##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|           |  | FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006                                               
|           |  | OR                                                                                          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|           |  | FOR THE TRANSITION PERIOD
    FROM           TO                                             

COMMISSION FILE NUMBER 1-9516





American Real Estate Partners, L.P.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 13-3398766                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|100 South Bedford Road, Mt. Kisco, NY                              |  | 10549                                   
|(Address of principal executive offices)                           |  | (Zip Code)                              

(914) 242-7700


(Registrants telephone number, including area code)





þ o


12-b-2


|                          |  |                    |  |                        
|------------------------- |  | ------------------ |  | -----------------------
|Large accelerated filer o |  | Accelerated filerþ |  | Non-accelerated filer o

12b-2 o þ












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##### 










INDEX


|                       |  |                                                                                           |  |                                                                                                                            |                                                    |  |    |    | 
|---------------------- |  | ----------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- |  | -- | -- | 
|                       |  |                                                                                           |  | Page No.                                                                                                                   |                                                   
|                       |  |                                                                                           |  |                                                                                                                            |                                                   
|Part I.                |  | FINANCIAL INFORMATION                                                                     |  |                                                                                                                            |                                                    | 
|Item 1.                |  | Financial Statements                                                                      |  |                                                                                                                            |                                                    | 
|                       |  |                                                                                           |  | Consolidated Balance Sheets 
    March 31, 2006 and December 31, 2005                                                     |                                                    |  | 3  |   
|                       |  |                                                                                           |  | Consolidated Statements of
    Operations  Three Months Ended March 31, 2006
    and 2005                                 |                                                    |  | 4  |   
|                       |  |                                                                                           |  | Consolidated Statement of Changes In
    Partners Equity and Comprehensive Income  Three
    Months Ended March 31, 2006 |                                                    |  | 5  |   
|                       |  |                                                                                           |  | Consolidated Statements of Cash
    Flows  Three Months Ended March 31, 2006 and
    2005                                 |                                                    |  | 6  |   
|                       |  |                                                                                           |  | Notes to Consolidated Financial
    Statements                                                                             |                                                    |  | 7  |   
|                       |  |                                                                                           |  | 1. General                                                                                                                 |                                                    |  | 7  |   
|                       |  |                                                                                           |  | 2. Related
    Party Transactions                                                                                          |                                                    |  | 8  |   
|                       |  |                                                                                           |  | 3. Operating
    Units                                                                                                     |                                                    |  | 9  |   
|                       |  |                                                                                           |  | 4. Investments
    and Related Matters                                                                                     |                                                    |  | 15 |   
|                       |  |                                                                                           |  | 5. Inventories,
    Net                                                                                                    |                                                    |  | 16 |   
|                       |  |                                                                                           |  | 6. Trade,
    Notes and Other Receivables, Net                                                                             |                                                    |  | 16 |   
|                       |  |                                                                                           |  | 7. Other
    Current Assets                                                                                                |                                                    |  | 16 |   
|                       |  |                                                                                           |  | 8. Property,
    Plant and Equipment                                                                                       |                                                    |  | 17 |   
|                       |  |                                                                                           |  | 9. Other
    Non-Current Assets                                                                                            |                                                    |  | 17 |   
|                       |  |                                                                                           |  |                                                                                                                            | 10. Other Non-Current Liabilities                  |  |    | 18 | 
|                       |  |                                                                                           |  |                                                                                                                            | 11. Minority Interests                             |  |    | 18 | 
|                       |  |                                                                                           |  |                                                                                                                            | 12. Long Term Debt                                 |  |    | 18 | 
|                       |  |                                                                                           |  |                                                                                                                            | 13. Other Income (Expense)                         |  |    | 20 | 
|                       |  |                                                                                           |  |                                                                                                                            | 14. Unit Options                                   |  |    | 20 | 
|                       |  |                                                                                           |  |                                                                                                                            | 15. Preferred Units                                |  |    | 21 | 
|                       |  |                                                                                           |  |                                                                                                                            | 16. Earnings Per Limited Partnership
    Unit      |  |    | 21 | 
|                       |  |                                                                                           |  |                                                                                                                            | 17. Asset Retirement
    Obligations  Oil and Gas |  |    | 21 | 
|                       |  |                                                                                           |  |                                                                                                                            | 18. Oil and Gas Derivatives                        |  |    | 22 | 
|                       |  |                                                                                           |  |                                                                                                                            | 19. Segment Reporting                              |  |    | 22 | 
|                       |  |                                                                                           |  |                                                                                                                            | 20. Income Taxes                                   |  |    | 25 | 
|                       |  |                                                                                           |  |                                                                                                                            | 21. Commitments and Contingencies                  |  |    | 25 | 
|                       |  |                                                                                           |  |                                                                                                                            | 22. Subsequent Events                              |  |    | 26 | 
|Item 2.                |  | Managements Discussion and
    Analysis of Financial Condition and Results of Operations |  |                                                                                                                            |                                                    | 
|                       |  |                                                                                           |  | 1. Overview                                                                                                                |                                                    |  | 28 |   
|                       |  |                                                                                           |  | 2. Results
    of Operations                                                                                               |                                                    |  | 29 |   
|                       |  |                                                                                           |  | 3. Liquidity
    and Capital Resources                                                                                     |                                                    |  | 37 |   
|                       |  |                                                                                           |  | 4. Certain
    Trends and Uncertainties                                                                                    |                                                    |  | 43 |   
|Item 3.                |  | Quantitative and Qualitative Disclosures
    about Market Risk                            |  |                                                                                                                            | 43                                                 | 
|Item 4.                |  | Controls and Procedures                                                                   |  |                                                                                                                            | 44                                                 | 
|Part II.               |  | OTHER INFORMATION                                                                         |  |                                                                                                                            |                                                    | 
|Item 1.                |  | Legal Proceedings                                                                         |  |                                                                                                                            | 44                                                 | 
|Item 1A.               |  | Risk Factors                                                                              |  |                                                                                                                            | 45                                                 | 
|Item 6.                |  | Exhibits                                                                                  |  |                                                                                                                            | 46                                                 | 
|                       |  |                                                                                           |  | Signatures                                                                                                                 |                                                    |  | 47 |   
|                       |  |                                                                                           |  | Certifications                                                                                                             |                                                    |  | 48 |   
|EX-31.1: CERTIFICATION
|EX-31.2: CERTIFICATION
|EX-32.1: CERTIFICATION
|EX-32.2: CERTIFICATION



2



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##### Table of Contents






Part I.     Financial
Information







|        |                     
|------- | --------------------
|Item 1. | Financial Statements

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q
MARCH 31, 2006





CONSOLIDATED BALANCE SHEETS


|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              |  |           |           |           | 
|--------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | --------- | --------- | ------------ |  | --------- | --------- | --------- | 
|                                        |                                                                                                                                                                                                     | March 31,                                                                                                                        |           |           | December 31, | 
|                                        |                                                                                                                                                                                                     | 2006                                                                                                                             |           |           | 2005         | 
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|                                        |                                                                                                                                                                                                     | (Unaudited)                                                                                                                      |           |           |             
|                                        |                                                                                                                                                                                                     | (In $000s)                                                                                                                       |          
|ASSETS                                 
|Current assets:                         |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              |  |           |          
|                                        | Cash and cash equivalents                                                                                                                                                                           |                                                                                                                                  | $         | 464,850   |              |  | $         | 576,123   |          
|                                        | Investments                                                                                                                                                                                         |                                                                                                                                  |           | 876,281   |              |  |           | 820,699   |          
|                                        | Inventories, net                                                                                                                                                                                    |                                                                                                                                  |           | 275,485   |              |  |           | 244,239   |          
|                                        | Trade, notes and other receivables, net                                                                                                                                                             |                                                                                                                                  |           | 222,959   |              |  |           | 255,014   |          
|                                        | Other current assets                                                                                                                                                                                |                                                                                                                                  |           | 432,646   |              |  |           | 287,985   |          
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|                                        |                                                                                                                                                                                                     | Total current assets                                                                                                             |           |           | 2,272,221    |  |           |           | 2,184,060 | 
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|Property, plant and equipment, net:     |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              |  |           |          
|                                        | Oil and Gas                                                                                                                                                                                         |                                                                                                                                  |           | 769,231   |              |  |           | 742,459   |          
|                                        | Gaming                                                                                                                                                                                              |                                                                                                                                  |           | 435,547   |              |  |           | 441,059   |          
|                                        | Real Estate                                                                                                                                                                                         |                                                                                                                                  |           | 296,308   |              |  |           | 285,694   |          
|                                        | Home Fashion                                                                                                                                                                                        |                                                                                                                                  |           | 150,210   |              |  |           | 166,026   |          
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|                                        |                                                                                                                                                                                                     | Total property, plant and equipment, net                                                                                         |           |           | 1,651,296    |  |           |           | 1,635,238 | 
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|Investments                             |                                                                                                                                                                                                     |                                                                                                                                  | 16,050    |           |              |  | 15,964    |          
|Intangible assets                       |                                                                                                                                                                                                     |                                                                                                                                  | 23,402    |           |              |  | 23,402    |          
|Other assets                            |                                                                                                                                                                                                     |                                                                                                                                  | 107,459   |           |              |  | 107,798   |          
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|                                        |                                                                                                                                                                                                     | Total assets                                                                                                                     |           | $         | 4,070,428    |  |           | $         | 3,966,462 | 
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|LIABILITIES AND PARTNERS EQUITY       
|Current liabilities:                    |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              |  |           |          
|                                        | Accounts payable                                                                                                                                                                                    |                                                                                                                                  | $         | 112,709   |              |  | $         | 93,807    |          
|                                        | Accrued expenses                                                                                                                                                                                    |                                                                                                                                  |           | 156,382   |              |  |           | 225,690   |          
|                                        | Current portion of long-term debt                                                                                                                                                                   |                                                                                                                                  |           | 22,167    |              |  |           | 24,155    |          
|                                        | Securities sold not yet purchased                                                                                                                                                                   |                                                                                                                                  |           | 117,925   |              |  |           | 75,883    |          
|                                        | Margin liability on marketable securities                                                                                                                                                           |                                                                                                                                  |           | 217,265   |              |  |           | 131,061   |          
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|                                        |                                                                                                                                                                                                     | Total current liabilities                                                                                                        |           |           | 626,448      |  |           |           | 550,596   | 
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|Long-term debt                          |                                                                                                                                                                                                     |                                                                                                                                  | 1,413,614 |           |              |  | 1,411,666 |          
|Other non-current liabilities           |                                                                                                                                                                                                     |                                                                                                                                  | 83,839    |           |              |  | 89,085    |          
|Preferred limited partnership units:    |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              |  |           |          
|                                        | $10 liquidation preference, 5% cumulative pay-in-kind;
    11,400,000 authorized; 11,340,243 and 10,800,397 issued and
    outstanding as of March 31, 2006 and December 31,
    2005, respectively |                                                                                                                                  |           | 113,402   |              |  |           | 112,067   |          
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|                                        |                                                                                                                                                                                                     | Total long-term liabilities                                                                                                      |           |           | 1,610,855    |  |           |           | 1,612,818 | 
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|                                        |                                                                                                                                                                                                     | Total liabilities                                                                                                                |           |           | 2,237,303    |  |           |           | 2,163,414 | 
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|Minority interests                      |                                                                                                                                                                                                     |                                                                                                                                  | 289,472   |           |              |  | 304,599   |          
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|Commitments and contingencies (Note 21) |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              |  |           |          
|Partners equity:                       |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              |  |           |          
|                                        | Limited partners:                                                                                                                                                                                   |                                                                                                                                  |           |           |              |  |           |           |          
|                                        |                                                                                                                                                                                                     | Depositary units; 67,850,000 authorized; 62,994,030 outstanding
    as of March 31, 2006 and December 31, 2005,
    respectively |           |           | 1,772,877    |  |           |           | 1,728,572 | 
|                                        | General partner:                                                                                                                                                                                    |                                                                                                                                  |           | (217,303  | )            |  |           | (218,202  | )        
|                                        | Treasury units at cost:                                                                                                                                                                             |                                                                                                                                  |           |           |              |  |           |           |          
|1,137,200 depositary units              |                                                                                                                                                                                                     |                                                                                                                                  | (11,921   | )         |              |  | (11,921   | )        
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|                                        | Partners equity                                                                                                                                                                                    |                                                                                                                                  |           | 1,543,653 |              |  |           | 1,498,449 |          
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 
|                                        |                                                                                                                                                                                                     | Total liabilities and partners equity                                                                                           |           | $         | 4,070,428    |  |           | $         | 3,966,462 | 
|                                        |                                                                                                                                                                                                     |                                                                                                                                  |           |           |              | 



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


Three Months Ended March 31, 2006 and 2005


|                                                                                 |                                              |                      |         |         |      |   |         |         |  
|-------------------------------------------------------------------------------- | -------------------------------------------- | -------------------- | ------- | ------- | ---- | - | ------- | ------- | -
|                                                                                 |                                              | Three Months Ended   |        
|                                                                                 |                                              | March 31,            |        
|                                                                                 |                                              |                      |        
|                                                                                 |                                              | 2006                 |         |         | 2005 |  
|                                                                                 |                                              |                      |         |         |      |  
|                                                                                 |                                              | (Unaudited)          |        
|                                                                                 |                                              | (In 000s, except per |        
|                                                                                 |                                              | unit amounts)        |        
|Revenues:                                                                        |                                              |                      |         |         |      |   |         |        
|                                                                                 | Oil and Gas                                  |                      | $       | 108,292 |      |   | $       | 15,678  |  
|                                                                                 | Gaming                                       |                      |         | 126,718 |      |   |         | 122,667 |  
|                                                                                 | Real Estate                                  |                      |         | 21,526  |      |   |         | 18,082  |  
|                                                                                 | Home Fashion                                 |                      |         | 243,490 |      |   |         |        |  
|                                                                                 |                                              |                      |         |         |      |  
|                                                                                 |                                              |                      | 500,026 |         |      |   | 156,427 |        
|                                                                                 |                                              |                      |         |         |      |  
|Expenses:                                                                        |                                              |                      |         |         |      |   |         |        
|                                                                                 | Oil and Gas                                  |                      |         | 43,304  |      |   |         | 37,070  |  
|                                                                                 | Gaming                                       |                      |         | 107,363 |      |   |         | 104,003 |  
|                                                                                 | Real Estate                                  |                      |         | 17,500  |      |   |         | 15,826  |  
|                                                                                 | Home Fashion                                 |                      |         | 281,448 |      |   |         |        |  
|                                                                                 | Holding Company                              |                      |         | 11,304  |      |   |         | 2,908   |  
|                                                                                 |                                              |                      |         |         |      |  
|                                                                                 |                                              |                      | 460,919 |         |      |   | 159,807 |        
|                                                                                 |                                              |                      |         |         |      |  
|Operating income (loss)                                                          |                                              |                      | 39,107  |         |      |   | (3,380  | )      
|Other income (expense), net:                                                     |                                              |                      |         |         |      |   |         |        
|                                                                                 | Interest expense                             |                      |         | (30,589 | )    |   |         | (23,180 | )
|                                                                                 | Interest income                              |                      |         | 12,592  |      |   |         | 12,351  |  
|                                                                                 | Other income (expense), net                  |                      |         | 21,471  |      |   |         | 25,952  |  
|                                                                                 |                                              |                      |         |         |      |  
|Income from continuing operations before income taxes and
    minority interests |                                              |                      | 42,581  |         |      |   | 11,743  |        
|                                                                                 | Income tax expense                           |                      |         | (8,658  | )    |   |         | (3,406  | )
|                                                                                 | Minority interests                           |                      |         | 15,123  |      |   |         | 932     |  
|                                                                                 |                                              |                      |         |         |      |  
|Income from continuing operations                                                |                                              |                      | 49,046  |         |      |   | 9,269   |        
|                                                                                 |                                              |                      |         |         |      |  
|Discontinued operations:                                                         |                                              |                      |         |         |      |   |         |        
|                                                                                 | Income from discontinued operations          |                      |         | 410     |      |   |         | 571     |  
|                                                                                 | Gain on sales and disposition of real estate |                      |         | 251     |      |   |         | 18,723  |  
|                                                                                 |                                              |                      |         |         |      |  
|Income from discontinued operations                                              |                                              |                      | 661     |         |      |   | 19,294  |        
|                                                                                 |                                              |                      |         |         |      |  
|Net earnings                                                                     |                                              | $                    | 49,707  |         |      | $ | 28,563  |        
|                                                                                 |                                              |                      |         |         |      |  
|Net earnings attributable to:                                                    |                                              |                      |         |         |      |   |         |        
|                                                                                 | Limited partners                             |                      | $       | 48,718  |      |   | $       | 43,127  |  
|                                                                                 | General partner                              |                      |         | 989     |      |   |         | (14,564 | )
|                                                                                 |                                              |                      |         |         |      |  
|                                                                                 |                                              | $                    | 49,707  |         |      | $ | 28,563  |        
|                                                                                 |                                              |                      |         |         |      |  
|Net earnings per LP unit:                                                        |                                              |                      |         |         |      |   |         |        
|                                                                                 | Basic earnings:                              |                      |         |         |      |   |         |         |  
|                                                                                 | Income from continuing operations            |                      | $       | 0.78    |      |   | $       | 0.53    |  
|                                                                                 | Income from discontinued operations          |                      |         | 0.01    |      |   |         | 0.41    |  
|                                                                                 |                                              |                      |         |         |      |  
|                                                                                 | Basic earnings per LP unit                   |                      | $       | 0.79    |      |   | $       | 0.94    |  
|                                                                                 |                                              |                      |         |         |      |  
|Weighted average LP units outstanding:                                           |                                              |                      | 61,857  |         |      |   | 46,098  |        
|                                                                                 |                                              |                      |         |         |      |  
|                                                                                 | Diluted earnings:                            |                      |         |         |      |   |         |         |  
|                                                                                 | Income from continuing operations            |                      | $       | 0.76    |      |   | $       | 0.51    |  
|                                                                                 | Income from discontinued operations          |                      |         | 0.01    |      |   |         | 0.38    |  
|                                                                                 |                                              |                      |         |         |      |  
|                                                                                 | Diluted earnings per LP unit                 |                      | $       | 0.77    |      |   | $       | 0.89    |  
|                                                                                 |                                              |                      |         |         |      |  
|Weighted average LP units and equivalent partnership units
    outstanding       |                                              |                      | 64,759  |         |      |   | 49,858  |        
|                                                                                 |                                              |                      |         |         |      |  



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES





CONSOLIDATED STATEMENT OF CHANGES


IN PARTNERS EQUITY AND COMPREHENSIVE INCOME


Three Months Ended March 31, 2006


|                           |                                                        |             |          |         |            |   |           |                  |   |   |           |   |  |        |       |   |  |   |           |         |  
|-------------------------- | ------------------------------------------------------ | ----------- | -------- | ------- | ---------- | - | --------- | ---------------- | - | - | --------- | - |  | ------ | ----- | - |  | - | --------- | ------- | -
|                           |                                                        |             |          | Limited |            |   |           |                  |   |   |          
|                           |                                                        | General     |          |         | Partners  |   |           |                  |   |  
|                           |                                                        | Partners   |          |         | Equity     |   |           | Held in Treasury |   |   | Total     |  
|                           |                                                        | Equity      |          |         | Depositary |   |           |                  |   |   | Partners |  
|                           |                                                        | (Deficit)   |          |         | Units      |   |           | Amounts          |   |   | Units     |   |  | Equity |      
|                           |                                                        |             |          |         |            |   |           |                  |   |   |           |   |  |        |      
|                           |                                                        | (In 000s)   |         
|                           |                                                        | (Unaudited) |         
|Balance, December 31, 2005 |                                                        | $           | (218,202 | )       |            | $ | 1,728,572 |                  |   | $ | (11,921   | ) |  |        | 1,137 |   |  | $ | 1,498,449 |        
|Comprehensive income:      |                                                        |             |          |         |            |   |           |                  |   |   |           |   |  |        |       |   |  |   |           |        
|                           | Net earnings                                           |             |          | 989     |            |   |           | 48,718           |   |   |           |  |  |        |       |  |  |   |           | 49,707  |  
|                           | Net unrealized losses on securities available for sale |             |          | (214    | )          |   |           | (10,537          | ) |   |           |  |  |        |       |  |  |   |           | (10,751 | )
|                           |                                                        |             |          |         |            |   |           |                  |   |   |           |   |  |        |      
|Comprehensive income       |                                                        |             | 775      |         |            |   | 38,181    |                  |   |   |          |   |  |        |      |   |  |   | 38,956    |        
|CEO LP unit options        |                                                        |             | 124      |         |            |   | 6,124     |                  |   |   |          |   |  |        |      |   |  |   | 6,248     |        
|                           |                                                        |             |          |         |            |   |           |                  |   |   |           |   |  |        |      
|Balance, March 31, 2006    |                                                        | $           | (217,303 | )       |            | $ | 1,772,877 |                  |   | $ | (11,921   | ) |  |        | 1,137 |   |  | $ | 1,543,653 |        
|                           |                                                        |             |          |         |            |   |           |                  |   |   |           |   |  |        |      





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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


Three Months ended March 31, 2006 and 2005


|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |         |           |         |         |         |         |          |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------------------------------------------ | ---------------------------------------------------- | ------- | --------- | ------- | ------- | ------- | ------- | -------- | -
|                                                     |                                                                                                   | Three Months Ended                                              |                                                           
|                                                     |                                                                                                   | March 31,                                                       |                                                           
|                                                     |                                                                                                   |                                                                 |                                                           
|                                                     |                                                                                                   | 2006                                                            |                                                            |                                                                          | 2005                                                 |        
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|                                                     |                                                                                                   | (In $000s)                                                      |                                                           
|                                                     |                                                                                                   | (Unaudited)                                                     |                                                           
|Cash Flows from Operating Activities:                |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |         |           |        
|                                                     | Income from continuing operations                                                                 |                                                                 | $                                                          | 49,046                                                                   |                                                      |         | $         | 9,269   |        
|                                                     | Adjustments to reconcile net earnings to net cash (used in)
    provided by operating activities: |                                                                 |                                                            |                                                                          |                                                      |         |           |         |        
|                                                     |                                                                                                   | Depreciation, depletion and amortization                        |                                                            |                                                                          | 46,607                                               |         |           |         | 32,543  |        
|                                                     |                                                                                                   | Investment gains                                                |                                                            |                                                                          | (13,750                                              | )       |           |         | (21,704 | )      
|                                                     |                                                                                                   | Change in fair market value of Oil and Gas derivative contracts |                                                            |                                                                          | (37,252                                              | )       |           |         | 38,769  |        
|                                                     |                                                                                                   | Preferred LP unit interest expense                              |                                                            |                                                                          | 1,335                                                |         |           |         | 1,286   |        
|                                                     |                                                                                                   | Minority interests                                              |                                                            |                                                                          | (15,123                                              | )       |           |         | (932    | )      
|                                                     |                                                                                                   | Stock based compensation expense                                |                                                            |                                                                          | 6,248                                                |         |           |         |        |        
|                                                     |                                                                                                   | Deferred income tax expense                                     |                                                            |                                                                          | 2,811                                                |         |           |         | 2,053   |        
|                                                     |                                                                                                   | Impairment loss on fixed assets                                 |                                                            |                                                                          | 7,828                                                |         |           |         |        |        
|                                                     |                                                                                                   | Net cash used in activities on securities sold short            |                                                            |                                                                          | (40,671                                              | )       |           |         | (7,117  | )      
|                                                     |                                                                                                   | Other, net                                                      |                                                            |                                                                          | 3,636                                                |         |           |         | 466     |        
|                                                     |                                                                                                   | Changes in operating assets and liabilities:                    |                                                            |                                                                          |                                                      |         |           |         |         |        
|                                                     |                                                                                                   |                                                                 |                                                            | Decrease in trade notes and other receivables                            |                                                      |         | 31,970    |         |         |         | 198     |         
|                                                     |                                                                                                   |                                                                 |                                                            | Increase in other assets                                                 |                                                      |         | (34,083   | )       |         |         | (3,533  | )       
|                                                     |                                                                                                   |                                                                 |                                                            | Increase in inventory                                                    |                                                      |         | (31,246   | )       |         |         |        |         
|                                                     |                                                                                                   |                                                                 |                                                            | Decrease in accounts payable, accrued expenses and other
    liabilities |                                                      |         | (7,527    | )       |         |         | (24,290 | )       
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          | Net cash (used in) provided by continuing operations |         |           | (30,171 | )       |         |         | 27,008   |  
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|                                                     | Income from discontinued operations                                                               |                                                                 |                                                            | 661                                                                      |                                                      |         |           | 19,294  |        
|                                                     |                                                                                                   | Depreciation and amortization                                   |                                                            |                                                                          |                                                     |         |           |         | 124     |        
|                                                     |                                                                                                   | Net gain from property transactions                             |                                                            |                                                                          | (251                                                 | )       |           |         | (18,723 | )      
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|                                                     |                                                                                                   |                                                                 |                                                            | Net cash provided by discontinued operations                             |                                                      |         | 410       |         |         |         | 695     |         
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|                                                     |                                                                                                   |                                                                 |                                                            | Net cash (used in) provided by operating activities                      |                                                      |         | (29,761   | )       |         |         | 27,703  |         
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|Cash Flows from Investing Activities:                |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |         |           |        
|                                                     |                                                                                                   |                                                                 |                                                            | Capital expenditures                                                     |                                                      |         | (56,697   | )       |         |         | (53,141 | )       
|                                                     |                                                                                                   |                                                                 |                                                            | Purchases of marketable equity and debt securities                       |                                                      |         | (72,848   | )       |         |         | (81,779 | )       
|                                                     |                                                                                                   |                                                                 |                                                            | Proceeds from sales from marketable equity and debt securities           |                                                      |         | 44,139    |         |         |         |        |         
|                                                     |                                                                                                   |                                                                 |                                                            | Net proceeds from the sales and disposition of real estate               |                                                      |         |          |         |         |         | 8,425   |         
|                                                     |                                                                                                   |                                                                 |                                                            | Net proceeds from sales and disposition of fixed assets                  |                                                      |         | 7,094     |         |         |         |        |         
|                                                     |                                                                                                   |                                                                 |                                                            | Other                                                                    |                                                      |         |          |         |         |         | 1,105   |         
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          | Net cash used in investing activities                |         |           | (78,312 | )       |         |         | (125,390 | )
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|Cash Flows from Discontinued Operations:             |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |         |           |        
|                                                     |                                                                                                   |                                                                 | Net proceeds from the sales and disposition of real estate |                                                                          |                                                      | 973     |           |         |         | 43,508  |        
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|                                                     |                                                                                                   |                                                                 | Net cash used in investing activities                      |                                                                          |                                                      | (77,339 | )         |         |         | (81,882 | )      
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|Cash Flows from Financing Activities:                |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |         |           |        
|                                                     |                                                                                                   | Proceeds from senior notes payable                              |                                                            | $                                                                        |                                                     |         |           | $       | 480,000 |        
|                                                     |                                                                                                   | Proceeds from credit facilities                                 |                                                            |                                                                          |                                                     |         |           |         | 18,941  |        
|                                                     |                                                                                                   | Repayment of credit facilities                                  |                                                            |                                                                          | (3,075                                               | )       |           |         |        |        
|                                                     |                                                                                                   | Decrease in due to affiliates                                   |                                                            |                                                                          |                                                     |         |           |         | (16,385 | )      
|                                                     |                                                                                                   | Payments of mortgages payable                                   |                                                            |                                                                          |                                                     |         |           |         | (10,702 | )      
|                                                     |                                                                                                   | Periodic principal payments                                     |                                                            |                                                                          | (1,098                                               | )       |           |         | (1,598  | )      
|                                                     |                                                                                                   | Debt issuance costs                                             |                                                            |                                                                          |                                                     |         |           |         | (8,382  | )      
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|                                                     |                                                                                                   | Net cash provided by (used in) financing activities             |                                                            |                                                                          | (4,173                                               | )       |           |         | 461,874 |        
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|Net increase (decrease) in cash and cash equivalents |                                                                                                   |                                                                 | (111,273                                                   | )                                                                        |                                                      |         | 407,695   |        
|Cash and cash equivalents, beginning of period       |                                                                                                   |                                                                 | 576,123                                                    |                                                                          |                                                      |         | 806,309   |        
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|Cash and cash equivalents, end of period             |                                                                                                   | $                                                               | 464,850                                                    |                                                                          |                                                      | $       | 1,214,004 |        
|                                                     |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |        
|Supplemental information                             |                                                                                                   |                                                                 |                                                            |                                                                          |                                                      |         |           |        
|                                                     |                                                                                                   |                                                                 | Cash payments for interest, net of amounts capitalized     |                                                                          | $                                                    | 26,950  |           |         | $       | 12,314  |        
|                                                     |                                                                                                   |                                                                 | Cash payments for income taxes, net of refunds             |                                                                          |                                                      | 738     |           |         |         | 88      |        
|                                                     |                                                                                                   |                                                                 | Net unrealized losses on securities available for sale     |                                                                          | $                                                    | (10,751 | )         |         | $       | (2,394  | )      





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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


March 31, 2006







|        |        
|------- | -------
|Note 1. | General





10-K,








| |                           
| | --------------------------
| | Change in Reporting Entity





| |                        
| | -----------------------
| | Discontinued Operations



7



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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)




| |                                                    
| | ---------------------------------------------------
| | Acquisition of the Assets of WestPoint Stevens Inc.







| |            
| | -----------
| | Investments





| |                              
| | -----------------------------
| | Filing Status of Subsidiaries



S-1.







|        |                           
|------- | --------------------------
|Note 2. | Related Party Transactions



| |                                          
| | -----------------------------------------
| | a.            Administrative
    Services









8



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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)






| |                                       
| | --------------------------------------
| | b.            Securities
    Ownership








|        |                
|------- | ---------------
|Note 3. | Operating Units





| |                              
| | -----------------------------
| | a.            Oil
    and Gas





|                                         |  |             |         |  |              |   |         | 
|---------------------------------------- |  | ----------- | ------- |  | ------------ | - | ------- | 
|                                         |  | March 31,   |         |  | December 31, |  
|                                         |  | 2006        |         |  | 2005         |  
|                                         |  |             |         |  |              |  
|                                         |  | (Unaudited) |         |  |             
|Current assets                           |  | $           | 120,072 |  |              | $ | 172,188 | 
|Oil and gas properties, full cost method |  |             | 769,231 |  |              |   | 742,459 | 
|Other assets                             |  |             | 44,076  |  |              |   | 43,648  | 
|                                         |  |             |         |  |              |  
|Total assets                             |  | $           | 933,379 |  |              | $ | 958,295 | 
|                                         |  |             |         |  |              |  
|Current liabilities                      |  | $           | 69,566  |  |              | $ | 103,726 | 
|Credit facility (non-current)            |  |             | 300,000 |  |              |   | 300,000 | 
|Other noncurrent liabilities             |  |             | 56,356  |  |              |   | 60,479  | 
|                                         |  |             |         |  |              |  
|Total liabilities                        |  | $           | 425,922 |  |              | $ | 464,205 | 
|                                         |  |             |         |  |              |  

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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)




|                           |                                          |                         |        |         |         |   |        |         |         |  
|-------------------------- | ---------------------------------------- | ----------------------- | ------ | ------- | ------- | - | ------ | ------- | ------- | -
|                           |                                          | Three Months Ended      |       
|                           |                                          | March 31,               |       
|                           |                                          |                         |       
|                           |                                          | 2006                    |        |         | 2005    |  
|                           |                                          |                         |        |         |         |  
|                           |                                          | (Unaudited)             |       
|Gross oil and gas revenues |                                          | $                       | 81,183 |         |         | $ | 56,263 |        
|                           | Realized derivative losses               |                         |        | (12,087 | )       |   |        | (3,133  | )      
|                           | Unrealized derivative gains (losses)     |                         |        | 37,252  |         |   |        | (38,769 | )      
|                           |                                          |                         |        |         |         |  
|                           |                                          | Oil and gas revenues    |        |         | 106,348 |   |        |         | 14,361  |  
|Plant revenues             |                                          |                         | 1,944  |         |         |   | 1,317  |        
|                           |                                          |                         |        |         |         |  
|                           |                                          | Total revenues          |        |         | 108,292 |   |        |         | 15,678  |  
|                           |                                          |                         |        |         |         |  
|Costs and expenses:        |                                          |                         |        |         |         |   |        |        
|                           | Oil and gas operating expenses           |                         |        | 14,045  |         |   |        | 13,364  |        
|                           | Depreciation, depletion and amortization |                         |        | 24,134  |         |   |        | 20,303  |        
|                           | General and administrative expenses      |                         |        | 5,125   |         |   |        | 3,403   |        
|                           |                                          |                         |        |         |         |  
|                           |                                          | Total cost and expenses |        |         | 43,304  |   |        |         | 37,070  |  
|                           |                                          |                         |        |         |         |  
|                           |                                          | Operating income (loss) |        | $       | 64,988  |   |        | $       | (21,392 | )
|                           |                                          |                         |        |         |         |  







| |                     
| | --------------------
| | b.            Gaming



10



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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)




|                                   |  |             |         |  |              |   |         | 
|---------------------------------- |  | ----------- | ------- |  | ------------ | - | ------- | 
|                                   |  | March 31,   |         |  | December 31, |  
|                                   |  | 2006        |         |  | 2005         |  
|                                   |  |             |         |  |              |  
|                                   |  | (Unaudited) |         |  |             
|Current assets                     |  | $           | 168,930 |  |              | $ | 158,250 | 
|Property, plant and equipment, net |  |             | 435,547 |  |              |   | 441,059 | 
|Other non-current assets           |  |             | 57,614  |  |              |   | 57,632  | 
|                                   |  |             |         |  |              |  
|Total assets                       |  | $           | 662,091 |  |              | $ | 656,941 | 
|                                   |  |             |         |  |              |  
|Current liabilities                |  | $           | 55,092  |  |              | $ | 59,271  | 
|Long term debt                     |  |             | 220,209 |  |              |   | 217,335 | 
|Other non-current liabilities      |  |             | 12,298  |  |              |   | 14,926  | 
|                                   |  |             |         |  |              |  
|Total liabilities                  |  | $           | 287,599 |  |              | $ | 291,532 | 
|                                   |  |             |         |  |              |  



|                 |                                     |                             |                          |        |         |         |        |        |         |         | 
|---------------- | ----------------------------------- | --------------------------- | ------------------------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | 
|                 |                                     | Three Months Ended          |                         
|                 |                                     | March 31,                   |                         
|                 |                                     |                             |                         
|                 |                                     | 2006                        |                          |        | 2005    |        
|                 |                                     |                             |                          |        |         |        
|                 |                                     | (Unaudited)                 |                         
|Revenues:        |                                     |                             |                          |        |         |         |        |       
|                 | Casino                              |                             | $                        | 85,372 |         |         | $      | 85,070 |        
|                 | Hotel                               |                             |                          | 20,321 |         |         |        | 18,087 |        
|                 | Food and beverage                   |                             |                          | 22,475 |         |         |        | 21,942 |        
|                 | Tower, retail and other income      |                             |                          | 8,757  |         |         |        | 8,877  |        
|                 |                                     |                             |                          |        |         |        
|                 |                                     | Gross revenues              |                          |        | 136,925 |         |        |        | 133,976 |        
|                 |                                     | Less promotional allowances |                          |        | 10,207  |         |        |        | 11,309  |        
|                 |                                     |                             |                          |        |         |        
|                 |                                     | Net revenues                |                          |        | 126,718 |         |        |        | 122,667 |        
|                 |                                     |                             |                          |        |         |        
|Expenses:        |                                     |                             |                          |        |         |         |        |       
|                 | Casino                              |                             |                          | 27,846 |         |         |        | 27,727 |        
|                 | Hotel                               |                             |                          | 8,071  |         |         |        | 6,726  |        
|                 | Food and beverage                   |                             |                          | 15,278 |         |         |        | 13,942 |        
|                 | Tower, retail and other income      |                             |                          | 4,479  |         |         |        | 3,847  |        
|                 | Selling, general and administrative |                             |                          | 42,262 |         |         |        | 42,542 |        
|                 | Depreciation and amortization       |                             |                          | 9,427  |         |         |        | 9,219  |        
|                 |                                     |                             |                          |        |         |        
|                 |                                     |                             | Total costs and expenses |        |         | 107,363 |        |        |         | 104,003 | 
|                 |                                     |                             |                          |        |         |        
|Operating income |                                     | $                           | 19,355                   |        |         | $       | 18,664 |       
|                 |                                     |                             |                          |        |         |        



| |                              
| | -----------------------------
| | c.            Real
    Estate



11



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)




|                     |                     |             |         |         |              |  |         |         | 
|-------------------- | ------------------- | ----------- | ------- | ------- | ------------ |  | ------- | ------- | 
|                     |                     | March 31,   |         |         | December 31, | 
|                     |                     | 2006        |         |         | 2005         | 
|                     |                     |             |         |         |              | 
|                     |                     | (Unaudited) |         |         |             
|Rental properties:   |                     |             |         |         |              |  |         |        
|                     | Finance leases, net |             | $       | 72,378  |              |  | $       | 73,292  | 
|                     | Operating leases    |             |         | 49,483  |              |  |         | 50,012  | 
|Property development |                     |             | 128,502 |         |              |  | 116,007 |        
|Resort properties    |                     |             | 45,945  |         |              |  | 46,383  |        
|                     |                     |             |         |         |              | 
|                     | Total real estate   |             | $       | 296,308 |              |  | $       | 285,694 | 
|                     |                     |             |         |         |              | 





|                    |                      |                                     |       |        |        |   |       |       |        | 
|------------------- | -------------------- | ----------------------------------- | ----- | ------ | ------ | - | ----- | ----- | ------ | 
|                    |                      | Three Months Ended                  |      
|                    |                      | March 31,                           |      
|                    |                      |                                     |      
|                    |                      | 2006                                |       |        | 2005   |  
|                    |                      |                                     |       |        |        |  
|                    |                      | (Unaudited)                         |      
|Revenues:           |                      |                                     |       |        |        |   |       |      
|                    | Rental real estate:  |                                     |       |        |        |   |       |       |       
|                    |                      | Interest income on financing leases |       | $      | 1,735  |   |       | $     | 1,966  | 
|                    |                      | Rental income                       |       |        | 2,325  |   |       |       | 2,274  | 
|                    | Property development |                                     |       | 11,384 |        |   |       | 8,279 |       
|                    | Resort operations    |                                     |       | 6,082  |        |   |       | 5,563 |       
|                    |                      |                                     |       |        |        |  
|                    |                      | Total revenues                      |       |        | 21,526 |   |       |       | 18,082 | 
|                    |                      |                                     |       |        |        |  
|Operating expenses: |                      |                                     |       |        |        |   |       |      
|                    | Rental real estate   |                                     |       | 1,260  |        |   |       | 1,284 |       
|                    | Property development |                                     |       | 9,976  |        |   |       | 8,185 |       
|                    | Resort operations    |                                     |       | 6,264  |        |   |       | 6,357 |       
|                    |                      |                                     |       |        |        |  
|                    |                      | Total expenses                      |       |        | 17,500 |   |       |       | 15,826 | 
|                    |                      |                                     |       |        |        |  
|Operating income    |                      | $                                   | 4,026 |        |        | $ | 2,256 |      
|                    |                      |                                     |       |        |        |  



| |                   
| | ------------------
| | Rental Real Estate



12



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)




|                                            |  |                    |     |  |      |   |        | 
|------------------------------------------- |  | ------------------ | --- |  | ---- | - | ------ | 
|                                            |  | Three Months Ended |    
|                                            |  | March 31,          |    
|                                            |  |                    |    
|                                            |  | 2006               |     |  | 2005 |  
|                                            |  |                    |     |  |      |  
|                                            |  | (Unaudited)        |    
|Properties sold                             |  |                    | 4   |  |      |   | 4      | 
|Proceeds received                           |  | $                  | 973 |  |      | $ | 43,464 | 
|Mortgage debt repaid                        |  | $                  |    |  |      | $ | 10,702 | 
|Total gain recorded                         |  | $                  | 251 |  |      | $ | 13,200 | 
|Gain recorded in operations                 |  | $                  |    |  |      | $ | 186    | 
|Gain recorded in discontinued operations(i) |  | $                  | 251 |  |      | $ | 13,014 | 






|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | A gain of $5.7 million on the sale of resort properties was
    recognized in the three months ended March 31, 2005 in
    addition to gains on the rental portfolio.



| |                                                          
| | ---------------------------------------------------------
| | Property Development and Associated Resort
    Activities





|           |                                   |                    |        |       |      |   |       |       | 
|---------- | --------------------------------- | ------------------ | ------ | ----- | ---- | - | ----- | ----- | 
|           |                                   | Three Months Ended |       
|           |                                   | March 31,          |       
|           |                                   |                    |       
|           |                                   | 2006               |        |       | 2005 |  
|           |                                   |                    |        |       |      |  
|           |                                   | (Unaudited)        |       
|Units sold |                                   |                    |        |       |      |   |       |      
|           | New Seabury, Massachusetts        |                    |        | 10    |      |   |       |      | 
|           | Grand Harbor/ Oak Harbor, Florida |                    |        | 2     |      |   |       | 6     | 
|           | Falling Waters, Florida           |                    |        | 0     |      |   |       | 24    | 
|           |                                   |                    |        |       |      |  
|           |                                   |                    | 12     |       |      |   | 30    |      
|           |                                   |                    |        |       |      |  
|Revenues   |                                   |                    |        |       |      |   |       |      
|           | New Seabury, Massachusetts        |                    | $      | 9,033 |      |   | $     |      | 
|           | Grand Harbor/ Oak Harbor, Florida |                    |        | 2,321 |      |   |       | 3,423 | 
|           | Falling Waters, Florida           |                    |        |      |      |   |       | 4,856 | 
|           | Other                             |                    |        | 30    |      |   |       |      | 
|           |                                   |                    |        |       |      |  
|           |                                   | $                  | 11,384 |       |      | $ | 8,279 |      
|           |                                   |                    |        |       |      |  

13



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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)




| |                               
| | ------------------------------
| | d.            Home
    Fashion





|                                  |                   |             |         |         |              |   |         |         | 
|--------------------------------- | ----------------- | ----------- | ------- | ------- | ------------ | - | ------- | ------- | 
|                                  |                   | March 31,   |         |         | December 31, |  
|                                  |                   | 2006        |         |         | 2005         |  
|                                  |                   |             |         |         |              |  
|                                  |                   | (Unaudited) |         |         |             
|Current assets                    |                   | $           | 556,904 |         |              | $ | 583,496 |        
|Property plant and equipment, net |                   |             | 150,210 |         |              |   | 166,026 |        
|Intangible assets                 |                   |             | 23,402  |         |              |   | 23,402  |        
|                                  |                   |             |         |         |              |  
|                                  | Total assets      |             | $       | 730,516 |              |   | $       | 772,924 | 
|                                  |                   |             |         |         |              |  
|Current liabilities               |                   | $           | 102,040 |         |              | $ | 103,931 |        
|Other liabilities                 |                   |             | 1,869   |         |              |   | 5,214   |        
|                                  |                   |             |         |         |              |  
|                                  | Total liabilities |             | $       | 103,909 |              |   | $       | 109,145 | 
|                                  |                   |             |         |         |              |  



|               |                                     |                    |         |         | 
|-------------- | ----------------------------------- | ------------------ | ------- | ------- | 
|               |                                     | Three Months Ended |        
|               |                                     | March 31, 2006     |        
|               |                                     |                    |        
|               |                                     | (Unaudited)        |        
|Revenues       |                                     | $                  | 243,490 |        
|Expenses:      |                                     |                    |         |        
|               | Cost of sales                       |                    |         | 228,360 | 
|               | Selling, general and administrative |                    |         | 53,088  | 
|               |                                     |                    |        
|Operating loss |                                     | $                  | (37,958 | )      
|               |                                     |                    |        





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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)







|        |                                
|------- | -------------------------------
|Note 4. | Investments and Related Matters



|                          |                                        |                |         |          |                   |   |         |         |          |   |         |         |  |   |         |         | 
|------------------------- | -------------------------------------- | -------------- | ------- | -------- | ----------------- | - | ------- | ------- | -------- | - | ------- | ------- |  | - | ------- | ------- | 
|                          |                                        | March 31, 2006 |         |          | December 31, 2005 |  
|                          |                                        |                |         |          |                   |  
|                          |                                        |                |         | Carrying |                   |   |         |         | Carrying |  
|                          |                                        | Cost           |         |          | Value             |   |         | Cost    |          |   | Value   |        
|                          |                                        |                |         |          |                   |   |         |         |          |   |         |        
|                          |                                        | (Unaudited)    |         |          |                   |   |        
|Current Investments:      |                                        |                |         |          |                   |   |         |         |          |   |         |         |  |   |         |        
|Trading                   |                                        |                |         |          |                   |   |         |         |          |   |         |         |  |   |         |        
|                          | Marketable equity and debt securities  |                | $       |         |                   |   | $       |        |          |   | $       | 33,301  |  |   | $       | 39,232  | 
|                          | Other investments                      |                |         |         |                   |   |         | 14,728  |          |   |         |        |  |   |         |        | 
|                          |                                        |                |         |          |                   |   |         |         |          |   |         |        
|                          | Total current trading                  |                |         |         |                   |   |         | 14,728  |          |   |         | 33,301  |  |   |         | 39,232  | 
|                          |                                        |                |         |          |                   |   |         |         |          |   |         |        
|Available for Sale        |                                        |                |         |          |                   |   |         |         |          |   |         |         |  |   |         |        
|                          | U.S. Government and agency obligations |                |         | 9,832    |                   |   |         | 9,734   |          |   |         | 3,346   |  |   |         | 3,346   | 
|                          | Marketable equity and debt securities  |                |         | 842,334  |                   |   |         | 832,141 |          |   |         | 746,731 |  |   |         | 746,839 | 
|                          | Other investments                      |                |         | 20,031   |                   |   |         | 19,678  |          |   |         | 31,282  |  |   |         | 31,282  | 
|                          |                                        |                |         |          |                   |   |         |         |          |   |         |        
|                          | Total current available for sale       |                |         | 872,197  |                   |   |         | 861,553 |          |   |         | 781,359 |  |   |         | 781,467 | 
|                          |                                        |                |         |          |                   |   |         |         |          |   |         |        
|Total current investments |                                        | $              | 872,197 |          |                   | $ | 876,281 |         |          | $ | 814,660 |         |  | $ | 820,699 |        
|                          |                                        |                |         |          |                   |   |         |         |          |   |         |        
|Non-Current Investments:  |                                        |                |         |          |                   |   |         |         |          |   |         |         |  |   |         |        
|                          | Other securities                       |                |         | 16,050   |                   |   |         | 16,050  |          |   |         | 15,964  |  |   |         | 15,964  | 
|                          |                                        |                |         |          |                   |   |         |         |          |   |         |        
|                          | Total non-current                      |                | $       | 16,050   |                   |   | $       | 16,050  |          |   | $       | 15,964  |  |   | $       | 15,964  | 
|                          |                                        |                |         |          |                   |   |         |         |          |   |         |        









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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)




| |                                          
| | -----------------------------------------
| | Margin Liability on Marketable Securities








|        |                 
|------- | ----------------
|Note 5. | Inventories, Net



|                           |  |             |         |  |              |   |         | 
|-------------------------- |  | ----------- | ------- |  | ------------ | - | ------- | 
|                           |  | March 31,   |         |  | December 31, |  
|                           |  | 2006        |         |  | 2005         |  
|                           |  |             |         |  |              |  
|                           |  | (Unaudited) |         |  |             
|Raw materials and supplies |  | $           | 34,432  |  |              | $ | 33,083  | 
|Goods in process           |  |             | 103,134 |  |              |   | 100,337 | 
|Finished goods             |  |             | 137,919 |  |              |   | 110,819 | 
|                           |  |             |         |  |              |  
|                           |  | $           | 275,485 |  |              | $ | 244,239 | 
|                           |  |             |         |  |              |  






|        |                                        
|------- | ---------------------------------------
|Note 6. | Trade, Notes and Other Receivables, Net



|                                               |  |             |         |   |              |   |         |  
|---------------------------------------------- |  | ----------- | ------- | - | ------------ | - | ------- | -
|                                               |  | March 31,   |         |   | December 31, |  
|                                               |  | 2006        |         |   | 2005         |  
|                                               |  |             |         |   |              |  
|                                               |  | (Unaudited) |         |   |             
|Trade receivables  Home Fashion               |  | $           | 152,434 |   |              | $ | 173,050 |  
|Allowance for doubtful accounts  Home Fashion |  |             | (8,529  | ) |              |   | (8,313  | )
|Trade receivables  Oil and Gas                |  |             | 46,313  |   |              |   | 58,956  |  
|Allowance for doubtful accounts  Oil and Gas  |  |             | (5,377  | ) |              |   | (5,572  | )
|Other                                          |  |             | 38,118  |   |              |   | 36,893  |  
|                                               |  |             |         |   |              |  
|                                               |  | $           | 222,959 |   |              | $ | 255,014 |  
|                                               |  |             |         |   |              |  






|        |                     
|------- | --------------------
|Note 7. | Other Current Assets



|                     |  |             |         |  |              |   |         | 
|-------------------- |  | ----------- | ------- |  | ------------ | - | ------- | 
|                     |  | March 31,   |         |  | December 31, |  
|                     |  | 2006        |         |  | 2005         |  
|                     |  |             |         |  |              |  
|                     |  | (Unaudited) |         |  |             
|Assets held for sale |  | $           | 42,080  |  |              | $ | 49,876  | 
|Restricted cash      |  |             | 228,092 |  |              |   | 161,210 | 
|Due from brokers     |  |             | 86,145  |  |              |   |        | 
|Other                |  |             | 76,329  |  |              |   | 76,899  | 
|                     |  |             |         |  |              |  
|                     |  | $           | 432,646 |  |              | $ | 287,985 | 
|                     |  |             |         |  |              |  

16



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)











|        |                              
|------- | -----------------------------
|Note 8. | Property, Plant and Equipment



|                                                          |  |             |           |   |              |   |           |  
|--------------------------------------------------------- |  | ----------- | --------- | - | ------------ | - | --------- | -
|                                                          |  | March 31,   |           |   | December 31, |  
|                                                          |  | 2006        |           |   | 2005         |  
|                                                          |  |             |           |   |              |  
|                                                          |  | (Unaudited) |           |   |             
|Land                                                      |  | $           | 181,755   |   |              | $ | 182,539   |  
|Buildings and improvements                                |  |             | 376,985   |   |              |   | 374,160   |  
|Proved oil and gas properties                             |  |             | 1,280,704 |   |              |   | 1,229,923 |  
|Machinery, equipment and furniture                        |  |             | 343,321   |   |              |   | 357,018   |  
|Assets leased to others                                   |  |             | 140,996   |   |              |   | 141,997   |  
|Construction in progress                                  |  |             | 92,469    |   |              |   | 69,893    |  
|                                                          |  |             |           |   |              |  
|                                                          |  |             | 2,416,230 |   |              |   | 2,355,530 |  
|                                                          |  |             |           |   |              |  
|Less accumulated depreciation, depletion and amortization |  |             | (764,934  | ) |              |   | (720,292  | )
|                                                          |  |             |           |   |              |  
|Net property, plant and equipment                         |  | $           | 1,651,296 |   |              | $ | 1,635,238 |  
|                                                          |  |             |           |   |              |  








|        |                         
|------- | ------------------------
|Note 9. | Other Non-Current Assets



|                                                                                                                                              |  |             |         |  |              |   |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- |  | ------------ | - | ------- | 
|                                                                                                                                              |  | March 31,   |         |  | December 31, |  
|                                                                                                                                              |  | 2006        |         |  | 2005         |  
|                                                                                                                                              |  |             |         |  |              |  
|                                                                                                                                              |  | (Unaudited) |         |  |             
|Deferred taxes                                                                                                                                |  | $           | 48,705  |  |              | $ | 51,511  | 
|Deferred finance costs, net of accumulated amortization of
    $4,353 and $4,076 as of March 31, 2006 and
    December 31, 2005, respectively |  |             | 26,720  |  |              |   | 29,822  | 
|Restricted deposits                                                                                                                           |  |             | 27,559  |  |              |   | 24,805  | 
|Other                                                                                                                                         |  |             | 4,475   |  |              |   | 1,660   | 
|                                                                                                                                              |  |             |         |  |              |  
|                                                                                                                                              |  | $           | 107,459 |  |              | $ | 107,798 | 
|                                                                                                                                              |  |             |         |  |              |  



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)







|         |                              
|-------- | -----------------------------
|Note 10. | Other Non-Current Liabilities



|                                           |  |             |        |  |              |   |        | 
|------------------------------------------ |  | ----------- | ------ |  | ------------ | - | ------ | 
|                                           |  | March 31,   |        |  | December 31, |  
|                                           |  | 2006        |        |  | 2005         |  
|                                           |  |             |        |  |              |  
|                                           |  | (Unaudited) |        |  |             
|Asset retirement obligations (see Note 17) |  | $           | 41,908 |  |              | $ | 41,228 | 
|Derivative liability (see Note 18)         |  |             | 13,090 |  |              |   | 17,893 | 
|Other long-term liabilities                |  |             | 28,841 |  |              |   | 29,964 | 
|                                           |  |             |        |  |              |  
|                                           |  | $           | 83,839 |  |              | $ | 89,085 | 
|                                           |  |             |        |  |              |  






|         |                   
|-------- | ------------------
|Note 11. | Minority Interests



|               |  |             |         |  |              |   |         | 
|-------------- |  | ----------- | ------- |  | ------------ | - | ------- | 
|               |  | March 31,   |         |  | December 31, |  
|               |  | 2006        |         |  | 2005         |  
|               |  |             |         |  |              |  
|               |  | (Unaudited) |         |  |             
|WPI            |  | $           | 231,942 |  |              | $ | 247,015 | 
|Atlantic Coast |  |             | 57,530  |  |              |   | 57,584  | 
|               |  |             |         |  |              |  
|               |  | $           | 289,472 |  |              | $ | 304,599 | 
|               |  |             |         |  |              |  






|         |               
|-------- | --------------
|Note 12. | Long Term Debt



|                                                                              |  |             |           |  |              |   |           | 
|----------------------------------------------------------------------------- |  | ----------- | --------- |  | ------------ | - | --------- | 
|                                                                              |  | March 31,   |           |  | December 31, |  
|                                                                              |  | 2006        |           |  | 2005         |  
|                                                                              |  |             |           |  |              |  
|                                                                              |  | (Unaudited) |           |  |             
|Senior unsecured 7.125% notes due 2013  AREP                                 |  | $           | 480,000   |  |              | $ | 480,000   | 
|Senior unsecured 8.125% notes due 2012  AREP                                 |  |             | 351,003   |  |              |   | 350,922   | 
|Senior secured 7.85% notes due 2012  ACEP                                    |  |             | 215,000   |  |              |   | 215,000   | 
|Borrowings under credit facility  NEG Oil & Gas                              |  |             | 300,000   |  |              |   | 300,000   | 
|Mortgages payable                                                             |  |             | 80,414    |  |              |   | 81,512    | 
|Other                                                                         |  |             | 9,364     |  |              |   | 8,387     | 
|                                                                              |  |             |           |  |              |  
|Total long-term debt                                                          |  |             | 1,435,781 |  |              |   | 1,435,821 | 
|Less current portion, including debt related to real estate held
    for sale |  |             | 22,167    |  |              |   | 24,155    | 
|                                                                              |  |             |           |  |              |  
|                                                                              |  | $           | 1,413,614 |  |              | $ | 1,411,666 | 
|                                                                              |  |             |           |  |              |  



| |                                                             
| | ------------------------------------------------------------
| | Senior unsecured notes restrictions and
    covenants  AREP



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)










| |                                               
| | ----------------------------------------------
| | Senior secured 7.85% notes due 2012 
    ACEP







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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)




| |                                                               
| | --------------------------------------------------------------
| | NEG Oil & Gas LLC Senior Secured Revolving Credit
    Facility










|         |                       
|-------- | ----------------------
|Note 13. | Other Income (Expense)








|         |             
|-------- | ------------
|Note 14. | Unit Options



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)


Share Based Payment







|         |                
|-------- | ---------------
|Note 15. | Preferred Units








|         |                                      
|-------- | -------------------------------------
|Note 16. | Earnings Per Limited Partnership Unit





|                                                                           |                                     |                    |        |      |      |   |        |      | 
|-------------------------------------------------------------------------- | ----------------------------------- | ------------------ | ------ | ---- | ---- | - | ------ | ---- | 
|                                                                           |                                     | Three Months Ended |       
|                                                                           |                                     | March 31,          |       
|                                                                           |                                     |                    |       
|                                                                           |                                     | 2006               |        |      | 2005 |  
|                                                                           |                                     |                    |        |      |      |  
|                                                                           |                                     | (Unaudited)        |       
|Attributable to limited partners:                                          |                                     |                    |        |      |      |   |        |     
|Basic income from continuing operations                                    |                                     | $                  | 48,070 |      |      | $ | 24,217 |     
|Add preferred unit distribution                                            |                                     |                    | 1,323  |      |      |   | 1,260  |     
|                                                                           |                                     |                    |        |      |      |  
|Income before discontinued operations                                      |                                     |                    | 49,393 |      |      |   | 25,477 |     
|Income from discontinued operations                                        |                                     |                    | 648    |      |      |   | 18,910 |     
|                                                                           |                                     |                    |        |      |      |  
|Diluted earnings                                                           |                                     | $                  | 50,041 |      |      | $ | 44,387 |     
|                                                                           |                                     |                    |        |      |      |  
|Weighted average LP units outstanding                                      |                                     |                    | 61,857 |      |      |   | 46,098 |     
|Dilutive effect of redemption of preferred LP units                        |                                     |                    | 2,831  |      |      |   | 3,760  |     
|Dilutive effect of unit options                                            |                                     |                    | 71     |      |      |   |       |     
|                                                                           |                                     |                    |        |      |      |  
|Weighted average LP units and equivalent partnership units
    outstanding |                                     |                    | 64,759 |      |      |   | 49,858 |     
|                                                                           |                                     |                    |        |      |      |  
|Basic earnings:                                                            |                                     |                    |        |      |      |   |        |     
|                                                                           | Income from continuing operations   |                    | $      | 0.78 |      |   | $      | 0.53 | 
|                                                                           | Income from discontinued operations |                    |        | 0.01 |      |   |        | 0.41 | 
|                                                                           |                                     |                    |        |      |      |  
|Basic earnings per LP unit                                                 |                                     | $                  | 0.79   |      |      | $ | 0.94   |     
|                                                                           |                                     |                    |        |      |      |  
|Diluted earnings:                                                          |                                     |                    |        |      |      |   |        |     
|                                                                           | Income from continuing operations   |                    | $      | 0.76 |      |   | $      | 0.51 | 
|                                                                           | Income from discontinued operations |                    |        | 0.01 |      |   |        | 0.38 | 
|                                                                           |                                     |                    |        |      |      |  
|Diluted earnings per LP unit                                               |                                     | $                  | 0.77   |      |      | $ | 0.89   |     
|                                                                           |                                     |                    |        |      |      |  






|         |                                           
|-------- | ------------------------------------------
|Note 17. | Asset Retirement Obligations  Oil and Gas



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)




|                  |                    |           |        |   |              |   |        |         |  
|----------------- | ------------------ | --------- | ------ | - | ------------ | - | ------ | ------- | -
|                  |                    | March 31, |        |   | December 31, |  
|                  |                    | 2006      |        |   | 2005         |  
|                  |                    |           |        |   |              |  
|Beginning of year |                    | $         | 41,228 |   |              | $ | 56,524 |        
|Add: Accretion    |                    |           | 680    |   |              |   | 3,019  |        
|                  | Drilling additions |           |        |  |              |   |        | 2,067   |  
|                  | Less: Revisions    |           |        |  |              |   |        | (2,813  | )
|                  | Settlements        |           |        |  |              |   |        | (431    | )
|                  | Dispositions       |           |        |  |              |   |        | (17,138 | )
|                  |                    |           |        |   |              |  
|End of period     |                    | $         | 41,908 |   |              | $ | 41,228 |        
|                  |                    |           |        |   |              |  






|         |                        
|-------- | -----------------------
|Note 18. | Oil and Gas Derivatives



|                                                                                |  |                  |              |  |                  |  |               |       |  |  |         |  |  |  |        | 
|------------------------------------------------------------------------------- |  | ---------------- | ------------ |  | ---------------- |  | ------------- | ----- |  |  | ------- |  |  |  | ------ | 
|Type of Contract                                                                |  | Production Month |              |  | Volume Per Month |  |               | Floor |  |  | Ceiling | 
|                                                                                |  |                  |              |  |                  |  |               |       |  |  |         | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006 |  |                  |  | 31,000 Bbls   |       |  |  | 41.65   |  |  |  | 45.25  | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006 |  |                  |  | 16,000 Bbls   |       |  |  | 41.75   |  |  |  | 45.40  | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006 |  |                  |  | 570,000 MMBTU |       |  |  | 6.00    |  |  |  | 7.25   | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006 |  |                  |  | 120,000 MMBTU |       |  |  | 6.00    |  |  |  | 7.28   | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006 |  |                  |  | 500,000 MMBTU |       |  |  | 4.50    |  |  |  | 5.00   | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006 |  |                  |  | 46,000 Bbls   |       |  |  | 60.00   |  |  |  | 68.50  | 
|(The company participates in a second ceiling at $84.50 on the
    46,000 Bbls)
|No cost collars                                                                 |  |                  | Jan-Dec 2007 |  |                  |  | 30,000 Bbls   |       |  |  | 57.00   |  |  |  | 70.50  | 
|No cost collars                                                                 |  |                  | Jan-Dec 2007 |  |                  |  | 30,000 Bbls   |       |  |  | 57.50   |  |  |  | 72.00  | 
|No cost collars                                                                 |  |                  | Jan-Dec 2007 |  |                  |  | 930,000 MMBTU |       |  |  | 8.00    |  |  |  | 10.225 | 
|No cost collars                                                                 |  |                  | Jan-Dec 2008 |  |                  |  | 46,000 Bbls   |       |  |  | 55.00   |  |  |  | 69.00  | 
|No cost collars                                                                 |  |                  | Jan-Dec 2008 |  |                  |  | 750,000 MMBTU |       |  |  | 7.00    |  |  |  | 10.35  | 








|         |                  
|-------- | -----------------
|Note 19. | Segment Reporting



22



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)






|                                     |                                   |                      |                            |                                       |        |        |         |         |       |        |         |  
|------------------------------------ | --------------------------------- | -------------------- | -------------------------- | ------------------------------------- | ------ | ------ | ------- | ------- | ----- | ------ | ------- | -
|                                     |                                   | Three Months Ended   |                           
|                                     |                                   | March 31,            |                           
|                                     |                                   |                      |                           
|                                     |                                   | 2006                 |                            |                                       | 2005   |       
|                                     |                                   |                      |                            |                                       |        |       
|                                     |                                   | (Unaudited)          |                           
|Revenues:                            |                                   |                      |                            |                                       |        |        |         |        
|                                     | Oil and Gas                       |                      | $                          | 108,292                               |        |        | $       | 15,678  |      
|                                     | Gaming                            |                      |                            | 126,718                               |        |        |         | 122,667 |      
|                                     | Real Estate                       |                      |                            |                                       |        |        |         |         |      
|                                     |                                   | Rental real estate   |                            |                                       | 4,060  |        |         |         | 4,240 |       
|                                     |                                   | Property development |                            |                                       | 11,384 |        |         |         | 8,279 |       
|                                     |                                   | Resort operations    |                            |                                       | 6,082  |        |         |         | 5,563 |       
|                                     |                                   |                      |                            |                                       |        |       
|                                     |                                   |                      | Total real estate          |                                       |        | 21,526 |         |         |       | 18,082 |        
|                                     |                                   |                      |                            |                                       |        |       
|                                     | Home Fashion                      |                      |                            | 243,490                               |        |        |         |        |      
|                                     |                                   |                      |                            |                                       |        |       
|                                     |                                   |                      |                            | Total revenues                        |        | $      | 500,026 |         |       | $      | 156,427 |  
|                                     |                                   |                      |                            |                                       |        |       
|Net segment operating income (loss): |                                   |                      |                            |                                       |        |        |         |        
|                                     | Oil and Gas                       |                      | $                          | 64,988                                |        |        | $       | (21,392 | )    
|                                     | Gaming                            |                      |                            | 19,355                                |        |        |         | 18,664  |      
|                                     | Real Estate                       |                      |                            |                                       |        |        |         |         |      
|                                     |                                   | Rental real estate   |                            |                                       | 2,800  |        |         |         | 2,956 |       
|                                     |                                   | Property development |                            |                                       | 1,408  |        |         |         | 94    |       
|                                     |                                   | Resort operations    |                            |                                       | (182   | )      |         |         | (794  | )     
|                                     |                                   |                      |                            |                                       |        |       
|                                     |                                   |                      | Total real estate earnings |                                       |        | 4,026  |         |         |       | 2,256  |        
|                                     |                                   |                      |                            |                                       |        |       
|                                     | Home Fashion                      |                      |                            | (37,958                               | )      |        |         |        |      
|                                     |                                   |                      |                            |                                       |        |       
|                                     |                                   |                      |                            | Total segment operating income (loss) |        |        | 50,411  |         |       |        | (472    | )
|                                     |                                   |                      |                            |                                       |        |       
|Holding Company costs(i)             |                                   |                      | (11,304                    | )                                     |        |        | (2,908  | )      
|                                     |                                   |                      |                            |                                       |        |       
|Total operating income               |                                   |                      | 39,107                     |                                       |        |        | (3,380  | )      
|                                     |                                   |                      |                            |                                       |        |       
|Interest expense                     |                                   |                      | (30,589                    | )                                     |        |        | (23,180 | )      
|Interest income                      |                                   |                      | 12,592                     |                                       |        |        | 12,351  |        
|Other income (expense), net          |                                   |                      | 21,471                     |                                       |        |        | 25,952  |        
|Income tax expense                   |                                   |                      | (8,658                     | )                                     |        |        | (3,406  | )      
|Minority interests                   |                                   |                      | 15,123                     |                                       |        |        | 932     |        
|                                     |                                   |                      |                            |                                       |        |       
|                                     | Income from continuing operations |                      | $                          | 49,046                                |        |        | $       | 9,269   |      
|                                     |                                   |                      |                            |                                       |        |       






|    |                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Holding company costs include general and administrative
    expenses and acquisition costs of the holding company. General
    and administrative expenses of the segments are included in
    their respective operating expenses in the accompanying
    statements of earnings.

23



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)


|                                                             |                             |                      |                   |        |      |       |        |        |     |       | 
|------------------------------------------------------------ | --------------------------- | -------------------- | ----------------- | ------ | ---- | ----- | ------ | ------ | --- | ----- | 
|                                                             |                             | Three Months Ended   |                  
|                                                             |                             | March 31,            |                  
|                                                             |                             |                      |                  
|                                                             |                             | 2006                 |                   |        | 2005 |      
|                                                             |                             |                      |                   |        |      |      
|                                                             |                             | (Unaudited)          |                  
|Depreciation, depletion and amortization (D,D&A) by segment: |                             |                      |                   |        |      |       |        |       
|                                                             | Oil and Gas                 |                      | $                 | 24,134 |      |       | $      | 20,303 |    
|                                                             | Gaming                      |                      |                   | 9,427  |      |       |        | 9,219  |    
|                                                             | Real Estate:                |                      |                   |        |      |       |        |        |    
|                                                             |                             | Rental real estate   |                   |        | 497  |       |        |        | 514 |      
|                                                             |                             | Property development |                   |        | 91   |       |        |        | 63  |      
|                                                             |                             | Resort operations    |                   |        | 830  |       |        |        | 829 |      
|                                                             |                             |                      |                   |        |      |      
|                                                             |                             |                      | Total real estate |        |      | 1,418 |        |        |     | 1,406 | 
|                                                             |                             |                      |                   |        |      |      
|                                                             | Home Fashion                |                      |                   | 10,364 |      |       |        |       |    
|                                                             |                             |                      |                   |        |      |      
|                                                             | D,D&A in operating expenses |                      |                   | 45,343 |      |       |        | 30,928 |    
|Amortization in interest expense                             |                             |                      | 1,264             |        |      |       | 1,615  |       
|                                                             |                             |                      |                   |        |      |      
|Total D,D&A for continuing operations                        |                             | $                    | 46,607            |        |      | $     | 32,543 |       
|                                                             |                             |                      |                   |        |      |      

|        |                        |              |   |           |              |  |   |           |           | 
|------- | ---------------------- | ------------ | - | --------- | ------------ |  | - | --------- | --------- | 
|        |                        | March 31,    |   |           | December 31, | 
|        |                        | 2006         |   |           | 2005         | 
|        |                        |              |   |           |              | 
|Assets: |                        |              |   |           |              |  |   |          
|        | Oil and Gas            |              | $ | 933,379   |              |  | $ | 958,295   |          
|        | Gaming                 |              |   | 662,091   |              |  |   | 656,941   |          
|        | Real Estate            |              |   | 434,146   |              |  |   | 442,594   |          
|        | Home Fashion           |              |   | 730,516   |              |  |   | 772,924   |          
|        |                        |              |   |           |              | 
|        |                        | Subtotal     |   |           | 2,760,132    |  |   |           | 2,830,754 | 
|        | Reconciling items (ii) |              |   | 1,310,296 |              |  |   | 1,135,708 |          
|        |                        |              |   |           |              | 
|        |                        | Total assets |   | $         | 4,070,428    |  |   | $         | 3,966,462 | 
|        |                        |              |   |           |              | 






|     |                                                                                         
|---- | ----------------------------------------------------------------------------------------
|(ii) | Reconciling items relate principally to cash and investments of
    the Holding Company.

|                      |                                       |                    |        |        |      |   |        |        | 
|--------------------- | ------------------------------------- | ------------------ | ------ | ------ | ---- | - | ------ | ------ | 
|                      |                                       | Three Months Ended |       
|                      |                                       | March 31           |       
|                      |                                       |                    |       
|                      |                                       | 2006               |        |        | 2005 |  
|                      |                                       |                    |        |        |      |  
|Capital expenditures: |                                       |                    |        |        |      |   |        |       
|                      | Oil and Gas                           |                    | $      | 50,924 |      |   | $      | 47,525 | 
|                      | Gaming                                |                    |        | 3,866  |      |   |        | 5,257  | 
|                      | Rental Real Estate                    |                    |        | 22     |      |   |        |       | 
|                      | Hotel and resort operating properties |                    |        | 445    |      |   |        | 359    | 
|                      | Home Fashion                          |                    |        | 1,440  |      |   |        |       | 
|                      |                                       |                    |        |        |      |  
|                      |                                       | $                  | 56,697 |        |      | $ | 53,141 |       
|                      |                                       |                    |        |        |      |  

24



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)







|         |             
|-------- | ------------
|Note 20. | Income Taxes



|         |  |                    |        |   |      |   |        |  
|-------- |  | ------------------ | ------ | - | ---- | - | ------ | -
|         |  | Three Months Ended |       
|         |  | March 31,          |       
|         |  |                    |       
|         |  | 2006               |        |   | 2005 |  
|         |  |                    |        |   |      |  
|Current  |  | $                  | (5,847 | ) |      | $ | (1,353 | )
|Deferred |  |                    | (2,811 | ) |      |   | (2,053 | )
|         |  |                    |        |   |      |  
|         |  | $                  | (8,658 | ) |      | $ | (3,406 | )
|         |  |                    |        |   |      |  








|         |                              
|-------- | -----------------------------
|Note 21. | Commitments and Contingencies



GB Holdings








| |               
| | --------------
| | WPI litigation

Contrarian Funds Inc. v. WestPoint Stevens, Inc.
et al.


25



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)


pro rata pro rata








| |                    
| | -------------------
| | Pending Acquisition








|         |                  
|-------- | -----------------
|Note 22. | Subsequent Events



| |                                                
| | -----------------------------------------------
| | Declaration of Distribution on Depositary Units



26



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (Continued)




| |                        
| | -----------------------
| | Oil and Gas Derivatives



|                 |  |                  |                |  |                  |  |               |       |  |  |         |  |  |  |       | 
|---------------- |  | ---------------- | -------------- |  | ---------------- |  | ------------- | ----- |  |  | ------- |  |  |  | ----- | 
|Type of Contract |  | Production Month |                |  | Volume per Month |  |               | Floor |  |  | Ceiling | 
|                 |  |                  |                |  |                  |  |               |       |  |  |         | 
|No cost collars  |  |                  | Jan - Dec 2007 |  |                  |  | 1,000 Bbls    |       |  |  | 65.00   |  |  |  | 87.40 | 
|No cost collars  |  |                  | Jan - Dec 2007 |  |                  |  | 7,000 Bbls    |       |  |  | 65.00   |  |  |  | 86.00 | 
|No cost collars  |  |                  | Jan - Dec 2007 |  |                  |  | 330,000 MMBTU |       |  |  | 9.60    |  |  |  | 12.10 | 
|No cost collars  |  |                  | Jan - Dec 2007 |  |                  |  | 100,000 MMBTU |       |  |  | 9.55    |  |  |  | 12.60 | 
|No cost collars  |  |                  | Jan - Dec 2008 |  |                  |  | 9,000 Bbls    |       |  |  | 65.00   |  |  |  | 81.25 | 
|No cost collars  |  |                  | Jan - Dec 2008 |  |                  |  | 70,000 MMBTU  |       |  |  | 8.75    |  |  |  | 11.90 | 
|No cost collars  |  |                  | Jan - Dec 2008 |  |                  |  | 270,000 MMBTU |       |  |  | 8.80    |  |  |  | 11.45 | 
|No cost collars  |  |                  | Jan - Dec 2009 |  |                  |  | 19,000 Bbls   |       |  |  | 65.00   |  |  |  | 78.50 | 
|No cost collars  |  |                  | Jan - Dec 2009 |  |                  |  | 26,000 Bbls   |       |  |  | 65.00   |  |  |  | 77.00 | 
|No cost collars  |  |                  | Jan - Dec 2009 |  |                  |  | 330,000 MMBTU |       |  |  | 7.90    |  |  |  | 10.80 | 
|No cost collars  |  |                  | Jan - Dec 2009 |  |                  |  | 580,000 MMBTU |       |  |  | 7.90    |  |  |  | 11.00 | 

27



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 2. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations





















| |    |                                
| | -- | -------------------------------
| | 3. | Liquidity and Capital Resources













Overview


out-of






28



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##### Table of Contents






Results of Operations




| |         
| | --------
| | Overview





| |   |                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increased operating income from Oil and Gas. Gains on unrealized
    derivative positions were $37.3 million in 2006 compared to
    unrealized losses of $38.8 million in 2005. Additionally,
    volumes and prices realized were higher in 2006 compared to
    2005, resulting in $24.9 million of additional revenue;
|
| |  | Operating losses of $38.0 million were realized by our Home
    Fashion segment, of which $9.8 million relates to
    restructuring costs, consisting primarily of impairment charges
    in connection with the closing of plants;                                                                                       
|
| |  | Increase in Holding Company costs of $8.4 million
    principally due to a $6.2 million non-cash compensation charge
    related to the cancellation of unit options; and                                                                                                                                                 
|
| |  | Reduced gains on sales of properties: income from discontinued
    operations fell $18.6 million.                                                                                                                                                                                                                         



| |                     
| | --------------------
| | Consolidated Results



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Three months ended March 31, 2006 compared to three
    months ended March 31, 2005.







29



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| |            
| | -----------
| | Oil and Gas



|                           |                                      |                    |                                          |                      |         |        |         |         |        |        |        | 
|-------------------------- | ------------------------------------ | ------------------ | ---------------------------------------- | -------------------- | ------- | ------ | ------- | ------- | ------ | ------ | ------ | 
|                           |                                      | Three Months Ended |                                         
|                           |                                      | March 31,          |                                         
|                           |                                      |                    |                                         
|                           |                                      | 2006               |                                          |                      | 2005    |       
|                           |                                      |                    |                                          |                      |         |       
|Gross oil and gas revenues |                                      | $                  | 81,183                                   |                      |         | $      | 56,263  |        
|                           | Realized derivative losses           |                    |                                          | (12,087              | )       |        |         | (3,133  | )     
|                           | Unrealized derivative gains (losses) |                    |                                          | 37,252               |         |        |         | (38,769 | )     
|                           |                                      |                    |                                          |                      |         |       
|                           |                                      |                    |                                          | Oil and gas revenues |         |        | 106,348 |         |        |        | 14,361 | 
|Plant revenues             |                                      |                    | 1,944                                    |                      |         |        | 1,317   |        
|                           |                                      |                    |                                          |                      |         |       
|                           |                                      | Total revenues     |                                          |                      | 108,292 |        |         |         | 15,678 |       
|                           |                                      |                    |                                          |                      |         |       
|Costs and expenses:        |                                      |                    |                                          |                      |         |        |         |        
|                           |                                      |                    | Oil and gas operating expenses           |                      |         | 14,045 |         |         |        | 13,364 |       
|                           |                                      |                    | Depreciation, depletion and amortization |                      |         | 24,134 |         |         |        | 20,303 |       
|                           |                                      |                    | General and administrative expenses      |                      |         | 5,125  |         |         |        | 3,403  |       
|                           |                                      |                    |                                          |                      |         |       
|                           |                                      |                    | 43,304                                   |                      |         |        | 37,070  |        
|                           |                                      |                    |                                          |                      |         |       
|Operating income (loss)    |                                      | $                  | 64,988                                   |                      |         | $      | (21,392 | )      
|                           |                                      |                    |                                          |                      |         |       





|                                          |                                                                  |                    |        |       |      |   |       |       | 
|----------------------------------------- | ---------------------------------------------------------------- | ------------------ | ------ | ----- | ---- | - | ----- | ----- | 
|                                          |                                                                  | Three Months Ended |       
|                                          |                                                                  | March 31,          |       
|                                          |                                                                  |                    |       
|                                          |                                                                  | 2006               |        |       | 2005 |  
|                                          |                                                                  |                    |        |       |      |  
|Production data:                          |                                                                  |                    |        |       |      |   |       |      
|Oil (Mbbls)                               |                                                                  |                    | 368    |       |      |   | 353   |      
|Natural gas (MMcf)                        |                                                                  |                    | 7,404  |       |      |   | 6,023 |      
|Natural gas liquids (Mbbls)               |                                                                  |                    | 101    |       |      |   | 91    |      
|Natural gas equivalents (MMcfe)           |                                                                  |                    | 10,216 |       |      |   | 8,682 |      
|Average Sales Price(1):                   |                                                                  |                    |        |       |      |   |       |      
|Oil average sales price (per Bbl)         |                                                                  |                    |        |       |      |   |       |      
|                                          | Price including realized gains or losses on derivative contracts |                    | $      | 55.54 |      |   | $     | 48.22 | 
|                                          | Price excluding realized gains or losses on derivative contracts |                    |        | 62.52 |      |   |       | 50.59 | 
|Natural gas average sales price (per Mcf) |                                                                  |                    |        |       |      |   |       |      
|                                          | Price including realized gains or losses on derivative contracts |                    |        | 6.05  |      |   |       | 5.54  | 
|                                          | Price excluding realized gains or losses on derivative contracts |                    |        | 7.34  |      |   |       | 5.92  | 
|Natural gas liquids (per Bbl)             |                                                                  |                    | 38.14  |       |      |   | 30.42 |      
|Expense per Mcfe:                         |                                                                  |                    |        |       |      |   |       |      
|Total oil and gas operating expenses      |                                                                  | $                  | 1.37   |       |      | $ | 1.54  |      
|Depreciation, depletion and amortization  |                                                                  |                    | 2.36   |       |      |   | 2.34  |      
|General and administrative expenses       |                                                                  |                    | .50    |       |      |   | .39   |      






|    |                                                                                
|--- | -------------------------------------------------------------------------------
|(1) | Excludes the effect of unrealized gains and losses on derivative
    contracts.

30



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| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Three months ended March 31, 2006 compared to the three
    months ended March 31, 2005

mark-to












31



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| |       
| | ------
| | Gaming



|         |                                     |                    |         |         |         |  |         |         |         | 
|-------- | ----------------------------------- | ------------------ | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|         |                                     | Three Months Ended |        
|         |                                     | March 31,          |        
|         |                                     |                    |        
|         |                                     | 2006               |         |         | 2005    | 
|         |                                     |                    |         |         |         | 
|Revenues |                                     |                    |         |         |         |  |         |        
|         | Casino                              |                    | $       | 85,372  |         |  | $       | 85,070  |        
|         | Hotel                               |                    |         | 20,321  |         |  |         | 18,087  |        
|         | Food and beverage                   |                    |         | 22,475  |         |  |         | 21,942  |        
|         | Tower, retail and other income      |                    |         | 8,757   |         |  |         | 8,877   |        
|         |                                     |                    |         |         |         | 
|         | Gross revenues                      |                    |         | 136,925 |         |  |         | 133,976 |        
|         | Less promotional allowances         |                    |         | 10,207  |         |  |         | 11,309  |        
|         |                                     |                    |         |         |         | 
|         |                                     | Net revenues       |         |         | 126,718 |  |         |         | 122,667 | 
|         |                                     |                    |         |         |         | 
|Expenses |                                     |                    |         |         |         |  |         |        
|         | Casino                              |                    |         | 27,846  |         |  |         | 27,727  |        
|         | Hotel                               |                    |         | 8,071   |         |  |         | 6,726   |        
|         | Food and beverage                   |                    |         | 15,278  |         |  |         | 13,942  |        
|         | Other operating expenses            |                    |         | 4,479   |         |  |         | 3,847   |        
|         | Selling, general and administrative |                    |         | 42,262  |         |  |         | 42,542  |        
|         | Depreciation and amortization       |                    |         | 9,427   |         |  |         | 9,219   |        
|         |                                     |                    |         |         |         | 
|         |                                     |                    | 107,363 |         |         |  | 104,003 |        
|         |                                     |                    |         |         |         | 
|         |                                     | Operating income   |         | $       | 19,355  |  |         | $       | 18,664  | 
|         |                                     |                    |         |         |         | 



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Three months ended March 31, 2006 compared to the three
    months ended March 31, 2005









32



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| |                    
| | -------------------
| | Results by Location



|                         |              |                    |        |         |      |   |        |         | 
|------------------------ | ------------ | ------------------ | ------ | ------- | ---- | - | ------ | ------- | 
|                         |              | Three Months Ended |       
|                         |              | March 31,          |       
|                         |              |                    |       
|                         |              | 2006               |        |         | 2005 |  
|                         |              |                    |        |         |      |  
|Net revenues:            |              |                    |        |         |      |   |        |        
|Las Vegas                |              | $                  | 85,945 |         |      | $ | 82,838 |        
|Atlantic City            |              |                    | 40,773 |         |      |   | 39,829 |        
|                         |              |                    |        |         |      |  
|                         | Total gaming |                    | $      | 126,718 |      |   | $      | 122,667 | 
|                         |              |                    |        |         |      |  
|Operating income (loss): |              |                    |        |         |      |   |        |        
|Las Vegas                |              | $                  | 18,623 |         |      | $ | 20,040 |        
|Atlantic City            |              |                    | 732    |         |      |   | (1,376 | )      
|                         |              |                    |        |         |      |  
|                         | Total gaming |                    | $      | 19,355  |      |   | $      | 18,664  | 
|                         |              |                    |        |         |      |  



33



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| |            
| | -----------
| | Real Estate



|                    |                      |                                     |  |        |        |  |  |       |        | 
|------------------- | -------------------- | ----------------------------------- |  | ------ | ------ |  |  | ----- | ------ | 
|                    |                      | Three Months Ended                  | 
|                    |                      | March 31,                           | 
|                    |                      |                                     | 
|                    |                      | 2006                                |  |        | 2005   | 
|                    |                      |                                     |  |        |        | 
|Revenues:           |                      |                                     |  |        |        |  |  |      
|                    | Rental real estate:  |                                     |  |        |        |  |  |       |       
|                    |                      | Interest income on financing leases |  | $      | 1,735  |  |  | $     | 1,966  | 
|                    |                      | Rental income                       |  |        | 2,325  |  |  |       | 2,274  | 
|                    | Property development |                                     |  | 11,384 |        |  |  | 8,279 |       
|                    | Resort operations    |                                     |  | 6,082  |        |  |  | 5,563 |       
|                    |                      |                                     |  |        |        | 
|                    |                      | Total revenues                      |  |        | 21,526 |  |  |       | 18,082 | 
|                    |                      |                                     |  |        |        | 
|Operating expenses: |                      |                                     |  |        |        |  |  |      
|                    | Rental real estate   |                                     |  | 1,260  |        |  |  | 1,284 |       
|                    | Property development |                                     |  | 9,976  |        |  |  | 8,185 |       
|                    | Resort operations    |                                     |  | 6,264  |        |  |  | 6,357 |       
|                    |                      |                                     |  |        |        | 
|                    |                      | Total expenses                      |  |        | 17,500 |  |  |       | 15,826 | 
|                    |                      |                                     |  |        |        | 
|                    |                      | Operating income                    |  | $      | 4,026  |  |  | $     | 2,256  | 
|                    |                      |                                     |  |        |        | 



| |                   
| | ------------------
| | Rental Real Estate



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Three months ended March 31, 2006 compared to the three
    months ended March 31, 2005





|                                            |  |                 |     |  |      |   |        | 
|------------------------------------------- |  | --------------- | --- |  | ---- | - | ------ | 
|                                            |  | Three Months    |    
|                                            |  | Ended March 31, |    
|                                            |  |                 |    
|                                            |  | 2006            |     |  | 2005 |  
|                                            |  |                 |     |  |      |  
|Properties sold                             |  |                 | 4   |  |      |   | 4      | 
|Proceeds received                           |  | $               | 973 |  |      | $ | 43,464 | 
|Mortgage debt repaid                        |  | $               |    |  |      | $ | 10,702 | 
|Total gain recorded                         |  | $               | 251 |  |      | $ | 13,200 | 
|Gain recorded in operations                 |  | $               |    |  |      | $ | 186    | 
|Gain recorded in discontinued operations(i) |  | $               | 251 |  |      | $ | 13,014 | 






|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | A gain of $5.7 million on the sale of resort properties was
    recognized in the three months ended March 31, 2005 in
    addition to gains on the rental portfolio.



| |                     
| | --------------------
| | Property Development



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Three months ended March 31, 2006 compared to the three
    months ended March 31, 2005



34



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|           |                                   |                    |        |       |      |   |       |       | 
|---------- | --------------------------------- | ------------------ | ------ | ----- | ---- | - | ----- | ----- | 
|           |                                   | Three Months Ended |       
|           |                                   | March 31,          |       
|           |                                   |                    |       
|           |                                   | 2006               |        |       | 2005 |  
|           |                                   |                    |        |       |      |  
|           |                                   | (Unaudited)        |       
|Units sold |                                   |                    |        |       |      |   |       |      
|           | New Seabury, Massachusetts        |                    |        | 10    |      |   |       |      | 
|           | Grand Harbor/ Oak Harbor, Florida |                    |        | 2     |      |   |       | 6     | 
|           | Falling Waters, Florida           |                    |        | 0     |      |   |       | 24    | 
|           |                                   |                    |        |       |      |  
|           |                                   |                    | 12     |       |      |   | 30    |      
|           |                                   |                    |        |       |      |  
|Revenues   |                                   |                    |        |       |      |   |       |      
|           | New Seabury, Massachusetts        |                    | $      | 9,033 |      |   | $     |      | 
|           | Grand Harbor/ Oak Harbor, Florida |                    |        | 2,321 |      |   |       | 3,423 | 
|           | Falling Waters, Florida           |                    |        |      |      |   |       | 4,856 | 
|           | Other                             |                    |        | 30    |      |   |       |      | 
|           |                                   |                    |        |       |      |  
|           |                                   | $                  | 11,384 |       |      | $ | 8,279 |      
|           |                                   |                    |        |       |      |  



| |                  
| | -----------------
| | Resort Activities



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Three months ended March 31, 2006 compared to the three
    months ended March 31, 2005





| |             
| | ------------
| | Home Fashion





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| |                      
| | ---------------------
| | Results of Operations



|               |                                     |                    |         |         | 
|-------------- | ----------------------------------- | ------------------ | ------- | ------- | 
|               |                                     | Three Months Ended |        
|               |                                     | March 31, 2006     |        
|               |                                     |                    |        
|Revenues       |                                     | $                  | 243,490 |        
|Expenses:      |                                     |                    |         |        
|               | Cost of sales                       |                    |         | 228,360 | 
|               | Selling, general and administrative |                    |         | 53,088  | 
|               |                                     |                    |        
|Operating loss |                                     | $                  | (37,958 | )      
|               |                                     |                    |        











| |                
| | ---------------
| | Holding Company



| |                      
| | ---------------------
| | Investment Activities







| |                                    
| | -----------------------------------
| | General and Administrative Expenses





| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Three months ended March 31, 2006 compared to the three
    months ended March 31, 2005



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##### Table of Contents



Share Based
Payment,




| |                            
| | ---------------------------
| | Interest Income and Expense



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Three months ended March 31, 2006 compared to the three
    months ended March 31, 2005





| |                            
| | ---------------------------
| | Other Income (Expense), net





| |                   
| | ------------------
| | Minority Interests





| |                          
| | -------------------------
| | Effective Income Tax Rate







| |            
| | -----------
| | Seasonality






Liquidity and Capital Resources




| |                               
| | ------------------------------
| | Consolidated Financial Results



37



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##### Table of Contents















| |           
| | ----------
| | Cash Flows





38



---



##### Table of Contents





| |           
| | ----------
| | Borrowings



| |                                                     
| | ----------------------------------------------------
| | Long-term debt consists of the following (in $000s):

|                                                                              |  |           |           |  |              |   |           | 
|----------------------------------------------------------------------------- |  | --------- | --------- |  | ------------ | - | --------- | 
|                                                                              |  | March 31, |           |  | December 31, |  
|                                                                              |  | 2006      |           |  | 2005         |  
|                                                                              |  |           |           |  |              |  
|Senior unsecured 7.125% notes due 2013  AREP                                 |  | $         | 480,000   |  |              | $ | 480,000   | 
|Senior unsecured 8.125% notes due 2012  AREP                                 |  |           | 351,003   |  |              |   | 350,922   | 
|Senior secured 7.85% notes due 2012  ACEP                                    |  |           | 215,000   |  |              |   | 215,000   | 
|Borrowings under credit facility  NEG Oil &
    Gas                          |  |           | 300,000   |  |              |   | 300,000   | 
|Mortgages payable                                                             |  |           | 80,414    |  |              |   | 81,512    | 
|Other                                                                         |  |           | 9,364     |  |              |   | 8,387     | 
|                                                                              |  |           |           |  |              |  
|Total long-term debt                                                          |  |           | 1,435,781 |  |              |   | 1,435,821 | 
|Less current portion, including debt related to real estate held
    for sale |  |           | 22,167    |  |              |   | 24,155    | 
|                                                                              |  |           |           |  |              |  
|                                                                              |  | $         | 1,413,614 |  |              | $ | 1,411,666 | 
|                                                                              |  |           |           |  |              |  



| |                                                             
| | ------------------------------------------------------------
| | Senior unsecured notes restrictions and covenants 
    AREP











| |                                           
| | ------------------------------------------
| | Senior secured 7.85% notes due 2012  ACEP



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##### Table of Contents











| |                                                               
| | --------------------------------------------------------------
| | NEG Oil & Gas LLC Senior Secured Revolving Credit
    Facility







| |                       
| | ----------------------
| | Quarterly Distribution





40



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##### Table of Contents





| |                        
| | -----------------------
| | Contractual Commitments

10-K,




| |                       
| | ----------------------
| | Derivative Obligations







| |                               
| | ------------------------------
| | Off Balance Sheet Arrangements





| |                                        
| | ---------------------------------------
| | Segment Liquidity and Capital Resources



| |            
| | -----------
| | Oil and Gas









| |       
| | ------
| | Gaming



41



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##### Table of Contents













| |            
| | -----------
| | Real Estate







| |             
| | ------------
| | Home Fashion







42



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##### Table of Contents







| |                           
| | --------------------------
| | Forward Looking Statements








Certain Trends and Uncertainties


10-K,







|        |                                                           
|------- | ----------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk

10-K/










43



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

13a-15(e) 15d-15(e).








| |                                                     
| | ----------------------------------------------------
| | Changes in Internal Control Over Financial Reporting






PART II. OTHER INFORMATION







|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings





| |            
| | -----------
| | GB Holdings

five-member


44



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##### Table of Contents









| |               
| | --------------
| | WPI litigation

Contrarian Funds Inc. v. WestPoint Stevens, Inc.
et al. pro rata pro rata









|         |             
|-------- | ------------
|Item 1A. | Risk Factors

10-K


Home Fashion


A recent court order may result in our ownership of WPI
being reduced to less than 50%. Uncertainties arising from this
decision may adversely affect WPIs operations and
prospects and the value of our investment in it.


Contrarian Funds Inc. v. WestPoint Stevens, Inc.
et al. pro rata


45



---



##### Table of Contents



pro
rata









|        |         
|------- | --------
|Item 6. | Exhibits

| |      |  |  |                                                                                                              
| | ---- |  |  | -------------------------------------------------------------------------------------------------------------
| | 31.1 |  |  | Certification of Chief Executive Officer  pursuant to
    Section 302(a) of the Sarbanes-Oxley Act of 2002. 
| | 31.2 |  |  | Certification of Chief Financial Officer  pursuant to
    Section 302(a) of the Sarbanes-Oxley Act of 2002. 
| | 32.1 |  |  | Certification of Principal Executive Officer 
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | 32.2 |  |  | Certification of Principal Financial Officer 
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

46



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##### Table of Contents






SIGNATURES






| |                                                           
| | ----------------------------------------------------------
| | AMERICAN REAL ESTATE PARTNERS, L.P.                       
|
| | By: American Property Investors, Inc., its general partner



| |     |                 
| | --- | ----------------
| | By: | /s/ JON F. WEBER

| |                                                 
| | ------------------------------------------------
| |                                                 
| | Jon F. Weber                                    
| | President and Chief Financial Officer (Principal
| | Financial Officer and duly authorized officer)  



47