American Casino & Entertainment Properties LLC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - American Casino & Entertainment Properties LLC	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - American Casino & Entertainment Properties LLC	v238542_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - American Casino & Entertainment Properties LLC	v238542_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - American Casino & Entertainment Properties LLC	v238542_ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - American Casino & Entertainment Properties LLC	v238542_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 September 30, 2011

¨ 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	1

	Item 1.	Unaudited Condensed Consolidated Financial Statements	1

		Condensed Consolidated Balance Sheets –September 30, 2011 (unaudited) and December 31, 2010	1

		Condensed Consolidated Statements of Operations (unaudited) – the three months ended September 30, 2011 and September 30, 2010	2

		Condensed Consolidated Statements of Operations (unaudited) – the nine months ended September 30, 2011 and September 30, 2010	3

		Condensed Consolidated Statements of Cash Flows (unaudited) – the nine months ended September 30, 2011 and September 30, 2010	4

		Condensed Consolidated Statement of Members’ Equity (unaudited) – the nine months ended September 30, 2011	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 4.	Controls and Procedures	21

Part II		Other Information	22

	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
	September 30, 2011		December 31, 2010
	(Unaudited)
	(In thousands)
Assets
Current Assets:
Cash and cash equivalents	$	87,293	$	85,311
Investments-restricted		211		1,171
Accounts receivable, net		3,542		3,290
Accounts receivable, net - related party		199		93
Other current assets		11,716		9,935
Total Current Assets		102,961		99,800
Property and equipment, net		1,114,955		1,133,848
Debt issuance costs, net		2,230		2,866
Intangible and other assets		18,564		19,889
Total Assets	$	1,238,710	$	1,256,403

Liabilities and Members' Equity
Current Liabilities:
Accounts payable	$	5,071	$	4,828
Accrued expenses		26,105		17,870
Accounts payable and accrued expenses - related party		21		12
Accrued payroll and related expenses		12,169		10,462
Current portion of capital lease obligations		286		276
Total Current Liabilities		43,652		33,448

Long-Term Liabilities:
Long-term debt, net of unamortized discount		341,169		355,618
Capital lease obligations, less current portion		1,703		1,919
Total Long-Term Liabilities		342,872		357,537

Total Liabilities		386,524		390,985

Commitments and Contingencies

Members' Equity:
Members' Equity		852,186		865,418
Total Members' Equity		852,186		865,418
Total Liabilities and Members' Equity	$	1,238,710	$	1,256,403

See notes to condensed consolidated financial statements.

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three months ended September 30, 2011			Three months ended September 30, 2010
	(Unaudited)
	(In thousands)
Revenues:
Casino	$	49,238		$	48,907
Hotel		17,184			14,283
Food and beverage		17,505			16,702
Tower, retail, entertainment and other		8,950			9,596
Gross revenues		92,877			89,488
Less promotional allowances		6,205			5,922
Net revenues		86,672			83,566

Costs And Expenses:
Casino		16,430			16,320
Hotel		9,124			8,879
Food and beverage		13,052			12,678
Other operating expenses		3,041			3,460
Selling, general and administrative		28,508			28,148
Depreciation and amortization		9,403			11,208
(Gain) loss on disposal of assets		32			(10	)
Management fee - related party		250			375
Total costs and expenses		79,840			81,058

Income From Operations		6,832			2,508

Other Income (Expense):
Interest income		1			-
Interest expense		(11,062	)		(11,385	)
Total other expense, net		(11,061	)		(11,385	)

Net Loss	$	(4,229	)	$	(8,877	)

See notes to condensed consolidated financial statements.

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Nine months ended September 30, 2011			Nine months ended September 30, 2010
	(Unaudited)
	(In thousands)
Revenues:
Casino	$	153,166		$	156,129
Hotel		49,288			43,435
Food and beverage		51,812			51,210
Tower, retail, entertainment and other		24,593			25,433
Gross revenues		278,859			276,207
Less promotional allowances		18,288			18,339
Net revenues		260,571			257,868

Costs And Expenses:
Casino		49,915			50,117
Hotel		26,439			25,668
Food and beverage		38,658			38,533
Other operating expenses		9,209			9,876
Selling, general and administrative		83,188			82,640
Depreciation and amortization		30,062			32,742
Pre-opening costs		-			283
(Gain) loss on disposal of assets		65			(6	)
Management fee - related party		819			1,125
Impairment of assets		-			2,000
Total costs and expenses		238,355			242,978

Income From Operations		22,216			14,890

Other Income (Expense):
Loss on debt redemption		(1,378	)		-
Interest income		2			8
Interest expense		(34,072	)		(34,162	)
Total other expense, net		(35,448	)		(34,154	)

Net Loss	$	(13,232	)	$	(19,264	)

See notes to condensed consolidated financial statements.

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ended September 30, 2011			Nine months ended September 30, 2010
	(Unaudited)
	(In thousands)
Cash Flows From Operating Activities:
Net loss	$	(13,232	)	$	(19,264	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		30,062			32,742
Amortization of debt issuance and debt discount costs		3,934			3,578
Loss on debt redemption		1,378			-
(Gain) loss on disposal of assets		65			(6	)
Loss on asset impairment		-			2,000
Changes in operating assets and liabilities:
Accounts receivable, net		(159	)		(93	)
Other assets		(1,821	)		(984	)
Accounts payable and accrued expenses		10,185			10,278
Related party activity, net		(190	)		(183	)
Net Cash Provided by Operating Activities		30,222			28,068

Cash Flows From Investing Activities:
Decrease in investments - restricted		960			686
Acquisition of property and equipment		(9,965	)		(22,636	)
Increase in intangible assets		-			(645	)
Proceeds from sale of property and equipment		96			169
Net Cash Used in Investing Activities		(8,909	)		(22,426	)

Cash Flows From Financing Activities:
Debt issuance costs		-			(581	)
Payments on note payable		(19,125	)		-
Payments on capital lease obligation		(206	)		(196	)
Net Cash Used in Financing Activities		(19,331	)		(777	)

Net increase in cash and cash equivalents		1,982			4,865
Cash and cash equivalents - beginning of period		85,311			101,092
Cash and cash equivalents - end of period	$	87,293		$	105,957

Supplemental Disclosures of Cash Flow Information:

Cash paid during the period for interest, net of amounts capitalized	$	20,420		$	20,271

Supplemental Disclosures of Non-Cash Items:

Accrued intangible assets	$	-		$	400
Accrued capital expenditures	$	-		$	2,356

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, 2010	$	-	$	865,418		$	865,418
Net loss		-		(13,232	)		(13,232	)
Balances at September 30, 2011	$	-	$	852,186		$	852,186

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 owns and operates the Stratosphere Casino Hotel & Tower, or the Stratosphere, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder in Las Vegas, Nevada, and the Aquarius Casino Resort, or the Aquarius, 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 2010 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 2010 consolidated audited financial statements presented in our annual report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 21, 2011 (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 June 2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income. This update requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Presentation of the components of other comprehensive income as part of the statements of changes in members’ equity is no longer permitted. The new guidance requirements are effective for the fiscal years beginning after December 15, 2011 and for interim periods within those years, with early adoption permitted. We expect there to be no impact to our statement of operations or statement of members’ equity upon adoption.

In September 2011, FASB issued Accounting Standards Update 2011-08, Testing Goodwill for Impairment. This update amends prior guidance to allow an entity to first evaluate qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The amended guidance is effective for annual and interim goodwill impairment tests performed for the fiscal years beginning after December 15, 2011. Adoption of this guidance is not expected to have a material impact on our financial statements.

In September 2011, FASB issued Accounting Standards Update 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan. This update applies to employers that participate in multiemployer pension plans and requires employers to disclose the following regarding their involvement in multiemployer pension plans: 1) the significant multiemployer plans in which an employer participates, 2) the level of an employer’s contributions made to the plans and an indication of whether the employer’s contributions are more than five percent (5%) of the total contributions made to the plan by all contributing employers, 3) the financial health of the significant multiemployer plans and 4) the nature of the employer commitments to the plan, including when the collective-bargaining agreements that require contributions to the significant plans are set to expire and whether those agreements require minimum contributions to be made to the plans. In addition, for plans where financial statement users are not able to obtain details from outside sources, an employer is required to provide additional disclosures. These disclosures include: 1) a description of the nature of the plan benefits, 2) a qualitative description of the extent to which the employer could be responsible for the obligations of the plan and 3) other qualitative information, to the extent available, such as total plan assets, actuarial present value of accumulated plan benefits and total contributions received by the plan. These new disclosure requirements are effective for annual periods for the fiscal years ending after December 15, 2011. Accordingly, we will include the expanded disclosures beginning with our December 31, 2011 financial statements.

Note 3. Related Party Transactions

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 $250,000 and $375,000 for the three months ended September 30, 2011 and September 30, 2010, respectively. We incurred Highgate fees of approximately $819,000 and $1.1 million for the nine months ended September 30, 2011 and September 30, 2010, respectively. As of September 30, 2011 and December 31, 2010, we owed Highgate $0. For the three months and nine months ended September 30, 2011, we provided IT consulting services to Highgate of approximately $0 and $14,000, respectively. As of September 30, 2011 and December 31, 2010, Highgate owed us approximately $0 and $4,000, 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%). From June 16, 2008 to July 31, 2010, TTL was 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 $54,000 and $70,000 for the three months ended September 30, 2011 and September 30, 2010, respectively. We expensed fees of approximately $157,000 and $279,000 for the nine months ended September 30, 2011 and September 30, 2010, respectively. As of September 30, 2011 and December 31, 2010, we owed TTL approximately $16,000 and $10,000, 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 $18,000 and $46,000 for the three months ended September 30, 2011 and September 30, 2010, respectively. We expensed fees of approximately $40,000 and $70,000 for the nine months ended September 30, 2011 and September 30, 2010, respectively. In addition, we provided construction management services to Archon for hotels managed by them. We recorded the services as a reduction of general and administrative expenses of approximately $246,000 and $86,000 for the three months ended September 30, 2011 and September 30, 2010, respectively, and $484,000 and $176,000 for the nine months ended September 30, 2011 and September 30, 2010, respectively. As of September 30, 2011 and December 31, 2010, we owed Archon $0. As of September 30, 2011 and December 31, 2010, Archon owed us approximately $199,000 and $89,000, respectively.

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 $5,000 for the three months ended September 30, 2011 and September 30, 2010, respectively. We expensed fees of approximately $35,000 and $29,000 for the nine months ended September 30, 2011 and September 30, 2010, respectively. As of September 30, 2011 and December 31, 2010, we owed Nor1 approximately $5,000 and $2,000, 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

Pursuant to authoritative guidance, indefinite-lived intangible assets are subject to an annual assessment for impairment during the fourth quarter, or more frequently if there are indications of possible impairment, by applying a fair-value-based test.

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.

As of September 30, 2011 and December 31, 2010, we had the following intangible assets.

		(in thousands)
		September 30, 2011							December 31, 2010
		Gross					Net		Gross					Net
	Asset	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
Amortizing intangible assets:	Life	Amount		Amortization			Amount		Amount		Amortization			Amount
Player Loyalty Plan	5 Years		7,450		(5,338	)		2,112		7,450		(4,221	)		3,229
Non-Compete Agreement	38 Months		1,045		(578	)		467		1,045		(330	)		715
		$	8,495	$	(5,916	)	$	2,579	$	8,495	$	(4,551	)	$	3,944

Non-amortizing intangible assets:
Trade Name							$	15,797						$	15,797
							$	18,376						$	19,741

Note 5. Debt

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

	As of			As of
	September 30, 2011			December 31, 2010

	(In thousands)
11% Senior Secured Notes due June 15, 2014	$	356,250		$	375,000
Unamortized discount		(15,081	)		(19,382	)
Capital lease obligations		1,989			2,195
Total long-term debt and capital lease obligations		343,158			357,813
Current portion of capital lease obligations		286			276
Total long-term debt and capital lease obligations, net	$	342,872		$	357,537

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.

On May 31, 2011, the Issuers completed a redemption of five percent (5%) of aggregate principal amount of the 11% Senior Secured Notes pursuant to paragraph 5(b) of the 11% Senior Secured Notes and the redemption provisions of the Indenture (Section 3.07(b)). The redemption price for the 11% Senior Secured Notes was 102% of the principal amount of the 11% Senior Secured Notes redeemed, or $19.1 million, plus accrued interest to the redemption date of approximately $951,000. Interest on the 11% Senior Secured Notes called for redemption ceased to accrue on and after the redemption date. As a result of the redemption, a loss of $1.4 million was recognized. The loss is comprised of the redemption premium of $375,000 and a proportionate write-off of debt issuance and debt discount costs of $1.0 million.

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 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 $356.3 million as of September 30, 2011.

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. As described above, on May 31, 2011 the Issuers elected to redeem 5% of the aggregate principal amount of the 11% Senior Secured Notes.

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 condition, 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, 2010.

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 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 customers, 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 (including video poker). Approximately 53.0% of our gross revenue for the three months ended September 30, 2011 was generated from our gaming operations. Hotel and food and beverage sales generated similar percentages of our gross revenue during the three months ended September 30, 2011, with hotel sales representing 18.5% and food and beverage sales representing 18.8%. 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 September 30, 2011 Compared to Three Months Ended September 30, 2010

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

	Three months ended			Three months ended
	September 30, 2011			September 30, 2010
	(in millions)
Income Statement Data:
Revenues:
Casino	$	49.2		$	48.9
Hotel		17.2			14.3
Food and beverage		17.5			16.7
Tower, retail, entertainment and other		9.0			9.6
Gross revenues		92.9			89.5
Less promotional allowances		6.2			5.9
Net revenues		86.7			83.6

Costs and expenses:
Casino		16.4			16.3
Hotel		9.1			8.9
Food and beverage		13.1			12.7
Other operating expenses		3.0			3.5
Selling, general and administrative		28.8			28.5
Depreciation and amortization		9.4			11.2
Total costs and expenses		79.8			81.1
Income from operations	$	6.9		$	2.5

EBITDA Reconciliation:
Net loss	$	(4.2	)	$	(8.9	)
Interest income		-			-
Interest expense		11.0			11.4
Depreciation and amortization		9.4			11.2
EBITDA	$	16.2		$	13.7

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 increased 3.8% to $92.9 million for the three months ended September 30, 2011 from $89.5 million for the three months ended September 30, 2010. Our consolidated income from operations and EBITDA increased 176.0% and 18.2% to $6.9 million and $16.2 million for the three months ended September 30, 2011 compared to $2.5 million and $13.7 million for the three months ended September 30, 2010. The increases in our gross revenues, income from operations and EBITDA are due primarily to revenue growth for our hotel division caused by higher average daily room rates and market factors, such as the increased visitation to Las Vegas. In addition, casino revenues had their first quarterly year-over-year increase since the first quarter of 2008 due primarily to higher slot coin-in and table drop at the Stratosphere. We spent approximately $103,000 to replace bill validators and monitors on our slot machines, which negatively impacted income from operations. Income from operations for the three months ended September 30, 2011 was positively impacted by lower depreciation and amortization expenses as many property, plant and equipment assets reached the end of their depreciable life during the first three months of 2011.

Casino

Casino revenues consist of revenues from slot machines, table games, poker, race and sports book, bingo and keno. Casino revenues increased 0.6% to $49.2 million for the three months ended September 30, 2011, compared to $48.9 million for the three months ended September 30, 2010. Our slot and table revenues increased 1.2% and 3.4% respectively. Slot revenues increased due to a 0.1% increase in coin-in and a 0.1% increase in the hold percentage while table revenues increased due to a 4.4% increase in table drop while the hold percentage declined 0.1% compared to the three months ended September 30, 2010. For the three months ended September 30, 2011, slot machine revenues were 85.0% of casino revenues, and table game revenues were 12.2% of casino revenues, compared to 84.5% and 11.9% of casino revenues, respectively, for the three months ended September 30, 2010. Other casino revenues, consisting of race and sports book, poker, bingo and keno, decreased 22.2% for the three months ended September 30, 2011 compared to the three months ended September 30, 2010. The decrease in other casino revenues was driven primarily by poor race and sports book results. Race and sports book revenues declined 43.2% compared to the three months ended September 30, 2010 due to a combination of a 4.6% decrease in handle and a 6.1% decrease in hold. In addition, bingo revenues declined 19.1% due to a 5.0% decline in the number of patrons and a 1.2% decrease in hold. Casino operating expenses were $16.4 million for the three months ended September 30, 2011, compared to $16.3 million for the three months ended September 30, 2010. Repairs and maintenance increased approximately $102,000 during the three months ended September 30, 2011 compared to the three months ended September 30, 2010 because we spent approximately $103,000 to replace bill validators and monitors on our slot machines. As a result, our casino operating margin was 66.7% for both the three months ended September 30, 2011 and the three months ended September 30, 2010.

Hotel

Hotel revenues increased 20.3% to $17.2 million for the three months ended September 30, 2011 from $14.3 million for the three months ended September 30, 2010. Overall room occupancy increased to 71.5% for the three months ended September 30, 2011 compared to 67.7% for the three months ended September 30, 2010 and the average daily room rate increased 14.8% for the three months ended September 30, 2011 compared to the three months ended September 30, 2010. All four of our properties increased room revenue and occupancy for the three months ended September 30, 2011 compared to the three months ended September 30, 2010. We believe our ability to increase our average daily room rate and, as a result, increase our hotel revenue is due to increased occupancy and higher room rates in Las Vegas in general and the improved room product at Stratosphere and Aquarius. Our hotel expenses increased 2.2% to $9.1 million for the three months ended September 30, 2011, compared to $8.9 million for the three months ended September 30, 2010 due primarily to higher costs associated with higher occupancy. Due to the increase in revenues, our hotel operating margin increased to 47.1% for the three months ended September 30, 2011 as compared to 37.8% for the three months ended September 30, 2010.

Food & Beverage

Food and beverage revenues increased 4.8% to $17.5 million for the three months ended September 30, 2011, compared to $16.7 million for the three months ended September 30, 2010. Food covers increased 3.1% and beverage covers decreased 1.2% for the three months ended September 30, 2011, respectively, compared to the three months ended September 30, 2010. Average revenue per cover for the three months ended September 30, 2011 increased 1.6% compared to the three months ended September 30, 2010. Our food and beverage expenses increased 3.1% to $13.1 million for the three months ended September 30, 2011 compared to $12.7 million for the three months ended September 30, 2010. Our food and beverage cost of goods sold increased by 2.3 percentage points due to rising product costs in general. Despite rising product costs, our food and beverage operating margin increased to 25.1% for the three months ended September 30, 2011 as compared to 24.0% for the three months ended September 30, 2010.

Tower, Retail, Entertainment and Other

Tower, retail, entertainment and other revenues decreased 6.3% to $9.0 million for the three months ended September 30, 2011 from $9.6 million for the three months ended September 30, 2010. Tower revenues decreased 3.8% for the three months ended September 30, 2011, compared to the three months ended September 30, 2010. Total guest admissions increased 14.1% compared to the three months ended September 30, 2010 but the number of Sky Jump riders decreased 16.1%, leading to a 15.6% decline in average revenue per guest admission. Entertainment revenue declined 50.8% for the three months ended September 30, 2011, compared to the three months ended September 30, 2010. The decrease in revenue was due primarily to the closure of the American Superstars show at the Stratosphere on March 30, 2011. Retail revenue decreased 3.5% for the three months ended September 30, 2011, compared to the three months ended September 30, 2010. Other operating income increased 9.1% for the three months ended September 30, 2011, compared to the three months ended September 30, 2010. The increase in revenue was primarily due to higher ATM commission revenues. Other operating expenses decreased 14.3% to $3.0 million for the three months ended September 30, 2011, compared to $3.5 million for the three months ended September 30, 2010. This decrease was primarily due to a reduction in entertainer fees to American Superstars. Effective November 9, 2011, we will be adding a new show at the Stratosphere, Frankie Moreno Live at Stratosphere, with three performances per week.

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 12.6% for the three months ended September 30, 2011 from 12.1% for the three months ended September 30, 2010. This increase was primarily due to increased room and food and beverage promotions.

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 increased 1.1% to $28.8 million, or 31.0% of gross revenues, for the three months ended September 30, 2011, compared to $28.5 million, or 31.8% of gross revenues for the three months ended September 30, 2010. This increase was primarily due to higher labor costs and advertising and marketing related expenses.

Interest Expense

Interest expense decreased 3.5% to $11.0 million for the three months ended September 30, 2011, compared to $11.4 million for the three months ended September 30, 2010. The decrease was due primarily to the redemption of 5% of the 11% Senior Secured Notes on May 31, 2011.

Nine months ended September 30, 2011 Compared to Nine months ended September 30, 2010

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

	Nine months ended			Nine months ended
	September 30, 2011			September 30, 2010
	(in millions)
Income Statement Data:
Revenues:
Casino	$	153.2		$	156.1
Hotel		49.3			43.5
Food and beverage		51.8			51.2
Tower, retail, entertainment and other		24.6			25.4
Gross revenues		278.9			276.2
Less promotional allowances		18.3			18.3
Net revenues		260.6			257.9

Costs and expenses:
Casino		49.9			50.1
Hotel		26.4			25.7
Food and beverage		38.7			38.5
Other operating expenses		9.2			9.9
Selling, general and administrative		84.1			83.8
Pre-opening costs		-			0.3
Depreciation and amortization		30.1			32.7
Impairment of assets		-			2.0
Total costs and expenses		238.4			243.0
Income from operations	$	22.2		$	14.9

EBITDA Reconciliation:
Net loss	$	(13.2	)	$	(19.3	)
Interest income		-			-
Interest expense		34.0			34.2
Depreciation and amortization		30.1			32.7
EBITDA	$	50.9		$	47.6

Our consolidated gross revenues increased 1.0% to $278.9 million for the nine months ended September 30, 2011 from $276.2 million for the nine months ended September 30, 2010. Our consolidated income from operations and EBITDA increased 49.0% and 6.9% to $22.2 million and $50.9 million for the nine months ended September 30, 2011 compared to $14.9 million and $47.6 million for the nine months ended September 30, 2010. During the nine months ended September 30, 2011, our revenues were impacted by improved visitation and increased room rates in Las Vegas as well as Stratosphere’s renovated rooms and Elevate Your Expectations campaign. These factors have allowed us to improve hotel revenues at all three of our Las Vegas properties. As occupancy and average daily room rate have increased at Stratosphere, both food and beverage and casino revenues have increased. Our Arizona Charlies casino revenues, however, have been negatively impacted by the intense promotional environment in the Las Vegas locals market. The Aquarius was impacted by road construction on Casino Drive that was temporarily halted in July and resumed in September. During the period that construction stopped, Aquarius’ revenues were relatively flat compared to 2010. Income from operations and EBITDA for the nine months ended September 30, 2011 were impacted by the launch of the Elevate Your Expectations advertising campaign for the Stratosphere and an advertising campaign supporting the opening of Ron’s Steakhouse at Arizona Charlie’s Decatur. Advertising expenses for the nine months ended September 30, 2011 were $5.6 million compared to $3.8 million for the nine months ended September 30, 2010. We also spent $178,000 for a Las Vegas Motor Speedway Sponsorship and we spent approximately $400,000 to replace old bill validators and monitors. EBITDA for the nine months ended September 30, 2011 was negatively impacted by a $1.4 million charge for the early redemption of debt related to the voluntary redemption of 5% of our 11% Senior Secured Notes, of which $1.0 million was non-cash. Operating income for the nine months ended September 30, 2011 was positively impacted by lower depreciation and amortization expenses as many property, plant and equipment assets became fully depreciated during the first three months of 2011. During the nine months ended September 30, 2010, we incurred pre-opening expenses of approximately $283,000 compared to none during the nine months ended September 30, 2011. We also expensed approximately $252,000 to appeal our property taxes and approximately $182,000 for licensing our officers during the nine months ended September 30, 2010. Finally, income from operations and EBITDA for the nine months ended September 30, 2010 were negatively impacted by a $2.0 million non-cash charge for impairment of intangible assets.

Casino

Casino revenues consist of revenues from slot machines, table games, poker, race and sports book, bingo and keno. Casino revenues decreased 1.9% to $153.2 million for the nine months ended September 30, 2011, compared to $156.1 million for the nine months ended September 30, 2010. Our slot and table revenues declined 1.3% and 5.8% respectively. We believe volumes at our properties were impacted by the road construction in Laughlin and the aggressive promotional environment in the Las Vegas local market. Slot revenues declined due to a 3.1% decrease in coin-in partially offset by a 0.1% increase in hold compared to the nine months ended September 30, 2010. Table revenues declined due to a 1.2% decline in hold while drop was flat compared to the nine months ended September 30, 2010. For the nine months ended September 30, 2011, slot machine revenues were 84.9% of casino revenues, and table game revenues were 11.6% of casino revenues, compared to 84.4% and 12.1% of casino revenues, respectively, for the nine months ended September 30, 2010. Other casino revenues, consisting of race and sports book, poker, bingo and keno, decreased 1.8% for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. Race and sports book revenues decreased 19.1% compared to the nine months ended September 30, 2010 due to a 9.4% decrease in handle and 1.4% decrease in hold. The decrease in race and sports revenue was partially offset by a 34.1% increase in bingo revenue compared to the nine months ended September 30, 2010 due to a 2.0% increase in hold. Casino operating expenses decreased 0.4% to $49.9 million, for the nine months ended September 30, 2011, from $50.1 million for the nine months ended September 30, 2010. This decrease was primarily due to decreased revenue taxes and supplies. However, because our labor costs were flat and repairs and maintenance increased approximately $359,000 during the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 our casino operating margin decreased to 67.4% compared to 67.9% for the nine months ended September 30, 2010.

Hotel

Hotel revenues increased 13.3% to $49.3 million for the nine months ended September 30, 2011 from $43.5 million for the nine months ended September 30, 2010. Overall room occupancy increased to 69.2% for the nine months ended September 30, 2011 compared to 68.2% for the nine months ended September 30, 2010 and the average daily room rate increased 12.7% for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. Hotel revenues increased for all properties and occupancy increased for all properties except the Aquarius, which had a 2.4% decrease. Our hotel expenses increased 2.7% to $26.4 million for the nine months ended September 30, 2011, compared to $25.7 million for the nine months ended September 30, 2010 due primarily to higher costs associated with higher occupancy. Due to the increase in revenues, our hotel operating margin increased to 46.5% for the nine months ended September 30, 2011 as compared to 40.9% for the nine months ended September 30, 2010.

Food & Beverage

Food and beverage revenues increased 1.2% to $51.8 million for the nine months ended September 30, 2011 compared to $51.2 million for the nine months ended September 30, 2010. The increase in revenues was driven largely by a 4.2% increase in average revenue per cover. Food covers and beverage covers for the nine months ended September 30, 2011 decreased 2.9% and 4.1%, respectively, compared to the nine months ended September 30, 2010. Our food and beverage expenses increased 0.5% to $38.7 million for the nine months ended September 30, 2011 compared to $38.5 million for the nine months ended September 30, 2010 due to a 1.8 percentage point increase in our food and beverage cost of goods sold. Despite the increase in our product costs, our food and beverage operating margin increased to 25.3% for the nine months ended September 30, 2011 as compared to 24.8% for the nine months ended September 30, 2010.

Tower, Retail, Entertainment and Other

Tower, retail, entertainment and other revenues decreased 3.1% to $24.6 million for the nine months ended September 30, 2011 from $25.4 million for the nine months ended September 30, 2010. Tower revenues increased 5.8% for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010. The primary reason for the increase in Tower revenues was increased revenue related to the Sky Jump Las Vegas ride and a 6.0% increase in total guest admissions. The Sky Jump Las Vegas ride opened to the public on April 21, 2010. Entertainment revenue declined 47.6% for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010. The primary reasons for the decrease in entertainment revenue were the closure of the American Superstars show at the Stratosphere on March 30, 2011 and a reduction in the number of events at the Aquarius. Retail revenue decreased 4.0% for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010. Other operating income decreased 3.9% for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010. The decrease in revenue was primarily due to lower ATM and vending commission revenues. Other operating expenses decreased 7.1% to $9.2 million for the nine months ended September 30, 2011, compared to $9.9 million for the nine months ended September 30, 2010. This decrease was primarily due to a reduction in entertainer fees. Entertainer fees declined due to the closure of the American Superstars show and a reduction in the number of 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 were 11.9% for the nine months ended September 30, 2011, compared to 11.7% for the nine months ended September 30, 2010. Increased room promotions were offset by reduced food and beverage and entertainment promotions.

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 were $84.1 million, or 30.2% of gross revenues, for the nine months ended September 30, 2011, compared to $83.8 million, or 30.3% of gross revenues, for the nine months ended September 30, 2010. Advertising expenses increased 47.4% to $5.6 million for the nine months ended September 30, 2011 from $3.8 million for the nine months ended September 30, 2010 due to the launch of the Elevate Your Expectations advertising campaign for the Stratosphere and an advertising campaign supporting the opening of Ron’s Steakhouse at Arizona Charlie’s Decatur. Increases in advertising and labor costs for the nine months ended September 30, 2011 were partially offset by decreased utilities, property taxes, insurance expenses, legal fees and expenses related to licensing our officers.

Pre-opening Expense

We did not incur any pre-opening costs for the nine months ended September 30, 2011 compared to $283,000 for the nine months ended September 30, 2010. Pre-opening costs for the nine months ended September 30, 2010 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 authoritative guidance, 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 decreased 0.6% to $34.0 million for the nine months ended September 30, 2011, compared to $34.2 million for the nine months ended September 30, 2010. The decrease was due primarily to the redemption of 5% of the 11% Senior Secured Notes on May 31, 2011.

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 $30.2 million for the nine months ended September 30, 2011 compared to $28.1 million for the nine months ended September 30, 2010. The increase in cash flow from operations was driven by a $2.7 million increase in revenues.

During the nine months ended September 30, 2011, our total capital expenditures were $10.0 million, of which approximately $2.9 million was spent on slot machine replacements and conversions, $900,000 on hotel room renovations and upgrades, $1.7 million for renovations to our public areas and food and beverage venues and $4.5 million on our facilities, operations and information technology. For 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.

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 $15.3 million on regular maintenance and renovation capital projects during 2011. We have not finalized our budgets, however, we currently expect our capital expenditures will be approximately $15-20 million in 2012.

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. On May 31, 2011, the Issuers elected to redeem five percent (5%) of aggregate principal amount of the 11% Senior Secured Notes. The redemption price was 102% of the principal amount, or $19.1 million, plus accrued interest to the redemption date of approximately $951,000. Interest on the 11% Senior Secured Notes called for redemption ceased to accrue on and after the redemption date.

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 21, 2011 (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.

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 $356.3 million as of September 30, 2011.

For the nine months ended September 30, 2011, we incurred approximately $34.0 million in interest expense.

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

Item 4. 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 2011 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 21, 2011 (SEC File No. 000-52975). There were no material changes to those risk factors during the three months ended September 30, 2011.

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:	November 10, 2011

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 - November 10, 2011

Attached files

American Casino & Entertainment Properties LLC Reports