary of MezzCo. 50% of BH/RE’s votingmembership interests are held by each of Robert Earl and Douglas P. Teitelbaum,and BH/RE’sequity membership interests are held 40.75% by BH Casino and Hospitality LLC I(“BHCH I”), 18.50% by BH Casino and Hospitality LLC II (“BHCH II”)(collectively “BHCH”) and 40.75% by OCS Consultants, Inc. (“OCS”).

 

BH/RE andits subsidiaries were formed to acquire, operate and renovate the AladdinResort and Casino (the “Aladdin”) located in Las Vegas, Nevada. OpBiz,an indirect subsidiary of BH/RE, completed the acquisition of the Aladdin onSeptember 1, 2004 and has begun a renovation project which, when complete,will transform the Aladdin into the Planet Hollywood Resort and Casino (the “PHResort”). In connection with the renovation of the Aladdin, OpBiz has enteredinto an agreement with Planet Hollywood International, Inc. (“PlanetHollywood”) and certain of its subsidiaries to, among other things, licensePlanet Hollywood’s trademarks, memorabilia and other intellectual property.OpBiz has also entered into an agreement with Sheraton Operating Corporation (“Sheraton”),a subsidiary of Starwood, pursuant to which Sheraton provides hotel management,marketing and reservation services for the hotel (the “Hotel”) that comprises aportion of the PH Resort.

 

BH/RE is aNevada limited liability company and was organized on March 31, 2003.BH/RE was formed by BHCH and OCS. BHCH is controlled by Douglas P. Teitelbaum,a managing principal of Bay Harbour Management, L.C. (“Bay HarbourManagement”). BHCHwas formed by Mr. Teitelbaum for the purpose of holding investments inBH/RE by funds managed by Bay Harbour Management. Bay Harbour Management is aninvestment management firm. OCS is wholly owned and controlled by Robert Earland holds Mr. Earl’s investment in BH/RE. Mr. Earl is the founder,chairman and chief executive officer of Planet Hollywood andMr. Teitelbaum is a director of Planet Hollywood. Collectively,Mr. Earl, a trust for the benefit of Mr. Earl’s children andaffiliates of Bay Harbour Management, own substantially all of the equity ofPlanet Hollywood. Mr. Earl disclaims beneficial ownership of any equity ofPlanet Hollywood owned by the trust.

 

***Acquisition of theAladdin***

*** ***

Aladdin Gaming, L.L.C. (“Aladdin Gaming”), which was adebtor-in-possession under Chapter 11 of the United States Bankruptcy Code,commenced its bankruptcy case in the United States Bankruptcy Court for theDistrict of Nevada, Southern Division on September 28, 2001. OnApril 23, 2003, OpBiz and Aladdin Gaming entered into a purchase agreementpursuant to which OpBiz agreed to acquire the Aladdin. Under the purchaseagreement and pursuant to an order of the Bankruptcy Court, Aladdin Gamingconducted an auction to sell the Aladdin. On June 20, 2003, the BankruptcyCourt declared OpBiz the winner of that auction and, on August 29, 2003,the Bankruptcy Court entered an order confirming Aladdin Gaming’s plan ofreorganization and authorizing Aladdin Gaming to complete the sale of theAladdin to OpBiz under the purchase agreement. On September 1, 2004, OpBizacquired substantially all of the real and personal property owned or used byAladdin Gaming to operate the Aladdin, and received $15 million of workingcapital from Aladdin Gaming, including $25.7 million of cash. The acquisitionwas accounted for as a purchase and, accordingly, the purchase price andworking capital adjustments have been allocated to the underlying assetsacquired and liabilities assumed. The working capital adjustment was determinedbased on the closing balance sheet on August 31, 2004. OpBiz paid thepurchase price for the Aladdin by issuing new secured notes to Aladdin Gaming’ssecured creditors and assumed various contracts and leases entered into byAladdin Gaming in connection with its operation of the Aladdin and certain ofAladdin Gaming’s liabilities, including Aladdin Gaming’s energy serviceobligation to the third party owner of the central utility plant that supplieshot and cold

 

7

----

 

water and emergency power to the Aladdin. At the timeof purchase, the energy service obligation was $34.0 million. Upon thecompletion of the Aladdin acquisition, OpBiz issued $510 million of new securednotes to Aladdin Gaming’s secured creditors under an Amended and Restated Loanand Facilities Agreement (the “Credit Agreement”) with a group of lenders andThe Bank of New York, Asset Solutions Division, as administrative and collateralagent. OpBiz also simultaneously made a $14 million cash payment to thosesecured creditors, which reduced the principal amount of the notes to $496million and obtained a release of the lien on a four-acre parcel of undevelopedproperty that OpBiz also acquired from Aladdin Gaming (the “Timeshare Land”).On December 10, 2004, OpBiz entered into a Timeshare Purchase Agreementwith Westgate Resorts, LTD. (“Westgate”), whereby OpBiz agreed to sellapproximately four acres of the Timeshare Land to Westgate, who plans todevelop, market, manage and sell timeshare units on the land. The CreditAgreement also requires that OpBiz provide either cash or a letter of credit inthe aggregate amount of $90 million to fund the costs of the plannedrenovations to the Aladdin. In August 2004, MezzCo issued $87 million ofsenior secured notes to a group of purchasers. The net proceeds of thisfinancing were used to make the $14 million payment described above, to paycertain costs and expenses of BH/RE and its subsidiaries and affiliates relatedto the acquisition of the Aladdin, and to provide OpBiz with a portion of thefunds necessary to meet its obligations regarding the planned renovations tothe Aladdin.

 

The purchase agreement also provided that OpBiz assumesubstantially all of Aladdin Gaming’s pre-petition contracts and leases and anypost-petition contracts or leases to which OpBiz does not object. In addition,the purchase agreement provided that OpBiz offer employment to all of AladdinGaming’s employees, other than executive management, on terms and conditionssubstantially similar to their previous employment terms and conditions.

 

###### ***Plan of Operations***

###### *** ***

OpBiz iscurrently conducting a renovation project which, when complete, will transformthe Aladdin into the PH Resort. In connection with the renovation of theAladdin, OpBiz has entered into an agreement with Planet Hollywood and certainof its subsidiaries to, among other things, license Planet Hollywood’strademarks, memorabilia and other intellectual property. OpBiz has also enteredinto an agreement with Sheraton, a subsidiary of Starwood, pursuant to whichSheraton provides hotel management, marketing and reservation services for theHotel that comprises a portion of the PH Resort.

 

###### ***Interim Financial Statements (unaudited)***

###### *** ***

The accompanying condensed consolidated financialstatements included herein have been prepared by the management of BH/RE,without audit, pursuant to the rules and regulations of the Securities andExchange Commission. Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with U.S. generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations. BH/RE believes that the disclosures are adequate tomake the information presented not misleading. In the opinion of management,all adjustments (which include normal recurring adjustments) necessary for afair presentation of the results for the interim periods have been made. Theresults for the three and nine months ended September 30, 2005, are notindicative of results to be expected for the full fiscal year. These unauditedfinancial statements should be read in conjunction with the audited financialstatements and notes thereto for the year ended December 31, 2004,included in BH/RE’s Annual Report on Form 10-K filed with the Securitiesand Exchange Commission on April 15, 2005. Pursuant to Rule 302 ofRegulation S-X, BH/RE has included condensed statements of operations of thepredecessor for the two- and eight- month periods ended August 31, 2004and condensed statement of cash flows of the predecessor for the eight-monthperiod ended August 31, 2004.

 

8

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##### **2.**                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

##### ** **

###### ***SignificantAccounting Policies and Estimates***

###### *** ***

Thecondensed consolidated financial statements are prepared in conformity withU.S. generally accepted accounting principles. Certain policies, including thedetermination of bad debt reserves, the estimated useful lives assigned toassets, asset impairment, insurance reserves and the calculation ofliabilities, require that management apply significant judgment in defining theappropriate assumptions for calculating financial estimates. By their nature,these judgments are subject to an inherent degree of uncertainty. Management’sjudgments are based on historical experience, terms of existing contracts,observance of trends in the gaming industry and information available fromother outside sources. There can be no assurance that actual results will notdiffer from our estimates. To provide an understanding of the methodologymanagement applies, BH/RE’s significant accounting policies and basis ofpresentation are discussed below, as well as in the management’s discussion andanalysis.

 

###### ***Cash and Cash Equivalents***

###### *** ***

Cash andcash equivalents include cash on hand, as well as short-term investments withoriginal maturities not in excess of 90 days.

 

###### ***Restricted Cash and Cash Equivalents***

###### *** ***

Restrictedcash and cash equivalents consist of approximately $92.0 million and $96.2million as of September 30, 2005 and December 31, 2004, respectively,the majority of which will be applied toward the remaining cash commitments forthe planned renovations to the Aladdin.

 

###### ***Accounts Receivable***

###### *** ***

Accountsreceivable, including casino and hotel receivables, are typically non-interestbearing and are initially recorded at cost. An estimated allowance for doubtfulaccounts is maintained to reduce the receivables to their carrying amount,which approximates fair value. BH/RE estimates the allowance for doubtfulaccounts by applying standard reserve percentages to aged account balancesunder a specific dollar amount and specifically analyzes the collectibility ofeach account with a balance over the specified dollar amount, based on the ageof the account, the customer’s financial condition, collection history and anyother known information.

 

###### ***Inventories***

###### *** ***

Inventoriesconsist of food and beverage, retail merchandise and operating supplies, andare stated at the lower of cost or market. Cost is determined by the first-in,first-out and specific identification methods.

 

###### ***Property and Equipment***

###### *** ***

Property and equipment are stated at cost. Recurringrepairs and maintenance costs, including items that are replaced routinely inthe casino, hotel and food and beverage departments which do not meet theCompany’s capitalization policy of $10,000, are expensed as incurred. TheCompany has established its capital expense policy to be reflective of itsindividual ongoing repairs and maintenance programs. Gains or losses ondispositions of property and equipment are included in the determination ofincome. Property and equipment are generally depreciated over the followingestimated useful lives on a straight-line basis:

 

| Buildings                          |   | 40  years       |   |
|------------------------------------|--------|-----------------|--------|
| Building improvements              |   | 15  to 40 years |   |
| Furniture, fixtures and  equipment |   | 3  to 7 years   |   |

 

9

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Property and equipment and other long-lived assets areevaluated for impairment in accordance with the Financial Accounting StandardsBoard’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”)No. 144, “*Accounting for the Impairment or Disposal ofLong-Lived Assets*.” For assets to be disposed of, the asset to besold is recognized at the lower of carrying value or fair value less costs ofdisposal. Fair value for assets to be disposed of is estimated based oncomparable asset sales, solicited offers or a discounted cash flow model.

 

Property and equipment are reviewed for impairmentwhenever indicators of impairment exist. If an indicator of impairment exists,the estimated future cash flows of the asset, on an undiscounted basis, arecompared to the carrying value of the asset. If the undiscounted cash flows exceedthe carrying value, no impairment is indicated. If the undiscounted cash flowsdo not exceed the carrying value, then impairment is measured based on fairvalue compared to carrying value, with fair value typically based on adiscounted cash flow model.

 

The property and equipment and other long-lived assetsthat BH/RE obtained in the acquisition of the Aladdin were appraised by anindependent third party. Property and equipment and the related accumulateddepreciation amounts, as well as certain intangible assets recorded in theCompany’s condensed consolidated balance sheets as of September 30, 2005,are based on the independent third party appraisal.

 

*DebtIssuance Costs*

 

Debt issuance costs incurred in connection with theissuance of long-term debt are capitalized and amortized to interest expenseover the expected terms of the related debt agreements using the effectiveinterest method and are included in other assets on BH/RE’s consolidatedbalance sheets. Debt issuance costs, net of the related amortization,approximated $7.4 million and $8.5 million as of September 30, 2005 andDecember 31, 2004, respectively.

 

*Intangible Assets*

 

In connection with the purchase of the Aladdin and asa result of an independent appraisal of the assets purchased, BH/RE recordedintangible assets, which consist of a customer list and trade name, on itscondensed consolidated balance sheets at September 30, 2005. The customerlist was valued at approximately $2.7 million at the time of purchase and atSeptember 30, 2005, had a net book value of approximately $2.0 million.The trade name was valued at approximately $1.0 million at the time of purchaseand at September 30, 2005, had a net book value of approximately $0.3million. The customer list and trade name are being amortized using thestraight-line method over a useful life of 4 years and 1.5 years, respectively.The amortization expense related to the customer list and trade name for thethree and nine months ended September 30, 2005, totaled approximately $0.3million and $1.0 million, respectively.

 

*Derivative Instruments and Hedging Activities*

 

BH/REhas issued warrants to provide further consideration to the holders of theSenior Notes and Mezzanine Financing. BH/RE accounts for the senior notewarrants in EquityCo as embedded derivative instruments in accordance with SFASNo. 133, “*Accounting for Derivative Instruments andHedging Activities,*” and SFAS No. 138, “*Accountingfor Certain Derivative Instruments and Hedging Activities — an Amendment ofFASB Statement No. 133*”. The warrants issued in conjunctionwith the mezzanine financing transaction entered into by MezzCo contain a netcash settlement, and therefore are accounted for in accordance with EmergingIssues Task Force (“EITF”) 00-19, “*Accounting for DerivativeFinancial Instruments Indexed to, and Potentially Settled in, a Company’s OwnStock*”. Both SFAS No. 133 and EITF 00-19 require that thewarrants be recognized as liabilities, with changes in fair value affecting netincome.

 

10

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###### ***Revenue Recognition and PromotionalAllowances***

###### *** ***

Casino revenues are recognized as the net win fromgaming activities, which is the difference between gaming wins and losses.Hotel revenue recognition criteria are generally met at the time of occupancy.Food and beverage revenue recognition criteria are generally met at the time ofservice. Deposits for future hotel occupancy or food and beverage services arerecorded as deferred income until revenue recognition criteria are met. Cancellationfees for hotel and food and beverage services are recognized upon cancellationby the customer as defined by a written contract entered into with thecustomer. All other revenues are recognized as the service is provided.Revenues include the retail value of food, beverage, rooms, entertainment andmerchandise provided on a complimentary basis to customers. Such complimentaryamounts are then deducted from revenues as promotional allowances on BH/RE’sconsolidated statements of operations. The estimated departmental costs ofproviding such promotional allowances are included in casino costs and expensesand consist of the following (amounts in thousands). The three and nine monthsended September 30, 2004 for BH/RE include the one month of operating results sincethe Aladdin acquisition by OpBiz on August 31, 2004 and should be read inconjunction with the predecessor information for the full three- and nine-monthperformance:

 
| ** **                            | ** ** | ** **                                  | ** ** | ** **                        | ** ** | **Predecessor   Information**              | ** ** | ** **                          | ** ** | ** ** | ** ** | **Predecessor   Information** | ** ** |
|---------------------------------------|------------|---------------------------------------------|------------|-----------------------------------|------------|--------------------------------------------|------------|-------------------------------------|------------|------------|------------|-------------------------------|------------|
| ** **                            | ** ** | **Three Months  Ended  September 30,** | ** ** | **Two Months  Ended  August 31,** | ** ** | **Nine Months  Ended  September 30,** | ** ** | **Eight Months  Ended  August 31,** | ** ** |
| ** **                            | ** ** | **2005**                                    | ** ** | **2004**                          | ** ** | **2004**                                   | ** ** | **2005**                            | ** ** | **2004**   | ** ** | **2004**                      | ** ** |
| Rooms                                 |       | $                                           | 1,047      |                              | $          | 323                                        |       | $                                   | 559        |       | $          | 2,727                         |       | $ | 323 |   | $ | 2,377 |   |
| Food and Beverage                     |       | 2,806                                       |       | 969                               |       | 2,440                                      |       | 7,815                               |       | 969        |       | 7,900                         |       |
| Other                                 |       | 188                                         |       | 33                                |       | 152                                        |       | 593                                 |       | 33         |       | 636                           |       |
| Total cost of promotional  allowances |       | $                                           | 4,041      |                              | $          | 1,325                                      |       | $                                   | 3,151      |       | $          | 11,135                        |       | $ | 1,325 |   | $ | 10,913 |   |

 

###### ***Slot Club Program***

###### *** ***

The Aladdin’s slot club members earn points based ongaming activity, which can be redeemed for cash. A liability is recorded forthe estimated cost of the outstanding points accrued under the slot clubprogram. The accrued slot club point liability was approximately $1.7 millionand $1.9 million as of September 30, 2005 and December 31, 2004,respectively.

 

*AdvertisingCosts*

 

Advertising costs areexpensed as incurred and included in selling, general and administrative costsand expenses. Advertising costs totaled approximately $1.0 million and $3.4 forthe three and nine months ended September 30, 2005, respectively, forBH/RE as compared to $1.2 million and $4.5 million for the same three- andnine-month periods in 2004, respectively, for the combined operations of BH/REand Aladdin Gaming.

 

*Income Taxes*

 

The condensed consolidated financial statementsinclude the operations of BH/RE and its controlled subsidiaries: EquityCo,MezzCo, and OpBiz. BH/RE and EquityCo are limited liability companies and aretaxed as partnerships for federal income tax purposes. MezzCo has elected to betaxed as a corporation for federal income tax purposes. OpBiz, a wholly ownedsubsidiary of MezzCo, will be treated as a division of MezzCo for federalincome tax purposes, and accordingly, will also be subject to federal incometaxes.

 

MezzCo and OpBiz account for income taxes inaccordance with SFAS No. 109, “*Accounting for IncomeTaxes*”. SFAS 109 requires the recognition of deferred income taxassets, net of applicable reserves, related to net operating loss carryforwardsand certain temporary differences. The standard requires recognition of futuretax benefits to the extent that realization of such benefits are more likelythan not. Otherwise, a valuation allowance is applied.

 

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###### ***Membership Interests***

###### *** ***

As ofSeptember 30, 2005, BH/RE’s membership interests had not been unitized andBH/RE’s members do not presently intend to unitize these membership interests.Accordingly, management of BH/RE has excluded earnings per share data requiredpursuant to SFAS No. 128, “*Earnings Per Share,*”because management believes that such disclosures would not be meaningful tothe financial statement presentation.

 

**3.****                                      RECEIVABLES**

 

Accountsreceivable consist of the following (in thousands):

 

| ** **                      | ** ** | **September 30,    2005** | ** ** | **December 31,    2004** | ** ** |
|---------------------------------|------------|--------------------------------|------------|-------------------------------|------------|
| ** **                      | ** ** | **(unaudited)**                | ** ** | ** **                    | ** ** |
| Casino                          |       | $                              | 9,858      |                          | $          | 5,712 |   |
| Hotel                           |       | 7,955                          |       | 7,735                         |       |
| Other                           |       | 1,467                          |       | 1,433                         |       |
|                            |       | 19,280                         |       | 14,880                        |       |
| Allowance for doubtful accounts |       | (3,175                         | )          | (2,254                        | )          |
| Receivables, net                |       | $                              | 16,105     |                          | $          | 12,626 |   |

 

**4.****                                      PROPERTYAND EQUIPMENT**

 

Property and equipment and the related accumulateddepreciation consist of the following (in thousands):

 

| ** **                         | ** ** | **September 30,   2005** | ** ** | **December 31,   2004** | ** ** |
|------------------------------------|------------|-------------------------------|------------|------------------------------|------------|
| ** **                         | ** ** | **(unaudited)**               | ** ** | ** **                   | ** ** |
| Land                               |       | $                             | 97,979     |                         | $          | 97,979 |   |
| Building and improvements          |       | 367,234                       |       | 367,234                      |       |
| Furniture, fixtures and  equipment |       | 36,391                        |       | 35,172                       |       |
| Construction in progress           |       | 7,677                         |       | 1,787                        |       |
|                               |       | 509,281                       |       | 502,172                      |       |
| Accumulated depreciation           |       | (24,092                       | )          | (7,391                       | )          |
| Property and equipment, net        |       | $                             | 485,189    |                         | $          | 494,781 |   |

 

Of the $98.0 million in land value, $29.5 million hasbeen allocated to the Timeshare Land.

 

Depreciation expense was approximately $16.7 for thenine months ended September 30, 2005.

 

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**5.****                                      ACCRUEDEXPENSES AND OTHER CURRENT LIABILITIES**

 

Accrued expenses and other current liabilities consistof the following (in thousands):

 

| ** **                                      | ** ** | **September 30,   2005** | ** ** | **December 31,   2004** | ** ** |
|-------------------------------------------------|------------|-------------------------------|------------|------------------------------|------------|
| ** **                                      | ** ** | **(unaudited)**               | ** ** | ** **                   | ** ** |
| Accrued payroll and  related                    |       | $                             | 12,776     |                         | $          | 10,652 |   |
| Accrued interest payable                        |       | 8,218                         |       | 6,498                        |       |
| Accrued taxes (other than  federal)             |       | 2,854                         |       | 2,500                        |       |
| Advance deposits and sales                      |       | 5,524                         |       | 4,461                        |       |
| Accrued gaming and related                      |       | 4,986                         |       | 5,381                        |       |
| Accrued and advance  commissions                |       | 1,320                         |       | 1,677                        |       |
| Accrued legal fees                              |       | 638                           |       | 701                          |       |
| Accrued utilities                               |       | 657                           |       | 540                          |       |
| Accrued Central Utility  Plant charges          |       | 440                           |       | 1,287                        |       |
| Accrued acquisition costs                       |       | —                        |       | 796                          |       |
| Other accrued expenses and  current liabilities |       | 1,531                         |       | 1,706                        |       |
| Accrued expenses and other current liabilities  |       | $                             | 38,944     |                         | $          | 36,199 |   |

 

**6.****                                      LONG-TERMDEBT**

 

Long-term debt consists of the following (inthousands):

 

| ** **                                                                                     | ** ** | **September 30,   2005** | ** ** | **December 31,   2004** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|------------------------------|------------|
| ** **                                                                                     | ** ** | **(unaudited)**               | ** ** | ** **                   | ** ** |
| Term Loan A - $500 million senior notes, net of unamortized discount  of $27,048 and $31,162   |       | $                             | 458,876    |                         | $          | 454,838 |   |
| Term Loan B - $10 million senior notes                                                         |       | 10,764                        |       | 10,202                       |       |
| Mezzanine senior secured subordinated notes, net of unamortized  discount of $3,982 and $4,262 |       | 99,619                        |       | 87,472                       |       |
| Northwind Aladdin obligation under capital lease                                               |       | 32,642                        |       | 33,570                       |       |
| Total long-term debt                                                                           |       | 601,901                       |       | 586,082                      |       |
| Current portion of long-term debt                                                              |       | (1,381                        | )          | (1,268                       | )          |
| Total long-term debt, net                                                                      |       | $                             | 600,520    |                         | $          | 584,814 |   |

 

***Credit Agreement***

 

The Aladdin acquisition and the planned renovationswere funded by the issuance of $510 million of secured notes to Aladdin Gaming’ssecured creditors pursuant to a Credit Agreement. OpBiz’s obligations under theCredit Agreement are secured by liens on all of its assets, including amortgage on its real property, the Hotel, the Casino and the Theater for thePerforming Arts (“TPA”), and security interests in its accounts receivable,inventory, equipment and intangible assets, excluding the Timeshare Land. TheCredit Agreement is guaranteed by MezzCo and MezzCo secured its guarantee bypledging its membership interests in OpBiz to the lenders. The Credit Agreementmatures on August 31, 2010.

 

Theloans under the Credit Agreement are evidenced by $500 million of Term Loan Anotes and $10 million of Term Loan B notes. Upon issuance of the notes, BH/REsimultaneously made a $14 million cash payment to the holders of the Term LoanA notes to reduce the principal amount of the Term Loan A notes to $486 millionand obtained a release of the lien on the Timeshare Land.

 

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Thescheduled principal payments on the Term Loan A notes are as follows:

 

•        $1.25 million on the first day of eachfiscal quarter during the period beginning on August 31, 2006 and endingon August 31, 2007;

•        $3.75 million on the first day of eachfiscal quarter during the period beginning on August 31, 2007 and endingon August 31, 2008;

•        $5.0 million on the first day of eachfiscal quarter during the period beginning on August 31, 2008 and endingon August 31, 2009;

•        $6.25 million on the first day of eachfiscal quarter during the period beginning on August 31, 2009 and endingon August 31, 2010;

•        the then unpaid balance amount of TermLoan A notes on August 31, 2010.

 

OpBizpays interest on the outstanding Term Loan A notes quarterly, in cash, at theLondon Inter-Bank Offered Rate, or LIBOR, plus an applicable margin thatincreases over time. Until the earlier of August 31, 2007 or OpBiz’saccumulation of certain permitted cash reserves, OpBiz’s interest payment willnot exceed its quarterly earnings before interest, taxes, depreciation andamortization (“EBITDA”), reduced by certain permitted reductions (as defined inthe Credit Agreement), divided by a factor of 1.20. Interest on the Term Loan Bnotes will accrue at a rate of LIBOR plus 4% and will be added quarterly to theoutstanding principal amount of the Term Loan B notes and will be paid whenOpBiz pays off the Term Loan B notes. OpBiz is also required to pay an annualadministrative fee and certain other fees and expenses of the lender under theCredit Agreement.

 

OpBizis required to prepay amounts outstanding under the Credit Agreement:

 

•        with excess cash flow (asdefined in the Credit Agreement) after certain permitted cash reserves areaccumulated;

•        in scheduled quarterlyamounts beginning after August, 31, 2006;

•        with certain amountsreceived in connection with the development of the Timeshare Land adjacent tothe Desert Passage (as defined in the underlying agreement);

•        with an amount equal to thedifference between what should have been spent on renovation capital expendituresand what was actually spent thereon if (i) an aggregate amount of $72.0million is not spent on renovation capital expenditures by August 31,2006, or (ii) an aggregate amount of $81.0 million is not spent onrenovation capital expenditures by February 28, 2007 or (iii) anaggregate amount of $90.0 million is not spent on renovation capitalexpenditures by August 31, 2007; and

•        with the proceeds of certainasset sales.

 

Inparticular, after OpBiz accumulates certain permitted cash reserves, OpBiz isrequired to pay 100% of its excess cash flow (as defined in the CreditAgreement) from operations to the lenders under the Credit Agreement. Thatpercentage decreases to 75%, then 50%, if OpBiz meets certain targeted ratiosof total debt to EBITDA, or certain leverage ratios, for any two consecutivefiscal quarters.

 

TheCredit Agreement includes covenants that, among other things, restrict OpBiz’sability to sell assets, make distributions to its owners, other thandistributions for taxes, incur or prepay additional indebtedness, enter intotransactions with affiliates, incur liens, make investments, make capitalexpenditures,****develop theTimeshare Land adjacent to the Desert Passage and enter into materialcontracts. In addition, OpBiz is required to maintain certain levels of EBITDAthat increase over time and, beginning August 31, 2007, maintain certainratios of EBITDA to interest expense that increase over time and maintaincertain leverage ratios that decrease over time.

 

TheCredit Agreement contains customary events of default, including a change ofcontrol of OpBiz, the occurrence of a default under the terms of anyindebtedness of MezzCo, a default by OpBiz under the Hotel management contractor termination of Sheraton as the manager of the Hotel (unless OpBiz replacesSheraton with another approved manager within 30 days of such termination), adefault or termination of the Planet Hollywood license agreement and certaindefaults under the agreements with Boulevard Invest or Northwind Aladdin.

 

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BH/REhas issued warrants to purchase 2.94% of its ownership interest in EquityCo tothe lenders under the Credit Agreement. The warrants can only be exercised uponthe occurrence of (i) a liquidity event or distribution (such as throughthe sale of the hotel/casino); (ii) a public sale of equity securities ofEquityCo, MezzCo or OpBiz; or (iii) payment in full of the obligationsunder the Credit Agreement. The warrants can either be settled in cash or in othermembership interests upon exercise. The estimated fair value of the warrantswas approximately $0.1 million as of September 30, 2005.  These warrants are recorded separately fromthe related debt within other long-term liabilities.

 

***Mezzanine Financing***

 

InAugust 2004, MezzCo entered into a mezzanine financing transaction (the “MezzanineFinancing”) with a group of purchasers. Pursuant to the Mezzanine Financing,MezzCo issued $87 million of 16% Senior Secured Subordinated Notes and warrantsto purchase 17,500 of its units representing membership interests equal to17.5% of the fully diluted equity of MezzCo. The gross offering proceeds of theMezzanine Financing were deposited into an escrow account and, in conjunctionwith the closing of the Aladdin acquisition, were used to (i) payapproximately $16.1 million of fees and expenses related to the acquisition ofthe Aladdin, (ii) fund the $14 million lien release payment required underthe Credit Agreement, and (iii) fund a portion of the planned renovationsto the Aladdin. The notes mature in August 2011 and accrue interest at arate of 16% per annum. Interest on the notes is payable-in-kind or, at theoption of MezzCo, in cash. The warrants are exercisable at any time, subject tothe approval of the Nevada gaming authorities, at a purchase price of $0.01 perunit. Subject to the approval of the Nevada gaming authorities, the warrantsmay be exercised to purchase either voting or non-voting membership interestsof MezzCo or a combination thereof. Currently, all of MezzCo’s votingmembership interests are represented by units owned by EquityCo. In addition tocustomary anti-dilution protections, the number of units representing MezzComembership interests issuable upon exercise of the warrants may be increasedfrom time to time upon the occurrence of certain events as described in thewarrants. The maximum aggregate increase is 24%, following which the warrantswould represent rights to purchase 41.5% of the units representing the fullydiluted equity of MezzCo. Holders of the warrants and any securities issuedupon exercise of the warrants may require MezzCo to redeem such securitiescommencing in August 2011 at a redemption price based upon a formula setforth in the warrants. Starting in August 2008, in the event the Company failsto achieve certain operational thresholds, the holders of the MezzCo warrants,and securities issued upon exercise thereof, have the right to assume controlof MezzCo and OpBiz and conduct a sale of the equity of, or all or substantiallyall of the assets of, either MezzCo or OpBiz provided that all ControlConditions (as defined in the Investor Rights Agreement) are met. These rightsare subject to (i) repayment in full of all indebtedness that is senior tothe notes (including all indebtedness of OpBiz under the Credit Agreement),(ii) certain covenants related to OpBiz’s ability to achieve targetedlevels of EBITDA and (iii) the prior approval of the Nevada gamingauthorities. These rights expire upon completion of a public offering by MezzCoor OpBiz. In connection with the Mezzanine Financing, OpBiz’s obligation tomake expenditures on renovations to the Aladdin was increased from $90 million,as required under the Credit Agreement, to $100 million.

 

Asof September 30, 2005, the MezzCo financing was recorded net of theunamortized balance of the put warrants of approximately $4.0 million. Theestimated fair value of the warrants was approximately $4.1 million atSeptember 30, 2005 and December 31, 2004, and is recorded separatelyfrom the related debt within other long-term liabilities.

 

***Energy Services Agreement***

 

Northwind Aladdin (“Northwind”), a third party, ownsand operates a central utility plant on land leased from OpBiz. The plantsupplies hot and cold water and emergency power to the Aladdin under a contractbetween Aladdin Gaming and Northwind. OpBiz has assumed the energy serviceagreement, which expires in 2020. Under the agreement, OpBiz is required to payNorthwind a monthly consumption charge, a monthly operational charge, a monthlydebt service payment and a monthly return on equity payment. Payments under theNorthwind agreement total approximately $0.5 million per month.

 

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**7.****                                      MEMBERSHIPINTERESTS**

 

The non-voting interests inBH/RE are owned 40.75% by BHCH I, 18.50% by BHCH II and 40.75% by OCS and thevoting interests are owned 50% by Douglas P. Teitelbaum and 50% by Robert Earl.BHCH is controlled by Mr. Teitelbaum, managing principal of Bay HarbourManagement, an investment management firm. BHCH was formed byMr. Teitelbaum for the purpose of holding investments in BH/RE by fundsmanaged by Bay Harbour Management. OCS is wholly-owned and controlled byMr. Earl and holds Mr. Earl’s investment in BH/RE. Mr. Earl is thefounder, chairman and chief executive officer of Planet Hollywood andMr. Teitelbaum is a director of Planet Hollywood. Collectively,Mr. Earl, a trust for the benefit of Mr. Earl’s children andaffiliates of Bay Harbour Management, own substantially all of the equity ofPlanet Hollywood.

 

BH/RE owns 85% of themembership interests in EquityCo and Starwood owns 15%. MezzCo is a whollyowned subsidiary of EquityCo, and OpBiz is a wholly owned subsidiary of MezzCo.BH/RE and Starwood made total equity contributions of $20 million each inEquityCo to fund the costs of the planned renovations to the Aladdin. Starwood’sequity interest in EquityCo is reflected as minority interest in theaccompanying condensed consolidated financial statements. BH/RE recorded minorityinterest income related to the Starwood interests of approximately $1.3 millionand $2.4 million for the three and nine months ended September 30, 2005,respectively, and minority expense of approximately $0.3 million for the threeand nine months ended September 30, 2004, respectively.

 

BH/RE has the option topurchase all of Starwood’s membership interests in EquityCo if OpBiz isentitled to terminate the hotel management contract between OpBiz and Sheratonas a result of a breach by Sheraton. Starwood can require EquityCo to purchaseall of its membership interests in EquityCo if the hotel management contract isterminated for any reason other than in accordance with its terms or as theresult of a breach by Sheraton. In addition, BH/RE and Starwood entered into aregistration rights agreement with respect to their membership interests inEquityCo.

 

**8.****                                      RELATEDPARTY TRANSACTIONS**

 

###### ***Due toAffiliates***

###### *** ***

Since itsformation, certain members or affiliates of BH/RE have paid expenses totalingapproximately $20.0 million related to the Aladdin acquisition and fundeddeposits under the purchase agreement on behalf of BH/RE and its subsidiaries.On September 1, 2004, $4.25 million of advances from each of BHCH and OCS,which were used to fund the deposit required under the purchase agreement, werecontributed to BH/RE as capital. Additionally, on September 1, 2004, theadvances made by BHCH and Planet Hollywood to pay transaction fees and depositswere repaid.

 

***Planet Hollywood Licensing Agreement***

 

OpBiz, Planet Hollywood andcertain of Planet Hollywood’s subsidiaries have entered into a licensingagreement pursuant to which OpBiz received a non-exclusive, irrevocable licenseto use various “Planet Hollywood” trademarks and service marks. Under thelicensing agreement, OpBiz also has the right, but not the obligation, to opena Planet Hollywood restaurant and one or more Planet Hollywood retail shopsunder a separate restaurant agreement with Planet Hollywood. OpBiz will payPlanet Hollywood a quarterly licensing fee of 1.75% of OpBiz’s non-casinorevenues. If OpBiz opens an attraction with paid admission using the PlanetHollywood marks or memorabilia prior to beginning operations as the PH Resort,it will pay Planet Hollywood a quarterly licensing fee of 1.75% of the revenuesof the attraction until OpBiz begins operating as the PH Resort. The initialterm of the licensing agreement will expire in 2028. OpBiz can renew thelicensing agreement for three successive 10-year terms.

 

In addition to being amanager of BH/RE, Mr. Earl is the chief executive officer and chairman ofthe board of directors of Planet Hollywood. Similarly, Mr. Teitelbaum is amanager of BH/RE and a director of Planet Hollywood. Collectively,Mr. Earl, a trust for the benefit of Mr. Earl’s children andaffiliates of Bay Harbour Management, own substantially all of the equity ofPlanet Hollywood. Mr. Earl disclaims beneficial ownership of any equity ofPlanet Hollywood owned by the trust.

 

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***Sheraton Hotel Management Contract***

 

OpBizand Sheraton have entered into a management contract pursuant to which Sheratonprovides hotel management services to the Hotel, assists OpBiz in themanagement, operation and promotion of the Hotel and permits OpBiz to use theSheraton brand and trademarks in the promotion of the Hotel. OpBiz paysSheraton a monthly fee of 4% of gross Hotel revenue and certain food andbeverage outlet revenues and 2% of rental income from third-party leases in theHotel. The management contract has a 20-year term that commenced on thecompletion of the Aladdin acquisition and is subject to certain terminationprovisions by either OpBiz or Sheraton. Sheraton is a wholly owned subsidiaryof Starwood, which has a 15% equity interest in EquityCo and has the right toappoint two members to the EquityCo board of managers. Starwood management feestotaled approximately $2.4 million and $8.1 million for the three and ninemonths ended September 30, 2005, respectively.

 

**9.****                                      INCOMETAXES**

 

The condensedconsolidated financial statements include the operations of BH/RE and itscontrolled subsidiaries: EquityCo, MezzCo, and OpBiz. BH/RE and EquityCo arelimited liability companies and are taxed as partnerships for federal incometax purposes. MezzCo has elected to be taxed as a corporation for federalincome tax purposes. OpBiz, a wholly owned subsidiary of MezzCo, will betreated as a division of MezzCo for federal income tax purposes, andaccordingly, will also be subject to federal income taxes.

 

MezzCo and OpBiz accountfor income taxes in accordance with SFAS No. 109, “*Accountingfor Income Taxes*”. SFAS 109 requires the recognition of deferredincome tax assets, net of applicable reserves, related to net operating losscarryforwards and certain temporary differences. The standard requiresrecognition of future tax benefits to the extent that realization of suchbenefits are more likely than not. Otherwise, a valuation allowance is applied.

 

Managementbelieves it is more likely than not that its net deferred tax asset will not berealized and has therefore recorded a valuation allowance against this net deferredtax asset.

 

The payable in-kindinterest associated with the Mezzanine Financing is subject to the provisionsof Internal Revenue Code Section 163(e)(5) as a high yield debt obligation withdisqualified OID. As a result, a portion of the interest expense associatedwith the Mezzanine Financing is permanently non-deductible for tax purposes andthe balance of the interest expense is only deductible when paid in cash.

 

For the three monthsended June 30, 2005, a provision of $1.0 million was recorded to increase thevaluation allowance to completely offset the deferred tax asset associated withthe Mezzanine Financing. For the three months ended September 30, 2005, abenefit for income taxes of $0.9 was recorded. This benefit is attributable tothe reversal of the previously recorded additional valuation allowance. Thereversal was necessary because the valuation allowance increased as a result ofrecording the true-up adjustments associated with the filing of the Company's2004 tax return. The deferred tax asset associated with the Mezzanine Financingremains fully reserved.

 

**10.****                               COMMITMENTSAND CONTINGENCIES**

 

***Culinary Union Negotiations***

 

InDecember 2004, a majority of the employees of the Aladdin who could berepresented by the culinary union, requested union representation. Negotiationsbetween management of OpBiz and the culinary union commenced on March 1,2005 and a final collective bargaining agreement was completed effectiveOctober 1, 2005. Management believes that the collective bargaining agreementwill not have a material impact on OpBiz’s results of operations or financialposition.

 

###### ***Litigation***

###### *** ***

BH/RE isnot currently a party to any material legal proceedings.

 

17

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## **ITEM 2.** MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

## ** **

###### ***Overview of Management’s Discussion and Analysis ofFinancial Condition and Results of Operations***

###### *** ***

Set forth below is a discussion of the financialcondition and results of operations of BH/RE and its subsidiaries for theperiods covered in this report. The discussion of operations herein focuses onevents and the revenues and expenses during the three and nine months endedSeptember 30, 2005, as compared to the three and nine months endedSeptember 30, 2004, as if there were no change in ownership of theAladdin. Our discussion does not include any interest or depreciation chargesincurred by Aladdin Gaming prior to the acquisition.

 

The following management’s discussion and analysis offinancial condition and results of operations should be read in conjunctionwith the consolidated financial statements and the related notes to theconsolidated financial statements of BH/RE and Aladdin Gaming, respectively,the “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” included in BH/RE’s Annual Report on Form 10-K filed with theSecurities and Exchange Commission on April 15, 2005, and the unauditedcondensed consolidated financial statements and notes hereto included inPart I, Item 1 of this report.

 

###### ***Critical Accounting Policies and Estimates***

###### *** ***

###### ***Significant Accounting Policies andEstimates***

###### *** ***

Ourunaudited condensed consolidated financial statements are prepared inconformity with U.S. generally accepted accounting principles. Certainpolicies, including the determination of bad debt reserves, the estimateduseful lives assigned to assets, asset impairment, insurance reserves and thecalculation of liabilities, require that we apply significant judgment indefining the appropriate assumptions for calculating financial estimates. Bytheir nature, these judgments are subject to an inherent degree of uncertainty.Our judgments are based on historical experience, terms of existing contracts, observanceof trends in the gaming industry and information available from other outsidesources. There can be no assurance that actual results will not differ from ourestimates. To provide an understanding of the methodology we apply, oursignificant accounting policies and basis of presentation are discussed below,as well as, where appropriate, in the notes to the condensed consolidatedfinancial statements.

 

###### ***Propertyand Equipment***

###### *** ***

Property and equipment are stated at cost. Recurringrepairs and maintenance costs, including items that are replaced routinely inthe casino, hotel and food and beverage departments which do not meet ourcapitalization policy of $10,000, are expensed as incurred. We have establishedour capital expense policy to be reflective of our individual ongoing repairsand maintenance programs. Gains or losses on dispositions of property andequipment are included in the determination of income. Property and equipmentare generally depreciated over the following estimated useful lives on astraight-line basis:

 

| Buildings                          |   | 40  years       |   |
|------------------------------------|--------|-----------------|--------|
| Building improvements              |   | 15  to 40 years |   |
| Furniture, fixtures and  equipment |   | 3  to 7 years   |   |

 

Property and equipment and other long-lived assets areevaluated for impairment in accordance with the Financial Accounting StandardsBoard’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”)No. 144, “*Accounting for the Impairment or Disposal ofLong-Lived Assets*.” For assets to be disposed of, the asset to besold is recognized at the lower of carrying value or fair value less costs ofdisposal. Fair value for assets to be disposed of is estimated based oncomparable asset sales, solicited offers or a discounted cash flow model.

 

Property and equipment are reviewed for impairmentwhenever indicators of impairment exist. If an indicator of impairment exists,the estimated future cash flows of the asset, on an undiscounted basis, arecompared to the carrying value of the asset. If the undiscounted cash flowsexceed the carrying value, no impairment is indicated. If the undiscounted cashflows do not exceed the carrying value, then impairment is measured based onfair value compared to carrying value, with fair value typically based on adiscounted cash flow model.

 

18

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*Derivative Instruments and Hedging Activities*

 

BH/REhas issued warrants to provide further consideration to the holders of theSenior Notes and Mezzanine Financing. BH/RE accounts for the senior notewarrants in EquityCo as embedded derivative instruments in accordance with SFASNo. 133, “*Accounting for Derivative Instruments andHedging Activities,*” and SFAS No. 138, “*Accountingfor Certain Derivative Instruments and Hedging Activities — an Amendment ofFASB Statement No. 133*”. The warrants issued in conjunctionwith the Mezzanine Financing contain a net cash settlement, and therefore areaccounted for in accordance with Emerging Issues Task Force (“EITF”) 00-19, “*Accounting for Derivative Financial Instruments Indexed to, andPotentially Settled in, a Company’s Own Stock*”. Both SFASNo. 133 and EITF 00-19 require that the warrants be recognized asliabilities, with changes in fair value affecting net income.

 

###### ***RevenueRecognition and Promotional Allowances***

###### *** ***

Casino revenues are recognized as the net win fromgaming activities, which is the difference between gaming wins and losses. Allother revenues are recognized as the service is provided. Revenues include theretail value of food, beverage, rooms, entertainment and merchandise providedon a complimentary basis to customers. Such complimentary amounts are thendeducted from revenues as promotional allowances on our condensed consolidatedstatements of operations. The estimated departmental costs of providing suchpromotional allowances are included in casino costs and expenses.

 

Hotel revenue recognition criteria are generally metat the time of occupancy. Food and beverage revenue recognition criteria aregenerally met at the time of service. Deposits for future hotel occupancy orfood and beverage services are recorded as deferred income until revenuerecognition criteria are met. Cancellation fees for hotel and food and beverageservices are recognized upon cancellation by the customer as defined by awritten contract entered into with the customer.

 

*IncomeTaxes*

 

The condensed consolidated financial statementsinclude the operations of BH/RE and its controlled subsidiaries: EquityCo,MezzCo, and OpBiz. BH/RE and EquityCo are limited liability companies and aretaxed as partnerships for federal income tax purposes. MezzCo has elected to betaxed as a corporation for federal income tax purposes. OpBiz, a wholly ownedsubsidiary of MezzCo, will be treated as a division of MezzCo for federalincome tax purposes, and accordingly, will also be subject to federal incometaxes.

 

MezzCo and OpBiz account for income taxes inaccordance with SFAS No. 109, “*Accounting for IncomeTaxes*”. SFAS 109 requires the recognition of deferred income taxassets, net of applicable reserves, related to net operating loss carryforwardsand certain temporary differences. The standard requires recognition of futuretax benefits to the extent that realization of such benefits are more likelythan not. Otherwise, a valuation allowance is applied.

 

19

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###### ***MembershipInterests***

###### *** ***

As ofSeptember 30, 2005, our membership interests had not been unitized and ourmembers do not presently intend to unitize these membership interests.Accordingly, we have excluded earnings per membership unit data requiredpursuant to SFAS No. 128, “*Earnings Per Share,*”because we believe that such disclosures would not be meaningful to thefinancial statement presentation.

 

*Sheraton Hotel Management Contract*

 

OpBiz and Sheraton haveentered into a management contract pursuant to which Sheraton provides hotelmanagement services to the Hotel, assists OpBiz in the management, operationand promotion of the Hotel and permits OpBiz to use the Sheraton brand andtrademarks in the promotion of the Hotel. OpBiz pays Sheraton a monthly fee of4% of gross Hotel revenue and certain food and beverage outlet revenues and 2%of rental income from third-party leases in the Hotel. The management contracthas a 20-year term that commenced on the completion of the Aladdin acquisitionand is subject to certain termination provisions by either OpBiz or Sheraton.Sheraton is a wholly owned subsidiary of Starwood, which has a 15% equityinterest in EquityCo and has the right to appoint two members to the EquityCoboard of managers. Starwood management fees totaled approximately $2.4 millionand $8.1 million for the three and nine months ended September 30, 2005,respectively.

 

###### ***Results of Operations***

###### *** ***

The following table highlights the results ofoperations of the Aladdin for the three and nine months endedSeptember 30, 2005 and 2004, respectively (dollars in thousands,unaudited). The amounts included in the balances for the three and nine monthsended September 30, 2004 include the results from both BH/RE and AladdinGaming.

 
| ** **                          | ** ** | **Three months ended   September 30,** | ** ** | **Percent** | ** ** | **Nine months ended   September 30,** | ** ** | **Percent** | ** ** |
|-------------------------------------|------------|---------------------------------------------|------------|-------------|------------|--------------------------------------------|------------|-------------|------------|
| ** **                          | ** ** | **2005**                                    | ** ** | **2004**    | ** ** | **Change**                                 | ** ** | **2005**    | ** ** | **2004** | ** ** | **Change** | ** ** |
|                                |       |                                        |       |        |       |                                       |       |        |       |   |   |   |   |
| Net revenues                        |       | $                                           | 74,373     |        | $          | 69,229                                     |       | 7.4         | %          | $ | 228,965 |   | $ | 213,849 |   | 7.1 | % |
| Operating expenses:                 |       |                                        |       |        |       |                                       |       |        |       |   |   |   |   |
| Casino                              |       | 19,793                                      |       | 18,001      |       | 10.0                                       | %          | 54,407      |       | 53,132 |   | 2.4 | % |
| Hotel                               |       | 8,931                                       |       | 8,590       |       | 4.0                                        | %          | 30,472      |       | 23,862 |   | 27.7 | % |
| Food and beverage                   |       | 12,654                                      |       | 11,438      |       | 10.6                                       | %          | 38,112      |       | 32,146 |   | 18.6 | % |
| Other                               |       | 2,630                                       |       | 3,169       |       | (17.0                                      | )%         | 6,473       |       | 10,005 |   | (35.3 | )% |
| Selling, general and administrative |       | 19,443                                      |       | 16,858      |       | 15.3                                       | %          | 56,309      |       | 46,658 |   | 20.7 | % |
| Depreciation and amortization       |       | 5,944                                       |       | 2,275       |       | 161.3                                      | %          | 17,712      |       | 2,275 |   | 678.5 | % |
| Preopening expenses                 |       | —                                      |       | 731         |       | (100.0                                     | )%         | —      |       | 1,684 |   | (100.0 | )% |
| Operating income                    |       | $                                           | 4,978      |        | $          | 8,167                                      |       | (39.0       | )%         | $ | 25,480 |   | $ | 44,087 |   | (42.2 | )% |
|                                     |            |                                             |            |             |            |                                            |            |             |            |  |  |  |  |  |  |  |  |  |  |

 

Net revenues for the three and nine months endedSeptember 30, 2005, improved over that of the three and nine months endedSeptember 30, 2004. We experienced improvement consistent with the LasVegas Strip market with improvement in both gaming and non-gaming revenues. Thedecrease in operating income was primarily due to increased SG&A expensesincluding management bonuses and legal and professional fees, which wereincluded as re-organizational costs and not SG&A by Aladdin Gaming in 2004,as well as depreciation which was not being recorded during the first eightmonths of 2004 while Aladdin Gaming was undergoing bankruptcy proceedings, and managementfees paid to Starwood under the Sheraton Hotel Management Contract. Generalrepair and maintenance expenses incurred in the second quarter of 2005 relatedto upgrades and amenities in the Hotel rooms was the primary reason forincreased Hotel operating expenses during the nine months ended September 30,2005 as compared to the nine months ended September 30, 2004.

 

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Thefollowing table highlights the various sources of our revenues and expenses forthe three and nine months ended September 30, 2005 and 2004, respectively(dollars in thousands, unaudited). The amounts included in the balances for thethree and nine months ended September 30, 2004 include the results fromboth BH/RE and Aladdin Gaming.

 
| ** **                                    | ** ** | **Three months ended   September 30,** | ** ** | **Percent** | ** ** | **Nine months ended   September 30,** | ** ** | **Percent** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|-------------|------------|--------------------------------------------|------------|-------------|------------|
| ** **                                    | ** ** | **2005**                                    | ** ** | **2004**    | ** ** | **Change**                                 | ** ** | **2005**    | ** ** | **2004** | ** ** | **Change** | ** ** |
|                                          |       |                                        |       |        |       |                                       |       |        |       |   |   |   |   |
| Casino revenues                               |       | $                                           | 32,629     |        | $          | 29,175                                     |       | 11.8        | %          | $ | 96,869 |   | $ | 87,868 |   | 10.2 | % |
| Casino expenses                               |       | 19,793                                      |       | 18,001      |       | 10.0                                       | %          | 54,407      |       | 53,132 |   | 2.4 | % |
| *Margin*                                      | * *   | *39.3*                                      | *%*        | *38.3*      | *%*        | * *                                   | * *   | *43.8*      | *%*        | *39.5* | % |   |   |
|                                          |       |                                        |       |        |       |                                       |       |        |       |   |   |   |   |
| Hotel revenues                                |       | $                                           | 25,522     |        | $          | 24,657                                     |       | 3.5         | %          | $ | 83,486 |   | $ | 80,098 |   | 4.2 | % |
| Hotel expenses                                |       | 8,931                                       |       | 8,590       |       | 4.0                                        | %          | 30,472      |       | 23,862 |   | 27.7 | % |
| *Margin*                                      | * *   | *65.0*                                      | *%*        | *65.2*      | *%*        | * *                                   | * *   | *63.5*      | *%*        | *70.2* | % |   |   |
|                                          |       |                                        |       |        |       |                                       |       |        |       |   |   |   |   |
| Food and beverage revenues                    |       | $                                           | 18,823     |        | $          | 17,915                                     |       | 5.1         | %          | $ | 56,203 |   | $ | 54,816 |   | 2.5 | % |
| Food and beverage expenses                    |       | 12,654                                      |       | 11,438      |       | 10.6                                       | %          | 38,112      |       | 32,146 |   | 18.6 | % |
| *Margin*                                      | * *   | *32.8*                                      | *%*        | *36.2*      | *%*        | * *                                   | * *   | *32.2*      | *%*        | *41.4* | % |   |   |
|                                          |       |                                        |       |        |       |                                       |       |        |       |   |   |   |   |
| Other revenues                                |       | $                                           | 4,201      |        | $          | 3,992                                      |       | 5.2         | %          | $ | 11,722 |   | $ | 12,045 |   | (2.7 | )% |
| Other expenses                                |       | 2,630                                       |       | 3,169       |       | (17.0                                      | )%         | 6,473       |       | 10,005 |   | (35.3 | )% |
| * *                                      | * *   | *37.4*                                      | *%*        | *20.6*      | *%*        | * *                                   | * *   | *44.8*      | *%*        | *16.9* | *%* | * * | * * |
|                                          |       |                                        |       |        |       |                                       |       |        |       |   |   |   |   |
| Selling, general and  administrative expenses |       | $                                           | 19,443     |        | $          | 16,858                                     |       | 15.3        | %          | $ | 56,309 |   | $ | 46,658 |   | 20.7 | % |
| *Percent of net revenues*                     | * *   | *26.1*                                      | *%*        | *24.4*      | *%*        | * *                                   | * *   | *24.6*      | *%*        | *21.8* | % |   |   |

 

*Casino*

 

Casino revenue is derived primarily from patronswagering on slot machines, table games and other gaming activities. Table gamesgenerally include blackjack or twenty one, craps, baccarat and roulette. Othergaming activities include the race and sports books, poker and keno. Casinorevenue is defined as the win from gaming activities, computed as thedifference between gaming wins and losses.

 

Casinorevenues vary from time-to-time due to general economic conditions,competition, popularity of entertainment offerings, table game hold, slotmachine hold and occupancy percentages in the Hotel. Casino revenues also varydepending upon the amount of gaming activity, as well as variations in the oddsfor different games of chance. Casino revenue is recognized at the end of eachgaming day.

 

Casinorevenues increased 11.8% to $32.6 million for the three months endedSeptember 30, 2005, as compared to $29.2 million for the three monthsended September 30, 2004. Casino revenues increased 10.2% to $96.9 millionfor the nine months ended September 30, 2005, as compared to $87.9 millionfor the nine months ended September 30, 2004. Table games revenue for thethree and nine months ended September 30, 2005, increased by approximately$2.6 million and $5.6 million, respectively as compared to the three and ninemonths ended September 30, 2004. The increase in table games revenue wasdue to an increase in table drop of $13.2 million and $14.9 million for thethree and nine months ended September 30, 2005, as compared to the same periodsin the prior year, as well as an increase in win percentage to 16.2% from 15.5%for the three months ended September 30, 2005 and 2004, respectively, andan increase to 17.7% from 16.2% for the nine months ended September 30,2005 and 2004, respectively. Slot revenue for the three and nine months endedSeptember 30, 2005, decreased by approximately $0.4 million and $1.9million, respectively, as compared to the three and nine months endedSeptember 30, 2004. The decrease in slot revenue was the result of adecrease in slot handle of approximately $3.0 million and $21.9 million overthe same three- and nine-month periods. The decrease in the slot handle was aresult of the elimination of several marketing initiatives that were in placein 2004, which included promotional play offers that were included in slothandle. The elimination of the promotional expenses associated with theseinitiatives, as well as other related expenses, assisted in the improved casinooperating margin. Combined revenues from the race and sports books, poker andkeno increased by $0.9 million and $3.2 million for the three and nine monthsended September 30, 2005, respectively, as compared to the three and ninemonths ended September 30, 2004.

 

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Casinoexpenses increased 10.0% to $19.8 million for the three months endedSeptember 30, 2005, as compared to $18.0 million for the three monthsended September 30, 2004. Casino expenses increased 2.4% to $54.4 millionfor the nine months ended September 30, 2005, as compared to $53.1 millionfor the nine months ended September 30, 2004. The casino margin increased1.0 and 4.3 percentage points in comparing the same three- and nine-monthperiods. The increase in casino expenses was mainly due to the addition ofcertain promotional expenses related to marketing initiatives that have beenput in place to maintain casino revenue levels throughout the renovationperiod.

 

*Hotel*

 

Hotel revenue is derived from rooms and suites rentedto guests. “Average daily rate” is an industry specific term used to define theaverage amount of revenue per rented room per day. “Occupancy percentage”defines the total percentage of rooms occupied and is computed by dividing thenumber of rooms occupied by the total number of rooms available. Hotel revenueis recognized at the time the room is provided to the guest.

 

Hotelrevenues increased 3.5% to $25.5 million for the three months ended September 30,2005, as compared to $24.7 million for the three months endedSeptember 30, 2004. Hotel occupancy percentages decreased 0.7 percentagepoints to 98.0% for the three months ended September 30, 2005, as comparedto 98.7% for the three months ended September 30, 2004. Average daily roomrates increased to $110 for the three months ended September 30, 2005, ascompared to $106 for the three months ended September 30, 2004, resultingin increased Hotel revenues. The increase in Hotel revenues and average dailyroom rates are primarily due to an improvement in general economic conditionsduring 2005, a higher demand for rooms in Las Vegas in general and the improvedchannels of marketing through Starwood.

 

Hotelrevenues increased 4.2% to $83.5 million for the nine months endedSeptember 30, 2005, as compared to $80.1 million for the nine months endedSeptember 30, 2004. Hotel occupancy percentages decreased 1.2 percentagepoints to 97.0% for the nine months ended September 30, 2005, as comparedto 98.2% for the nine months ended September 30, 2004. Average daily roomrates increased to $122 for the nine months ended September 30, 2005, ascompared to $116 for the nine months ended September 30, 2004, resultingin increased Hotel revenues.

 

Hotelexpenses increased 4.0% to $8.9 million for the three months endedSeptember 30, 2005, as compared to $8.6 million for the three months endedSeptember 30, 2004. Hotel expenses increased 27.7% to $30.5 million forthe nine months ended September 30, 2005, as compared to $23.9 million forthe nine months ended September 30, 2004. Hotel margins decreased 0.2 and6.7 percentage points over the same three-and nine-month periods. The decreasein Hotel margins was primarily due to repairs and maintenance expenses incurredin the second quarter of 2005 related to upgrades and amenities in the Hotelrooms, and management fees paid to Starwood under the management contractbeginning in September 2004.

 

*Food and Beverage*

 

Food and beverage revenues are derived from food and beveragesales in the restaurants, bars, room service, banquets and entertainmentoutlets. Food and beverage revenue is recognized at the time the food and/orbeverage is provided to the guest.

 

Foodand beverage revenues increased 5.1% to $18.8 million for the three monthsended September 30, 2005, as compared to $17.9 million for the threemonths ended September 30, 2004. Food and beverage revenues increased 2.5%to $56.2 million for the nine months ended September 30, 2005, as comparedto $54.8 million for the nine months ended September 30, 2004. Theincrease in food and beverage revenues was primarily due to the addition of thenew menus in the café and high-end restaurants in 2005.

 

Foodand beverage expenses increased 10.6% to $12.7 million for the three monthsended September 30, 2005, as compared to $11.4 million for the threemonths ended September 30, 2004. Food and beverage expenses increased18.6% to $38.1 million for the nine months ended September 30, 2005, ascompared to $32.1 million for the nine months ended September 30, 2004.Food and beverage margins decreased 3.4 and 9.2 percentage points in comparingthe same three-and nine-month periods. The increase in food and beverageexpenses and the resulting decrease in food and beverage margins were primarilydue to management fees paid to Starwood under the management contract beginningin September 2004.

 

22

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*Other*

 

Other revenue includes entertainment sales, retailsales, telephone and other miscellaneous income and is recognized at the timethe goods or services are provided to the guest.

 

Otherrevenues increased 5.2% to $4.2 million for the three months endedSeptember 30, 2005, as compared to $4.0 million for the three months endedSeptember 30, 2004. Other revenues decreased 2.7% to $11.7 million for thenine months ended September 30, 2005, as compared to $12.0 million for thenine months ended September 30, 2004. The increase in other revenues forthe three-month period is primarily due to an increase in entertainment revenueresulting from an increase in the number of shows in the Theater for thePerforming Arts (“TPA”) and the restructuring of shared telephone revenue,which were offset by a decrease in entertainment revenue resulting from theclosing of the Steve Wyrick showroom in April 2005 for remodeling underthe Clear Channel agreement.

 

Otherexpenses decreased 17.0% to $2.6 million for the three months endedSeptember 30, 2005, as compared to $3.2 million for the three months endedSeptember 30, 2004. Other expenses decreased 35.3% to $6.5 million for thenine months ended September 30, 2005, as compared to $10.0 million for thenine months ended September 30, 2004. The decrease in other expenses isrelated to the elimination of expenses under the agreement with Steve Wyrick,as well as the addition of more “four wall” events in the TPA where themajority of the expenses are borne by the promoter, during 2005.

 

*Selling, General and Administrative (“SG&A”)*

 

SG&Aexpenses increased 15.3% to $19.4 million for the three months endedSeptember 30, 2005, as compared to $16.9 million for the three monthsended September 30, 2004. SG&A expenses increased 20.7% to $56.3million for the nine months ended September 30, 2005, as compared to $46.7million for the nine months ended September 30, 2004. SG&A expenses asa percentage of net revenues increased 1.7 and 2.8 percentage points incomparing the same three-and nine-month periods. The increase in SG&Aexpenses was primarily due to management bonuses and legal and professionalfees, which were included in re-organizational costs reported below theoperating income line and not in SG&A by Aladdin Gaming in 2004.

 

*Depreciation and Amortization*

 

AladdinGaming did not record depreciation expense during 2004, as the assets wereclassified as “held for sale”. As a result, depreciation expense for the threeand nine months ended September 30, 2005, was significantly greater thanthe same periods in the prior year. Depreciation and amortization expense was approximately$5.9 million and $17.7 million for the three and nine months endedSeptember 30, 2005 as compared to $2.3 million for the same periods in theprior year.

 

*Net Interest Expense*

 

Netinterest expense increased to $14.2 million for the three months endedSeptember 30, 2005, as compared to $4.6 million for the three months endedSeptember 30, 2004. Net interest expense increased to $41.6 million forthe nine months ended September 30, 2005, as compared to $6.5 million forthe nine months ended September 30, 2004. The increase in net interestexpense is directly related to the addition of the Credit Agreement we enteredinto upon the completion of the acquisition of the Aladdin on September 1,2004.

 

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###### ***Liquidity and Capital Resources***

###### *** ***

Thefollowing liquidity and capital resources discussion contains certainforward-looking statements with respect to our business, financial condition,results of operations, dispositions, acquisitions, expansion projects and oursubsidiaries, which involve risks and uncertainties that cannot be predicted orquantified, and consequently, actual results may differ materially from thoseexpressed or implied herein. Such risks and uncertainties include, but are notlimited to, financial market risks, the ability to maintain existingmanagement, integration of acquisitions, competition within the gamingindustry, the cyclical nature of the hotel business and gaming business,economic conditions, regulatory matters and litigation and other risksdescribed in our filings with the Securities and Exchange Commission. Allforward-looking statements are based on our current expectations andprojections about future events.

 

Duringthe nine months ended September 30, 2005, we generated cash flows fromoperating activities of approximately $6.8 million. We also had restricted cashand cash equivalents of approximately $92.0 million, which is designated to beused for costs associated with the renovation and retheming of the Aladdin intothe PH Resort.

 

Ourprimary cash requirements for the remainder of 2005 are expected to include(i) up to approximately $92.0 million in capital expenditures related tothe renovation project, (ii) approximately $5.4 million for maintenancecapital expenditures and (iii) up to approximately $8.8 million ininterest payments on our debt.

 

We believe that cash generated from operations, thecapital invested in OpBiz in connection with our acquisition of the Aladdin andavailable working capital, including the cash that we acquired from AladdinGaming under the purchase agreement, will be adequate to meet the anticipatedworking capital, capital expenditure, renovation and debt service obligationsof OpBiz for at least the next 12 months of operations. We may have otherliquidity needs, such as tax distributions to the members of EquityCo andBH/RE, and we believe that we will have adequate cash to meet these needs ifthey should arise. The Credit Agreement allows OpBiz to make tax distributions.

 

There can be no assurance that we have accuratelyestimated our liquidity needs, or that we will not experience unforeseen eventsthat may materially increase our need for liquidity to fund our operations orcapital expenditure programs or decrease the amount of cash generated from ouroperations. We expect to experience a reduction in cash generated by ouroperations during our planned renovations to the Aladdin and have negotiatedthe terms of the Credit Agreement to address those anticipated reductions. Forexample, the covenant in the Credit Agreement requiring OpBiz to achievespecified levels of earnings before interest, taxes, depreciation andamortization (“EBITDA”) during the first two years of the Credit Agreement issignificantly below the Aladdin’s current EBITDA levels. Also, the interestrate during the first three years of the term of the Credit Agreement is lowerthan the interest rate in the last three years.

 

***Description of CertainIndebtedness***

 

*Credit Agreement*

 

The Aladdin acquisition and the planned renovationswere funded by the issuance of $510 million of secured notes to Aladdin Gaming’ssecured creditors pursuant to a Credit Agreement. OpBiz’s obligations under theCredit Agreement are secured by liens on all of its assets, including amortgage on its real property, the Hotel, the Casino and the TPA, and securityinterests in our accounts receivable, inventory, equipment and intangibleassets, excluding the Timeshare Land. The Credit Agreement is guaranteed byMezzCo and MezzCo secured its guarantee by pledging its membership interests inOpBiz to the lenders. The Credit Agreement matures on August 31, 2010.

 

Theloans under the Credit Agreement are evidenced by $500 million of Term Loan Anotes and $10 million of Term Loan B notes. Upon issuance of the notes, BH/REsimultaneously made a $14 million cash payment to the holders of the Term LoanA notes to reduce the principal amount of the Term Loan A notes to $486 millionand obtained a release of their lien on the Timeshare Land.

 

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Thescheduled principal payments on the Term Loan A notes are as follows:

 

•        $1.25 million on the firstday of each fiscal quarter during the period beginning on August 31, 2006and ending on August 31, 2007;

•        $3.75 million on the firstday of each fiscal quarter during the period beginning on August 31, 2007and ending on August 31, 2008;

•        $5.0 million on the firstday of each fiscal quarter during the period beginning on August 31, 2008and ending on August 31, 2009;

•        $6.25 million on the firstday of each fiscal quarter during the period beginning on August 31, 2009and ending on August 31, 2010;

•        the then unpaid balanceamount of Term Loan A notes on August 31, 2010.

 

OpBizpays interest on the outstanding Term Loan A notes quarterly, in cash, at theLondon Inter-Bank Offered Rate, or LIBOR, plus an applicable margin thatincreases over time. Until the earlier of August 31, 2007 or OpBiz’saccumulation of certain permitted cash reserves, OpBiz’s interest payment willnot exceed its quarterly EBITDA, reduced by certain permitted deductions (asdefined in the Credit Agreement), divided by a factor of 1.20. Interest on theTerm Loan B notes will accrue at a rate of LIBOR plus 4% and will be addedquarterly to the outstanding principal amount of the Term Loan B notes and willbe paid when OpBiz pays off the Term Loan B notes. OpBiz is also required topay an annual administrative fee and certain other fees and expenses of thelender under the Credit Agreement.

 

OpBizis required to prepay amounts outstanding under the Credit Agreement:

 

•        with excess cash flow (asdefined in the Credit Agreement) after certain permitted cash reserves areaccumulated;

•        in scheduled quarterlyamounts beginning after August, 31, 2006;

•        with certain amountsreceived in connection with the development of the Timeshare Land adjacent tothe Desert Passage (as defined in the underlying agreement);

•        with an amount equal to thedifference between what should have been spent on renovation capital expendituresand what was actually spent thereon if (i) an aggregate amount of $72.0million is not spent on renovation capital expenditures by August 31,2006, or (ii) an aggregate amount of $81.0 million is not spent onrenovation capital expenditures by February 28, 2007 or (iii) anaggregate amount of $90.0 million is not spent on renovation capitalexpenditures by August 31, 2007; and

•        with the proceeds of certainasset sales.

 

Inparticular, after OpBiz accumulates certain permitted cash reserves, OpBiz isrequired to pay 100% of its excess cash flow (as defined in the CreditAgreement) from operations to the lenders under the Credit Agreement. Thatpercentage decreases to 75%, then 50%, if OpBiz meets certain targeted ratiosof total debt to EBITDA, or certain leverage ratios, for any two consecutivefiscal quarters.

 

TheCredit Agreement includes covenants that, among other things, restrict OpBiz’sability to sell assets, make distributions to its owners, other thandistributions for taxes, incur or prepay additional indebtedness, enter intotransactions with affiliates, incur liens, make investments, make capitalexpenditures,****develop theTimeshare Land adjacent to the Desert Passage and enter into materialcontracts. In addition, OpBiz is required to maintain certain levels of EBITDAthat increase over time and, beginning August 31, 2007, maintain certainratios of EBITDA to interest expense that increase over time and maintaincertain leverage ratios that decrease over time.

 

TheCredit Agreement contains customary events of default, including a change ofcontrol of OpBiz, the occurrence of a default under the terms of anyindebtedness of MezzCo, a default by OpBiz under the Hotel management contractor termination of Sheraton as the manager of the Hotel (unless OpBiz replacesSheraton with another approved manager within 30 days of such termination), adefault or termination of the Planet Hollywood license agreement and certaindefaults under the agreements with Boulevard Invest or Northwind Aladdin.

 

BH/REhas issued warrants to purchase 2.94% of its ownership interest in EquityCo tothe lenders under the Credit Agreement. The warrants can only be exercised uponthe occurrence of a (i) liquidity event or distribution (such as throughthe sale of the hotel/casino); (ii) a public sale of equity securities ofEquityCo, MezzCo or OpBiz; or (iii) payment in full of the obligationsunder the Credit Agreement. The warrants can either be settled in cash or inother membership interests upon exercise. The estimated fair value of thewarrants was approximately $0.1 million as of September 30, 2005. Thesewarrants are recorded separately from the related debt within other long-termliabilities.

 

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*Mezzanine Financing*

 

InAugust 2004, MezzCo entered into the Mezzanine Financing with a group ofpurchasers. Pursuant to the Mezzanine Financing, MezzCo issued $87 million of16% Senior Secured Subordinated Notes and warrants to purchase 17,500 of itsunits representing membership interests equal to 17.5% of the fully dilutedequity of MezzCo. The gross offering proceeds of the Mezzanine Financing weredeposited into an escrow account and, in conjunction with the closing of theAladdin acquisition, were used to (i) pay approximately $16.1 million offees and expenses related to the acquisition of the Aladdin, (ii) fund the$14 million lien release payment required under the Credit Agreement, and(iii) fund a portion of the planned renovations to the Aladdin. The notesmature in August 2011 and accrue interest at a rate of 16% per annum.Interest on the notes is payable-in-kind or, at the option of MezzCo, in cash.

 

Thewarrants are exercisable at any time, subject to the approval of the Nevadagaming authorities, at a purchase price of $0.01 per unit. Subject to theapproval of the Nevada gaming authorities, the warrants may be exercised topurchase either voting or non-voting membership interests of MezzCo or acombination thereof. Currently, all of MezzCo’s voting membership interests arerepresented by units owned by EquityCo. In addition to customary anti-dilutionprotections, the number of units representing MezzCo membership interestsissuable upon exercise of the warrants may be increased from time-to-time uponthe occurrence of certain events as described in the warrants. The maximumaggregate increase is 24%, following which the warrants would represent rightsto purchase 41.5% of the units representing the fully diluted equity of MezzCo.Holders of the warrants and any securities issued upon exercise of the warrantsmay require MezzCo to redeem such securities commencing in August 2011 ata redemption price based upon a formula set forth in the warrants. Starting inAugust 2008, in the event the Company fails to achieve certain operationalthresholds, the holders of the MezzCo warrants, and securities issued uponexercise thereof, have the right to assume control of MezzCo and OpBiz andconduct a sale of the equity of, or all or substantially all of the assets of,either MezzCo or OpBiz provided that all Control Conditions (as defined in theInvestor Rights Agreement) are met.. These rights are subject to(i) repayment in full of all indebtedness that is senior to the notes(including all indebtedness of OpBiz under the Credit Agreement),(ii) certain covenants related to OpBiz’s ability to achieve targetedlevels of EBITDA and (iii) the prior approval of the Nevada gamingauthorities. These rights expire upon completion of a public offering by MezzCoor OpBiz. In connection with the Mezzanine Financing, our obligation to makeexpenditures on renovations to the Aladdin was increased from $90 million, asrequired under the Credit Agreement, to $100 million.

 

Asof September 30, 2005, the MezzCo financing was recorded net of theunamortized balance of the warrants of approximately $4.0 million. Theestimated fair value of the warrants was approximately $4.1 million atSeptember 30, 2005 and December 31, 2004, and is recorded separatelyfrom the related debt within other long-term liabilities.

 

*Energy Services Agreement*

 

Northwind owns and operates a central utility plant onland leased from us. The plant supplies hot and cold water and emergency powerto the Aladdin under a contract between Aladdin Gaming and Northwind. We haveassumed the energy service agreement, which expires in 2020. Under theagreement, we are required to pay Northwind a monthly consumption charge, amonthly operational charge, a monthly debt service payment and a monthly returnon equity payment. Payments under the Northwind agreement total approximately$0.5 million per month.

 

***Forward Looking Statements***

 

Whenused in this report and elsewhere by management from time-to-time, the words “believes”,“anticipates” and “expects” and similar expressions are intended to identifyforward-looking statements with respect to our financial condition, results ofoperations and our business including our expansion, legal proceedings andemployee matters. Certain important factors, including but not limited to,competition from other gaming operations, factors affecting our ability tocomplete acquisitions and dispositions of gaming properties, leverage,construction risks, the inherent uncertainty and costs associated withlitigation and governmental and regulatory investigations, and licensing andother regulatory risks, could cause our actual results to differ materiallyfrom those expressed in our forward-looking statements. Further information onpotential factors which could affect our financial condition, results of operationsand business including, without limitation, the expansion, development andacquisition projects, legal proceedings and employee matters are included inour filings with the Securities and Exchange Commission. Readers are cautionednot to place undue reliance on any forward-looking statements, which speak onlyas of the date thereof. We undertake no obligation to update informationcontained in forward-looking statements.

 

Our acquisition of the Aladdin and planned operationsare subject to a number of risks. Please refer to the discussion of “RiskFactors” in “Item 7. Management’s Discussion and Analysis of FinancialCondition and Result of Operations — Risk Factors” in the Annual Report onForm 10-K, filed by BH/RE with the Securities and Exchange Commission onApril 15, 2005.

 

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## **ITEM 3.** QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

## ** **

Marketrisk is the risk of loss arising from adverse changes in market rates andprices, such as interest rates, foreign currency exchange rates and commodityprices. Our primary exposure to market risk is interest rate risk associatedwith our long-term debt. We pay interest on the outstanding Term Loan A notesquarterly, in cash, at the London Inter-Bank Offered Rate, or LIBOR, plus anapplicable margin that increases over time. Interest on the Term Loan B noteswill accrue at a rate of LIBOR plus 4% and will be added quarterly to theoutstanding principal amount of the Term Loan B notes and will be paid when wepay off the Term Loan B notes. An increase of one percentage point in theaverage interest rate applicable to the variable rate debt outstanding atSeptember 30, 2005, would increase the annual interest cost byapproximately $5.0 million. Interest costs increased approximately $0.5 millionduring the third quarter of 2005 as compared to the second quarter of 2005.

 

## **ITEM 4.** CONTROLS AND PROCEDURES

## ** **

Our management, with theparticipation of our principal executives and chief financial officer, hasevaluated the effectiveness of our disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)), as ofSeptember 30, 2005. Based on their evaluation, our principal executive andprincipal financial officers concluded that our disclosure controls andprocedures were effective as of September 30, 2005.

 

Therehas been no change in our internal control over financial reporting (as definedin Rules 13a-15(f) and 15-d-15(f) under the Exchange Act) thatoccurred during our fiscal quarter ended September 30, 2005, that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

# **PART II  — OTHER INFORMATION**

# ** **

## **ITEM6.** EXHIBITS

## ** **

| 31.1   |   | Certification pursuant to §302 of the Sarbanes-Oxley  Act of 2002, Donna Lehmann.         |
|--------|--------|------------------------------------------------------------------------------------------------|
|   |   |                                                                                           |
| 31.2   |   | Certification pursuant to §302 of the Sarbanes-Oxley  Act of 2002, Robert Earl.           |
|   |   |                                                                                           |
| 31.3   |   | Certification pursuant to §302 of the Sarbanes-Oxley  Act of 2002, Douglas P. Teitelbaum. |
|   |   |                                                                                           |
| 32.1   |   | Certification pursuant to §906 of the Sarbanes-Oxley  Act of 2002, Donna Lehmann.         |
|   |   |                                                                                           |
| 32.2   |   | Certification pursuant to §906 of the Sarbanes-Oxley  Act of 2002, Robert Earl.           |
|   |   |                                                                                           |
| 32.3   |   | Certification pursuant to §906 of the Sarbanes-Oxley  Act of 2002, Douglas P. Teitelbaum. |

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                    | BH/RE,  L.L.C.                         |
|-------------------------|----------------------------------------|
|                    |                                   |   |
|                    |                                   |   |
| November 14,  2005 | By:                                    | /S/  Donna Lehmann |
|                    | Donna  Lehmann                         |
|                    | Treasurer  and Chief Financial Officer |

 

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**EXHIBIT INDEX**

 

 

 

 
| **Exhibit No.** | ** ** | **Description**                                                                                |
|-----------------|------------|------------------------------------------------------------------------------------------------|
| 31.1            |       | Certification  pursuant to §302 of the Sarbanes-Oxley Act of 2002, Donna Lehmann.         |
|            |       |                                                                                           |
| 31.2            |       | Certification  pursuant to §302 of the Sarbanes-Oxley Act of 2002, Robert Earl.           |
|            |       |                                                                                           |
| 31.3            |       | Certification  pursuant to §302 of the Sarbanes-Oxley Act of 2002, Douglas P. Teitelbaum. |
|            |       |                                                                                           |
| 32.1            |       | Certification  pursuant to §906 of the Sarbanes-Oxley Act of 2002, Donna Lehmann.         |
|            |       |                                                                                           |
| 32.2            |       | Certification  pursuant to §906 of the Sarbanes-Oxley Act of 2002, Robert Earl.           |
|            |       |                                                                                           |
| 32.3            |       | Certification  pursuant to §906 of the Sarbanes-Oxley Act of 2002, Douglas P. Teitelbaum. |

 

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