10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2010

OR

¨ 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: 000-52975

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.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ¨ No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company ¨

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

Yes ¨ No x

TABLE OF CONTENTS

			Page
Part I		Financial Information
	Item 1.	Unaudited Condensed Consolidated Financial Statements	1
		Condensed Consolidated Balance Sheets – September 30, 2010 (unaudited) and December 31, 2009	1
		Condensed Consolidated Statements of Operations (unaudited) – the three months ended September 30, 2010 and September 30, 2009	2
		Condensed Consolidated Statements of Operations (unaudited) – the nine months ended September 30, 2010 and September 30, 2009	3
		Condensed Consolidated Statements of Cash Flows (unaudited) – the nine months ended September 30, 2010 and September 30, 2009	4
		Condensed Consolidated Statement of Members’ Equity (unaudited) – the nine months ended September 30, 2010	5
		Notes to Condensed Consolidated Financial Statements (unaudited)	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
	Item 4T.	Controls and Procedures	21
Part II		Other Information
	Item 6.	Exhibits	22

i

PART I-FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements.

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of		As of
	September 30, 2010		December 31, 2009
	(Unaudited)
	(In thousands)
Assets
Current Assets:
Cash and cash equivalents	$	105,957	$	101,092
Investments-restricted		1,171		1,857
Accounts receivable, net		3,343		3,250
Other current assets		11,411		10,418
Total Current Assets		121,882		116,617
Property and equipment, net		1,140,248		1,146,796
Debt issuance costs, net		3,029		2,940
Intangible and other assets		20,277		22,606
Total Assets	$	1,285,436	$	1,288,959
Liabilities and Members' Equity
Current Liabilities:
Accounts payable	$	4,716	$	3,236
Accrued expenses		29,427		18,646
Accounts payable and accrued expenses - related party		17		200
Accrued payroll and related expenses		11,591		10,818
Current portion of capital lease obligations		273		263
Total Current Liabilities		46,024		33,163
Long-Term Liabilities:
Long-term debt, net of unamortized discount		354,522		351,436
Capital lease obligations, less current portion		1,989		2,195
Total Long-Term Liabilities		356,511		353,631
Total Liabilities		402,535		386,794
Commitments and Contingencies
Members' Equity:
Members' Equity		882,901		902,165
Total Members' Equity		882,901		902,165
Total Liabilities and Members' Equity	$	1,285,436	$	1,288,959

See notes to condensed consolidated financial statements.

1

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three months ended September 30, 2010			Three months ended September 30, 2009
	(Unaudited)
	(In thousands)
Revenues:
Casino	$	48,907		$	50,082
Hotel		14,283			15,324
Food and beverage		16,702			18,685
Tower, retail and other		9,596			9,373
Gross revenues		89,488			93,464
Less promotional allowances		5,922			5,795
Net revenues		83,566			87,669
Costs And Expenses:
Casino		16,320			17,004
Hotel		8,879			9,210
Food and beverage		12,678			14,509
Other operating expenses		3,460			3,324
Selling, general and administrative		28,148			28,950
Depreciation and amortization		11,208			10,384
Gain on sale of assets		(10	)		-
Management fee - related party		375			375
Total costs and expenses		81,058			83,756
Income From Operations		2,508			3,913
Other Income (Expense):
Interest income		-			32
Interest expense		(11,385	)		(5,728	)
Total other expense, net		(11,385	)		(5,696	)
Net Loss	$	(8,877	)	$	(1,783	)

See notes to condensed consolidated financial statements.

2

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Nine months ended September 30, 2010			Nine months ended September 30, 2009
	(Unaudited)
	(In thousands)
Revenues:
Casino	$	156,129		$	165,438
Hotel		43,435			46,487
Food and beverage		51,210			56,870
Tower, retail and other		25,433			26,713
Gross revenues		276,207			295,508
Less promotional allowances		18,339			19,998
Net revenues		257,868			275,510
Costs And Expenses:
Casino		50,117			53,673
Hotel		25,668			26,545
Food and beverage		38,533			42,180
Other operating expenses		9,876			10,320
Selling, general and administrative		82,640			85,932
Depreciation and amortization		32,742			30,823
Pre-opening costs		283			-
(Gain) loss on sale of assets		(6	)		578
Management fee - related party		1,125			1,375
Impairment of assets		2,000			-
Total costs and expenses		242,978			251,426
Income From Operations		14,890			24,084
Other Income (Expense):
Interest income		8			91
Interest expense		(34,162	)		(7,008	)
Interest expense - related party		-			(21,398	)
Total other expense, net		(34,154	)		(28,315	)
Net Loss	$	(19,264	)	$	(4,231	)

See notes to condensed consolidated financial statements.

3

 

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ended September 30, 2010			Nine months ended September 30, 2009
	(Unaudited)
	(In thousands)
Cash Flows From Operating Activities:
Net loss	$	(19,264	)	$	(4,231	)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization		32,742			30,823
Amortization of debt discount and issuance costs		3,578			4,380
(Gain) loss on sale of assets		(6	)		578
Impairment of assets		2,000			-
Changes in operating assets and liabilities:
Restricted cash		-			2,598
Accounts receivable, net		(93	)		513
Other assets		(984	)		808
Accounts payable and accrued expenses		10,278			(857	)
Related party activity, net		(183	)		(1,275	)
Net Cash Provided by Operating Activities		28,068			33,337
Cash Flows From Investing Activities:
Decrease in investments - restricted		686			-
Acquisition of property and equipment		(22,636	)		(9,602	)
Increase in intangible assets		(645	)		-
Decrease in restricted cash		-			38,404
Proceeds from sale of property and equipment		169			239
Net Cash Provided by (Used in) Investing Activities		(22,426	)		29,041
Cash Flows From Financing Activities:
Debt issuance costs		(581	)		(3,082	)
Payments on note payable		-			(327,713	)
Payments on capital lease obligation		(196	)		(239	)
Proceeds from notes payable		-			311,250
Equity contribution		-			35,000
Net Cash Provided by (Used in) Financing Activities		(777	)		15,216
Net increase in cash and cash equivalents		4,865			77,594
Cash and cash equivalents - beginning of period		101,092			30,366
Cash and cash equivalents - end of period	$	105,957		$	107,960
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest, net of amounts capitalized	$	20,271		$	91
Cash paid during the period for interest - related party, net of amounts capitalized	$	-		$	26,171
Supplemental Disclosures of Non-Cash Items:
Accrued intangible assets	$	400		$	-
Accrued capital expenditures	$	2,356		$	-
Non-cash acquisition of property and equipment	$	-		$	940
Non-cash equity contribution related to troubled debt restructure	$	-		$	737,917

See notes to condensed consolidated financial statements.

4

 

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENT OF MEMBERS’ EQUITY

(Unaudited)

(In thousands)

	Class A Equity		Class B Equity			Total Equity
Balances at December 31, 2009	$	-	$	902,165		$	902,165
Net loss		-		(19,264	)		(19,264	)
Balances at September 30, 2010	$	-	$	882,901		$	882,901

See notes to condensed consolidated financial statements.

 

5

 

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.  The Company

American Casino & Entertainment Properties LLC, or ACEP, was formed in Delaware on December 29, 2003. As used in this Quarterly Report on Form 10-Q, the terms “ACEP”, “company”, “we”, “our”, “ours”, and “us” refer to American Casino & Entertainment Properties LLC and its subsidiaries, unless the context suggests otherwise. ACEP is a holding company that was formed for the purpose of acquiring the entities that own and operate the Stratosphere Casino Hotel & Tower, or the Stratosphere, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder in Las Vegas, Nevada.  We purchased the Aquarius Casino Resort, or the Aquarius, on May 19, 2006.  The Aquarius operates in Laughlin, Nevada.

On April 22, 2007, American Entertainment Properties Corp., or AEP, our former direct parent, entered into a Membership Interest Purchase Agreement, or the Agreement, with W2007/ACEP Holdings, LLC, or Holdings, an affiliate of Whitehall Street Real Estate Funds, or Whitehall, a series of real estate investment funds affiliated with Goldman, Sachs & Co., to sell all of our issued and outstanding membership interests to Holdings, for approximately $1.3 billion.  Pursuant to the Assignment and Assumption Agreement, dated December 4, 2007, between Holdings and W2007/ACEP Managers Voteco, LLC, or Voteco, Holdings assigned all of its rights, obligations and interests under the Agreement to Voteco. Voteco’s acquisition of ACEP, or the Acquisition, closed at a purchase price of $1.2 billion on February 20, 2008.

On February 23, 2010, ACEP and ACEP Finance Corp., or ACEP Finance and, together with ACEP, the Issuers, completed an exchange offer registered with the Securities and Exchange Commission, or SEC, in which the Issuers issued approximately $374.9 million aggregate principal amount of their 11% Senior Secured Notes due 2014, or SEC-Registered Notes, in exchange for $374.9 million of their outstanding, 11% Senior Secured Notes due 2014, or the Unregistered Notes, issued in a transaction pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, or the Securities Act. The SEC-Registered Notes have substantially identical terms to the Unregistered Notes, except that the SEC-Registered Notes were issued in a transaction registered under the Securities Act. The SEC-Registered Notes and the Unregistered Notes are collectively referred to herein as the 11% Senior Secured Notes.

Note 2.  Basis of Presentation

The accompanying condensed consolidated financial statements included herein have been prepared by ACEP, without audit, in accordance with the accounting policies described in our 2009 audited consolidated financial statements and pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading. 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. Interim results are not necessarily indicative of results to be expected for any future interim period or for the entire fiscal year.

These condensed consolidated financial statements should be read in conjunction with the notes to the 2009 consolidated audited financial statements presented in our annual report on Form 10-K for the year ended December 31, 2009, filed with the SEC on March 22, 2010 (SEC File No. 000-52975). Our reports are available electronically by visiting the SEC website at http://www.sec.gov. You may also visit the investor relations section of the American Casino & Entertainment Properties LLC website at http://www.acepllc.com.

Principles of Consolidation

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

6

Recently Issued Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board, or FASB, issued guidance that clarifies and requires new disclosures about fair value measurements in Accounting Standards Codification, or ASC, 815, Derivatives and Hedging, subtopic 10-50-4B for derivative instruments and ASC 320, Investments – Debts and Equity Securities, subtopic 10-50-1B for debt and equity securities. The clarifications and requirement to disclose the amount and reasons for significant transfers in and out of Level 1 and Level 2, as well as significant transfers in and out of Level 3 of the fair value hierarchy were adopted by us in the first quarter of 2010.  The new guidance also requires that purchases, sales, issuances and settlements be presented gross in the Level 3 reconciliation and that requirement is effective for the fiscal years beginning after December 15, 2010 and for interim periods within those years, with early adoption permitted. We early adopted the disaggregation guidance on January 1, 2010. Since this new guidance only amends the disclosures requirements, it did not impact our consolidated balance sheet, statement of operations or statement of cash flows.

In April 2010, the FASB issued Accounting Standards Update 2010-16, Accruals for Casino Jackpot Liabilities, which clarifies that an entity should not accrue jackpot liabilities before they are won if the payout can be avoided. This guidance will be applied prospectively with a cumulative-effect adjustment in members’ equity at the beginning of the period of adoption and is effective beginning with our first quarter of 2011. There will be no impact to our results of operations, financial position or cash flows related to the adoption of this guidance.

Reclassifications

Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to the current fiscal year presentation. For the three and nine months ended September 30, 2009 we have reclassified the estimated cost of providing complimentaries included in casino, hotel, food and beverage, other operating expenses and selling, general and administrative expenses.  These reclassifications had no effect on net loss.

Note 3.  Related Party Transactions

On February 20, 2008, in connection with the closing of the Acquisition, certain of our wholly owned indirect subsidiaries obtained term loans in an aggregate amount of approximately $1.1 billion, or the Goldman Term Loans, from Goldman Sachs Mortgage Company, or GSMC, pursuant to certain mortgage and mezzanine loan agreements. On June 25, 2009, the Goldman Term Loans were restructured and, as a result of such restructuring, we became party to a loan with GSMC in the original principal amount of $350 million, or the 2014 Term Loans. We paid interest on the 2014 Term Loans of approximately $6.2 million for the three months ended September 30, 2009.  We paid interest on the Goldman Term Loans and 2014 Term Loans, collectively, of approximately $26.2 million for the nine months ended September 30, 2009.

On August 14, 2009, we issued an aggregate principal amount of $375 million of Unregistered Notes. Goldman, Sachs & Co., or Goldman Sachs, was the initial purchaser of the Unregistered Notes. We used the gross proceeds from the offering of the 11% Senior Secured Notes, approximately $311.3 million, to repay the 2014 Term Loans, which were held by GSMC, an affiliate of Goldman Sachs and Whitehall 2007, owners of a majority of our indirect interests. Upon such payment, the remaining balance of 2014 Term Loans was forgiven by GSMC.  Due to the related party nature of the transaction, the difference between the carrying amount of the 2014 Term Loans and the aggregate principal amount of the Unregistered Notes was credited directly to Members Equity. Goldman Sachs has advised us that they intend to make a market in the 11% Senior Secured Notes.

7

As of November 29, 2007, the Stratosphere entered into a master room agreement with Consolidated Resorts, Inc., or CRI, which was effective from January 1, 2008 through December 31, 2008. Even though it had expired, the parties continued to operate under the agreement in a month-to-month arrangement. CRI was approximately 75% owned by Whitehall. Whitehall is affiliated with Holdings, the 100% holder of our Class B membership interests, and Goldman Sachs. On July 10, 2009, CRI filed under Chapter 7 of the U.S. Bankruptcy Code in United States Bankruptcy Court for the District of Nevada, and it is therefore unlikely that we will be able to collect amounts owed to us by CRI. We no longer have a relationship with CRI and it is no longer a related party. Under the agreement, CRI purchased a minimum number, which varied by month, of room nights from the Stratosphere. In addition, CRI was required to purchase promotional incentives such as show, restaurant and gaming packages for each guest. Revenues for promotional incentives are included in Casino revenues, Food and beverage revenues and Tower, retail and other revenues. There was also a sales incentive component whereby CRI was to pay us a fee for the resultant of net timeshare sales generated by CRI guests divided by total monthly tours solicited at the property when in excess of $2,499 per solicited tour. There were no sales incentives earned during either the three or nine months ended September 30, 2009.  We did not receive any revenues for the three months ended September 30, 2009.  We received approximately $397,000 in Hotel revenues, $65,000 in Casino revenues, $97,000 in Food and beverage revenues, and $239,000 in Tower, retail, and other revenues for the nine months ended September 30, 2009.  CRI also leased space from the Stratosphere for three marketing kiosks. The lease agreement was effective from July 1, 2008 through September 30, 2011. The base rent was $125,000 per month plus common area maintenance charges. The Stratosphere received additional rent for tours over 1,250 guests per month that originate from the Stratosphere. Stratosphere did not receive any Tower, retail and other revenues for rent under the lease agreement for the three months ended September 30, 2009. Stratosphere received Tower, retail and other revenues of $750,000 for rent under the lease agreement for the nine months ended September 30, 2009. CRI owed us $184,000 as of September 30, 2010 and December 31, 2009, which is fully reserved on the condensed consolidated balance sheets.

On February 20, 2008, we entered into a consulting agreement with Highgate Hotels, L.P., or Highgate, pursuant to which Highgate provides asset management consulting services to us. Highgate owns a less than 5% membership interest in Holdings. The agreement was amended to reduce fees payable thereunder on June 25, 2009 and Highgate converted amounts due them from ACEP to contributed capital in Holdings.The consulting agreement expires on June 20, 2013.  Highgate is entitled to receive a $1.5 million per year base consulting fee for the periods through February 20, 2011 and a $1.0 million per year consulting fee for the periods after February 20, 2011, additional consulting fees up to $500,000 per year for periods after February 20, 2011 based on EBITDA results at the properties and development fees at 4% of the aggregate costs of any agreed upon development projects. We incurred Highgate fees of approximately $375,000 for both the three months ended September 30, 2010 and September 30, 2009. We incurred Highgate fees of approximately $1.1 million and $1.4 million for the nine months ended September 30, 2010 and September 30, 2009, respectively. We incurred no development fees for either the three months or nine months ended September 30, 2010 and September 30, 2009. As of September 30, 2010 and December 31, 2009, we owed Highgate approximately $0 and $192,000, respectively.

On June 16, 2008, we entered into an agreement with Travel Tripper LLC, or TTL, to utilize their technology for online hotel reservations. TTL is owned by an affiliate of Goldman Sachs (9%), an affiliate of Highgate (9%) and an employee of Highgate (40%). TTL is paid 4% of room revenues booked utilizing its system. As of August 1, 2010, the fee paid to TTL was reduced to 2%. We expensed fees of approximately $70,000 and $122,000 for the three months ended September 30, 2010 and September 30, 2009, respectively. We expensed fees of approximately $279,000 and $427,000 for the nine months ended September 30, 2010 and September 30, 2009, respectively. As of September 30, 2010 and December 31, 2009, we owed TTL approximately $15,000 and $6,000, respectively.

Archon Group, LP, or Archon, an affiliate of Goldman Sachs, provides various services to us such as construction management, cash management and insurance brokers.  We expensed fees of approximately $46,000 and $35,000 for the three months ended September 30, 2010 and September 30, 2009, respectively. We expensed fees of approximately $70,000 and $73,000 for the nine months ended September 30, 2010 and September 30, 2009, respectively. As of September 30, 2010 and December 31, 2009, we owed Archon approximately $0 and $1,000, respectively. Additionally, Archon was the administrative agent under the 2014 Term Loans.

On October 3, 2008, we entered into a participation agreement with Nor1, Inc., or Nor1, to utilize their technology to help sell perishable suite and room inventories. Nor1 gives the guest who books on-line the opportunity to book a non-guaranteed suite or upgraded rooms at a discounted rate if such is available at check-in. If the suite or upgraded room is awarded, Nor1 is paid 25% of the upgrade fee. Goldman Sachs owns less than 5% of Nor1. We expensed fees of approximately $5,000 and $11,400 for the three months ended September 30, 2010 and September 30, 2009, respectively. We expensed fees of approximately $29,000 and $23,000 for the nine months ended September 30, 2010 and September 30, 2009, respectively. As of September 30, 2010 and December 31, 2009, we owed Nor1 approximately $3,000 and $1,000, respectively.

8

We follow a related party transaction approval policy for reviewing related person transactions. These procedures are intended to ensure that transactions with related persons are fair to us and in our best interests. If a proposed transaction appears to or does involve a related person, the transaction is presented to our audit committee for review. The audit committee is authorized to retain and pay such independent advisors as it deems necessary to properly evaluate the proposed transaction, including, without limitation, outside legal counsel and financial advisors to determine the fair value of the transaction.

Note 4.   Intangible Assets

We account for intangible assets in accordance with FASB ASC 350, Goodwill and Intangible Assets.

Our finite-lived acquired intangible assets include our player loyalty plan and a non-compete agreement. Our infinite-lived acquired intangible assets include trade names.  Acquired assets are recorded at fair value on the date of acquisition and finite-lived assets are amortized over the estimated period to be benefited.

In accordance with Financial Accounting Standards Board, or FASB ASC 350, Goodwill and Other Intangible Assets, we perform an annual impairment test of indefinite-lived intangible assets in the fourth quarter of each year and whenever a triggering event occurs which causes us to perform an impairment test.  During the three months ended June 30, 2010, due to continued weakness in consumer spending, increased room supply in the Las Vegas market and decreased spending by visitors to the Stratosphere we revised our Stratosphere revenue forecasts.  We considered this revision to Stratosphere’s forecasted revenues to be a triggering event. As of June 30, 2010, we performed impairment tests that resulted in the non-cash write-down of the Stratosphere trade names of $2.0 million. The impairment of these assets was due primarily to our decrease in revenues, which was an indication that these assets may not be recoverable. We believe the on-going economic recession in the U.S. and Southern Nevada economies has reduced overall industry valuations.

As of September 30, 2010 and December 31, 2009, we had the following intangible assets.

		(in thousands)
		September 30, 2010							December 31, 2009
		(Unaudited)
		Gross					Net		Gross					Net
	Asset	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Life	Amount		Amortization			Amount		Amount		Amortization			Amount
Amortizing intangible assets:
Player Loyalty Plan	5 Years	$	7,450	$	(3,848	)	$	3,602	$	7,450	$	(2,731	)	$	4,719
Non-Compete Agreement	38 Months		1,045		(248	)		797		-		-			-
		$	8,495	$	(4,096	)	$	4,399	$	7,450	$	(2,731	)	$	4,719
Non-amortizing intangible assets:
Trade Name							$	15,797						$	17,797
Total intangible assets							$	20,196						$	22,516

9

Note 5.   Debt

Long-term debt and capital lease obligations consist of the following:

	As of			As of
	September 30, 2010			December 31, 2009
	(Unaudited)
	(In thousands)
11% Senior Secured Notes due June 15, 2014	$	375,000		$	375,000
Unamortized discount		(20,478	)		(23,564	)
Capital lease obligations		2,262			2,458
Total long-term debt and capital lease obligations		356,784			353,894
Current portion of capital lease obligations		273			263
Total long-term debt and capital lease obligations, net	$	356,511		$	353,631

11% Senior Secured Notes

 On August 14, 2009, the Issuers issued the Unregistered Notes pursuant to the Indenture among the Issuers, certain subsidiary guarantors and The Bank of New York Mellon, as trustee, or the Indenture.The 11% Senior Secured Notes mature on June 15, 2014 and bear interest at a rate of 11% per annum. Interest is computed on the basis of a 360-day year composed of twelve 30-day months and is payable semi-annually on June 15 and December 15 of each year, beginning on December 15, 2009. The obligations are jointly, severally and unconditionally guaranteed by all of the subsidiaries of ACEP other than ACEP Finance and will be so guaranteed by any future domestic subsidiaries of ACEP, subject to certain exceptions. The 11% Senior Secured Notes are collateralized by substantially all fee and leasehold real property comprising the Stratosphere, the Aquarius, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder.

On February 23, 2010, the Issuers completed an exchange offer registered with the SEC in which the Issuers issued approximately $374.9 million aggregate principal amount of their SEC-Registered Notes in exchange for $374.9 million of their Unregistered Notes. The SEC-Registered Notes have substantially identical terms to the Unregistered Notes, except that the SEC-Registered Notes were issued in a transaction registered under the Securities Act.

In accordance with positions established by the SEC, separate financial 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, stockholders’ equity, revenues, income from operations before income taxes and cash flows from operating activities of the non-guarantor subsidiaries is less than 3% of ACEP’s consolidated amounts.

The gross proceeds from the issuance of the Unregistered Notes, approximately $311.3 million, were used to repay a portion of the then outstanding balance of the 2014 Term Loans.  Upon such payment, the remaining balance of the 2014 Term Loans was forgiven by GSMC. We increased Members’ Equity by $215.6 million for the gain on debt extinguishment.

The fair value of our debt is estimated based on market prices for the same or similar issues. We issued the Unregistered Notes on August 14, 2009. The estimated fair value of the 11% Senior Secured Notes was approximately $366.6 million as of September 30, 2010.

On or after June 15, 2012,  the Issuers may redeem all or a part of the 11% Senior Secured Notes at the redemption prices set forth in the Indenture, plus accrued and unpaid interest to the applicable redemption date. In addition, at any time prior to June 15, 2012, the Issuers may, on one or more than one occasion, redeem some or all of the 11% Senior Secured Notes at a redemption price equal to 100% of the principal amount of the 11% Senior Secured Notes redeemed, plus a “make-whole” premium, and accrued and unpaid interest to the applicable redemption date. At any time prior to June 15, 2012, we may also redeem up to 35% of the aggregate principal amount of the 11% Senior Secured Notes, using the proceeds of certain qualified equity offerings, at a redemption price of 111% of the principal amount thereof, plus accrued and unpaid interest to the applicable redemption date.  We may, not more than once in any 12-month period ending on June 15, 2010, 2011 and 2012, redeem up to 5% of the original aggregate principal amount of the 11% Senior Secured Notes at a redemption price equal to 102% of the principal amount of the 11% Senior Secured Notes redeemed plus accrued and unpaid interest to the applicable redemption date.

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If certain change of control events occur as specified in the Indenture, we must offer to repurchase the 11% Senior Secured Notes at a repurchase price equal to 101% of the principal amount of the 11% Senior Secured Notes repurchased, plus accrued and unpaid interest to the applicable repurchase date.

If ACEP or its subsidiaries sell assets under certain circumstances or experience certain events of loss, we must offer to repurchase the 11% Senior Secured Notes at a repurchase price equal to 100% of the principal amount of the Notes repurchased, plus accrued and unpaid interest to the date of purchase, prepayment or redemption, as the case may be.

We are bound by certain covenants contained and defined in the Indenture that requires us to file quarterly and annual reports, and among other things, restricts our ability to:

• declare or pay dividends and distributions on our equity interests, purchase, redeem, or otherwise retire for value any equity interest, make payments on debt, or make investments;

• incur indebtedness or issue preferred stock;

• sell, create liens, or otherwise encumber our assets or equity interests; and

• enter into transactions with affiliates.

These covenants contained in the Indenture are subject to a number of important limitations and exceptions.

The Indenture provides for events of default, including, but not limited to, cross defaults to certain other debt of ACEP and its subsidiaries. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding 11% Senior Secured Notes will become due and payable immediately without further action or notice. Management believes that we are in compliance with the provisions of the Indenture as of quarter end and the date of this filing.

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 financial conditions, results of operations or liquidity.

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

With the exception of historical facts, the matters discussed in this quarterly report on Form 10-Q 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. 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.

These forward-looking statements are based on the current plans and expectations of our management and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. These factors include, but are not limited to: the size of our indebtedness, our indebtedness' effect on our business, the adverse effect of government regulation and other matters affecting the gaming industry, increased operating costs of our properties, increased competition in the gaming industry, adverse effects of economic downturns and terrorism, our failure to make necessary capital expenditures, increased costs associated with our growth strategy, the loss of key personnel, risks associated with geographical market concentration, our failure to satisfy our working capital needs from operations or our indebtedness, our inability to raise additional money, our dependence on water, energy and technology services, adverse effects of increasing energy costs, and the availability of and costs associated with potential sources of financing.

You should also read, among other things, the risks and uncertainties described in the section entitled Risk Factors in Item 1A of our annual report on Form 10-K, filed with the SEC on March 22, 2010 (SEC File No. 000-52975).

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.

The following discussion contains management’s discussion and analysis of financial condition and results of operations. Management’s discussion and analysis should be read in conjunction with “Item 1. Financial Statements” of this quarterly report on Form 10-Q and 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, 2009.

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, 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 by number of rooms 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.

Our operating results are greatly dependent on the volume of customers at our properties, which in turn affects the price we can charge for our non-gaming amenities. A substantial portion of our operating income is generated from our gaming operations, more specifically slot play. The majority of our revenue is cash based through customers wagering with cash or paying for non-gaming amenities with cash or credit card.  Because our business is capital intensive, we rely heavily on the ability of our properties to generate operating cash flow to repay debt financing, fund maintenance capital expenditures and provide excess cash for future development.

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Las Vegas is one of the largest entertainment markets in the country. Las Vegas hotel occupancy rates are among the highest of any major market in the United States. We believe that the Las Vegas gaming market has two distinct sub-segments: the tourist market, which tends to be concentrated on the Las Vegas Strip and Downtown Las Vegas, and the local market, which includes the surrounding Las Vegas area.

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 retained 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 guests served, and the average check amount per guest.

Results of Operations

Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009

The following table sets forth the results of our operations for the periods indicated.

	Three months ended			Three months ended
	September 30, 2010			September 30, 2009
	(in millions)
Income Statement Data:
Revenues:
Casino	$	48.9		$	50.1
Hotel		14.3			15.3
Food and beverage		16.7			18.7
Tower, retail and other		9.6			9.4
Gross revenues		89.5			93.5
Less promotional allowances		5.9			5.8
Net revenues		83.6			87.7
Costs and expenses:
Casino		16.3			17.0
Hotel		8.9			9.2
Food and beverage		12.7			14.5
Other operating expenses		3.5			3.3
Selling, general and administrative		28.5			29.4
Depreciation and amortization		11.2			10.4
Total costs and expenses		81.1			83.8
Income from operations	$	2.5		$	3.9
EBITDA Reconciliation:
Net loss	$	(8.9	)	$	(1.8	)
Interest income		-			-
Interest expense		11.4			5.7
Depreciation and amortization		11.2			10.4
EBITDA	$	13.7		$	14.3

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We believe that our presentation of EBITDA is an important supplemental measure of our operating performance to investors. EBITDA is a commonly used measure of performance in our industry which we believe, when considered with measures calculated in accordance with United States Generally Accepted Accounting Principles (GAAP), gives investors a more complete understanding of operating results before the impact of investing and financing transactions and income taxes and facilitates comparisons between us and our competitors. Although EBITDA is a non-GAAP measure, we believe this measure will be used by investors in their assessment of our operating performance and the valuation of our company.

Generally weak economic conditions throughout the United States stemming from a severe recession precipitated an economic slowdown that has negatively impacted tourism in Southern Nevada. Las Vegas, however, has experienced some positive trends in overall demand in 2010. Through August 31, 2010, the Las Vegas Convention and Visitors Authority (“LVCVA”) reported year-over-year increases in visitor volume, room nights occupied, convention attendance and daily auto traffic-all major highways. Lower spend by visitors coming to Las Vegas is reflected in monthly year-over-year declines in gross gaming revenues and taxable sales for much of 2010. When gross gaming revenues have shown monthly year-over-year increases, the increases are primarily from baccarat play, which is favored by high-end international guests. Our properties do not target the baccarat player. In addition, airline capacity and passenger counts through McCarran International Airport have decreased and hotel room inventories have increased by 5.0% year-over-year resulting in lower occupancies throughout Las Vegas. Unlike Las Vegas, Laughlin, NV continues to experience declining demand and revenues in 2010 according to the LVCVA. The Clark County and Las Vegas local economies continue to be characterized by increasing unemployment and declining real estate values. As occupancies and visitor traffic to casinos decline, operators in both the tourist and local markets have become more aggressive with promotions that include gaming incentives, reduced room rates, reduced entertainment prices, and food incentives to drive traffic to their properties. All of these factors have impacted our operations.

Our consolidated gross revenues decreased 4.3% to $89.5 million for the three months ended September 30, 2010 from $93.5 million for the three months September 30, 2009. Our consolidated income from operations and EBITDA decreased 35.9% and 4.2% to $2.5 million and $13.7 million for the three months ended September 30, 2010 compared to $3.9 million and $14.3 million for the three months ended September 30, 2009. The decrease in our gross revenues, operating income and EBITDA are due primarily to the general economic slowdown and market factors discussed previously.

Casino

Casino revenues consist of revenues from slot machines, table games, poker, race and sports book, bingo and keno. Casino revenues decreased 2.4% to $48.9 million for the three months ended September 30, 2010, compared to $50.1 million for the three months ended September 30, 2009.  This decrease was primarily due to a 0.4% decrease in slot coin-in, a decrease in slot hold percentage to 6.8% from 6.9%, and a 10.6% decrease in table drop. As a result, our slots and table revenues declined 1.2% and 12.1% respectively. For the three months ended September 30, 2010, slot machine revenues were 84.5% of casino revenues, and table game revenues were 11.9% of casino revenues, compared to 83.4% and 13.2% of casino revenues, respectively, for the three months ended September 30, 2009.  Other casino revenues, consisting of race and sports book, poker, bingo and keno, increased 5.9% for the three months ended September 30, 2010 compared to the three months ended September 30, 2009.  The increase in other casino revenues were driven primarily by an increase in the race and sports book hold percentage to 15.1% for the three months ended September 30, 2010 compared to 9.7% for the three months ended September 30, 2009. Casino operating expenses decreased 4.1% to $16.3 million, for the three months ended September 30, 2010, from $17.0 million for the three months ended September 30, 2009. This decrease was primarily due to decreased labor costs, revenue taxes and participation expenses.  Participation expense consists of fees paid to game owners for use of their games.

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Hotel

Hotel revenues decreased 6.5% to $14.3 million for the three months ended September 30, 2010 from $15.3 million for the three months ended September 30, 2009. The decrease in revenues is primarily the result of lower occupancy and average daily room rate for the Stratosphere. Our Arizona Charlies properties increased occupancy at a lower average daily room rate resulting in relatively flat revenues. Aquarius increased both occupancy and average daily room rate and increased revenues by 10.3%. Overall room occupancy fell to 67.7% for the three months ended September 30, 2010 compared to 69.5% for the three months ended September 30, 2009 and the average daily room rate decreased 3.0% for the three months ended September 30, 2010 compared to the three months ended September 30, 2009. The decrease in both occupancy and average daily room rate at our Las Vegas properties is primarily a result of sharp decreases in rates across our markets, an increase in Las Vegas citywide room inventories. In addition, Stratosphere began a room renovation in July 2010. After adjusting for rooms that were out-of-order, overall occupancy increases to 72.1% for the three months ended September 30, 2010. Due to increased marketing and direct mail efforts our comp room sales increased for the three months ended September 30, 2010, while our cash room sales declined. Our comp room sales increased 50.0% and our cash room sales decreased 9.5% for the three months ended September 30, 2010 compared to the three months ended September 30, 2009. Our hotel expenses were down 3.3% to $8.9 million for the three months ended September 30, 2010, compared to $9.2 million for the three months ended September 30, 2009. Due to the decline in revenues, our hotel operating margin decreased to 37.8% for the three months ended September 30, 2010 as compared to 39.9% for the three months ended September 30, 2009.

Food & Beverage

Food and beverage revenues decreased 10.7% to $16.7 million for the three months ended September 30, 2010 compared to $18.7 million for the three months ended September 30, 2009.  The decline in revenues was driven largely by the reduction in food and beverage covers at our properties. Food covers and beverage covers for the three months ended September 30, 2010 decreased 18.6% and 9.2%, respectively, compared to the three months ended September 30, 2009. During the period, Stratosphere remodeled Roxy’s, its 24 hour food service outlet. While being remodeled Roxy’s was relocated to a less visible location and covers declined approximately 30% during July and August compared to January through June. Average revenue per cover for the three months ended September 30, 2010 increased 9.8% compared to the three months ended September 30, 2009. Our food and beverage expenses decreased 12.4% to $12.7 million for the three months ended September 30, 2010 compared to $14.5 million for the three months ended September 30, 2009 due to an overall decrease in our food and beverage costs and payroll and related expenses. As a result, our food and beverage operating margin increased to 24.0% for the three months ended September 30, 2010 as compared to 22.5% for the three months ended September 30, 2009.

Tower, Retail and Other

Tower, retail and other revenues increased 2.1% to $9.6 million for the three months ended September 30, 2010 from $9.4 million for the three months ended September 30, 2009. Tower revenues increased 18.7% for the three months ended September 30, 2010, compared to the three months ended September 30, 2009.  The primary reason for the increase in Tower revenues was the introduction of the Sky Jump Las Vegas ride. Entertainment revenue declined 32.9% for the three months ended September 30, 2010, compared to the three months ended September 30, 2009. The decrease in revenue was due to reduced showroom occupancy at the Stratosphere. Retail revenue decreased 13.2% for the three months ended September 30, 2010, compared to the three months ended September 30, 2009.  Retail revenues declined due to rent concessions and increased tenant vacancies.  Other operating income decreased 5.1% for the three months ended September 30, 2010, compared to the three months ended September 30, 2009.  The decrease in revenue was primarily due to lower commission revenues.  Other operating expenses increased 6.1% to $3.5 million for the three months ended September 30, 2010, compared to $3.3 million for the three months ended September 30, 2009. This increase was primarily due to an increase in entertainer fees and labor costs.  Entertainer fees increased due an increase in events at the Aquarius and an increase in entertainment options at the Stratosphere.

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 12.1% for the three months ended September 30, 2010 from 11.6% for the three months ended September 30, 2009. This increase was primarily due to increased room promotions at the Stratosphere and the Aquarius.

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Selling, General and Administrative (‘‘SG&A’’)

Selling, general and administrative expenses are primarily comprised of payroll, marketing, advertising, utilities and other administrative expenses. These expenses decreased 3.1% to $28.5 million, or 31.8% of gross revenues, for the three months ended September 30, 2010, compared to $29.4 million, or 31.4% of gross revenues for the three months ended September 30, 2009. This decrease was primarily due to lower utilities, legal fees, insurance, property taxes, repair and maintenance, and advertising.

Interest Expense

Interest expense increased 100.0% to $11.4 million for the three months ended September 30, 2010, compared to $5.7 million for the three months ended September 30, 2009. The increase was due primarily to the restructuring of the Goldman Term Loans and issuance of our 11% Senior Secured Notes. For the three months ended September 30, 2009, we did not report any interest expense related to the 2014 Term Loans on our consolidated statements of operations.  Interest payments totaling $6.2 million during the three months ended September 30, 2009 were accounted for as a reduction to the outstanding balance of the 2014 Term Loans in accordance with FASB ASC 470-60.

Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009

The following table sets forth the results of our operations for the periods indicated.

	Nine months ended			Nine months ended
	September 30, 2010			September 30, 2009
	(in millions)
Income Statement Data:
Revenues:
Casino	$	156.1		$	165.4
Hotel		43.5			46.5
Food and beverage		51.2			56.9
Tower, retail and other		25.4			26.7
Gross revenues		276.2			295.5
Less promotional allowances		18.3			20.0
Net revenues		257.9			275.5
Costs and expenses:
Casino		50.1			53.7
Hotel		25.7			26.5
Food and beverage		38.5			42.2
Other operating expenses		9.9			10.3
Selling, general and administrative		83.8			87.9
Pre-opening costs		0.3			-
Depreciation and amortization		32.7			30.8
Impairment of assets		2.0			-
Total costs and expenses		243.0			251.4
Income from operations	$	14.9		$	24.1
EBITDA Reconciliation:
Net loss	$	(19.3	)	$	(4.2	)
Interest income		-			(0.1	)
Interest expense		34.2			28.4
Depreciation and amortization		32.7			30.8
EBITDA	$	47.6		$	54.9

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Generally weak economic conditions throughout the United States stemming from a severe recession precipitated an economic slowdown that has negatively impacted tourism in Southern Nevada. Las Vegas, however, has experienced some positive trends in overall demand in 2010. Through August 31, 2010, the Las Vegas Convention and Visitors Authority (“LVCVA”) reported year-over-year increases in visitor volume, room nights occupied, convention attendance and daily auto traffic-all major highways. Lower spend by visitors coming to Las Vegas is reflected in monthly year-over-year declines in gross gaming revenues and taxable sales for much of 2010. When gross gaming revenues have shown monthly year-over-year increases, the increases are primarily from baccarat play, which is favored by high-end international guests. Our properties do not target the baccarat player. In addition, airline capacity and passenger counts through McCarran International Airport have decreased and hotel room inventories have increased by 5.0% year-over-year resulting in lower occupancies throughout Las Vegas. Unlike Las Vegas, Laughlin, NV continues to experience declining demand and revenues in 2010 according to the LVCVA. The Clark County and Las Vegas local economies continue to be characterized by increasing unemployment, declining real estate values and depressed taxable sales. As occupancies and visitor traffic to casinos decline, operators in both the tourist and local markets have become more aggressive with promotions that include gaming incentives, reduced room rates, reduced entertainment prices, and food incentives to drive traffic to their properties. All of these factors have impacted our operations.

Our consolidated gross revenues decreased 6.5% to $276.2 million for the nine months ended September 30, 2010 from $295.5 million for the nine months ended September 30, 2009. Our consolidated income from operations and EBITDA decreased 38.2% and 13.3% to $14.9 million and $47.6 million for the nine months ended September 30, 2010 compared to $24.1 million and $54.9 million for the nine months ended September 30, 2009. The decrease in our gross revenues, operating income and EBITDA are due primarily to the general economic slowdown and market factors discussed previously. In addition, we recognized a $2.0 million non-cash charge for impairment of intangible assets during the nine months ended September 30, 2010 and our depreciation and amortization increased $1.9 million. We also incurred pre-opening expenses of approximately $283,000 related to Sky Jump Las Vegas, which is a harnessed controlled “free-fall” from the top of the Stratosphere Tower. We expensed approximately $252,000 to appeal our property taxes, approximately $182,000 in regulatory fees and we accrued approximately $900,000 to our discretionary bonus pool, which we will evaluate throughout the year. As a result, our consolidated operating margin decreased to 5.8% for the nine months ended September 30, 2010 from 8.7% for the nine months ended September 30, 2009.

Casino

Casino revenues consist of revenues from slot machines, table games, poker, race and sports book, bingo and keno. Casino revenues decreased 5.3% to $156.1 million for the nine months ended September 30, 2010, compared to $165.4 million for the nine months ended September 30, 2009. This decrease was primarily due to a 3.2% decrease in slot coin-in and a 10.1% decrease in table drop. As a result, slot and table revenues declined approximately 5.5% and 6.0% respectively. For the nine months ended September 30, 2010, slot machine revenues were 84.4% of casino revenues, and table game revenues were 12.1% of casino revenues, compared to 84.2% and 12.2% of casino revenues, respectively, for the nine months ended September 30, 2009. Other casino revenues, consisting of race and sports book, poker, bingo and keno, decreased 8.3% for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. The primary reason for the decline was a 30.5% decrease in poker revenues. Casino operating expenses decreased 6.7% to $50.1 million, for the nine months ended September 30, 2010, from $53.7 million for the nine months ended September 30, 2009. This decrease was primarily due to decreased labor costs, participation expenses and revenue tax expenses. Participation expense consists of fees paid to game owners for use of their games.

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Hotel

Hotel revenues decreased 6.5% to $43.5 million for the nine months ended September 30, 2010 from $46.5 million for the nine months ended September 30, 2009. The decrease in revenues is primarily the result of lower occupancy for the Stratosphere and Arizona Charlie’s properties and a decreased average daily room rate at the Stratosphere and Arizona Charlie’s Decatur. Overall room occupancy fell to 68.2% for the nine months ended September 30, 2010 compared to 70.1% for the nine months ended September 30, 2009 and the average daily room rate decreased 3.0% for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. The decrease in both occupancy and average daily room rate at our Las Vegas properties is primarily a result of sharp decreases in rates across our markets, an increase in Las Vegas citywide room inventories, and an increased reliance on wholesale room sales. In addition, Stratosphere began a room renovation in July 2010. After adjusting for the rooms that were out of order, overall occupancy increases to 70.9% for the nine months ended September 30, 2010. Due to increased marketing and direct mail efforts our complimentary sales increased for the nine months ended September 30, 2010, while our cash room sales declined. Our comp room sales increased 10.5% and our cash room sales decreased 7.3% for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. Our hotel expenses were down 3.0% to $25.7 million for the nine months ended September 30, 2010, compared to $26.5 million for the nine months ended September 30, 2009. This decrease was primarily due to decreased labor costs. Due to the decline in revenues, our hotel operating margin decreased to 40.9% for the nine months ended September 30, 2010 as compared to 43.0% for the nine months ended September 30, 2009.

Food & Beverage

Food and beverage revenues decreased 10.0% to $51.2 million for the nine months ended September 30, 2010 compared to $56.9 million for the nine months ended September 30, 2009. The decline in revenues was driven largely by the reduction in food and beverage covers at our properties. Food covers and beverage covers for the nine months ended September 30, 2010 decreased 14.4% and 9.8%, respectively, compared to the nine months ended September 30, 2009. During the period, Stratosphere remodeled Roxy’s, its 24 hour food service outlet. While being remodeled Roxy’s was relocated to a less visible location and covers declined approximately 30% during July and August compared to January through June. Average revenue per cover for the nine months ended September 30, 2010 increased 5.2% compared to the nine months ended September 30, 2009. Our food and beverage expenses decreased 8.8% to $38.5 million for the nine months ended September 30, 2010 compared to $42.2 million for the nine months ended September 30, 2009 due to an overall decrease in our food and beverage variable costs and payroll and related expenses. As a result, our food and beverage operating margin decreased to 24.8% for the nine months ended September 30, 2010 as compared to 25.8% for the nine months ended September 30, 2009.

Tower, Retail and Other

Tower, retail and other revenues decreased 4.9% to $25.4 million for the nine months ended September 30, 2010 from $26.7 million for the nine months ended September 30, 2009. Tower revenues increased 11.6% for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009. The primary reason for the increase in Tower revenues for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 was the introduction of the Sky Jump Las Vegas ride. Entertainment revenue declined 31.2% for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009. The decrease in revenue was due to reduced showroom occupancy at the Stratosphere and Aquarius and a reduction in the number of events at the Aquarius. Retail revenue decreased 25.1% for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009. Retail revenues declined due to rent concessions and increased tenant vacancies. Other operating expenses decreased 3.9% to $9.9 million for the nine months ended September 30, 2010, compared to $10.3 million for the nine months ended September 30, 2009. This decrease was primarily due to a decrease in operating costs associated with entertainment, entertainer fees and bad debt expenses. Entertainer fees declined due to the decline in entertainment revenues and the reduction in events at the Aquarius.

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 decreased to 11.7% for the nine months ended September 30, 2010 from 12.1% for the nine months ended September 30, 2009. This decrease was primarily due to reduced marketing promotions, especially at the Stratosphere and Arizona Charlie’s Decatur.

Selling, General and Administrative (‘‘SG&A’’)

Selling, general and administrative expenses are primarily comprised of payroll, marketing, advertising, utilities and other administrative expenses. These expenses decreased 4.7% to $83.8 million, or 30.3% of gross revenues, for the nine months ended September 30, 2010, compared to $87.9 million, or 29.7% of gross revenues for the nine months ended September 30, 2009. This decrease was primarily due to lower utilities, advertising, legal fees, bank charges, property taxes, costs associated with insurance and other efficiencies. We also incurred expenses of $252,000 to appeal our property taxes and we accrued $900,000 to our discretionary management bonus pool, which we will continue to evaluate throughout the year.

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Pre-opening Expense

We incurred $283,000 in pre-opening costs for the nine months ended September 30, 2010.  Pre-opening costs were primarily comprised of marketing related expenses, labor costs and supplies for Sky Jump Las Vegas. Sky Jump Las Vegas opened to the public on April 21, 2010.

Impairment of Assets

In accordance with Financial Accounting Standards Board, or FASB ASC 350, Goodwill and Other Intangible Assets, we perform an annual impairment test of indefinite-lived intangible assets in the fourth quarter of each year and whenever a triggering event occurs which causes us to perform an impairment test. During the three months ended June 30, 2010, due to continued weakness in consumer spending, increased room supply in the Las Vegas market and decreased spending by visitors to the Stratosphere we revised our Stratosphere revenue forecasts. We considered this revision to Stratosphere’s forecasted revenues to be a triggering event. As of June 30, 2010 we performed impairment tests that resulted in the non-cash write-down of the Stratosphere trade names of $2.0 million.  The impairment of these assets was due primarily to our decrease in revenues, which was an indication that these assets may not be recoverable. We believe the on-going economic recession in the U.S. and Southern Nevada economies has reduced overall industry valuations.

Interest Expense

Interest expense increased 20.4% to $34.2 million for the nine months ended September 30, 2010, compared to $28.4 million for the nine months ended September 30, 2009. The increase was due primarily to the restructuring of the Goldman Term Loans and issuance of our 11% Senior Secured Notes. For the nine months ended September 30, 2009 we did not report any interest expense related to the 2014 Term Loans on our consolidated statements of operations. Interest payments totaling $6.2 million during the nine months ended September 30, 2009 were accounted for as a reduction to the outstanding balance of the 2014 Term Loans in accordance with FASB ASC 470-60.

Financial Condition

Liquidity and Capital Resources

The following liquidity and capital resources discussion contains certain forward-looking statements with respect to our business, financial condition, results of operations, dispositions, acquisitions, renovation projects and our subsidiaries, which involve risks and uncertainties that cannot be predicted or quantified, and consequently, actual results may differ materially from those expressed or implied herein. Such risks and uncertainties include, but are not limited to, financial market risks, the ability to maintain existing management, competition within the gaming industry, the cyclical nature of the hotel business and gaming business, economic conditions, regulatory matters and litigation and other risks described in our filings with the SEC. In addition, renovation projects entail significant risks, including shortages of materials or skilled labor, unforeseen regulatory problems, work stoppages, weather interference, floods, unanticipated cost increases, and disruption to business. The anticipated costs and construction periods are based on budgets, conceptual design documents and construction schedule estimates. There can be no assurance that the budgeted costs or construction period will be met. All forward-looking statements are based on our current expectations and projections about future events.

Net cash provided by operating activities was $28.1 million for the nine months ended September 30, 2010 compared to $33.3 million for the nine months ended September 30, 2009. The primary reason for the decrease was the approximate $17.6 million decrease in net revenues.

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During the nine months ended September 30, 2010, our total capital expenditures were $25.0 million (including approximately $2.4 million in non-cash items), of which approximately $3.4 million was spent on slot machine replacements and conversions, $10.6 million on hotel room renovations and upgrades, $1.8 million was spent on the Sky Jump Las Vegas ride, $3.2 million for renovations of our food and beverage venues and public areas and $6.0 million on our facilities, operations and information technology. For the nine months ended September 30, 2009, our total capital expenditures were $10.5 million (including approximately $940,000 in non-cash items), of which we spent approximately $1.7 million on slot machine replacements and conversions, $520,000 to upgrade our information technology, $2.5 million to improve our facilities, and approximately $4.3 million on our hotels, including approximately $3.2 million on the pools at Aquarius and Stratosphere, $286,000 to renovate suites at Stratosphere, and $607,000 to replace our phone switches and consolidate our PBX function.

Our primary cash requirements for the next twelve months are expected to include (i) expenses associated with ongoing day-to-day operations, (ii) interest payments on indebtedness, (iii) payments for design and development costs of future projects, and (iv) regular maintenance and other capital expenditures. We currently anticipate that we will spend approximately $13.2 million on regular maintenance and renovation capital projects between September 30, 2010 and December 31, 2010. Approximately $2.7 million of that amount is associated with regular maintenance of our properties and operations. We are currently evaluating our budgets for 2011. At this time, we anticipate that our capital expenditures for 2011 will be approximately $21.0 million and include approximately $1.7 million for projects that began in 2010, $15.0 million for regular maintenance of our properties, $2.8 million for upgrades to our IT systems, and $1.5 million for other renovations, primarily at our Arizona Charlies properties.

On February 23, 2010, the Issuers completed an exchange offer registered with the SEC in which the Issuers issued approximately $374.9 million aggregate principal amount of their SEC-Registered Notes in exchange for $374.9 million of their Unregistered Notes. The SEC-Registered Notes have substantially identical terms to the Unregistered Notes, except that the SEC-Registered Notes were issued in a transaction registered under the Securities Act. We may from time to time seek to retire or repurchase our outstanding 11% Senior Secured Notes through cash purchases in the open market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.  The amounts involved may be material.

We believe our cash flow from operations and our cash balances will be sufficient to fund our operations, interest payments and capital expenditures for the next 12 months. However, our ability to fund our operations, make payments on our debt and fund planned capital expenditures will depend on our ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control as well as the factors described in the section entitled Risk Factors in Item 1A of our annual report on Form 10-K, filed with the SEC on March 22, 2010 (SEC File No. 000-52975).

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Recently Issued Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board, or FASB, issued guidance that clarifies and requires new disclosures about fair value measurements in Accounting Standards Codification, or ASC 815, Derivatives and Hedging, subtopic 10-50-4B for derivative instruments and ASC 320, Investments – Debts and Equity Securities, subtopic 10-50-1B for debt and equity securities. The clarifications and requirement to disclose the amount and reasons for significant transfers in and out of Level 1 and Level 2, as well as significant transfers in and out of Level 3 of the fair value hierarchy were adopted by us in the first quarter of 2010. The new guidance also requires that purchases, sales, issuances and settlements be presented gross in the Level 3 reconciliation and that requirement is effective for the fiscal years beginning after December 15, 2010 and for interim periods within those years, with early adoption permitted. We early adopted the disaggregation guidance on January 1, 2010. Since this new guidance only amends the disclosures requirements, it did not impact our consolidated balance sheet, statement of operations or statement of cash flows.

In April 2010, the FASB issued Accounting Standards Update 2010-16, Accruals for Casino Jackpot Liabilities, which clarifies that an entity should not accrue jackpot liabilities before they are won if the payout can be avoided. This guidance will be applied prospectively with a cumulative-effect adjustment in members’ equity at the beginning of the period of adoption and is effective beginning with our first quarter of 2011. There will be no impact to our results of operations, financial position or cash flows related to the adoption of this guidance.

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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. Our primary risk exposure relates to interest rate risk. All of our long-term debt is subject to fixed rates of interest at 11% and does not mature until June 15, 2014.

The fair value of our debt is estimated based on the quoted market prices for the same or similar issues. ACEP issued the Unregistered Notes on August 14, 2009. The estimated fair value of the 11% Senior Secured Notes was approximately $366.6 million as of September 30, 2010.

For the nine months ended September 30, 2010, we incurred approximately $34.2 million in interest expense.

We do not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure.

Item 4T. Controls and Procedures

Our principal executive officer and principal financial officer, based on their evaluation of our disclosure controls and procedures (as such terms are defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q, have concluded that our disclosure controls and procedures are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in our internal control over financial reporting that occurred during the first nine months of 2010 that have materially affected, or are 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 certain 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.

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PART II-OTHER INFORMATION

You should also read, among other things, the risks and uncertainties described in the section entitled Risk Factors in Item 1A of our annual report on Form 10-K, filed with the SEC on March 22, 2010 (SEC File No. 000-52975). There were no material changes to those risk factors during the three months ended September 30, 2010.

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.

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SIGNATURES

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

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

By:	/s/ EDWARD W. MARTIN, III
	Edward W. Martin, III
	Authorized Officer, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
Date:	November 12, 2010

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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.

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EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

    I, Edward W. Martin, III, Chief Financial Officer and Treasurer of American Casino & Entertainment Properties LLC, certify that:

    1. I have reviewed this quarterly report on Form 10-Q of American Casino & Entertainment Properties LLC (the “Registrant”) for the period ended September 30, 2010 (the “Report”);

    2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

    3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

    4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

d) disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

    5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

By:	/s/  Edward W. Martin, III
	Edward W. Martin, III
	Chief Financial Officer and Treasurer of
	American Casino & Entertainment Properties LLC
Date:	November 12, 2010

EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

I, Frank V. Riolo, Chief Executive Officer of American Casino & Entertainment Properties LLC (the “Company”), hereby certify that, to the best of my knowledge, on the date hereof:

(a) the Quarterly Report on Form 10-Q of the Company for the three months ended September 30, 2010 filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ FRANK V. RIOLO
	Frank V. Riolo
	Chief Executive Officer of
	American Casino & Entertainment Properties LLC

Date: November 12, 2010

EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

I, Edward W. Martin, III, Chief Financial Officer and Treasurer of American Casino & Entertainment Properties LLC (the “Company”), hereby certify that, to the best of my knowledge, on the date hereof:

(a) the Quarterly Report on Form 10-Q of the Company for the three months ended September 30, 2010 filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ EDWARD W. MARTIN, III
	Edward W. Martin, III
	Chief Financial Officer and Treasurer of
	American Casino & Entertainment Properties LLC

Date: November 12, 2010