American Casino & Entertainment Properties LLC - FORM 10-Q

Attached files

file	filename
EX-32.1 - American Casino & Entertainment Properties LLC	v193096_ex32-1.htm
EX-32.2 - American Casino & Entertainment Properties LLC	v193096_ex32-2.htm
EX-31.1 - American Casino & Entertainment Properties LLC	v193096_ex31-1.htm
EX-31.2 - American Casino & Entertainment Properties LLC	v193096_ex31-2.htm

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 June 30, 2010

¨ 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 – June 30, 2010 (unaudited) and December 31, 2009	1

		Condensed Consolidated Statements of Operations (unaudited) – the three months ended June 30, 2010 and June 30, 2009	2

		Condensed Consolidated Statements of Operations (unaudited) – the six months ended June 30, 2010 and June 30, 2009	3

		Condensed Consolidated Statements of Cash Flows (unaudited) – the six months ended June 30, 2010 and June 30, 2009	4

		Condensed Consolidated Statement of Members’ Equity (unaudited) – the six months ended June 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

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, 2010		December 31, 2009
	(Unaudited)
	(In thousands)
Assets
Current Assets:
Cash and cash equivalents	$	101,812	$	101,092
Investments-restricted		1,171		1,857
Accounts receivable, net		3,224		3,250
Other current assets		11,341		10,418
Total Current Assets		117,548		116,617
Property and equipment, net		1,137,759		1,146,796
Debt issuance costs, net		3,186		2,940
Intangible and other assets		20,741		22,606
Total Assets	$	1,279,234	$	1,288,959

Liabilities and Members' Equity
Current Liabilities:
Accounts payable	$	3,854	$	3,236
Accrued expenses		17,677		18,646
Accounts payable and accrued expenses - related party		43		200
Accrued payroll and related expenses		10,094		10,818
Current portion of capital lease obligations		269		263
Total Current Liabilities		31,937		33,163

Long-Term Liabilities:
Long-term debt, net of unamortized discount		353,460		351,436
Capital lease obligations, less current portion		2,059		2,195
Total Long-Term Liabilities		355,519		353,631

Total Liabilities		387,456		386,794

Commitments and Contingencies

Members' Equity:
Members' Equity		891,778		902,165
Total Members' Equity		891,778		902,165
Total Liabilities and Members' Equity	$	1,279,234	$	1,288,959

See notes to condensed consolidated financial statements.

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three months ended June 30, 2010			Three months ended June 30, 2009
	(Unaudited)
	(In thousands)
Revenues:
Casino	$	51,319		$	55,905
Hotel		15,307			16,182
Food and beverage		17,486			19,539
Tower, retail and other		8,546			9,148
Gross revenues		92,658			100,774
Less promotional allowances		6,129			6,623
Net revenues		86,529			94,151

Costs And Expenses:
Casino		16,629			17,742
Hotel		8,632			9,024
Food and beverage		12,997			14,417
Other operating expenses		3,386			3,547
Selling, general and administrative		27,664			28,127
Depreciation and amortization		10,922			10,537
Pre-opening costs		129			-
Loss on sale of assets		23			563
Management fee - related party		375			250
Impairment of assets		2,000			-
Total costs and expenses		82,757			84,207

Income From Operations		3,772			9,944

Other Income (Expense):
Interest income		4			19
Interest expense		(11,471	)		(605	)
Interest expense - related party		-			(10,202	)
Total other expense, net		(11,467	)		(10,788	)

Net Loss	$	(7,695	)	$	(844	)

See notes to condensed consolidated financial statements.

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Six months ended June 30, 2010			Six months ended June 30, 2009
	(Unaudited)
	(In thousands)
Revenues:
Casino	$	107,222		$	115,356
Hotel		29,152			31,163
Food and beverage		34,508			38,185
Tower, retail and other		15,837			17,340
Gross revenues		186,719			202,044
Less promotional allowances		12,417			14,203
Net revenues		174,302			187,841

Costs And Expenses:
Casino		33,797			36,669
Hotel		16,789			17,335
Food and beverage		25,855			27,671
Other operating expenses		6,416			6,996
Selling, general and administrative		54,492			56,983
Depreciation and amortization		21,534			20,439
Pre-opening costs		283			-
Loss on sale of assets		4			578
Management fee - related party		750			1,000
Impairment of assets		2,000			-
Total costs and expenses		161,920			167,671

Income From Operations		12,382			20,170

Other Income (Expense):
Interest income		8			59
Interest expense		(22,777	)		(1,280	)
Interest expense - related party		-			(21,398	)
Total other expense, net		(22,769	)		(22,619	)

Net Loss	$	(10,387	)	$	(2,449	)

See notes to condensed consolidated financial statements.

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six months ended June 30, 2010			Six months ended June 30, 2009
	(Unaudited)
	(In thousands)
Cash Flows From Operating Activities:
Net loss	$	(10,387	)	$	(2,449	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		21,534			20,439
Amortization of debt issuance costs		2,359			3,851
Loss on sale of assets		4			578
Loss on asset impairment		2,000			-
Changes in operating assets and liabilities:
Restricted Cash		-			1,317
Accounts receivable, net		26			591
Other assets		(923	)		(1,073	)
Accounts payable and accrued expenses		(1,972	)		(4,861	)
Related party activity, net		(157	)		(1,163	)
Net Cash Provided by Operating Activities		12,484			17,230

Cash Flows From Investing Activities:
Decrease in investments - restricted		686			-
Acquisition of property and equipment		(11,192	)		(6,711	)
Increase in intangible assets		(645	)		-
Proceeds from sale of property and equipment		98			191
Net Cash Used in Investing Activities		(11,053	)		(6,520	)

Cash Flows From Financing Activities:
Debt issuance costs		(581	)		-
Debt issuance costs - related party		-			(12,727	)
Payments on capital lease obligation		(130	)		(236	)
Equity Contribution		-			35,000
Net Cash Provided by (Used) in Financing Activities		(711	)		22,037

Net increase in cash and cash equivalents		720			32,747
Cash and cash equivalents - beginning of period		101,092			30,366
Cash and cash equivalents - end of period	$	101,812		$	63,113

Supplemental Disclosures of Cash Flow Information:

Cash paid during the period for interest, net of amounts capitalized	$	20,417		$	49
Cash paid during the period for interest - related party, net of amounts capitalized	$	-		$	19,973

Supplemental Disclosures of Non-Cash Items:

Accrued intangible assets	$	400		$	-
Accrued capital expenditures	$	497		$	-
Non-cash acquisition of property and equipment	$	-		$	940
Non-cash equity contribution related to troubled debt restructure	$	-		$	520,186

See notes to condensed consolidated financial statements.

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		-		(10,387	)		(10,387	)
Balances at June 30, 2010	$	-	$	891,778		$	891,778

See notes to condensed consolidated financial statements.

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.

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.

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 six months ended June 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 Goldman Term Loans of approximately $8.9 million for the three months ended June 30, 2009 and approximately $18.8 million for the six months ended June 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.

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 six months ended June 30, 2009. We received approximately $80,000 in Hotel revenues, $31,000 in Casino revenues, $46,000 in Food and beverage revenues, and $113,000 in Tower, retail, and other revenues for the three months ended June 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 six months ended June 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 received Tower, retail and other revenues of $375,000 for rent under the lease agreement for the three months ended June 30, 2009. Stratosphere received Tower, retail and other revenues of $750,000 for rent under the lease agreement for the six months ended June 30, 2009. CRI owed us $184,000 as of June 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 and $250,000 for the three months ended June 30, 2010 and June 30, 2009, respectively. We incurred Highgate fees of approximately $750,000 and $1.0 million for the six months ended June 30, 2010 and June 30, 2009, respectively. We incurred no development fees for either the three months or six months ended June 30, 2010 and June 30, 2009. As of June 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. We expensed fees of approximately $107,000 and $126,000 for the three months ended June 30, 2010 and June 30, 2009, respectively. We expensed fees of approximately $209,000 and $305,000 for the six months ended June 30, 2010 and June 30, 2009, respectively. As of June 30, 2010 and December 31, 2009, we owed TTL approximately $34,000 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 $1,000 and $37,000 for the three months ended June 30, 2010 and June 30, 2009, respectively. We expensed fees of approximately $24,000 and $38,000 for the six months ended June 30, 2010 and June 30, 2009, respectively. As of June 30, 2010 and December 31, 2009, we owed Archon approximately $4,000 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 $12,000 and $7,000 for the three months ended June 30, 2010 and June 30, 2009, respectively. We expensed fees of approximately $24,000 and $14,000 for the six months ended June 30, 2010 and June 30, 2009, respectively. As of June 30, 2010 and December 31, 2009, we owed Nor1 approximately $6,000 and $1,000, respectively.

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 June 30, 2010 and December 31, 2009, we had the following intangible assets.

		(in thousands)
		June 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	$	(3,476	)	$	3,974	$	7,450	$	(2,731	)	$	4,719
Non-Compete Agreement	38 Months		1,045		(165	)		880		-		-			-
		$	8,495	$	(3,641	)	$	4,854	$	7,450	$	(2,731	)	$	4,719
Non-amortizing intangible assets:
Trade Name							$	15,797						$	17,797
Total intangible assets							$	20,651						$	22,516

Note 5. Debt

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

	As of			As of
	June 30, 2010			December 31, 2009
	(Unaudited)
	(In thousands)
11% Senior Secured Notes due June 15, 2014	$	375,000		$	375,000
Unamortized discount		(21,540	)		(23,564	)
Capital lease obligations		2,328			2,458
Total long-term debt and capital lease obligations		355,788			353,894
Current portion of capital lease obligations		269			263
Total long-term debt and capital lease obligations, net	$	355,519		$	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.

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 $354.4 million as of June 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.

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.

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.

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.

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

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

	Three months ended			Three months ended
	June 30, 2010			June 30, 2009
	(in millions)
Income Statement Data:
Revenues:
Casino	$	51.3		$	55.9
Hotel		15.3			16.2
Food and beverage		17.5			19.5
Tower, retail and other		8.6			9.1
Gross revenues		92.7			100.7
Less promotional allowances		6.1			6.6
Net revenues		86.6			94.1

Costs and expenses:
Casino		16.6			17.7
Hotel		8.6			9.0
Food and beverage		13.0			14.4
Other operating expenses		3.4			3.6
Selling, general and administrative		28.2			29.0
Pre-opening costs		0.1			-
Depreciation and amortization		10.9			10.5
Impairment of assets		2.0			-
Total costs and expenses		82.8			84.2
Income from operations	$	3.8		$	9.9

EBITDA Reconciliation:
Net loss	$	(7.7	)	$	(0.8	)
Interest income		-			-
Interest expense		11.5			10.8
Depreciation and amortization		10.9			10.5
EBITDA	$	14.7		$	20.5

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.

Our consolidated gross revenues decreased 7.9% to $92.7 million for the three months ended June 30, 2010 from $100.7 million for the three months ended June 30, 2009. Generally weak economic conditions, increased personal and business bankruptcies, increased unemployment, difficult consumer credit markets, reductions in airline capacity and passenger volumes to Las Vegas’ McCarran International Airport, and declining consumer confidence have all precipitated an economic slowdown which has negatively impacted our operations. In addition, the high level of unemployment and declining real estate values in Clark County, Nevada have had a significant negative impact on our properties which cater to local customers. In addition, as of May 31, 2010, Las Vegas room inventories have experienced a 5.6% increase that has negatively impacted room rates and occupancy throughout Las Vegas, despite the Las Vegas Convention and Visitors Authority reports of year-over-year increases in visitation.

Our consolidated income from operations decreased 61.6% to $3.8 million for the three months ended June 30, 2010 as compared to $9.9 million for the three months ended June 30, 2009. The decrease is due to a decrease in revenues as a result of the general economic slowdown and increase in rooms in Las Vegas discussed above. As a result, our consolidated operating margin decreased to 4.4% for the three months ended June 30, 2010 from 10.5% for the three months ended June 30, 2009. Our EBITDA for the three months ended June 30, 2010 decreased 28.3% to $14.7 million compared to $20.5 million for the three months ended June 30, 2009. The business environment in Southern Nevada continues to be impacted by lower occupancy and decrease visitor spend.

Both our income from operations and EBITDA were affected by our declining revenues; however, we also incurred expenses that we did not incur in the three months ended June 30, 2009. During the three months ended June 30, 2010, we incurred pre-opening expenses of approximately $129,000 related to Sky Jump Las Vegas, which is a harnessed “controlled free-fall” from the top of the Stratosphere Tower. In addition, we recognized a $2.0 million non-cash charge for impairment of intangible assets during the three months ended June 30, 2010. We also incurred $182,000 in licensing costs associated with the Board of Directors.

Casino

Casino revenues consist of revenues from slot machines, table games, poker, race and sports book, bingo and keno. Casino revenues decreased 8.2% to $51.3 million for the three months ended June 30, 2010, compared to $55.9 million for the three months ended June 30, 2009. This decrease was primarily due to a 3.4% decrease in slot coin-in, a decrease in slot hold percentage to 6.7% from 7.1%, and a 9.8% decrease in table drop. For the three months ended June 30, 2010, slot machine revenues were 85.0% of casino revenues, and table game revenues were 12.3% of casino revenues, compared to 84.6% and 12.0% of casino revenues, respectively, for the three months ended June 30, 2009. Other casino revenues, consisting of race and sports book, poker, bingo and keno, decreased 26.3% for the three months ended June 30, 2010 compared to the three months ended June 30, 2009. The reduction in other casino revenues were driven by an 8.9% reduction in race and sports book handle and a 1.8% lower hold percentage, and lower bingo and poker revenues. Casino operating expenses decreased 6.2% to $16.6 million, for the three months ended June 30, 2010, from $17.7 million for the three months ended June 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.

Hotel

Hotel revenues decreased 5.6% to $15.3 million for the three months ended June 30, 2010 from $16.2 million for the three months ended June 30, 2009. The decrease in revenues is primarily the result of lower occupancy and average daily room rate for the Stratosphere and Arizona Charlie’s properties. Overall room occupancy fell to 70.9% for the three months ended June 30, 2010 compared to 72.1% for the three months ended June 30, 2009 and the average daily room rate decreased 2.9% for the three months ended June 30, 2010 compared to the three months ended June 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. Due to increased marketing and direct mail efforts our comp room sales increased for the three months ended June 30, 2010, while our cash room sales declined. Our comp room sales increased 26.1% and our cash room sales decreased 7.1% for the three months ended June 30, 2010 compared to the three months ended June 30, 2009. Our hotel expenses were down 4.4% to $8.6 million for the three months ended June 30, 2010, compared to $9.0 million for the three months ended June 30, 2009. The Stratosphere, which accounts for approximately 50% of our 4,895 rooms, maintained occupancy of 91.7% for the three months ended June 30, 2010 compared to 95.5% for the three months ended June 30, 2009. Due to the relatively stable occupancy and the need to maintain guest service, we have not significantly reduced our hotel expenses year-over-year at the Stratosphere. Due to the decline in revenues, our hotel operating margin decreased to 43.8% for the three months ended June 30, 2010 as compared to 44.4% for the three months ended June 30, 2009.

Food & Beverage

Food and beverage revenues decreased 10.3% to $17.5 million for the three months ended June 30, 2010 compared to $19.5 million for the three months ended June 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 June 30, 2010 decreased 17.0% and 11.7%, respectively, compared to the three months ended June 30, 2009. Average revenue per cover for the three months ended June 30, 2010 increased 7.9% compared to the three months ended June 30, 2009. Our food and beverage expenses decreased 9.7% to $13.0 million for the three months ended June 30, 2010 compared to $14.4 million for the three months ended June 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 decreased to 25.7% for the three months ended June 30, 2010 as compared to 26.2% for the three months ended June 30, 2009.

Tower, Retail and Other

Tower, retail and other revenues decreased 5.5% to $8.6 million for the three months ended June 30, 2010 from $9.1 million for the three months ended June 30, 2009. Tower revenues increased 12.4% for the three months ended June 30, 2010, compared to the three months ended June 30, 2009. The primary reason for the increase in Tower revenues was the introduction of the Sky Jump Las Vegas ride. Entertainment revenue declined 34.3% for the three months ended June 30, 2010, compared to the three months ended June 30, 2009. The decrease in revenue was due to reduced showroom occupancy at the Stratosphere and a reduction in the number of events at the Aquarius. Retail revenue decreased 30.6% for the three months ended June 30, 2010, compared to the three months ended June 30, 2009. Retail revenues declined due to rent concessions and increased tenant vacancies. Other operating income increased 2.2% for the three months ended June 30, 2010, compared to the three months ended June 30, 2009. The increase in revenue was primarily due to higher commission revenues. Other operating expenses decreased 5.6% to $3.4 million for the three months ended June 30, 2010, compared to $3.6 million for the three months ended June 30, 2009. This decrease was primarily due to a decrease in entertainer fees and labor costs. 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 increased to 11.9% for the three months ended June 30, 2010 from 11.8% for the three months ended June 30, 2009. This increase was primarily due to increased room promotions at the Stratosphere and the Aquarius.

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 2.8% to $28.2 million, or 30.4% of gross revenues, for the three months ended June 30, 2010, compared to $29.0 million, or 28.8% of gross revenues for the three months ended June 30, 2009. This decrease was primarily due to lower loss on disposal of assets, utilities expenses and marketing related expenses. We also accrued $350,000 to our discretionary management bonus pool, which we will continue to evaluate throughout the year.

Pre-opening Expense

We incurred $129,000 in pre-opening costs for the three months ended June 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

Interest Expense

Interest expense increased 6.5% to $11.5 million for the three months ended June 30, 2010, compared to $10.8 million for the three months ended June 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 June 30, 2009 we did not report any interest expense related to the 2014 Term Loans on our consolidated statements of operations. All outstanding interest payments were accounted for as a reduction to the outstanding balance of the 2014 Term Loans in accordance with FASB ASC 470-60.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

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

	Six months ended			Six months ended
	June 30, 2010			June 30, 2009
	(in millions)
Income Statement Data:
Revenues:
Casino	$	107.2		$	115.4
Hotel		29.2			31.2
Food and beverage		34.5			38.2
Tower, retail and other		15.8			17.3
Gross revenues		186.7			202.1
Less promotional allowances		12.4			14.2
Net revenues		174.3			187.9

Costs and expenses:
Casino		33.8			36.7
Hotel		16.8			17.3
Food and beverage		25.9			27.7
Other operating expenses		6.4			7.0
Selling, general and administrative		55.2			58.6
Pre-opening costs		0.3			-
Depreciation and amortization		21.5			20.4
Impairment of assets		2.0			-
Total costs and expenses		161.9			167.7
Income from operations	$	12.4		$	20.2

EBITDA Reconciliation:
Net loss	$	(10.4	)	$	(2.4	)
Interest income		-			-
Interest expense		22.8			22.7
Depreciation and amortization		21.5			20.4
EBITDA	$	33.9		$	40.7

Our consolidated gross revenues decreased 7.6% to $186.7 million for the six months ended June 30, 2010 from $202.1 million for the six months ended June 30, 2009. Generally weak economic conditions, increased personal and business bankruptcies, increased unemployment, difficult consumer credit markets, reductions in airline capacity and passenger volumes to Las Vegas’ McCarran International Airport, and declining consumer confidence have all precipitated an economic slowdown which has negatively impacted our operations. In addition, the high level of unemployment and declining real estate values in Clark County, Nevada have had a significant negative impact on our properties which cater to local customers. In addition, as of May 31, 2010, Las Vegas Strip room inventories have experienced a 5.6% increase that has negatively impacted room rates and occupancy throughout Las Vegas.

Our consolidated income from operations decreased 38.6% to $12.4 million for the six months ended June 30, 2010 as compared to $20.2 million for the six months ended June 30, 2009. The decrease is due to a decrease in revenues as a result of the general economic slowdown and increase in rooms in Las Vegas discussed above. In addition we recognized a $2.0 million non-cash charge for impairment of intangible assets during the six months ended June 30, 2010. As a result, our consolidated operating margin decreased to 7.1% for the six months ended June 30, 2010 from 10.8% for the six months ended June 30, 2009. Our EBITDA for the six months ended June 30, 2010 decreased 16.7% to $33.9 million compared to $40.7 million for the six months ended June 30, 2009. The business environment in Southern Nevada continues to be impacted by lower occupancies and decreased visitor spend.

Both our income from operations and EBITDA were affected by our declining revenues; however, we also incurred expenses that we did not incur in the six months ended June 30, 2009. During the six months ended June 30, 2010, we 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 also expensed approximately $252,000 to appeal our property taxes, approximately $182,000 in regulatory fees, and we accrued approximately $550,000 to our discretionary bonus pool, which we will continue to evaluate throughout the year.

Casino

Casino revenues consist of revenues from slot machines, table games, poker, race and sports book, bingo and keno. Casino revenues decreased 7.1% to $107.2 million for the six months ended June 30, 2010, compared to $115.4 million for the six months ended June 30, 2009. This decrease was primarily due to a 4.4% decrease in slot coin-in and a 9.9% decrease in table drop. For the six months ended June 30, 2010, slot machine revenues were 84.3% of casino revenues, and table game revenues were 12.2% of casino revenues, compared to 84.5% and 11.6% of casino revenues, respectively, for the six months ended June 30, 2009. Other casino revenues, consisting of race and sports book, poker, bingo and keno, decreased 17.8% for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. The primary reason for the decline was a 13.3% decrease in race and sports book handle and lower poker and bingo revenues. Casino operating expenses decreased 7.9% to $33.8 million, for the six months ended June 30, 2010, from $36.7 million for the six months ended June 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.

Hotel

Hotel revenues decreased 6.4% to $29.2 million for the six months ended June 30, 2010 from $31.2 million for the six months ended June 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 68.5% for the six months ended June 30, 2010 compared to 70.4% for the six months ended June 30, 2009 and the average daily room rate decreased 2.9% for the six months ended June 30, 2010 compared to the six months ended June 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. Our hotel expenses were down 2.9% to $16.8 million for the six months ended June 30, 2010, compared to $17.3 million for the six months ended June 30, 2009. The Stratosphere, which accounts for approximately 50% of our 4,895 rooms, maintained occupancy of 88.0% for the six months ended June 30, 2010 compared to 92.9% for the six months ended June 30, 2009. Due to the relatively stable occupancy and the need to maintain guest service, we have not significantly reduced our hotel expenses year-over-year at the Stratosphere Due to the decline in revenues, our hotel operating margin decreased to 42.5% for the six months ended June 30, 2010 as compared to 44.6% for the six months ended June 30, 2009.

Food & Beverage

Food and beverage revenues decreased 9.7% to $34.5 million for the six months ended June 30, 2010 compared to $38.2 million for the six months ended June 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 six months ended June 30, 2010 decreased 12.3% and 10.1%, respectively, compared to the six months ended June 30, 2009. Average revenue per cover for the six months ended June 30, 2010 increased 3.0% compared to the six months ended June 30, 2009. Our food and beverage expenses decreased 6.5% to $25.9 million for the six months ended June 30, 2010 compared to $27.7 million for the six months ended June 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 decreased to 24.9% for the six months ended June 30, 2010 as compared to 27.5% for the six months ended June 30, 2009.

Tower, Retail and Other

Tower, retail and other revenues decreased 8.7% to $15.8 million for the six months ended June 30, 2010 from $17.3 million for the six months ended June 30, 2009. Tower revenues increased 7.0% for the six months ended June 30, 2010, compared to the six months ended June 30, 2009. The primary reason for the increase in Tower revenues for the six months ended June 30, 2010 compared to the six months ended June 30, 2009 was the introduction of the Sky Jump Las Vegas ride. Entertainment revenue declined 30.4% for the six months ended June 30, 2010, compared to the six months ended June 30, 2009. The decrease in revenue was due to reduced showroom occupancy at the Stratosphere and a reduction in the number of events at the Aquarius. Retail revenue decreased 30.2% for the six months ended June 30, 2010, compared to the six months ended June 30, 2009. Retail revenues declined due to rent concessions and increased tenant vacancies. Other operating income increased 3.2% for the six months ended June 30, 2010, compared to the six months ended June 30, 2009. The increase in revenue was primarily due to higher commission revenues. Other operating expenses decreased 8.6% to $6.4 million for the six months ended June 30, 2010, compared to $7.0 million for the six months ended June 30, 2009. This decrease was primarily due to a decrease in entertainer fees and labor costs. 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 11.6% for the six months ended June 30, 2010 from 12.3% for the six months ended June 30, 2009. This decrease was primarily due to reduced marketing promotions, especially at the Stratosphere and the Aquarius.

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 5.8% to $55.2 million, or 29.6% of gross revenues, for the six months ended June 30, 2010, compared to $58.6 million, or 29.0% of gross revenues for the six months ended June 30, 2009. This decrease was primarily due to lower labor costs and marketing related expenses. We also incurred expenses of $252,000 to appeal our property taxes and we accrued $550,000 to our discretionary management bonus pool, which we will continue to evaluate throughout the year.

Pre-opening Expense

We incurred $283,000 in pre-opening costs for the six months ended June 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

Interest Expense

Interest expense increased 0.4% to $22.8 million for the six months ended June 30, 2010, compared to $22.7 million for the six months ended June 30, 2009. The increase was due primarily to the restructuring of the Goldman Term Loans and issuance of our 11% Senior Secured Notes.

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 $12.5 million for the six months ended June 30, 2010 compared to $17.2 million for the six months ended June 30, 2009. The primary reason for the decrease was the approximate $13.6 million decrease in net revenues.

During the six months ended June 30, 2010, our total capital expenditures were $11.7 million (including approximately $497,000 in non-cash items), of which approximately $2.4 million was spent on slot machine replacements and conversions, $2.3 million on hotel room renovations and upgrades, $1.7 million was spent on the Sky Jump Las Vegas ride, $2.5 million for renovations of our food and beverage venues and public areas and $2.8 million on our facilities, operations and information technology. For the six months ended June 30, 2009, our total capital expenditures were $7.7 million (including approximately $940,000 in non-cash items), of which approximately $2.2 million was used on pool renovations at the Stratosphere, $720,000 for pool renovations at the Aquarius, $980,000 on slot machines and conversions, $380,000 on renovations for our food and beverage venues, $470,000 to replace our phone switches and approximately $2.9 million on our facilities, operations, and information technology.

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 $31.0 million on regular maintenance and renovation capital projects between June 30, 2010 and December 31, 2010. Approximately $11.0 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 regular maintenance during the first six months of 2011 will be consistent with our capital expenditures for regular maintenance of approximately $8.7 million during the first six months of 2010.

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

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 $354.4 million as of June 30, 2010.

For the six months ended June 30, 2010, we incurred approximately $22.8 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 six 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.

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 June 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.

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:	August 11, 2010

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.

American Casino & Entertainment Properties LLC - FORM 10-Q - August 11, 2010

Attached files

American Casino & Entertainment Properties LLC Reports