American Casino & Entertainment Properties 10-Q 2007 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

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: 333-118149

American Casino & Entertainment Properties LLC

(Exact name of registrant as specified in its charter)

Delaware	20-0573058
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
2000 Las Vegas Boulevard South
Las Vegas, NV	89104
(Address of principal executive offices)	(Zip Code)

(702) 380-7777
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero          Accelerated filero           Non-accelerated filerþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

TABLE OF CONTENTS

	Page
Part I Financial Information		3
Item 1. Unaudited Condensed Consolidated Financial Statements		3
Condensed Consolidated Balance Sheets as of June 30, 2007 (unaudited) and December 31, 2006		3
Condensed Consolidated Statements of Income for the three months ended June 30, 2007 and June 30, 2006 (unaudited)		4
Condensed Consolidated Statements of Income for the six months ended June 30, 2007 and June 30, 2006 (unaudited)		5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and June 30, 2006 (unaudited)		6
Notes to Condensed Consolidated Financial Statements (unaudited)		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		17
Item 4. Controls and Procedures		17
Part II Other Information		19
Item 1A. Risk Factors		19
Item 6. Exhibits		19
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

2

PART I. FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of		As of
	June 30, 2007		December 31, 2006
	(Unaudited)
	(In thousands)
Assets
Current Assets:
Cash and cash equivalents	$	83,995	$	54,912
Cash and cash equivalents-restricted		272		269
Investments-restricted		3,159		3,457
Accounts receivable, net		5,594		6,752
Related party receivables		69		472
Deferred income taxes		2,948		2,948
Other current assets		13,935		16,773
Total Current Assets		109,972		85,583
Property and equipment, net		443,119		445,788
Debt issuance and deferred financing costs, net		5,141		5,729
Deferred income taxes		36,356		36,212
Other assets		2,338		2,514
Total Other Assets		43,835		44,455
Total Assets	$	596,926	$	575,826
Liabilities and Member’s Equity
Current Liabilities:
Accounts payable	$	6,244	$	6,708
Accrued expenses		33,650		33,168
Accrued payroll and related expenses		12,115		14,391
Current portion of capital lease obligations		508		496
Total Current Liabilities		52,517		54,763
Long-Term Liabilities:
Long-term debt		255,000		255,000
Capital lease obligations, less current portion		2,072		2,329
Other		6,299		5,993
Total Long-Term Liabilities		263,371		263,322
Total Liabilities		315,888		318,085
Commitments and Contingencies
Member’s Equity:
Member’s equity		281,038		257,741
Total Member’s Equity		281,038		257,741
Total Liabilitites and Member’s Equity	$	596,926	$	575,826

See notes to condensed consolidated financial statements.

3

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended
	June 30, 2007			June 30, 2006
	(Unaudited)
	(In thousands)
Revenues:
Casino	$	67,813		$	51,586
Hotel		23,096			18,628
Food and beverage		23,414			20,278
Tower, retail and other		10,260			9,400
Gross Revenues		124,583			99,892
Less promotional allowances		10,445			6,768
Net Revenues		114,138			93,124
Costs and Expenses:
Casino		22,022			19,035
Hotel		9,157			7,908
Food and beverage		17,087			14,864
Other operating expenses		4,683			4,283
Selling, general and administrative		29,718			24,820
Depreciation and amortization		8,988			6,848
Pre-opening costs		—			931
Loss (gain) on sale of assets		(22	)		2
Total Costs and Expenses		91,633			78,691
Income From Operations		22,505			14,433
Other Income (Expense):
Interest income		564			717
Interest expense		(5,463	)		(5,164	)
Total Other Expense, net		(4,899	)		(4,447	)
Income Before Income Taxes		17,606			9,986
Provision for income taxes		6,077			3,311
Net Income	$	11,529		$	6,675

See notes to condensed consolidated financial statements.

4

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Six Months Ended
	June 30, 2007			June 30, 2006
	(Unaudited)
	(In thousands)
Revenues:
Casino	$	135,183		$	99,608
Hotel		45,712			36,061
Food and beverage		46,523			38,348
Tower, retail and other		19,571			17,619
Gross Revenues		246,989			191,636
Less promotional allowances		19,963			12,567
Net Revenues		227,026			179,069
Costs and Expenses:
Casino		44,588			35,523
Hotel		18,220			14,751
Food and beverage		33,062			28,065
Other operating expenses		8,919			8,013
Selling, general and administrative		59,190			45,606
Depreciation and amortization		17,579			12,858
Pre-opening costs		—			1,449
Gain on sale of assets		(14	)		—
Total Costs and Expenses		181,544			146,265
Income From Operations		45,482			32,804
Other Income (Expense):
Interest income		983			1,567
Interest expense		(10,899	)		(9,846	)
Total Other Expense, net		(9,916	)		(8,279	)
Income Before Income Taxes		35,566			24,525
Provision for income taxes		12,269			8,521
Net Income	$	23,297		$	16,004

See notes to condensed consolidated financial statements.

5

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended
	June 30, 2007			June 30, 2006
	(Unaudited)
	(In thousands)
Cash Flows From Operating Activities:
Net income	$	23,297		$	16,004
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		17,579			12,858
Gain on sale of assets		(14	)		—
Provision for deferred income taxes		(144	)		159
Changes in operating assets and liabilities:
Restricted cash		(3	)		237
Accounts receivable, net		1,158			103
Other assets		3,314			(1,132	)
Accounts payable and accrued expenses		(2,257	)		8,057
Other		306			267
Net Cash Provided By Operating Activities		43,236			36,553
Cash Flows From Investing Activities:
(Increase) decrease in investments — restricted		298			(602	)
Acquisition of property and equipment		(15,238	)		(16,558	)
Acquisition of Flamingo Laughlin, net of cash acquired		—			(109,897	)
Decrease in related party receivables		403			832
Proceeds from sale of property and equipment		629			6
Net Cash Used In Investing Activities		(13,908	)		(126,219	)
Cash Flows From Financing Activities:
Debt issuance and deferred financing costs		—			(464	)
Proceeds from notes payable		—			60,000
Payments on capital lease obligation		(245	)		(233	)
Net Cash Provided By (Used In) Financing Activities		(245	)		59,303
Net increase (decrease) in cash and cash equivalents		29,083			(30,363	)
Cash and cash equivalents — beginning of period		54,912			108,316
Cash and Cash Equivalents — end of period	$	83,995		$	77,953
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest	$	9,978		$	8,939
Cash paid during the period for income taxes	$	8,350		$	8,050

See notes to condensed consolidated financial statements.

6

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. The Company

     American Casino & Entertainment Properties LLC, or ACEP or the Company, was formed in Delaware on December 29, 2003. We are a holding company that was formed for the purpose of acquiring the entities that own and operate the Stratosphere Casino Hotel & Tower, or Stratosphere, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder in Las Vegas, Nevada. Stratosphere had been owned by a subsidiary of our indirect parent, American Real Estate Holdings Limited Partnership, or AREH. Prior to our acquisition of Arizona Charlie’s Decatur and Arizona Charlie’s Boulder, these properties were owned by Carl C. Icahn and one of his affiliated entities. Our senior management team has been responsible for the management of all three properties since 2002.

     On November 28, 2005, AREP Laughlin Corporation entered into an agreement to purchase the Flamingo Laughlin Hotel and Casino, now known as the Aquarius Casino Resort, or the Aquarius, in Laughlin, Nevada from Harrah’s Operating Company, Inc. AREP Laughlin Corporation was formed by our indirect parent, AREH, to acquire, own and operate the Aquarius, and AREH contributed 100% of the stock of AREP Laughlin to us on April 4, 2006. The transaction was approved by the Nevada Gaming Commission upon recommendation of the Nevada Gaming Control Board and closed on May 19, 2006. The purchase price was $114.0 million, including working capital amounts. Accordingly, our financial statements include the financial position and results of operations of the Aquarius from May 19, 2006 forward.

     On April 22, 2007, American Entertainment Properties Corp., or AEP, our direct parent, entered into a Membership Interest Purchase Agreement, or the Agreement, with W2007/ACEP Holdings, LLC, or Whitehall, an affiliate of Whitehall Street Real Estate Funds, a series of real estate investment funds affiliated with Goldman, Sachs & Co. to sell all of our issued and outstanding membership interests, for $1.3 billion plus or minus certain adjustments such as working capital, more fully described in the Agreement.

     Pursuant to the terms of the Agreement, prior to the closing, AEP is required to cause us to repay from funds provided by AEP, the principal, interest, any prepayment penalty or premium and any other obligation due under the terms of our 7.85% senior secured notes due 2012 and our senior secured credit facility.

     We also adopted a Key Employee Plan, or the Plan, in conjunction with the transaction, which allows for certain key employees to be paid one year’s salary upon meeting certain conditions. The employee must be employed in good standing at the closing date and must complete the transition period, defined as up to 60 days after closing, if requested by Whitehall. The obligation to make such payments will remain with AEP.

     The transaction is also subject to approvals from the Nevada State Gaming Commission and the Nevada State Gaming Control Board as well as customary conditions. We expect to close by the end of the fiscal year ending December 31, 2007; however, there can be no assurance that we will be able to consummate the transaction.

     We are a subsidiary of AEP, and its ultimate parent is American Real Estate Partners, L.P., or AREP, a Delaware master limited partnership whose units are traded on the New York Stock Exchange. As of June 30, 2007, affiliates of Mr. Icahn owned 10,304,013 preferred units and 55,655,382 depositary units, which represent approximately 86.5% of the outstanding preferred units and approximately 90.0% of the outstanding depositary units of AREP. Mr. Icahn is the Chairman of the Board of Directors and owns all of the capital stock of American Property Investors, Inc., AREP’s general partner.

Note 2. Basis of Presentation

     The condensed consolidated financial statements have been prepared in accordance with the accounting policies described in our 2006 audited consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the notes to the 2006 consolidated audited financial statements presented in our Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission, or SEC, on March 6, 2007 (SEC File No. 333-118149). Our reports are available electronically by visiting the SEC website at http://www.sec.gov.

7

     In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments (consisting only of those of a normal recurring nature), which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. Interim results are not necessarily indicative of results to be expected for any future interim period or for the entire fiscal year.

Principles of Consolidation

     The consolidated financial statements include the accounts of ACEP and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

Recently Issued Accounting Pronouncements

     In June 2006, the Emerging Issues Task Force (“EITF”) issued EITF 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation)” to clarify diversity in practice on the presentation of different types of taxes in the financial statements. The EITF concluded that, for taxes within the scope of the issue, a company may adopt a policy of presenting taxes either gross within revenue or net. That is, it may include charges to customers for taxes within revenues and the charge for the taxes from the taxing authority within cost of sales, or, alternatively, it may net the charge to the customer and the charge from the taxing authority. If taxes are reported on a gross basis, and are significant, an entity should disclose the amounts of those taxes subject to EITF 06-3. The guidance is effective for periods beginning after December 15, 2006. We present sales tax on a net basis in our consolidated financial statements, and the adoption of EITF 06-3 did not have a material impact on our financial position, results of operations, or cash flows.

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48, which clarifies Statement No. 109, Accounting for Income Taxes, establishes the criterion that an individual tax position has to meet for some or all of the benefits of that position to be recognized in our financial statements. On initial application, FIN 48 will be applied to all tax positions for which the statute of limitations remains open. Only tax positions that meet the more-likely-than-not recognition threshold at the adoption date will be recognized or continue to be recognized.

     FIN 48 is effective for fiscal years beginning after December 15, 2006, and was adopted by us on January 1, 2007. The adoption of FIN 48 did not have a material impact on our consolidated financial statements.

     In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, where fair value is the relevant measurement attribute. The standard does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We believe that the adoption of SFAS No. 157 will not have a material impact on our consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159. SFAS No. 159, which amends SFAS No. 115, allows certain financial assets and liabilities to be recognized, at our election, at fair market value, with any gains or losses for the period recorded in the statement of income. SFAS No. 159 included available-for-sales securities in the assets eligible for this treatment. Currently, we record the gains or losses for the period in the statement of comprehensive income and in the equity section of the balance sheet. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and interim periods in those fiscal years. We believe that the adoption of SFAS No. 159 will not have a material impact on our consolidated financial statements.

8

Note 3. Related Party Transactions

     We have an intercompany services arrangement with Atlantic Coast Entertainment Holdings, Inc., or Atlantic Holdings, the former owner of The Sands Hotel and Casino in Atlantic City, New Jersey, to provide management and consulting services. AREP owns the majority of Atlantic Holdings’ shares. We are compensated based upon an allocation of salaries plus an overhead charge of 15% of the salary allocation plus reimbursement of reasonable out-of-pocket expenses. For the three months ended June 30, 2007 and 2006, we billed Atlantic Holdings and its affiliates approximately $31,000 and $121,000, respectively. For the six months ended June 30, 2007 and 2006, we billed Atlantic Holdings approximately $62,000 and $202,000, respectively.

     During the three and six months ended June 30, 2007 and 2006 we made payments to XO Communications, Inc., which is controlled by affiliates of Mr. Icahn, for certain telecommunications services provided to us. The payments totaled approximately $71,000 and $55,000 for the three months ended June 30, 2007 and 2006, respectively, and $140,000 and $108,000 for the six months ended June 30, 2007 and 2006, respectively.

     As of June 30, 2007 and December 31, 2006, we were owed approximately an aggregate of $69,000 and $472,000, respectively, from related parties.

Note 4. Long-term Debt

     As of June 30, 2007 and December 31, 2006, we had outstanding borrowings under our senior secured revolving credit facility of $40.0 million. The outstanding principal balance accrues interest at a fixed rate which is equal to one month LIBOR plus 1.5% per annum, which totaled 6.82% at June 30, 2007.

Note 5. Non-guarantor Subsidiaries

     Our 7.85% senior secured notes due 2012 are guaranteed by our operating subsidiaries. In accordance with SEC rules and regulations, separate information with respect to the parent, co-issuer, guarantor subsidiaries and non-guarantor subsidiaries is not required as the parent and co-issuer have no independent assets or operations, the guarantees are full and unconditional and joint and several, and the total assets, member’s equity, revenues, income from operations before income taxes and cash flows from operating activities of the non-guarantor subsidiaries are less than 3% of our consolidated amounts.

Note 6. Legal Proceedings

     We are, from time to time, a party to various legal proceedings arising out of our businesses. We believe, however, there are no proceedings pending or threatened against us, which, if determined adversely, would have a material adverse effect upon our business financial conditions, results of operations or liquidity.

Note 7. Income Taxes

     We adopted the provisions of FIN 48, on January 1, 2007. There was no increase or decrease in the liability for unrecognized tax benefits as a result of the implementation of FIN 48. As of the date of adoption, our unrecognized tax benefits totaled $4.9 million, all of which, if recognized, would affect the annual effective tax rate. During the six months ended June 30, 2007, there have been no changes to the amount of unrecognized tax benefits. We believe it is reasonably possible that the total amount of unrecognized tax benefits could decrease by as much as $3.1 million prior to June 30, 2008 as a result of settlements due to audits and the expiration of statutes of limitations.

     We recognize interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of income tax expense. The amount of accrued interest on unrecognized tax benefits was $1.1 million and $1.4 million as of January 1, 2007 and June 30, 2007, respectively.

     We file income tax returns in the United States Federal jurisdiction and have no income tax filing requirement in any state or foreign jurisdiction. We are no longer subject to US Federal income tax examinations for years prior to 2003.

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion contains management’s discussion and analysis of our results of operations and financial condition and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations presented in our Annual Report on Form 10-K for the year ended December 31, 2006. Certain statements in this discussion are forward-looking statements.

Overview

     We own and operate four gaming and entertainment properties in Clark County, Nevada. The four properties are the Stratosphere Casino Hotel & Tower, or the Stratosphere, which is located on the Las Vegas Strip and caters to visitors to Las Vegas, two off-Strip casinos, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder, which cater primarily to residents of Las Vegas and the surrounding communities, and the Aquarius Casino Resort, formerly known as the Flamingo Laughlin Hotel and Casino, in Laughlin, Nevada, or the Aquarius, which caters to visitors to Laughlin. The Stratosphere is one of the most recognized landmarks in Las Vegas, our two Arizona Charlie’s properties are well-known casinos in their respective marketplaces and the Aquarius has the largest hotel in Laughlin. Each of our properties offers customers a value-oriented experience by providing competitive odds in our casinos, quality rooms in our hotels, award-winning dining facilities and, at the Stratosphere and Aquarius, an offering of competitive value-oriented entertainment attractions. We believe the value we offer our patrons, together with a strong focus on customer service, will enable us to continue to attract customers to our properties.

     On November 28, 2005, AREP Laughlin Corporation entered into an agreement to purchase the Aquarius, in Laughlin, Nevada from Harrah’s Operating Company, Inc. AREP Laughlin Corporation was formed by our indirect parent, AREH, to acquire, own and operate the Aquarius, and AREH contributed 100% of the stock of AREP Laughlin to us on April 4, 2006. The transaction was approved by the Nevada Gaming Commission upon recommendation of the Nevada Gaming Control Board and closed on May 19, 2006. The purchase price was $114.0 million, including working capital amounts. Accordingly, our financial statements include the financial position and results of operations of the Aquarius from May 19, 2006 forward.

     On April 22, 2007, American Entertainment Properties Corp., or AEP, our direct parent, entered into a Membership Interest Purchase Agreement, or the Agreement, with W2007/ACEP Holdings, LLC, or Whitehall, an affiliate of Whitehall Street Real Estate Funds, a series of real estate investment funds affiliated with Goldman, Sachs & Co. to sell all of our issued and outstanding membership interests, for $1.3 billion plus or minus certain adjustments such as working capital, more fully described in the Agreement.

     Pursuant to the terms of the Agreement, prior to the closing, AEP is required to cause us to repay from funds provided by AEP, the principal, interest, any prepayment penalty or premium and any other obligation due under the terms of our 7.85% senior secured notes due 2012 and our senior secured credit facility.

     We also adopted a Key Employee Plan, or the Plan, in conjunction with the transaction, which allows for certain key employees to be paid one year’s salary upon meeting certain conditions. The employee must be employed in good standing at the closing date and must complete the transition period, defined as up to 60 days after closing, if requested by Whitehall. The obligation to make such payments will remain with AEP.

     The transaction is also subject to approvals from the Nevada State Gaming Commission and the Nevada State Gaming Control Board as well as customary conditions. We expect to close by the end of the fiscal year ending December 31, 2007; however, there can be no assurance that we will be able to consummate the transaction.

     We currently offer gaming, hotel, dining, entertainment, tower attractions, retail and other amenities at our properties. The following table provides certain summary information for each of our properties at June 30, 2007:

	Casino		Number of		Number		Number
	Square		Hotel		of		of
	Footage		Rooms		Slots		Table Games
Stratosphere		80,000		2,444		1,266		49
Arizona Charlie’s Decatur		52,000		258		1,373		15
Arizona Charlie’s Boulder		47,000		303		1,054		16
Aquarius		57,000		1,907		1,230		42

10

     We use certain key measurements to evaluate operating revenue. Casino revenue measurements include “table games drop” and “slot coin-in,” which are measures of the total amounts wagered by patrons. Win or hold percentage represents the percentage of table games drop or slot coin-in that is won by the casino and recorded as casino revenue. Hotel revenue measurements include hotel occupancy rate, which is the average percentage of available hotel rooms occupied during a period, and average daily room rate, which is the average price of occupied rooms per day. Food and beverage revenue measurements include number of covers, which is the number of guest checks, and the average check amount.

Results of Operations

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

	Three Months Ended
	June 30,
	(in millions)
	Including
	Aquarius		Excluding Aquarius
	2007		2007		2006		% Change
Income Statement Data:
Revenues:
Casino	$	67.8	$	46.9	$	44.0		6.6	%
Hotel		23.1		17.7		16.4		7.9	%
Food and beverage		23.4		18.6		18.0		3.3	%
Tower, retail and other		10.3		8.6		8.8		-2.3	%
Gross revenues		124.6		91.8		87.2		5.3	%
Less promotional allowances		10.4		6.5		5.4		20.4	%
Net revenues		114.2		85.3		81.8		4.3	%
Costs and expenses:
Casino		22.0		15.6		16.0		-2.5	%
Hotel		9.2		6.9		7.0		-1.4	%
Food and beverage		17.1		14.2		13.1		8.4	%
Other operating expenses		4.7		3.6		3.8		-5.3	%
Selling, general and administrative		29.7		20.8		21.0		-1.0	%
Depreciation and amortization		9.0		6.8		6.0		13.3	%
Total costs and expenses		91.7		67.9		66.9		1.5	%
Income from operations	$	22.5	$	17.4	$	14.9		16.8	%

     As disclosed in Note 1 to our consolidated financial statements included in this quarterly report, we acquired the Aquarius on May 19, 2006. Net revenues and operating income for the Aquarius in the three months ended June 30, 2007, were $28.9 million and $5.1 million, respectively. The following discussion of the results of operations at our gaming properties excludes the results of the Aquarius.

     Gross Revenues

     Gross revenues increased 5.3% to $91.8 million for the three months ended June 30, 2007 from $87.2 million for the three months ended June 30, 2006. This increase was primarily due to an increase in casino and hotel revenues as discussed below.

11

     Casino Revenues

     Casino revenues increased 6.6% to $46.9 million, or 51.1% of gross revenues, for the three months ended June 30, 2007 from $44.0 million, or 50.5% of gross revenues, for the three months ended June 30, 2006. This increase was primarily due to an increase in slot revenues, due to a 7.9% increase in the slot hold percentage. For the three months ended June 30, 2007, slot machine revenues were $39.1 million, or 83.4% of casino revenues, and table game revenues were $6.4 million, or 13.6% of casino revenues, compared to $35.9 million and $6.2 million, respectively, for the three months ended June 30, 2006. Other casino revenues, consisting of race and sports book, poker, bingo and keno, were $1.4 million and $1.9 million for the three months ended June 30, 2007 and 2006, respectively.

     Non-Casino Revenues

     Hotel revenues increased 7.9% to $17.7 million, or 19.3% of gross revenues, for the three months ended June 30, 2007 from $16.4 million, or 18.8% of gross revenues, for the three months ended June 30, 2006. This increase was primarily due to a 7.2% increase in the average daily room rate.

     Food and beverage revenues increased 3.3% to $18.6 million, or 20.3% of gross revenues, for the three months ended June 30, 2007, from $18.0 million, or 20.6% of gross revenues, for the three months ended June 30, 2006. This increase was primarily due to an 8.3% increase in the average check amount partially offset by a 4.6% decrease in the number of covers. The decrease in the number of covers is due to the opening of an independently run Outback Steakhouse® at Arizona Charlie’s Decatar.

     Tower, retail and other revenues decreased 2.3% to $8.6 million, or 9.4% of gross revenues, for the three months ended June 30, 2007, compared to $8.8 million, or 10.1% of gross revenues, for the three months ended June 30, 2006. This decrease was primarily due to increased inclement weather that caused an increase in closure of the tower rides, and non-recurring settlement income in 2006.

     Promotional Allowances

     Promotional allowances are comprised of the retail value of goods and services provided to casino patrons under various marketing programs. As a percentage of casino revenues, promotional allowances increased to 13.9% for the three months ended June 30, 2007 from 12.3% for the three months ended June 30, 2006. This increase was primarily due to an increase in the number of casino patrons that were provided hotel rooms and food and beverage, particularly at the Stratosphere.

     Operating Expenses

     Casino operating expenses decreased 2.5% to $15.6 million, or 33.3% of casino revenues, for the three months ended June 30, 2007, from $16.0 million, or 36.4% of casino revenues, for the three months ended June 30, 2006. This decrease was primarily due to decreased slot participation expense, as a result of a reduction in participation games.

     Hotel operating expenses decreased 1.4% to $6.9 million, or 39.0% of hotel revenues, for the three months ended June 30, 2007, from $7.0 million or 42.7% of hotel revenues, for the three months ended June 30, 2006. This decrease was primarily due to a reduction in commission and brokers fees, due to increased website reservations.

     Food and beverage operating expenses increased 8.4% to $14.2 million, or 76.3% of food and beverage revenues, for the three months ended June 30, 2007, from $13.1 million, or 72.8% of food and beverage revenues, for the three months ended June 30, 2006. This increase was primarily due to an increase in the cost of food and beverages, which is attributable to increased delivery costs.

     Other operating expenses decreased 5.3% to $3.6 million, or 41.9% of tower, retail and other revenues, for the three months ended June 30, 2007, from $3.8 million or 43.2% of tower, retail and other revenues, for the three months ended June 30, 2006. This decrease was primarily due to decreased entertainer fees, due to the cancellation of the afternoon show at the Stratosphere, Viva Las Vegas.

     Selling, general and administrative expenses were primarily comprised of payroll, utilities, advertising, maintenance contracts and other administrative expenses. These expenses decreased 1.0% to $20.8 million, or 22.7% of gross revenues, for the three months ended June 30, 2007, from $21.0 million, or 24.1% of gross revenues, for the three months ended June 30, 2006. This decrease was primarily due to a decrease in payroll and related expenses.

12

     Interest Expense

     Interest expense increased 5.8% to $5.5 million for the three months ended June 30, 2007, from $5.2 million for the three months ended June 30, 2006. The increase of $0.3 million was due to the borrowings under our senior secured revolving credit facility which was used to fund the acquisition of the Aquarius.

     Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

	Six Months Ended
	June 30,
	(in millions)
	Including
	Aquarius		Excluding Aquarius
	2007		2007		2006		% Change
Income Statement Data:
Revenues:
Casino	$	135.2	$	93.0	$	92.0		1.1	%
Hotel		45.7		35.8		33.9		5.6	%
Food and beverage		46.5		36.9		36.1		2.2	%
Tower, retail and other		19.6		16.6		17.0		-2.4	%
Gross revenues		247.0		182.3		179.0		1.8	%
Less promotional allowances		20.0		12.9		11.2		15.2	%
Net revenues		227.0		169.4		167.8		1.0	%
Costs and expenses:
Casino		44.6		31.8		32.5		-2.2	%
Hotel		18.2		13.6		13.9		-2.2	%
Food and beverage		33.1		27.5		26.3		4.6	%
Other operating expenses		8.9		7.2		7.5		-4.0	%
Selling, general and administrative		59.2		41.1		41.8		-1.7	%
Depreciation and amortization		17.6		13.3		12.1		9.9	%
Total costs and expenses		181.6		134.5		134.1		0.3	%
Income from operations	$	45.4	$	34.9	$	33.7		3.6	%

     As disclosed in Note 1 to our consolidated financial statements included in this quarterly report, we acquired the Aquarius on May 19, 2006. Net revenues and operating income for the Aquarius in the six months ended June 30, 2007, were $57.6 million and $10.5 million, respectively. The following discussion of the results of operations at our gaming properties excludes the results of the Aquarius.

     Gross Revenues

     Gross revenues increased 1.8% to $182.3 million for the six months ended June 30, 2007 from $179.0 million for the six months ended June 30, 2006. This increase was primarily due to an increase in slot and hotel revenues as discussed below.

13

     Casino Revenues

     Casino revenues increased 1.1% to $93.0 million, or 51.0% of gross revenues, for the six months ended June 30, 2007 from $92.0 million, or 51.4% of gross revenues, for the six months ended June 30, 2006. This increase was primarily due to an increase in slot revenue, due to a 5.8% increase in slot hold. For the six months ended June 30, 2007, slot machine revenues were $76.9 million, or 82.7% of casino revenues, and table game revenues were $13.0 million, or 14.0% of casino revenues, compared to $74.1 million and $13.4 million, respectively, for the six months ended June 30, 2006. Other casino revenues, consisting of race and sports book, poker, bingo and keno, were $3.1 million and $4.5 million for the six months ended June 30, 2007 and 2006, respectively.

     Non-Casino Revenues

     Hotel revenues increased 5.6% to $35.8 million, or 19.6% of gross revenues, for the six months ended June 30, 2007 from $33.9 million, or 18.9% of gross revenues, for the six months ended June 30, 2006. This increase was primarily due to a 6.4% increase in the average daily room rate.

     Food and beverage revenues increased 2.2% to $36.9 million, or 20.2% of gross revenues, for the six months ended June 30, 2007, from $36.1 million, or 20.2% of gross revenues, for the six months ended June 30, 2006. This increase was primarily due to an 8.6% increase in the average check amount partially offset by a 5.9% decrease in the number of covers. The decrease in the number of covers is due to the opening of an independently run Outback Steakhouse® at Arizona Charlie’s Decatar.

     Tower, retail and other revenues decreased 2.4% to $16.6 million, or 9.1% of gross revenues, for the six months ended June 30, 2007, compared to $17.0 million, or 9.5% of gross revenues, for the six months ended June 30, 2006. This decrease was primarily due to increased inclement weather that caused an increase in closure of the tower rides.

     Promotional Allowances

     Promotional allowances are comprised of the retail value of goods and services provided to casino patrons under various marketing programs. As a percentage of casino revenues, promotional allowances increased to 13.9% for the six months ended June 30, 2007 from 12.2% for the six months ended June 30, 2006. This increase was primarily due to an increase in the number of casino patrons that were provided hotel rooms and food and beverage, particularly at the Stratosphere.

     Operating Expenses

     Casino operating expenses decreased 2.2% to $31.8 million, or 34.2% of casino revenues, for the six months ended June 30, 2007, from $32.5 million, or 35.3% of casino revenues, for the six months ended June 30, 2006. This decrease was primarily due to decreased slot participation expense, as a result of a reduction in participation games.

     Hotel operating expenses decreased 2.2% to $13.6 million, or 38.0% of hotel revenues, for the six months ended June 30, 2007, from $13.9 million or 41.0% of hotel revenues, for the six months ended June 30, 2006. This decrease was primarily due to a reduction in commission and brokers fees, due to increased website reservations.

     Food and beverage operating expenses increased 4.6% to $27.5 million, or 74.5% of food and beverage revenues, for the six months ended June 30, 2007, from $26.3 million, or 72.9% of food and beverage revenues, for the six months ended June 30, 2006. This increase was primarily due an increase in the cost of food and beverages, which is attributable to increased delivery costs.

     Other operating expenses decreased 4.0% to $7.2 million, or 43.4% of tower, retail and other revenues, for the six months ended June 30, 2007, from $7.5 million or 44.1% of tower, retail and other revenues, for the six months ended June 30, 2006. This decrease was primarily due to decreased entertainer fees due to the cancellation of the afternoon show at the Stratosphere, Viva Las Vegas.

14

     Selling, general and administrative expenses were primarily comprised of payroll, utilities, advertising and other administrative expenses. These expenses decreased 1.7% to $41.1 million, or 22.5% of gross revenues, for the six months ended June 30, 2007, from $41.8 million, or 23.4% of gross revenues, for the six months ended June 30, 2006. This decrease was primarily due to a decrease in payroll and related expenses.

     Interest Expense

     Interest expense increased 11.2% to $10.9 million for the six months ended June 30, 2007, from $9.8 million for the six months ended June 30, 2006. The increase of $1.1 million was due to the borrowings under our senior secured revolving credit facility which was used to fund the acquisition of the Aquarius.

Financial Condition

Liquidity and Capital Resources

     Our primary source of cash is from the operation of our properties. At June 30, 2007, we had cash and cash equivalents of $84.0 million. For the six months ended June 30, 2007, net cash provided by operating activities (including the operations of the Aquarius) totaled approximately $43.2 million compared to approximately $36.6 million for the six months ended June 30, 2006. The change in cash provided by operating activities was attributable to the increase in net income from $16.0 million for the six months ended June 30, 2006 to $23.3 million for the six months ended June 30, 2007, reflecting factors discussed above. In addition to cash from operations, cash is available to us, if necessary, under our senior secured revolving credit facility entered into by us, as borrower, and certain of our subsidiaries, as guarantors. In May 2006, we entered into an amendment to the senior secured revolving credit facility, increasing the amount of borrowings allowed by it to $60.0 million, subject to us complying with financial and other covenants (discussed below), until May 12, 2010. We borrowed the maximum amount available under the facility, $60.0 million, in order to fund our acquisition of the Aquarius. At June 30, 2007, we had outstanding borrowings under the senior secured revolving credit facility of $40.0 million and availability of $20.0 million.

     Our primary use of cash during the six months ended June 30, 2007 was for operating expenses, to pay interest on our 7.85% senior secured notes due 2012 and interest under our senior secured revolving credit facility. Our capital spending was approximately $15.2 million, and $16.6 million for the six months ended June 30, 2007 and 2006, respectively. For 2007, capital spending to date includes $2.7 million for improvements to the Aquarius. We have estimated our 2007 capital spending for our existing facilities at approximately $31.1 million, which we anticipate to include approximately $14.9 million to purchase new and convert existing slot machines and approximately $7.0 million for remaining Aquarius hotel renovations. The remainder of our capital spending estimate for 2007 will be for upgrades or maintenance to our existing assets.

     We believe operating cash flows will be adequate to meet our anticipated requirements for working capital, capital spending and scheduled interest payments on the notes and under the senior secured revolving credit facility, lease payments and other indebtedness at least through the next twelve months. However, additional financing, if needed, may not be available to us, or if available, the financing may not be on terms favorable to us. Our estimates of our reasonably anticipated liquidity needs may not be accurate and new business opportunities or other unforeseen events could occur, resulting in the need to raise additional funds from outside sources.

     The indenture governing our 7.85% senior secured notes due 2012 restrict the payment of cash dividends or distributions, the purchase of equity interests, and the purchase, redemption, defeasance or acquisition of debt subordinated to the investments as “restricted payments.” The indenture also prohibits the incurrence of debt and the issuance of disqualified or preferred stock, as defined, by us and our restricted subsidiaries, with certain exceptions, provided that we may incur debt or issue disqualified or preferred stock if, immediately after such incurrence or issuance, the ratio of consolidated cash flow to fixed charges (each as defined in the indenture governing the 7.85% senior secured notes due 2012) for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional indebtedness is incurred or disqualified or preferred stock is issued would have

15

been at least 2.0 to 1.0, determined on a pro forma basis giving effect to the debt incurrence or issuance. As of June 30, 2007, such ratio was 4.7 to 1.0. The indenture also restricts the creation of liens, the sale of assets, mergers, consolidations or sales of substantially all of our assets, the lease or grant of a license, concession, other agreements to occupy, manage or use our assets, the issuance of capital stock of restricted subsidiaries and certain related party transactions. The indenture governing the notes allows us, and our restricted subsidiaries, to incur indebtedness, among other things, of up to $50.0 million under credit facilities, non-recourse financing of up to $15.0 million to finance the construction, purchase or lease of personal or real property used in our business, permitted affiliate subordinated indebtedness (as defined), additional 7.85% senior secured notes due 2012 in an aggregate principal amount not to exceed 2.0 times net cash proceeds received from equity offerings and permitted affiliate subordinated debt and additional indebtedness of up to $10 million.

     Additionally, as described above, we have a senior secured revolving credit facility that allows for borrowings of up to $60.0 million, including the issuance of letters of credit of up to $10.0 million. Loans made under the senior secured revolving facility will mature and the commitments under them will terminate in May 2010. The facility contains restrictive covenants similar to those contained in the 7.85% senior secured notes due 2012. In addition, the facility requires that, as of the last date of each fiscal quarter, our ratio of consolidated first lien debt to consolidated cash flow be not more than 1.0 to 1.0. As of June 30, 2007, this ratio was 0.4 to 1.0.

Recently Issued Accounting Pronouncements

     In June 2006, the Emerging Issues Task Force (“EITF”) issued EITF 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation)” to clarify diversity in practice on the presentation of different types of taxes in the financial statements. The EITF concluded that, for taxes within the scope of the issue, a company may adopt a policy of presenting taxes either gross within revenue or net. That is, it may include charges to customers for taxes within revenues and the charge for the taxes from the taxing authority within cost of sales, or, alternatively, it may net the charge to the customer and the charge from the taxing authority. If taxes are reported on a gross basis, and are significant, an entity should disclose the amounts of those taxes subject to EITF 06-3. The guidance is effective for periods beginning after December 15, 2006. We present sales tax on a net basis in our consolidated financial statements, and the adoption of EITF 06-3 did not have a material impact on our financial position, results of operations, or cash flows.

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48, which clarifies Statement No. 109, Accounting for Income Taxes, establishes the criterion that an individual tax position has to meet for some or all of the benefits of that position to be recognized in our financial statements. On initial application, FIN 48 will be applied to all tax positions for which the statute of limitations remains open. Only tax positions that meet the more-likely-than-not recognition threshold at the adoption date will be recognized or continue to be recognized.

     FIN 48 is effective for fiscal years beginning after December 15, 2006, and was adopted by us on January 1, 2007. The adoption of FIN 48 did not have a material impact on our consolidated financial statements.

     In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, where fair value is the relevant measurement attribute. The standard does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We believe that the adoption of SFAS No. 157 will not have a material impact on our consolidated financial statements.

16

     In February 2007, the FASB issued SFAS No. 159. SFAS No. 159, which amends SFAS No. 115, allows certain financial assets and liabilities to be recognized, at our election, at fair market value, with any gains or losses for the period recorded in the statement of income. SFAS No. 159 included available-for-sales securities in the assets eligible for this treatment. Currently, we record the gains or losses for the period in the statement of comprehensive income and in the equity section of the balance sheet. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and interim periods in those fiscal years. We believe that the adoption of SFAS No. 159 will not have a material impact on our consolidated financial statements.

Forward-Looking Statements

     With the exception of historical facts, the matters discussed in this report are forward-looking statements. Forward-looking statements may relate to, among other things, future actions, future performance generally, business development activities, future capital expenditures, strategies, the outcome of contingencies such as legal proceedings, future financial results, financing sources and availability and the effects of regulation and competition. Please see Risk Factors in Item 1A of our Annual Report on Form 10-K, for the year ended December 31, 2006. When we use the words “believe,” “intend,” “expect,” “may,” “will,” “should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements.

     We warn you that forward-looking statements are only predictions. Actual events or results may differ as a result of risks that we face. Forward-looking statements speak only as of the date they were made and we undertake no obligation to update them.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

     Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We can borrow, from time to time, up to $60.0 million under our senior secured revolving credit facility. As of June 30, 2007, there were $40.0 million of borrowings outstanding under the facility.

     The fair value of our long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. As such, the estimated fair value of long-term debt outstanding is approximately $221.5 million as of June 30, 2007.

     For the six months ended June 30, 2007, we incurred approximately $10.9 million in interest expense. Certain amounts of our outstanding indebtedness for the year were based upon a variable, LIBOR rate plus a premium. A 1% increase in the LIBOR would have increased our interest cost for 2007 by approximately $201,000. We do not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure.

Item 4.Controls and Procedures

     As of June 30, 2007, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in applicable Securities and Exchange

17

Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

     During the six months ended June 30, 2007, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

     It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

18

PART II. OTHER INFORMATION

Item 1A.Risk Factors

     The risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 have not materially changed. The discussion of our business and operations should be read together with such risk factors, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

Item 6.Exhibits

     The list of exhibits required by Item 601 of Regulation S-K and filed as part of this report is set forth in the exhibits index.

19

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
By:	/s/ DENISE BARTON
	Denise Barton
	Senior Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

Date: August 9, 2007

20

Exhibits Index

Exhibit
No.	Description
31.1	Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

21