**UNITED STATESSECURITIES AND      EXCHANGE COMMISSION**

**Washington, D.C.      20549**

**FORM      10-Q**

|                                                                                                                                                                                                                                                                                  |                                                                                                                                          |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                             |                                                                                                                                     |
| **(Mark One)**                                                                                                                                                                                                                                                              |                                                                                                                                     |
|                                                                                                                                                                                                                                                                             |                                                                                                                                     |
| **ý**                                                                                                                                                                                                                                                                       | **QUARTERLY                REPORT PURSUANT TO                SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF                1934**  |
|                                                                                                                                                                                                                                                                             |                                                                                                                                     |
| **For the Quarterly                Period                ended March 31, 2007**                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                             |
| OR                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                             |                                                                                                                                     |
| ** ̈**                                                                                                                                                                                                                                                                       | **TRANSITION                REPORT PURSUANT TO                SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF                1934** |
|                                                                                                                                                                                                                                                                             |
| **For the transition                period                from                               to                              ** |
|                                                                                                                                                                                                                                                                             |
| **Commission file number                1-9516**                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                             |

**AMERICAN      REAL ESTATE PARTNERS, L.P.**

|                                          |                                                                                             |                          |                                                  |                                                |
|------------------------------------------|---------------------------------------------------------------------------------------------|--------------------------|--------------------------------------------------|------------------------------------------------|
| **      ** | **Delaware**                                                                                |                     | **13-3398766**                                   | **       ** |
|                                     | (State                or Other Jurisdiction ofIncorporation or                Organization) |      | (IRS                Employer Identification No.) |                                           |

**767      Fifth Avenue, Suite 4700New York, NY      10153**

**(212)      702-4300**

|                                                          |                                     |                                         |
|----------------------------------------------------------|-------------------------------------|-----------------------------------------|
| Large                Accelerated Filer   ̈ | Accelerated Filer  ý | Non-accelerated Filer   ̈ |

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**INDEX**

|                               |                                                                                                                                                       |                                                           |                   |    |
|-------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------|-------------------|----|
|                          |                                                                                                                                                  |                                                      | **Page No.** |
|                          |                                                                                                                                                  |                                                      |              |
| **Part I.**              | **FINANCIAL          INFORMATION**                                                                                                                    |                                                      | 1                 |
| **Item 1.**              | **Financial          Statements**                                                                                                                     |                                                           | 1                 |
|                          | Consolidated          Balance Sheets — March 31, 2007 and December 31, 2006                                                                |                                                      | 1                 |
|                          | Consolidated          Statements of Operations — Three Months Ended March 31, 2007          and 2006                                       |                                                      | 2                 |
|                          | Consolidated          Statement of Changes in Partners’ Equity and Comprehensive Income          — Three Months Ended March 31, 2007 |                                                      | 3                 |
|                          | Consolidated          Statements of Cash Flows — Three Months Ended March 31, 2007          and 2006                                       |                                                      | 4                 |
|                          | **Notes          to Consolidated Financial Statements**                                                                                               |                                                      |              |
|                          | 1.                                                                                                                                                    | General                                                   |              | 6  |
|                          | 2.                                                                                                                                                    | Operating          Units                                  |              | 9  |
|                          | 3.                                                                                                                                                    | Discontinued          Operations and Assets Held for Sale |              | 14 |
|                          | 4.                                                                                                                                                    | Related          Party Transactions                       |              | 15 |
|                          | 5.                                                                                                                                                    | Investments          and Related Matters                  |              | 16 |
|                          | 6.                                                                                                                                                    | Inventories,          Net                                 |              | 17 |
|                          | 7.                                                                                                                                                    | Trade,          Notes and Other Receivables, Net          |              | 17 |
|                          | 8.                                                                                                                                                    | Other          Current Assets                             |              | 18 |
|                          | 9.                                                                                                                                                    | Property,          Plant and Equipment                    |              | 18 |
|                          | 10.                                                                                                                                                   | Other          Non Current Assets                         |              | 18 |
|                          | 11.                                                                                                                                                   | Minority          Interests                               |              | 19 |
|                          | 12.                                                                                                                                                   | Long          Term Debt                                   |              | 19 |
|                          | 13.                                                                                                                                                   | Other          Income (Expense)                           |              | 22 |
|                          | 14.                                                                                                                                                   | Unit          Options                                     |              | 22 |
|                          | 15.                                                                                                                                                   | Preferred          Units                                  |              | 22 |
|                          | 16.                                                                                                                                                   | Earnings          Per Limited Partnership Unit            |              | 22 |
|                          | 17.                                                                                                                                                   | Segment          Reporting                                |                   | 23 |
|                          | 18.                                                                                                                                                   | Income          Taxes                                     |              | 25 |
|                          | 19.                                                                                                                                                   | Commitments          and Contingencies                    |              | 26 |
|                          | 20.                                                                                                                                                   | Fair          Value of Financial Instruments              |              | 27 |
|                          | 21.                                                                                                                                                   | Subsequent          Events                                |              | 27 |
| **Item          2.**          | **Management’s          Discussion and Analysis of Financial Condition and Results of Operations**                                              |                                                      | 29                |
|                          | 1.                                                                                                                                                    | Overview                                                  |                   | 29 |
|                          | 2.                                                                                                                                                    | Discontinued          Operations                          |              | 30 |
|                          | 3.                                                                                                                                                    | Results          of Operations                            |              | 31 |
|                          | 4.                                                                                                                                                    | Liquidity          and Capital Resources                  |                   | 38 |
|                          | 5.                                                                                                                                                    | Certain          Trends and Uncertainties                 |                   | 45 |
| **Item          3.**          | **Quantitative          and Qualitative Disclosures About Market Risk**                                                                               |                                                      | 45                |
| **Item          4.**          | **Controls          and Procedures**                                                                                                                  |                                                      | 45                |
| **Part          II.**         | **OTHER          INFORMATION**                                                                                                                        |                                                      | 46                |
| **Item          1.**          | **Legal          Proceedings**                                                                                                                        |                                                      | 46                |
| **Item 1A.  ** | **Risk          Factors**                                                                                                                             |                                                      | 47                |
| **Item          6.**          | **Exhibits**                                                                                                                                          |                                                      | 47                |
|                          | **Signatures**                                                                                                                                        |                                                      | 48                |
|                          | **Certifications**                                                                                                                                    |                                                      |              |

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**Back to Index**

**PART I. FINANCIAL INFORMATION**

**Item 1. Financial      Statements**

**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**CONSOLIDATED      BALANCE SHEETS(in $000s, except unit      amounts)**

|                                                                                                                                                                                                                                           |                          |                        |             |                                           |        |           |        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|------------------------|-------------|-------------------------------------------|--------|-----------|--------|
|                                                                                                                                                                                                                                      |                     | **March 31,2007** |        | **December 31,                2006** |   |
|                                                                                                                                                                                                                                      |                     |                   | (unaudited) |                                      |   |      |
| **ASSETS**                                                                                                                                                                                                                                |      |                   |        |                       |   |      |   |
| Current                assets:                                                                                                                                                                                                            |                     |                   |        |                                      |   |      |   |
| Cash                and cash equivalents                                                                                                                                                                                                  |                     | $                      | 2,331,521   |                                      | $      | 1,912,235 |   |
| Investments                                                                                                                                                                                                                               |                     |                   | 563,552     |                                      |   | 539,115   |   |
| Inventories,                net                                                                                                                                                                                                           |                     |                   | 235,358     |                                      |   | 245,502   |   |
| Trade,                notes and other receivables, net                                                                                                                                                                                    |                     |                   | 169,841     |                                      |   | 176,496   |   |
| Other                current assets                                                                                                                                                                                                       |                     |                   | 76,389      |                                      |   | 134,987   |   |
| Assets                of discontinued operations held for sale                                                                                                                                                                            |                     |                   | 48,205      |                                      |   | 47,503    |   |
| Total                current assets                                                                                                                                                                                                       |                     |                   | 3,424,866   |                                      |   | 3,055,838 |   |
| Property,                plant and equipment, net:                                                                                                                                                                                        |                     |                   |        |                                      |   |      |   |
| Gaming                                                                                                                                                                                                                                    |                     |                   | 417,978     |                                      |   | 422,715   |   |
| Real                Estate                                                                                                                                                                                                                |                     |                   | 273,852     |                                      |   | 283,974   |   |
| Home                Fashion                                                                                                                                                                                                               |                     |                   | 206,764     |                                      |   | 200,382   |   |
| Total                property, plant and equipment, net                                                                                                                                                                                   |                     |                   | 898,594     |                                      |   | 907,071   |   |
| Investments                                                                                                                                                                                                                               |                     |                   | 201,943     |                                      |   | 179,932   |   |
| Intangible                assets                                                                                                                                                                                                          |                     |                   | 25,772      |                                      |   | 25,916    |   |
| Other                assets                                                                                                                                                                                                               |                     |                   | 71,492      |                                      |   | 75,990    |   |
| **Total                assets**                                                                                                                                                                                                           |                     | $                      | 4,622,667   |                                      | $      | 4,244,747 |   |
| **LIABILITIES                AND PARTNERS’ EQUITY**                                                                                                                                                                                 |                     |                   |        |                                      |   |      |   |
| Current                liabilities:                                                                                                                                                                                                       |                     |                   |        |                                      |   |      |   |
| Accounts                payable                                                                                                                                                                                                           |                     | $                      | 66,497      |                                      | $      | 69,853    |   |
| Accrued                expenses and other current liabilities                                                                                                                                                                             |                     |                   | 160,062     |                                      |   | 197,792   |   |
| Current                portion of long-term debt                                                                                                                                                                                          |                     |                   | 23,620      |                                      |   | 23,970    |   |
| Securities                sold not yet purchased                                                                                                                                                                                          |                     |                   | 8,682       |                                      |   | 25,398    |   |
| Total                current liabilities                                                                                                                                                                                                  |                     |                   | 258,861     |                                      |   | 317,013   |   |
| Long-term                debt                                                                                                                                                                                                             |                     |                   | 1,675,498   |                                      |   | 1,184,990 |   |
| Other                non current liabilities                                                                                                                                                                                              |                     |                   | 23,738      |                                      |   | 22,212    |   |
| Preferred                limited partnership units:                                                                                                                                                                                       |                     |                   |        |                                      |   |      |   |
| $10                liquidation preference, 5% cumulative pay-in-kind; 12,100,000 authorized;                11,907,073 and 11,340,243 issued and outstanding as of March 31, 2007                and December 31, 2006, respectively |                     |                   | 119,073     |                                      |   | 117,656   |   |
| Total                long-term liabilities                                                                                                                                                                                                |                     |                   | 1,818,309   |                                      |   | 1,324,858 |   |
| **Total                liabilities**                                                                                                                                                                                                      |                     |                   | 2,077,170   |                                      |   | 1,641,871 |   |
| Minority                interests                                                                                                                                                                                                         |                     |                   | 198,019     |                                      |   | 292,221   |   |
| Commitments                and contingencies (Note 19)                                                                                                                                                                                    |                     |                   |        |                                      |   |      |   |
| Partners’                equity:                                                                                                                                                                                                    |                     |                   |        |                                      |   |      |   |
| Limited                partners:                                                                                                                                                                                                          |                     |                   |        |                                      |   |      |   |
| Depositary                units: 67,850,000 authorized; 62,994,030 issued and 61,856,830 outstanding                as of March 31, 2007 and December 31, 2006                                                                       |                     |                   | 2,560,705   |                                      |   | 2,524,615 |   |
| General                partner                                                                                                                                                                                                            |                     |                   | (201,306)   |                                      |   | (202,039) |   |
| Treasury                units at cost: 1,137,200 depositary units                                                                                                                                                                         |                     |                   | (11,921)    |                                      |   | (11,921)  |   |
| **Partners’                equity**                                                                                                                                                                                                 |                     |                   | 2,347,478   |                                      |   | 2,310,655 |   |
| **Total                liabilities and partners’ equity**                                                                                                                                                                           |                     | $                      | 4,622,667   |                                      | $      | 4,244,747 |   |

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**Back to Index**
**AMERICAN  REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF OPERATIONSThree Months Ended      March 31, 2007 and 2006**

|                                                                                                                       |                          |                                                                             |         |                          |        |         |        |
|-----------------------------------------------------------------------------------------------------------------------|--------------------------|-----------------------------------------------------------------------------|---------|--------------------------|--------|---------|--------|
|                                                                                                                  |                     | **Three Months Ended                March 31,**              |    |
|                                                                                                                  |                     | **2007**                                                                    |    | **2006**                 |   |
|                                                                                                                  |                     | (unaudited)(in                000s, except per unit                amounts) |    |
| **Revenues:**                                                                                                         |      |                                                                        |    |      |   |    |   |
| Gaming                                                                                                                |                     | $                                                                           | 112,888 |                     | $      | 85,945  |   |
| Real                Estate                                                                                            |                     |                                                                        | 27,887  |                     |   | 20,712  |   |
| Home                Fashion                                                                                           |                     |                                                                        | 210,604 |                     |   | 243,490 |   |
|                                                                                                                  |                     |                                                                        | 351,379 |                     |   | 350,147 |   |
| **Expenses:**                                                                                                         |                     |                                                                        |    |                     |   |    |   |
| Gaming                                                                                                                |                     |                                                                        | 89,661  |                     |   | 67,322  |   |
| Real                Estate                                                                                            |                     |                                                                        | 23,606  |                     |   | 17,238  |   |
| Home                Fashion                                                                                           |                     |                                                                        | 249,619 |                     |   | 281,448 |   |
| General                and administrative expenses                                                                    |                     |                                                                        | 7,679   |                     |   | 11,145  |   |
|                                                                                                                  |                     |                                                                        | 370,565 |                     |   | 377,153 |   |
|                                                                                                                  |                     |                                                                        |    |                     |   |    |   |
| **Operating                loss**                                                                                     |                     |                                                                        | (19,186 | )                        |   | (27,006 | )      |
|                                                                                                                  |                     |                                                                        |    |                     |   |    |   |
| Other                income (expense), net:                                                                           |                     |                                                                        |    |                     |   |    |   |
| Interest                expense                                                                                       |                     |                                                                        | (32,977 | )                        |   | (25,155 | )      |
| Interest                income                                                                                        |                     |                                                                        | 31,458  |                     |   | 11,554  |   |
| Other                income (expense), net                                                                            |                     |                                                                        | 84,781  |                     |   | 21,309  |   |
| Equity                in earnings of affiliate                                                                        |                     |                                                                        | — |                     |   | 24      |   |
| **Income                (loss) from continuing operations before income taxes and minority                interests** |                     |                                                                        | 64,076  |                     |   | (19,274 | )      |
| Income                tax expense                                                                                     |                     |                                                                        | (6,949  | )                        |   | (5,211  | )      |
| Minority                interests                                                                                     |                     |                                                                        | 11,590  |                     |   | 15,069  |   |
| **Income                (loss) from continuing operations**                                                           |                     |                                                                        | 68,717  |                     |   | (9,416  | )      |
| Discontinued                operations:                                                                               |                     |                                                                        |    |                     |   |    |   |
| Income                from discontinued operations, net of income taxes                                               |                     |                                                                        | 16,470  |                     |   | 58,841  |   |
| Minority                interest                                                                                      |                     |                                                                        | (1,794  | )                        |   | 54      |   |
| Gain                on sales of assets, net of income taxes                                                           |                     |                                                                        | 13,185  |                     |   | 251     |   |
| **Income                from discontinued operations, net of income taxes**                                           |                     |                                                                        | 27,861  |                     |   | 59,146  |   |
| **Net                earnings**                                                                                       |                     | $                                                                           | 96,578  |                     | $      | 49,730  |   |
| Net                earnings attributable to:                                                                          |                     |                                                                        |    |                     |   |    |   |
| Limited                partners                                                                                       |                     | $                                                                           | 94,656  |                     | $      | 48,741  |   |
| General                partner                                                                                        |                     |                                                                        | 1,922   |                     |   | 989     |   |
|                                                                                                                  |                     | $                                                                           | 96,578  |                     | $      | 49,730  |   |
| Net                earnings per LP unit:                                                                              |                     |                                                                        |    |                     |   |    |   |
| Basic                earnings:                                                                                        |                     |                                                                        |    |                     |   |    |   |
| Income                (loss) from continuing operations                                                               |                     | $                                                                           | 1.09    |                     | $      | (0.15   | )      |
| Income                from discontinued operations                                                                    |                     |                                                                        | 0.44    |                     |   | 0.94    |   |
| **Basic                earnings per LP unit**                                                                         |                     | $                                                                           | 1.53    |                     | $      | 0.79    |   |
| Weighted                average LP units outstanding:                                                                 |                     |                                                                        | 61,857  |                     |   | 61,857  |   |
| Diluted                earnings:                                                                                      |                     |                                                                        |    |                     |   |    |   |
| Income                (loss) from continuing operations                                                               |                     | $                                                                           | 1.09    |                     | $      | (0.15   | )      |
| Income                from discontinued operations                                                                    |                     |                                                                        | 0.44    |                     |   | 0.94    |   |
| **Diluted                earnings per LP unit**                                                                       |                     | $                                                                           | 1.53    |                     | $      | 0.79    |   |
| Weighted                average LP units and equivalent partnership units outstanding                                 |                     |                                                                        | 61,857  |                     |   | 61,857  |   |

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**Back to Index**
**AMERICAN  REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENT OF CHANGESIN PARTNERS’ EQUITY      AND COMPREHENSIVE INCOMEThree Months Ended March 31,      2007(Unaudited) (In 000s)**

|                                                                              |                          |                                                           |          |                                                                 |        |                                     |                          |                                                |         |                          |         |                          |        |           |        |
|------------------------------------------------------------------------------|--------------------------|-----------------------------------------------------------|----------|-----------------------------------------------------------------|--------|-------------------------------------|--------------------------|------------------------------------------------|---------|--------------------------|---------|--------------------------|--------|-----------|--------|
|                                                                         |                     | **GeneralPartner’sEquity                (Deficit)** |     | **LimitedPartners’EquityDepositary                Units** |   | **Held                in Treasury** |                     | **TotalPartners’                Equity** |    |
| **Amounts**                                                                  |                     | **Units**                                                 |
|                                                                         |                     |                                                      |     |
| Balance,                December 31, 2006                                    |      | $                                                         | (202,039 | )                                                               | $      | 2,524,615                           |                     | $                                              | (11,921 | )                        | 1,137   |                     | $      | 2,310,655 |   |
| Cumulative                effect of adjustment from adoption of SFAS No. 159 |                     |                                                      | (840     | )                                                               |   | (41,344                             | )                        |                                           | — |                     | — |                     |   | (42,184   | )      |
| Comprehensive                income:                                         |                     |                                                      |     |                                                            |   |                                |                     |                                           |    |                     |    |                     |   |      |   |
| Net                earnings                                                  |                     |                                                      | 1,922    |                                             |   | 94,656                              |      |                                           | — |      | — |      |   | 96,578    |   |
| Net                unrealized losses on securities available for sale        |                     |                                                      | (227     | )                                                               |   | (11,202                             | )                        |                                           | — |                     | — |                     |   | (11,429   | )      |
| Comprehensive                income                                          |                     |                                                      | 1,695    |                                                            |   | 83,454                              |                     |                                           | — |                     | — |                     |   | 85,149    |   |
| Partnership                distribution                                      |                     |                                                      | (125     | )                                                               |   | (6,186                              | )                        |                                           | — |                     | — |                     |   | (6,311    | )      |
| Other                                                                        |                     |                                                      | 3        |                                                            |   | 166                                 |                     |                                           | — |                     | — |                     |   | 169       |   |
| Balance,                March 31, 2007                                  |                     | $                                                         | (201,306 | )                                                               | $      | 2,560,705                           |                     | $                                              | (11,921 | )                        | 1,137   |                     | $      | 2,347,478 |   |

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**Back to Index**
**AMERICAN  REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF CASH FLOWSThree Months Ended      March 31, 2007 and 2006**

|                                                                                                                   |                          |                                                                                                                          |         |                                                                                                                          |        |         |        |
|-------------------------------------------------------------------------------------------------------------------|--------------------------|--------------------------------------------------------------------------------------------------------------------------|---------|--------------------------------------------------------------------------------------------------------------------------|--------|---------|--------|
|                                                                                                              |                     | **2007**                                                                                                                 |    | **2006**                                                                                                                 |   |
|                                                                                                              |                     | (unaudited)                                                                                                              |    |
| **Cash                Flows from Operating Activities:**                                                          |                     |                      |    |                      |   |
| **Cash                Flows from Continuing Operations:**                                                         |                     |                                                                                                                     |    |                                                                                                                     |   |    |   |
| Income                (loss) from continuing operations                                                           |      | $                                                                                                                        | 68,717  |                                                                                                      | $      | (9,416  | )      |
| Adjustments                to reconcile net earnings to net cash provided by operating                activities: |                     |                                                                                                                     |    |                                                                                                                     |   |    |   |
| Depreciation                and amortization                                                                      |                     |                                                                                                                     | 16,294  |                                                                                                                     |   | 18,483  |   |
| Investment                gains                                                                                   |                     |                                                                                                                     | (79,410 | )                                                                                                                        |   | (13,750 | )      |
| Preferred                LP unit interest expense                                                                 |                     |                                                                                                                     | 1,417   |                                                                                                                     |   | 1,335   |   |
| Minority                interests                                                                                 |                     |                                                                                                                     | (11,590 | )                                                                                                                        |   | (15,069 | )      |
| Equity                in earnings of affiliate                                                                    |                     |                                                                                                                     | — |                                                                                                                     |   | (24     | )      |
| Stock-based                compensation expense                                                                   |                     |                                                                                                                     | — |                                                                                                                     |   | 6,248   |   |
| Deferred                income tax expense (benefit)                                                              |                     |                                                                                                                     | 362     |                                                                                                                     |   | (384    | )      |
| Impairment                loss on fixed assets                                                                    |                     |                                                                                                                     | 313     |                                                                                                                     |   | 7,828   |   |
| Net                cash used in activities on trading securities                                                  |                     |                                                                                                                     | (14,866 | )                                                                                                                        |   | (40,671 | )      |
| Other,                net                                                                                         |                     |                                                                                                                     | 4,785   |                                                                                                                     |   | 2,802   |   |
| Changes                in operating assets and liabilities:                                                       |                     |                                                                                                                     |    |                                                                                                                     |   |    |   |
| (Increase)                decrease in trade notes and other receivables                                           |                     |                                                                                                                     | (6,602  | )                                                                                                                        |   | 20,107  |   |
| Increase                in other assets                                                                           |                     |                                                                                                                     | (1,164  | )                                                                                                                        |   | (32,228 | )      |
| Decrease                (increase) in inventory                                                                   |                     |                                                                                                                     | 10,144  |                                                                                                                     |   | (31,246 | )      |
| Increase                (decrease) in accounts payable, accrued expenses and other                liabilities     |                     |                                                                                                                     | 63      |                                                                                                                     |   | (2,743  | )      |
| Net                cash used in continuing operations                                                             |                     |                                                                                                                     | (11,537 | )                                                                                                                        |   | (88,728 | )      |
| **Cash                Flows from Discontinued Operations:**                                                       |                     |                                                                                                                     |    |                                                                                                                     |   |    |   |
| Income                from discontinued operations                                                                |                     |                                                                                                                     | 27,861  |                                                                                                                     |   | 59,146  |   |
| Depreciation,                depletion and amortization                                                           |                     |                                                                                                                     | 194     |                                                                                                                     |   | 28,124  |   |
| Change                in fair market value of Oil and Gas derivative contracts                                    |                     |                                                                                                                     | — |                                                                                                                     |   | (37,252 | )      |
| Changes                in operating assets and liabilities                                                        |                     |                                                                                                                     | — |                                                                                                                     |   | 5,240   |   |
| Gains                on sales of assets                                                                           |                     |                                                                                                                     | (13,185 | )                                                                                                                        |   | — |   |
| Other,                net                                                                                         |                     |                                                                                                                     | (15,471 | )                                                                                                                        |   | 3,708   |   |
| Net                cash (used in) provided by discontinued operations                                             |                     |                                                                                                                     | (601    | )                                                                                                                        |   | 58,966  |   |
| **Net                cash used in operating activities**                                                          |                     |                                                                                                                     | (12,138 | )                                                                                                                        |   | (29,762 | )      |
|                                                                                                              |                     |                                                                                                                     |    |                                                                                                                     |   |    |   |
| **Cash                Flows from Investing Activities:**                                                          |                     |                                                                                                                     |    |                                                                                                                     |   |    |   |
| **Cash                Flows from Continuing Operations:**                                                         |                     |                                                                                                                     |    |                                                                                                                     |   |    |   |
| Capital                expenditures                                                                               |                     |                                                                                                                     | (16,898 | )                                                                                                                        |   | (5,221  | )      |
| Purchases                of marketable equity and debt securities                                                 |                     |                                                                                                                     | (75,671 | )                                                                                                                        |   | (72,378 | )      |
| Proceeds                from sales of marketable equity and debt securities                                       |                     |                                                                                                                     | 51,471  |                                                                                                                     |   | 44,056  |   |
| Net                proceeds from sales and disposition of fixed assets                                            |                     |                                                                                                                     | 6,786   |                                                                                                                     |   | 7,094   |   |
| Other                                                                                                             |                     |                                                                                                                     | — |                                                                                                                     |   | (18     | )      |
| Net                cash used in investing activities – continuing operations                                |                     |                                                                                                                     | (34,312 | )                                                                                                                        |   | (26,467 | )      |
| **Cash                Flows from Discontinued Operations:**                                                       |                     |                                                                                                                     |    |                                                                                                                     |   |    |   |
| Capital                expenditures                                                                               |                     |                                                                                                                     | — |                                                                                                                     |   | (51,476 | )      |
| Net                proceeds from the sales of real estate                                                         |                     |                                                                                                                     | 4,359   |                                                                                                                     |   | 991     |   |
| Purchase                of minority interest of investment in subsidiary                                          |                     |                                                                                                                     | (47,283 | )                                                                                                                        |   | — |   |
| Release                of escrow funds relating to asset sales                                                    |                     |                                                                                                                     | 50,000  |                                                                                                                     |   | — |   |
| Other                                                                                                             |                     |                                                                                                                     | (7,319  | )                                                                                                                        |   | (387    | )      |
| Net                cash used in investing activities – discontinued operations                              |                     |                                                                                                                     | (243    | )                                                                                                                        |   | (50,872 | )      |
| **Net                cash used in investing activities**                                                          |                     |                                                                                                                     | (34,555 | )                                                                                                                        |   | (77,339 | )      |

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS –(continued)Three Months Ended March 31, 2007 and 2006**

|                                                                                                                 |        |                                                                                                                          |           |                                                                                                                          |        |          |        |
|-----------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------|-----------|--------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|
|                                                                                                            |   | **2007**                                                                                                                 |      | **2006**                                                                                                                 |   |
|                                                                                                            |   | (unaudited)(in                $000s)                                                                                     |      |
| **Cash                Flows from Financing Activities:**                                                        |   |                      |      |                      |   |
| **Cash                Flows Continuing Operations:**                                                            |   |                                                                                                                     |      |                                                                                                                     |   |     |   |
| Partners’                equity:                                                                          |   |                                                                                                                     |      |                                                                                                                     |   |     |   |
| Partnership                distributions                                                                        |   | $                                                                                                                        | (6,311    | )                                                                                                                        | $      | —  |   |
| Dividend                paid to minority holders of subsidiary                                                  |   |                                                                                                                     | (18,451   | )                                                                                                                        |   | —  |   |
| Debt:                                                                                                           |   |                                                                                                                     |      |                                                                                                                     |   |     |   |
| Proceeds                from senior notes payable                                                               |   |                                                                                                                     | 492,130   |                                                                                                                     |   | —  |   |
| Repayment                of credit facilities                                                                   |   |                                                                                                                     | (127      | )                                                                                                                        |   | —  |   |
| Periodic                principal payments                                                                      |   |                                                                                                                     | (1,262    | )                                                                                                                        |   | (1,098   | )      |
| Net                cash provided by (used in) financing activities – continuing                operations |   |                                                                                                                     | 465,979   |                                                                                                                     |   | (1,098   | )      |
| Net                cash used in financing activities – discontinued operations                            |   |                                                                                                                     | —   |                                                                                                                     |   | (3,075   | )      |
| **Net                Cash Provided by (used in) Financing Activities**                                          |   |                                                                                                                     | 465,979   |                                                                                                                     |   | (4,173   | )      |
| Net                increase (decrease) in cash and cash equivalents                                             |   |                                                                                                                     | 419,286   |                                                                                                                     |   | (111,274 | )      |
| Net                change in cash of assets held for sale                                                       |   |                                                                                                                     | —   |                                                                                                                     |   | 37,112   |   |
| Cash                and cash equivalents, beginning of period                                                   |   |                                                                                                                     | 1,912,235 |                                                                                                                     |   | 460,091  |   |
| Cash                and cash equivalents, end of period                                                         |   | $                                                                                                                        | 2,331,521 |                                                                                                                     | $      | 385,929  |   |
|                                                                                                            |   |                                                                                                                     |      |                                                                                                                     |   |     |   |
| **Supplemental                information**                                                                     |   |                                                                                                                     |      |                                                                                                                     |   |     |   |
| Cash                payments for interest                                                                       |   | $                                                                                                                        | 45,982    |                                                                                                                     | $      | 26,950   |   |
| Cash                payments for income taxes, net of refunds                                                   |   | $                                                                                                                        | 3,429     |                                                                                                                     | $      | 798      |   |
| Net                unrealized losses on securities available for sale                                           |   | $                                                                                                                        | (11,429   | )                                                                                                                        | $      | (10,751  | )      |

----

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**AMERICAN  REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note  1 — General**

***Gaming Acquisition      and Pending Divestiture***

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 1 — General –(continued)**

***Discontinued      Operations***

***Filing Status      of      Subsidiaries***

***New Accounting      Pronouncements***

**SFAS      No. 155.**

**EITF      06-3.**

----

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 1 — General –(continued)**

**FIN      No. 48.**

**SFAS      No. 157.**

**SFAS      No. 159.**

----

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note  2 — Operating Units**

***a.      Gaming***

|                                                   |                          |                                                            |         |                           |        |         |        |
|---------------------------------------------------|--------------------------|------------------------------------------------------------|---------|---------------------------|--------|---------|--------|
|                                              |                     | **   March 31,   2007** |    | **December 31,2006** |   |
|                                              |                     | (unaudited)                                                |    |                      |   |    |
| Current                assets                     |      | $                                                          | 98,667  |       | $      | 85,583  |   |
| Property,                plant and equipment, net |                     |                                                       | 417,978 |                      |   | 422,715 |   |
| Other                non-current assets           |                     |                                                       | 44,001  |                      |   | 44,455  |   |
| Total                assets                       |                     | $                                                          | 560,646 |                      | $      | 552,753 |   |
| Current                liabilities                |                     | $                                                          | 50,614  |                      | $      | 54,763  |   |
| Long-term                debt                     |                     |                                                       | 257,202 |                      |   | 257,329 |   |
| Other                non-current liabilities      |                     |                                                       | 6,144   |                      |   | 5,993   |   |
| Total                liabilities                  |                     | $                                                          | 313,960 |                      | $      | 318,085 |   |

----

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 2 — Operating      Units – (continued)**

|                                                            |                          |                                                                |         |                          |        |        |        |
|------------------------------------------------------------|--------------------------|----------------------------------------------------------------|---------|--------------------------|--------|--------|--------|
|                                                       |                     | **Three Months Ended                March 31,** |    |
|                                                       |                     | **2007**                                                       |    | **2006**                 |   |
| Revenues:                                                  |      |                                                           |    |                     |   |   |   |
| Casino                                                     |                     | $                                                              | 67,370  |      | $      | 48,022 |   |
| Hotel                                                      |                     |                                                           | 22,616  |                     |   | 17,433 |   |
| Food                and beverage                           |                     |                                                           | 23,109  |                     |   | 18,070 |   |
| Tower,                retail and other income              |                     |                                                           | 9,311   |                     |   | 8,219  |   |
| Gross                revenues                              |                     |                                                           | 122,406 |                     |   | 91,744 |   |
| Less                promotional allowances                 |                     |                                                           | 9,518   |                     |   | 5,799  |   |
| Net                revenues                                |                     |                                                           | 112,888 |                     |   | 85,945 |   |
| Expenses:                                                  |                     |                                                           |    |                     |   |   |   |
| Casino                                                     |                     |                                                           | 22,566  |                     |   | 16,488 |   |
| Hotel                                                      |                     |                                                           | 9,063   |                     |   | 6,843  |   |
| Food                and beverage                           |                     |                                                           | 15,975  |                     |   | 13,201 |   |
| Tower,                retail and other income              |                     |                                                           | 4,244   |                     |   | 4,248  |   |
| Selling,                general and administrative         |                     |                                                           | 29,472  |                     |   | 20,782 |   |
| Depreciation                and amortization               |                     |                                                           | 8,341   |                     |   | 5,760  |   |
| Total                costs and expenses                    |                     |                                                           | 89,661  |                     |   | 67,322 |   |
| Operating                income from continuing operations |                     | $                                                              | 23,227  |                     | $      | 18,623 |   |

***b. Real      Estate***

|                                     |                                |                                                                        |         |                                |        |         |        |
|-------------------------------------|--------------------------------|------------------------------------------------------------------------|---------|--------------------------------|--------|---------|--------|
|                                |                           | **    March 31,    2007** |    | **December 31,2006**      |   |
|                                |                           | (unaudited)                                                            |    |                           |   |    |
| Rental                properties:   |                           |                                                                   |    |                           |   |    |   |
| Finance                leases, net  |       | $                                                                      | 65,302  |       | $      | 66,335  |   |
| Operating                leases     |                           |                                                                   | 41,653  |                           |   | 46,170  |   |
| Property                development |                           |                                                                   | 122,306 |                           |   | 126,537 |   |
| Resort                properties    |                           |                                                                   | 44,591  |                           |   | 44,932  |   |
| Total                real estate    |                           | $                                                                      | 273,852 |                           | $      | 283,974 |   |

----

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 2 — Operating      Units – (continued)**

|                                                    |                                                                                                                  |        |                                                                                                                  |        |        |        |
|----------------------------------------------------|------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                               | **Three Months Ended                March 31,**                                                   |   |
|                                               | **2007**                                                                                                         |   | **2006**                                                                                                         |   |
|                                               | **                  ** |   | **                  ** |   |
| Revenues:                                          |                                                                                                             |   |                                                                                                             |   |   |   |
| Rental                real estate:                 |                                                                                                             |   |                                                                                                             |   |   |   |
| Interest                income on financing leases | $                                                                                                                | 1,578  |                                                                                    | $      | 1,735  |   |
| Rental                income                       |                                                                                                             | 1,939  |                                                                                                             |   | 1,511  |   |
| Property                development                |                                                                                                             | 18,145 |                                                                                                             |   | 11,384 |   |
| Resort                activities                   |                                                                                                             | 6,225  |                                                                                                             |   | 6,082  |   |
| Total                revenues                      |                                                                                                             | 27,887 |                                                                                                             |   | 20,712 |   |
| Operating                expenses:                 |                                                                                                             |   |                                                                                                             |   |   |   |
| Rental                real estate                  |                                                                                                             | 1,493  |                                                                                                             |   | 998    |   |
| Property                development                |                                                                                                             | 15,612 |                                                                                                             |   | 9,976  |   |
| Resort                activities                   |                                                                                                             | 6,501  |                                                                                                             |   | 6,264  |   |
| Total                expenses                      |                                                                                                             | 23,606 |                                                                                                             |   | 17,238 |   |
| Operating                income                    | $                                                                                                                | 4,281  |                                                                                                             | $      | 3,474  |   |

**Rental      Real Estate**

**Property      Held for Sale**

|                                               |                        |              |                           |        |              |        |
|-----------------------------------------------|------------------------|--------------|---------------------------|--------|--------------|--------|
|                                          | **March 31,2007** |         | **December 31,2006** |   |
|                                          | (unaudited)            |         |                      |   |         |
| Leased                to others               | $                      | 34,653       |       | $      | 28,015       |   |
| Vacant                                        |                   | 703          |                      |   | 703          |   |
|                                          |                   | 35,356       |                      |   | 28,718       |   |
| Less:                accumulated depreciation |                   |  (8,097 | )                         |   |  (5,053 | )      |
| Total                                         | $                      | 27,259       |                      | $      | 23,665       |   |

|                                                         |                          |                                                                |        |                          |        |        |        |
|---------------------------------------------------------|--------------------------|----------------------------------------------------------------|--------|--------------------------|--------|--------|--------|
|                                                    |                     | **Three Months Ended                March 31,** |   |
|                                                    |                     | **2007**                                                       |   | **2006**                 |   |
|                                                    |                     |                                                           |   |                     |   |   |   |
| Properties                sold                          |      |                                                           | 1      |      |   | 4      |   |
| Proceeds                received                        |                     | $                                                              | 4,359  |                     | $      | 973    |   |
| Total                gain recorded                      |                     | $                                                              | 3,862  |                     | $      | 251    |   |
| Gain                recorded in discontinued operations |                     | $                                                              | 3,862  |                     | $      | 251    |   |

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 2 — Operating      Units – (continued)**

**Property      Development and Associated Resort Activities**

|                                                 |                          |                                                                |        |                                |        |         |        |
|-------------------------------------------------|--------------------------|----------------------------------------------------------------|--------|--------------------------------|--------|---------|--------|
|                                            |                     | **Three Months Ended                March 31,** |   |
|                                            |                     | **2007**                                                       |   | **2006**                       |   |
|                                            |                     |                                                           |   |                           |   |    |   |
| Units                sold:                      |      |                                                           |   |                           |   |    |   |
| New                Seabury, Massachusetts       |                     |                                                           | 6      |       |   | 10      |   |
| Grand                Harbor/Oak Harbor, Florida |                     |                                                           | 5      |                           |   | 2       |   |
| Falling                Waters, Florida          |                     |                                                           | 23     |                           |   | — |   |
| Westchester,                New York            |                     |                                                           | 2      |                           |   | — |   |
| Tampa                Bay, Florida               |                     |                                                           | 1      |                           |   | — |   |
|                                            |                     |                                                           | 37     |                           |   | 12      |   |
| Revenues:                                       |                     |                                                           |   |                           |   |    |   |
| New                Seabury, Massachusetts       |                     | $                                                              | 3,583  |                           | $      | 9,033   |   |
| Grand                Harbor/Oak Harbor, Florida |                     |                                                           | 4,349  |                           |   | 2,321   |   |
| Falling                Waters, Florida          |                     |                                                           | 5,466  |                           |   | — |   |
| Westchester,                New York            |                     |                                                           | 3,243  |                           |   | 30      |   |
| Tampa                Bay, Florida               |                     |                                                           | 1,504  |                           |   | — |   |
|                                            |                     | $                                                              | 18,145 |                           | $      | 11,384  |   |

***c. Home      Fashion***

|                                                  |                                |                        |         |                                |        |         |        |
|--------------------------------------------------|--------------------------------|------------------------|---------|--------------------------------|--------|---------|--------|
|                                             |                           | **March 31,2007** |    | **December 31,2006**      |   |
|                                             |                           | (unaudited)            |    |                           |   |    |
| Current                assets                    |       | $                      | 533,815 |       | $      | 567,419 |   |
| Assets                held for sale              |                           |                   | 20,946  |                           |   | 23,838  |   |
| Property                plant and equipment, net |                           |                   | 206,764 |                           |   | 200,382 |   |
| Intangible                and other assets       |                           |                   | 38,333  |                           |   | 38,199  |   |
| Total                assets                      |                           | $                      | 799,858 |                           | $      | 829,838 |   |
| Current                liabilities               |                           | $                      | 107,447 |                           | $      | 101,609 |   |
| Other                liabilities                 |                           |                   | 6,941   |                           |   | 8,980   |   |
| Total                liabilities                 |                           | $                      | 114,388 |                           | $      | 110,589 |   |

----

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 2 — Operating      Units – (continued)**

|                                                             |                          |                                                                     |               |                          |        |               |        |
|-------------------------------------------------------------|--------------------------|---------------------------------------------------------------------|---------------|--------------------------|--------|---------------|--------|
|                                                        |                     | **Three                Months Ended                March 31,** |          |
|                                                        |                     | **2007**                                                            |          | **2006**                 |   |
|                                                        |                     |                                                                |          |                     |   |          |   |
| Net                sales                                    |      | $                                                                   | 210,604       |      | $      | 243,490       |   |
| Cost                of goods sold                           |                     |                                                                | 205,910       |                     |   | 228,360       |   |
| Gross                earnings                               |                     |                                                                | 4,694         |                     |   | 15,130        |   |
| Selling,                general and administrative expenses |                     |                                                                | 39,398        |                     |   | 43,317        |   |
| Restructuring                and impairment charges         |                     |                                                                | 4,311         |                     |   | 9,771         |   |
| Operating                loss                               |                     | $                                                                   |  (39,015 | )                        | $      |  (37,958 | )      |

----

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note  3 — Discontinued Operations and Assets Held for Sale**

***The Sands and      Related Assets***

***Oil and Gas      Operations***

***Real      Estate***

**Results of Operations      and Assets Held for Sale**

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 3 —Discontinued Operations      and Assets Held for Sale – (continued)**

|                                                                              |                                |                                                                                                                          |         |                                                                                                                          |        |         |        |
|------------------------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|---------|--------------------------------------------------------------------------------------------------------------------------|--------|---------|--------|
|                                                                         |                           | **Three                Months EndedMarch 31,**                                                                      |    |
|                                                                         |                           | **2007**                                                                                                                 |    | **2006**                                                                                                                 |   |
|                                                                         |                           |                      |    |                      |   |
| Revenues                                                                     |                           |                                                                                                                     |    |                                                                                                                     |   |    |   |
| Oil                and Gas                                                   |       | $                                                                                                                        | — |                                                                                                 | $      | 108,292 |   |
| Atlantic                City Gaming                                          |                           |                                                                                                                     | — |                                                                                                                     |   | 40,773  |   |
| Rental                Real Estate                                            |                           |                                                                                                                     | 1,238   |                                                                                                                     |   | 1,718   |   |
| Total                revenues                                                |                           | $                                                                                                                        | 1,238   |                                                                                                                     | $      | 150,783 |   |
|                                                                         |                           |                                                                                                                     |    |                                                                                                                     |   |    |   |
| Operating                income from discontinued operations:                |                           |                                                                                                                     |    |                                                                                                                     |   |    |   |
| Oil                and Gas                                                   |                           | $                                                                                                                        | — |                                                                                                                     | $      | 64,988  |   |
| Atlantic                City Gaming                                          |                           |                                                                                                                     | — |                                                                                                                     |   | 732     |   |
| Rental                Real Estate                                            |                           |                                                                                                                     | 1,079   |                                                                                                                     |   | 962     |   |
| Total                operating income                                        |                           |                                                                                                                     | 1,079   |                                                                                                                     |   | 66,682  |   |
| Interest                expense                                              |                           |                                                                                                                     | (270    | )                                                                                                                        |   | (5,435  | )      |
| Interest                and other income                                     |                           |                                                                                                                     | 18,642  |                                                                                                                     |   | 1,040   |   |
| Income                tax expense                                            |                           |                                                                                                                     | (2,981  | )                                                                                                                        |   | (3,446  | )      |
| Income                from discontinued operations                           |                           |                                                                                                                     | 16,470  |                                                                                                                     |   | 58,841  |   |
| Minority                interest                                             |                           |                                                                                                                     | (1,794  | )                                                                                                                        |   | 54      |   |
| Gain                on sales of discontinued operations, net of income taxes |                           |                                                                                                                     | 13,185  |                                                                                                                     |   | 251     |   |
|                                                                         |                           | $                                                                                                                        | 27,861  |                                                                                                                     | $      | 59,146  |   |

**Note  4 — Related Party Transactions**

***a. Administrative      Services***

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 4 — Related      Party Transactions – (continued)**

***b. Securities      Ownership***

**Note  5 — Investments and Related Matters**

***a. Current      Investments***

|                                                      |                                |                                        |         |                                           |        |                   |                                |                   |         |                                |        |         |
|------------------------------------------------------|--------------------------------|----------------------------------------|---------|-------------------------------------------|--------|-------------------|--------------------------------|-------------------|---------|--------------------------------|--------|---------|
|                                                 |                           | **March 31,                2007** |    | **December 31,                2006** |
|                                                 |                           | **AmortizedCost**                      |    | **CarryingValue**                         |   | **AmortizedCost** |                           | **CarryingValue** |
|                                                 |                           | (unaudited)                            |    |                                      |   |              |                           |              |
| Current                Investments:                  |                           |                                   |    |                                      |   |              |                           |              |    |                           |   |    |
| *Trading*                                            |                           |                                   |    |                                      |   |              |                           |              |    |                           |   |    |
| Other                investments                     |       | $                                      | — |                  | $      | 28,727            |       | $                 | — |       | $      | 20,538  |
| Total                current trading                 |                           |                                   | — |                                      |   | 28,727            |                           |              | — |                           |   | 20,538  |
| *Available                for Sale*                  |                           |                                   |    |                                      |   |              |                           |              |    |                           |   |    |
| Marketable                equity and debt securities |                           |                                   | 236,354 |                                      |   | 247,880           |                           |              | 242,080 |                           |   | 265,411 |
| Other                investments                     |                           |                                   | 284,535 |                                      |   | 286,945           |                           |              | 251,131 |                           |   | 253,166 |
| Total                current available for sale      |                           |                                   | 520,889 |                                      |   | 534,825           |                           |              | 493,211 |                           |   | 518,577 |
| Total                current investments             |                           | $                                      | 520,889 |                                      | $      | 563,552           |                           | $                 | 493,211 |                           | $      | 539,115 |

----

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 5 —Investments and      Related Matters – (continued)**

***b. Noncurrent      Investments***

**Investment      in ImClone Systems Incorporated**

**Other      Noncurrent Investments **

**Note  6 — Inventories, Net**

|                                           |                                |                        |         |                                |        |         |
|-------------------------------------------|--------------------------------|------------------------|---------|--------------------------------|--------|---------|
|                                      |                           | **March 31,2007** |    | **December 31,2006**      |
|                                      |                           | (unaudited)            |    |                           |   |
| Raw                materials and supplies |       | $                      | 26,372  |       | $      | 32,059  |
| Goods                in process           |                           |                   | 77,481  |                           |   | 83,592  |
| Finished                goods             |                           |                   | 131,505 |                           |   | 129,851 |
|                                      |                           | $                      | 235,358 |                           | $      | 245,502 |

**Note  7 — Trade, Notes and Other Receivables, Net**

|                                                                          |                                |                        |         |                                |        |         |        |
|--------------------------------------------------------------------------|--------------------------------|------------------------|---------|--------------------------------|--------|---------|--------|
|                                                                     |                           | **March 31,2007** |    | **December 31,2006**      |   |
|                                                                     |                           | (unaudited)            |    |                           |   |    |
| Trade                receivables – Home Fashion               |       | $                      | 142,827 |       | $      | 134,111 |   |
| Allowance                for doubtful accounts – Home Fashion |                           |                   | (8,136  | )                              |   | (8,303  | )      |
| Other                                                                    |                           |                   | 35,150  |                           |   | 50,688  |   |
|                                                                     |                           | $                      | 169,841 |                           | $      | 176,496 |   |

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note  8 — Other Current Assets**

|                                |                                |                        |        |                                |        |         |
|--------------------------------|--------------------------------|------------------------|--------|--------------------------------|--------|---------|
|                           |                           | **March 31,2007** |   | **December 31,2006**      |
|                           |                           | (unaudited)            |   |                           |   |
| Restricted                cash |       | $                      | 33,090 |       | $      | 87,428  |
| Other                          |                           |                   | 43,299 |                           |   | 47,559  |
|                           |                           |                   |   |                           |   |    |
|                           |                           | $                      | 76,389 |                           | $      | 134,987 |

**Note  9 — Property, Plant and Equipment**

|                                                               |                                |                        |           |                                |        |           |        |
|---------------------------------------------------------------|--------------------------------|------------------------|-----------|--------------------------------|--------|-----------|--------|
|                                                          |                           | **March 31,2007** |      | **December 31,2006**      |   |
|                                                          |                           | (unaudited)            |      |                           |   |      |
| Land                                                          |       | $                      | 115,236   |       | $      | 129,729   |   |
| Buildings                and improvements                     |                           |                   | 443,402   |                           |   | 446,878   |   |
| Machinery,                equipment and furniture             |                           |                   | 332,614   |                           |   | 333,741   |   |
| Assets                leased to others                        |                           |                   | 117,110   |                           |   | 123,398   |   |
| Construction                in progress                       |                           |                   | 112,480   |                           |   | 90,672    |   |
|                                                          |                           |                   | 1,120,842 |                           |   | 1,124,418 |   |
| Less                accumulated depreciation and amortization |                           |                   | (222,248  | )                              |   | (217,347  | )      |
| Net                property, plant and equipment              |                           | $                      | 898,594   |                           | $      | 907,071   |   |

**Note  10 — Other Non Current Assets**

|                                                                                                                                                                          |                                |                        |        |                                |        |        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|------------------------|--------|--------------------------------|--------|--------|
|                                                                                                                                                                     |                           | **March 31,2007** |   | **December 31,2006**      |
|                                                                                                                                                                     |                           | (unaudited)            |   |                           |   |
| Deferred                taxes                                                                                                                                            |       | $                      | 45,626 |       | $      | 48,976 |
| Deferred                finance costs, net of accumulated amortization of $10,560 and$9,883 as                of March 31, 2007 and December 31, 2006, respectively |                           |                   | 22,780 |                           |   | 24,699 |
| Other                                                                                                                                                                    |                           |                   | 3,086  |                           |   | 2,315  |
|                                                                                                                                                                     |                           | $                      | 71,492 |                           | $      | 75,990 |

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note  11 — Minority Interests**

|                               |                        |         |                                      |        |         |
|-------------------------------|------------------------|---------|--------------------------------------|--------|---------|
|                          | **March 31,2007** |    | **December 31,2006**            |
|                          | (unaudited)            |    |                                 |   |
| WPI                           | $                      | 166,938 |        | $      | 178,843 |
| Atlantic                Coast |                   | 6,969   |                                 |   | 70,563  |
| NEGI                          |                   | 24,112  |                                 |   | 42,815  |
|                          | $                      | 198,019 |                                 | $      | 292,221 |

**Note  12 — Long-Term Debt**

|                                                                              |                                |                        |           |                                      |        |           |        |
|------------------------------------------------------------------------------|--------------------------------|------------------------|-----------|--------------------------------------|--------|-----------|--------|
|                                                                         |                           | **March 31,2007** |      | **December                31,2006**  |   |
|                                                                         |                           | (unaudited)            |      |                                 |   |      |
| Senior                unsecured 7.125% notes due 2013 – AREP |       | $                      | 972,294   |        | $      | 480,000   |   |
| Senior                unsecured 8.125% notes due 2012 – AREP |                           |                   | 351,327   |                                 |   | 351,246   |   |
| Senior                secured 7.85% notes due 2012 – ACEP    |                           |                   | 215,000   |                                 |   | 215,000   |   |
| Borrowings                under credit facility – ACEP            |                           |                   | 40,000    |                                 |   | 40,000    |   |
| Mortgages                payable                                             |                           |                   | 108,027   |                                 |   | 109,289   |   |
| Other                                                                        |                           |                   | 12,470    |                                 |   | 13,425    |   |
| Total                long-term debt                                          |                           |                   | 1,699,118 |                                 |   | 1,208,960 |   |
| Less                current portion                                          |                           |                   | (23,620   | )                                    |   | (23,970   | )      |
|                                                                         |                           | $                      | 1,675,498 |                                 | $      | 1,184,990 |   |

***Senior unsecured      7.125% notes due 2013***

***Senior unsecured      8.125% notes due 2012***

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 12 — Long-Term      Debt – (continued)**

***Senior unsecured      notes restrictions and covenants — AREP***

***AREP Senior Secured      Revolving Credit Facility***

***Senior secured      7.85% notes due 2012 — ACEP***

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 12 — Long-Term      Debt – (continued)**

***ACEP Senior      Secured Revolving Credit Facility***

***Mortgages      Payable***

***WestPoint Home      Secured Revolving Credit Agreement***

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 12 — Long-Term      Debt – (continued)**

**Note  13 — Other Income (Expense)**

|                                                                     |                                |                                                |        |                                |        |         |        |
|---------------------------------------------------------------------|--------------------------------|------------------------------------------------|--------|--------------------------------|--------|---------|--------|
|                                                                |                           | **Three Months EndedMarch 31,** |   |
|                                                                |                           | **2007**                                       |   | **2006**                       |   |
|                                                                |                           |                                           |   |                           |   |    |   |
| Net                realized gains on sales of marketable securities |       | $                                              | 5,177  |       | $      | 33,431  |   |
| Unrealized                gains on marketable securities            |                           |                                           | 72,126 |                           |   | 15,478  |   |
| Net                realized losses on securities sold short         |                           |                                           | (1,510 | )                              |   | (5,131  | )      |
| Unrealized                gains (losses) on securities sold short   |                           |                                           | 3,617  |                           |   | (25,476 | )      |
| Gain                on sale of assets                               |                           |                                           | 3,612  |                           |   | — |   |
| Other                                                               |                           |                                           | 1,759  |                           |   | 3,007   |   |
|                                                                |                           | $                                              | 84,781 |                           | $      | 21,309  |   |

**Note  14 — Unit Options**

**Note  15 — Preferred Units**

**Note  16 — Earnings Per Limited Partnership Unit**

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 16 — Earnings Per      Limited Partnership Unit – (continued)**

|                                                                                       |                                |                                                |         |                                |        |         |        |
|---------------------------------------------------------------------------------------|--------------------------------|------------------------------------------------|---------|--------------------------------|--------|---------|--------|
|                                                                                  |                           | **Three Months EndedMarch 31,** |    |
|                                                                                  |                           | **2007**                                       |    | **2006**                       |   |
|                                                                                  |                           |                                           |    |                           |   |    |   |
| Attributable                to limited partners:                                      |                           |                                           |    |                           |   |    |   |
| Basic                income (loss) from continuing operations                         |       | $                                              | 67,350  |       | $      | (9,224  | )      |
| Add                preferred unit distribution(1)                                     |                           |                                           | — |                           |   | — |   |
| Income                (loss) before discontinued operations                           |                           |                                           | 67,350  |                           | $      | (9,224  | )      |
| Income                from discontinued operations                                    |                           |                                           | 27,306  |                           |   | 57,970  |   |
| Diluted                earnings                                                       |                           | $                                              | 94,656  |                           | $      | 48,746  |   |
| Weighted                average LP units outstanding                                  |                           |                                           | 61,857  |                           |   | 61,857  |   |
| Dilutive                effect of redemption of preferred LP units(2)                 |                           |                                           | — |                           |   | — |   |
| Dilutive                effect of unit options                                        |                           |                                           | — |                           |   | — |   |
| Weighted                average LP units and equivalent partnership units outstanding |                           |                                           | 61,857  |                           |   | 61,857  |   |
| Basic                earnings per LP unit:                                            |                           |                                           |    |                           |   |    |   |
| Income                (loss) from continuing operations                               |                           | $                                              | 1.09    |                           | $      | (0.15   | )      |
| Income                from discontinued operations                                    |                           |                                           | 0.44    |                           |   | 0.94    |   |
| Basic                earnings:                                                        |                           | $                                              | 1.53    |                           | $      | 0.79    |   |
| Diluted                earnings per LP unit:                                          |                           |                                           |    |                           |   |    |   |
| Income                (loss) from continuing operations                               |                           | $                                              | 1.09    |                           | $      | (0.15   | )      |
| Income                from discontinued operations                                    |                           |                                           | 0.44    |                           |   | 0.94    |   |
| Diluted                earnings:                                                      |                           | $                                              | 1.53    |                           | $      | 0.79    |   |

**Note  17 — Segment Reporting**

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 17 — Segment      Reporting – (continued)**

|                                                                                                             |                                |                                                |         |                                |        |         |        |
|-------------------------------------------------------------------------------------------------------------|--------------------------------|------------------------------------------------|---------|--------------------------------|--------|---------|--------|
|                                                                                                        |                           | **Three Months EndedMarch 31,** |    |
|                                                                                                        |                           | **2007**                                       |    | **2006**                       |   |
|                                                                                                        |                           |                                           |    |                           |   |    |   |
| Revenues:                                                                                                   |                           |                                           |    |                           |   |    |   |
| Gaming,                net                                                                                  |       | $                                              | 112,888 |       | $      | 85,945  |   |
| Real                Estate:                                                                                 |                           |                                           |    |                           |   |    |   |
| Rental                Real Estate                                                                           |                           |                                           | 3,517   |                           |   | 3,246   |   |
| Property                development                                                                         |                           |                                           | 18,145  |                           |   | 11,384  |   |
| Resort                operations                                                                            |                           |                                           | 6,225   |                           |   | 6,082   |   |
| Total                Real Estate                                                                            |                           |                                           | 27,887  |                           |   | 20,712  |   |
| Home                Fashion                                                                                 |                           |                                           | 210,604 |                           |   | 243,490 |   |
| Total                revenues                                                                               |                           | $                                              | 351,379 |                           | $      | 350,147 |   |
| Net                segment operating income (loss):                                                         |                           |                                           |    |                           |   |    |   |
| Gaming                                                                                                      |                           | $                                              | 23,227  |                           | $      | 18,623  |   |
| Real                Estate:                                                                                 |                           |                                           |    |                           |   |    |   |
| Rental                Real Estate                                                                           |                           |                                           | 2,024   |                           |   | 2,248   |   |
| Property                development                                                                         |                           |                                           | 2,533   |                           |   | 1,408   |   |
| Resort                operations                                                                            |                           |                                           | (276    | )                              |   | (182    | )      |
| Total                Real Estate                                                                            |                           |                                           | 4,281   |                           |   | 3,474   |   |
| Home                Fashion                                                                                 |                           |                                           | (39,015 | )                              |   | (37,958 | )      |
| Total                segment operating loss                                                                 |                           |                                           | (11,507 | )                              |   | (15,861 | )      |
| Holding                Company costs(i)                                                                     |                           |                                           | (7,679  | )                              |   | (11,145 | )      |
| Total                operating loss                                                                         |                           |                                           | (19,186 | )                              |   | (27,006 | )      |
| Interest                expense                                                                             |                           |                                           | (32,977 | )                              |   | (25,155 | )      |
| Interest                income                                                                              |                           |                                           | 31,458  |                           |   | 11,554  |   |
| Other                income (expense), net                                                                  |                           |                                           | 84,781  |                           |   | 21,309  |   |
| Equity                in earnings of affiliate                                                              |                           |                                           | — |                           |   | 24      |   |
| Income                from continuing operations before income taxes & minority                interest |                           |                                           | 64,076  |                           |   | (19,274 | )      |
| Income                tax expense                                                                           |                           |                                           | (6,949  | )                              |   | (5,211  | )      |
| Minority                interests                                                                           |                           |                                           | 11,590  |                           |   | 15,069  |   |
| Income                (loss) from continuing operations                                                     |                           | $                                              | 68,717  |                           | $      | (9,416  | )      |

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 17 — Segment      Reporting – (continued)**

|                                                                |                                |                        |           |                                |        |           |
|----------------------------------------------------------------|--------------------------------|------------------------|-----------|--------------------------------|--------|-----------|
|                                                           |                           | **March 31,2007** |      | **December 31,2006**      |
|                                                           |                           | (unaudited)            |      | (restated)                     |
| Assets                (in $000s):                              |                           |                   |      |                           |   |      |
| Gaming                                                         |       | $                      | 560,646   |       | $      | 552,753   |
| Real                Estate                                     |                           |                   | 386,833   |                           |   | 382,220   |
| Home                Fashion                                    |                           |                   | 778,912   |                           |   | 806,000   |
| Subtotal                                                       |                           |                   | 1,726,391 |                           |   | 1,740,973 |
| Assets                of discontinued operations held for sale |                           |                   | 48,205    |                           |   | 47,503    |
| Reconciling                items(ii)                           |                           |                   | 2,848,071 |                           |   | 2,456,271 |
| Total                assets                                    |                           | $                      | 4,622,667 |                           | $      | 4,244,747 |

**Note  18 — Income Taxes**

|          |                          |                                                                                                                  |        |                                                                                                                  |        |        |        |
|----------|--------------------------|------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|     |                     | **Three                Months Ended                March 31,**                                              |   |
|     |                     | **2007**                                                                                                         |   | **2006**                                                                                                         |   |
|     |                     | **                  ** |   | **                  ** |   |
| Current  |      | $                                                                                                                | (6,587 | )                                                                                            | $      | (5,595 | )      |
| Deferred |                     | $                                                                                                                | (362   | )                                                                                                                |   | 384    |   |
|     |                     | $                                                                                                                | (6,949 | )                                                                                                                |   | (5,211 | )      |

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 18 — Income Taxes– (continued)**

**Note  19 — Commitments and Contingencies**

***WPI      Litigation***

*Beal Bank,  S.S.B. et al v. WestPoint International, Inc., et al.*

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note  20 — Fair Value of Financial Instruments**

|                                                           |                                |                                                                                                                          |         |                                |        |         |
|-----------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|---------|--------------------------------|--------|---------|
|                                                      |                           | **March 31,2007**                                                                                                   |    | **December 31,2006**      |
|                                                      |                           | (unaudited)                                                                                                              |    |                           |   |
| **Financial                Instruments Owned:**           |                           |                      |    |                           |   |
| Trading                investments                        |       | $                                                                                                                        | 28,727  |       | $      | 20,538  |
| Available                for sale investments:            |                           |                                                                                                                     |    |                           |   |    |
| Marketable                equity and debt securities      |                           |                                                                                                                     | 247,880 |                           |   | 265,411 |
| Other                securities                           |                           |                                                                                                                     | 286,945 |                           |   | 253,166 |
| Investment                in ImClone Systems Incorporated |                           |                                                                                                                     | 186,058 |                           |   | 122,122 |
|                                                      |                           | $                                                                                                                        | 749,610 |                           | $      | 661,237 |
| **Securities                sold not yet purchased**      |                           | $                                                                                                                        | 8,682   |                           | $      | 25,398  |

|                                                              |                                |                                                                                                        |         |                                |        |           |                                |        |         |
|--------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------|---------|--------------------------------|--------|-----------|--------------------------------|--------|---------|
|                                                         |                           | **Assets                and Liabilities at Fair ValueAs of                March 31, 2007 ($000)** |
|                                                         |                           | **Level                1**                                                                             |    | **Level                2**     |   | **Total** |
|                                                         |                           | (unaudited)                                                                                            |
| **Assets**                                                   |                           |                                                                                                   |    |                           |   |      |                           |   |    |
| Trading                investments(i)                        |       | $                                                                                                      | 28,727  |       | $      | —   |       | $      | 28,727  |
| Available                for sale investments:               |                           |                                                                                                   |    |                           |   |      |                           |   |    |
| Marketable                equity and debt securities(i)      |                           |                                                                                                   | 247,880 |                           |   | —   |                           |   | 247,880 |
| Other                securities                              |                           |                                                                                                   | 23,500  | (i)                            |   | 263,445   | (ii)                           |   | 286,945 |
| Investment                in ImClone Systems Incorporated(i) |                           |                                                                                                   | 186,058 |                           |   | —   |                           |   | 186,058 |
|                                                         |                           | $                                                                                                      | 486,165 |                           | $      | 263,445   |                           | $      | 749,610 |
| **Liabilities**                                              |                           |                                                                                                   |    |                           |   |      |                           |   |    |
| Securities                sold not yet purchased(i)          |                           | $                                                                                                      | 8,682   |                           |   | —   |                           |   | 8,682   |

**Note  21 — Subsequent Events**

***Sale of Common      Stock of SandRidge Energy, Inc.***

***Issuance of      Convertible Debt***

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**AMERICAN      REAL ESTATE PARTNERS, L.P. AND      SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)March 31,      2007**

**Note 21 — Subsequent      Events – (continued)**

***Sale of American      Casino & Entertainment Properties LLC***

***Declaration      of      Distribution on Depositary Units***

***Potential      Acquisitions***

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

**Overview**

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**Discontinued Operations**

***The Sands and      Related Assets***

***Oil and Gas      Operations***

***Real      Estate***

***Results of      Discontinued Operations***

|                                                                               |                                |                                                |        |                                |        |        |        |
|-------------------------------------------------------------------------------|--------------------------------|------------------------------------------------|--------|--------------------------------|--------|--------|--------|
|                                                                          |                           | **Three Months EndedMarch 31,** |   |
|                                                                          |                           | **2007**                                       |   | **2006**                       |   |
|                                                                          |                           |                                           |   |                           |   |   |   |
| Total                operating income                                         |       | $                                              | 1,079  |       | $      | 66,682 |   |
| Interest                expense                                               |                           |                                           | (270   | )                              |   | (5,435 | )      |
| Interest                and other income                                      |                           |                                           | 18,642 |                           |   | 1,040  |   |
| Income                tax expense                                             |                           |                                           | (2,981 | )                              |   | (3,446 | )      |
| Income                from discontinued operations                            |                           |                                           | 16,470 |                           |   | 58,841 |   |
| Minority                interests                                             |                           |                                           | (1,794 | )                              |   | 54     |   |
| Gain                on sales of discontinued operations, net of income taxes  |                           |                                           | 13,185 |                           |   | 251    |   |
| Total                income from discontinued operations, net of income taxes |                           | $                                              | 27,861 |                           | $      | 59,146 |   |

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**Results of Operations**

***Overview***

**Consolidated      Financial Results**

***Gaming***

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**Back to Index**

|                                                    |                                |                                                      |         |                                |        |          |                                |        |        |
|----------------------------------------------------|--------------------------------|------------------------------------------------------|---------|--------------------------------|--------|----------|--------------------------------|--------|--------|
|                                               |                           | **Three Months Ended March 31,** |
|                                               |                           | **IncludingAquarius**                                |    | **ExcludingAquarius**          |   |     |
|                                               |                           | **2007**                                             |    | **2007**                       |   | **2006** |
|                                               |                           |                                                 |    |                           |   |     |                           |   |   |
| Revenues:                                          |                           |                                                 |    |                           |   |     |                           |   |   |
| Casino                                             |       | $                                                    | 67,370  |       | $      | 46,132   |       | $      | 48,022 |
| Hotel                                              |                           |                                                 | 22,616  |                           |   | 18,076   |                           |   | 17,433 |
| Food                and beverage                   |                           |                                                 | 23,109  |                           |   | 18,271   |                           |   | 18,070 |
| Tower,                retail and other income      |                           |                                                 | 9,311   |                           |   | 7,992    |                           |   | 8,219  |
| Gross                revenues                      |                           |                                                 | 122,406 |                           |   | 90,471   |                           |   | 91,744 |
| Less                promotional allowances         |                           |                                                 | 9,518   |                           |   | 6,401    |                           |   | 5,799  |
| Net                revenues                        |                           |                                                 | 112,888 |                           |   | 84,070   |                           |   | 85,945 |
| Expenses:                                          |                           |                                                 |    |                           |   |     |                           |   |   |
| Casino                                             |                           |                                                 | 22,566  |                           |   | 16,203   |                           |   | 16,488 |
| Hotel                                              |                           |                                                 | 9,063   |                           |   | 6,690    |                           |   | 6,843  |
| Food                and beverage                   |                           |                                                 | 15,975  |                           |   | 13,331   |                           |   | 13,201 |
| Tower,                retail and other income      |                           |                                                 | 4,244   |                           |   | 3,561    |                           |   | 4,248  |
| Selling,                general and administrative |                           |                                                 | 29,472  |                           |   | 19,998   |                           |   | 20,782 |
| Depreciation                and amortization       |                           |                                                 | 8,341   |                           |   | 6,492    |                           |   | 5,760  |
| Total                costs and expenses            |                           |                                                 | 89,661  |                           |   | 66,275   |                           |   | 67,322 |
| Operating                income                    |                           | $                                                    | 23,227  |                           | $      | 17,795   |                           | $      | 18,623 |

**Gross      Revenues**

**Casino      Revenues**

**Non-Casino      Revenues**

----

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**Promotional      Allowances**

**Operating      Expenses**

***Real      Estate***

|                                                    |                                |                                                |        |                                |        |        |
|----------------------------------------------------|--------------------------------|------------------------------------------------|--------|--------------------------------|--------|--------|
|                                               |                           | **Three Months EndedMarch 31,** |
|                                               |                           | **2007**                                       |   | **2006**                       |
| Revenues:                                          |                           |                                           |   |                           |   |   |
| Rental                real estate:                 |                           |                                           |   |                           |   |   |
| Interest                income on financing leases |       | $                                              | 1,578  |       | $      | 1,735  |
| Rental                income                       |                           |                                           | 1,939  |                           |   | 1,511  |
| Subtotal                rental real estate         |                           |                                           | 3,517  |                           |   | 3,246  |
| Property                development                |                           |                                           | 18,145 |                           |   | 11,384 |
| Resort                operations                   |                           |                                           | 6,225  |                           |   | 6,082  |
| Total                revenues                      |                           |                                           | 27,887 |                           |   | 20,712 |
| Operating                expenses:                 |                           |                                           |   |                           |   |   |
| Rental                real estate                  |                           |                                           | 1,493  |                           |   | 998    |
| Property                development                |                           |                                           | 15,612 |                           |   | 9,976  |
| Resort                operations                   |                           |                                           | 6,501  |                           |   | 6,264  |
| Total                expenses                      |                           |                                           | 23,606 |                           |   | 17,238 |
| Operating                income                    |                           | $                                              | 4,281  |                           | $      | 3,474  |

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**Rental      Real Estate**

|                                                         |                                |                                                                                    |        |                                                                                    |        |     |
|---------------------------------------------------------|--------------------------------|------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|-----|
|                                                    |                           | **Three Months EndedMarch 31,**                                     |
|                                                    |                           | **2007**                                                                           |   | **2006**                                                                           |
|                                                    |                           | **             ** |   | **             ** |
| Properties                sold                          |                           |                                                                               | 1      |                                                                               |   | 4   |
| Proceeds                received                        |       | $                                                                                  | 4,359  |                                                           | $      | 973 |
| Total                gain  recorded                |                           | $                                                                                  | 3,862  |                                                                               | $      | 251 |
| Gain                recorded in discontinued operations |                           | $                                                                                  | 3,862  |                                                                               | $      | 251 |

**Property      Development**

|                                                 |                                |                                                |        |                                |        |         |
|-------------------------------------------------|--------------------------------|------------------------------------------------|--------|--------------------------------|--------|---------|
|                                            |                           | **Three Months EndedMarch 31,** |
|                                            |                           | **2007**                                       |   | **2006**                       |
|                                            |                           |                                           |   |                           |   |    |
| Units                sold:                      |                           |                                           |   |                           |   |    |
| New                Seabury, Massachusetts       |       |                                           | 6      |       |   | 10      |
| Grand                Harbor/Oak Harbor, Florida |                           |                                           | 5      |                           |   | 2       |
| Falling                Waters, Florida          |                           |                                           | 23     |                           |   | — |
| Westchester,                New York            |                           |                                           | 2      |                           |   | — |
| Tampa                Bay, Florida               |                           |                                           | 1      |                           |   | — |
|                                            |                           |                                           | 37     |                           |   | 12      |
| Revenues:                                       |                           |                                           |   |                           |   |    |
| New                Seabury, Massachusetts       |                           | $                                              | 3,583  |                           | $      | 9,033   |
| Grand                Harbor/Oak Harbor, Florida |                           |                                           | 4,349  |                           |   | 2,321   |
| Falling                Waters, Florida          |                           |                                           | 5,466  |                           |   | — |
| Westchester,                New York            |                           |                                           | 3,243  |                           |   | 30      |
| Tampa                Bay, Florida               |                           |                                           | 1,504  |                           |   | — |
|                                            |                           | $                                              | 18,145 |                           | $      | 11,384  |

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Due to the current residential and vacation home sales slowdown, property    development sales and profits are expected to decline in fiscal 2007 from    levels achieved in fiscal 2006.

**Resort      Activities**

***Home      Fashion***

**Overview**

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|                                                             |                                |                                                                                                                          |         |                                                                                                                          |        |         |        |
|-------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|---------|--------------------------------------------------------------------------------------------------------------------------|--------|---------|--------|
|                                                        |                           | **Three                Months                EndedMarch 31,**                                                       |    |
|                                                        |                           | **2007**                                                                                                                 |    | **2006**                                                                                                                 |   |
|                                                        |                           |                      |    |                      |   |
| Net                sales                                    |       | $                                                                                                                        | 210,604 |                                                                                                 | $      | 243,490 |   |
| Cost                of goods sold                           |                           |                                                                                                                     | 205,910 |                                                                                                                     |   | 228,360 |   |
| Gross                earnings                               |                           |                                                                                                                     | 4,694   |                                                                                                                     |   | 15,130  |   |
| Selling,                general and administrative expenses |                           |                                                                                                                     | 39,398  |                                                                                                                     |   | 43,317  |   |
| Restructuring                and impairment charges         |                           |                                                                                                                     | 4,311   |                                                                                                                     |   | 9,771   |   |
| Operating                loss                               |                           | $                                                                                                                        | (39,015 | )                                                                                                                        | $      | (37,958 | )      |

**Holding      Company**

**Activities**

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**Holding      Company Costs**

**Interest      Income and Expense**

**Other      Income (Expense), net**

|                                                                     |                                |                                                |        |                                |        |         |        |
|---------------------------------------------------------------------|--------------------------------|------------------------------------------------|--------|--------------------------------|--------|---------|--------|
|                                                                |                           | **Three Months EndedMarch 31,** |   |
|                                                                |                           | **2007**                                       |   | **2006**                       |   |
|                                                                |                           |                                           |   |                           |   |    |   |
| Net                realized gains on sales of marketable securities |       | $                                              | 5,177  |       | $      | 33,431  |   |
| Unrealized                gains on marketable securities            |                           |                                           | 72,126 |                           |   | 15,478  |   |
| Net                realized losses on securities sold short         |                           |                                           | (1,510 | )                              |   | (5,131  | )      |
| Unrealized                gains (losses) on securities sold short   |                           |                                           | 3,617  |                           |   | (25,476 | )      |
| Gain                on sale of assets                               |                           |                                           | 3,612  |                           |   | — |   |
| Other                                                               |                           |                                           | 1,759  |                           |   | 3,007   |   |
|                                                                |                           | $                                              | 84,781 |                           | $      | 21,309  |   |

**Minority      Interests**

**Effective      Income Tax Rate**

**Seasonality**

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**Liquidity  and Capital Resources**

***Consolidated      Financial Results***

**Cash      Resources**

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**Cash      Commitments**

**Cash      Flows**

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**Borrowings**

|                                                                                     |                                |                        |           |                                     |        |           |        |
|-------------------------------------------------------------------------------------|--------------------------------|------------------------|-----------|-------------------------------------|--------|-----------|--------|
|                                                                                |                           | **March 31,2007** |      | **December                31,2006** |   |
|                                                                                |                           | (unaudited)            |      |                                |   |      |
| Senior                unsecured 7.125% notes due 2013 – AREP        |       | $                      | 972,294   |            | $      | 480,000   |   |
| Senior                unsecured 8.125% notes due 2012 – AREP        |                           |                   | 351,327   |                                |   | 351,246   |   |
| Senior                secured 7.85% notes due 2012 – ACEP           |                           |                   | 215,000   |                                |   | 215,000   |   |
| Borrowings                under credit facility – ACEP                   |                           |                   | 40,000    |                                |   | 40,000    |   |
| Mortgages                payable                                                    |                           |                   | 108,027   |                                |   | 109,289   |   |
| Other                                                                               |                           |                   | 12,470    |                                |   | 13,425    |   |
| Total                long-term debt                                                 |                           |                   | 1,699,118 |                                |   | 1,208,960 |   |
| Less                current portion, including debt related to assets held for sale |                           |                   | (23,620   | )                                   |   | (23,970   | )      |
|                                                                                |                           | $                      | 1,675,498 |                                | $      | 1,184,990 |   |

***AREP      Senior unsecured 7.125% notes due 2013***

***AREP      Senior unsecured 8.125% notes due 2012***

***Senior      unsecured notes restrictions and covenants — AREP***

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***AREP      Senior Secured Revolving Credit Facility***

***Senior      secured 7.85% notes due 2012 — ACEP***

***ACEP      Senior Secured Revolving Credit Facility***

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***Mortgages      Payable***

**WestPoint      Home Secured Revolving Credit Agreement**

***Quarterly      Distributions***

***Contractual      Commitments***

***Off      Balance Sheet Arrangements***

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***Segment      Liquidity and Capital Resources***

**Gaming**

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**Real      Estate**

**Home      Fashion**

***Forward-Looking      Statements***

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**Certain  Trends and Uncertainties**

**Item  3. Quantitative and Qualitative Disclosures About Market Risk**

**Item  4. Controls and Procedures**

***Changes      in Internal Control Over Financial Reporting***

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**PART II. OTHER INFORMATION**

**Item  1. Legal Proceedings**

***WPI      Litigation***

*Beal Bank,  S.S.B. et al v. WestPoint International, Inc., et al.*

***Lear  Corporation***

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**Item  1A. Risk Factors**

**Item  6. Exhibits**

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**SIGNATURES**

|        |                                                        |                                                                            |
|--------|--------------------------------------------------------|----------------------------------------------------------------------------|
|   | **AMERICAN REAL ESTATE PARTNERS,                L.P.** |
|   | By:                                          | American Property Investors, Inc., its                general partner |
|   | By:                                                    | /s/ KEITH MEISTER                                                          |
|   |                                                   | Keith Meister Principal Executive                Officer                   |

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**EXHIBITS      INDEX**

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