##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|           |  | For the quarterly period ended March 31, 2005                                               
|           |  | or                                                                                          
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period
    from           to                                             

Commission File Number 1-9516





American Real Estate Partners, L.P.


(Exact name of registrant as specified in its charter)





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

(914) 242-7700


(Registrants telephone number, including area code)





þ o


þ o










---



INDEX







|                      |  |                       |  |                                                                                                                           |  |  |    | 
|--------------------- |  | --------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|                      |  |                       |  | Page No.                                                                                                                  | 
|                      |  |                       |  |                                                                                                                           | 
|Part I.               |  | FINANCIAL INFORMATION |  |                                                                                                                           |  | 
|                      |  |                       |  | Item 1.  Financial
    Statements                                                                                         |  |  | 2  | 
|                      |  |                       |  | Consolidated Balance Sheets March 31,
    2005 and December 31, 2004                                                      |  |  | 3  | 
|                      |  |                       |  | Consolidated Statements of Earnings Three
    Months Ended March 31, 2005 and 2004                                        |  |  | 4  | 
|                      |  |                       |  | Consolidated Statements of Changes In
    Partners Equity and Comprehensive Income Three Months
    Ended March 31, 2005 |  |  | 5  | 
|                      |  |                       |  | Consolidated Statements of Cash Flows Three
    Months Ended March 31, 2005 and 2004                                      |  |  | 6  | 
|                      |  |                       |  | Notes to Consolidated Financial
    Statements                                                                            |  |  | 8  | 
|                      |  |                       |  | Item 2.  Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations                    |  |  | 19 | 
|                      |  |                       |  | Item 3.  Quantitative and
    Qualitative Disclosures about Market Risk                                                   |  |  | 23 | 
|                      |  |                       |  | Item 4.  Controls and
    Procedures                                                                                      |  |  | 24 | 
|Part II.              |  | OTHER INFORMATION     |  |                                                                                                                           |  | 
|                      |  |                       |  | Item 6.  Exhibits                                                                                                         |  |  | 25 | 
|EX-31.1 CERTIFICATION
|EX-31.2 CERTIFICATION
|EX-32.1 CERTIFICATION
|EX-32.2 CERTIFICATION



1



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q-MARCH 31, 2005





PART 1. FINANCIAL INFORMATION







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




CONSOLIDATED BALANCE SHEETS


|                                                                                    |                                                                               |                                                                                               |                      |           |              |           |         |         |       |           | 
|----------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------- | --------- | ------------ | --------- | ------- | ------- | ----- | --------- | 
|                                                                                    |                                                                               | March 31,                                                                                     |                      |           | December 31, |          
|                                                                                    |                                                                               | 2005                                                                                          |                      |           | 2004         |          
|                                                                                    |                                                                               |                                                                                               |                      |           |              |          
|                                                                                    |                                                                               | (Unaudited)                                                                                   |                      |           |             
|                                                                                    |                                                                               | (In $000s)                                                                                   |                     
|ASSETS                                                                             
|Current Assets:                                                                     |                                                                               |                                                                                               |                      |           |              |           |         |        
|                                                                                    | Cash and cash equivalents                                                     |                                                                                               | $                    | 1,245,762 |              |           | $       | 762,708 |      
|                                                                                    | Investment in U.S. government and agency obligations                          |                                                                                               |                      | 68,894    |              |           |         | 96,840  |      
|                                                                                    | Marketable equity and debt securities                                         |                                                                                               |                      | 68,497    |              |           |         | 2,248   |      
|                                                                                    | Due from brokers                                                              |                                                                                               |                      | 147,223   |              |           |         | 123,001 |      
|                                                                                    | Restricted cash                                                               |                                                                                               |                      | 28,537    |              |           |         | 19,856  |      
|                                                                                    | Receivables and other assets                                                  |                                                                                               |                      | 43,066    |              |           |         | 51,575  |      
|                                                                                    | Real estate leased to others:                                                 |                                                                                               |                      |           |              |           |         |         |      
|                                                                                    |                                                                               | Current portion of lease amortization for leases accounted for
    under the financing method |                      |           | 3,740        |           |         |         | 3,912 |          
|                                                                                    | Properties held for sale                                                      |                                                                                               |                      | 33,995    |              |           |         | 58,021  |      
|                                                                                    | Current portion of investment in debt securities of affiliates                |                                                                                               |                      | 10,429    |              |           |         | 10,429  |      
|                                                                                    | Current portion of deferred tax asset                                         |                                                                                               |                      | 2,685     |              |           |         | 2,685   |      
|                                                                                    |                                                                               |                                                                                               |                      |           |              |          
|                                                                                    |                                                                               |                                                                                               | Total current assets |           |              | 1,652,828 |         |         |       | 1,131,275 | 
|Investment in U.S. government and agency obligations                                |                                                                               |                                                                                               | 5,533                |           |              |           | 5,491   |        
|Other investments                                                                   |                                                                               |                                                                                               | 244,602              |           |              |           | 245,948 |        
|Land and construction-in-progress                                                   |                                                                               |                                                                                               | 106,000              |           |              |           | 106,537 |        
|Real estate leased to others:                                                       |                                                                               |                                                                                               |                      |           |              |           |         |        
|                                                                                    | Accounted for under the financing method                                      |                                                                                               |                      | 75,949    |              |           |         | 85,281  |      
|                                                                                    | Accounted for under the operating method, net of accumulated
    depreciation |                                                                                               |                      | 51,127    |              |           |         | 49,118  |      
|Hotel, casino and resort operating properties, net of
    accumulated depreciation: |                                                                               |                                                                                               |                      |           |              |           |         |        
|                                                                                    | American Casino & Entertainment Properties LLC                                |                                                                                               |                      | 288,890   |              |           |         | 289,360 |      
|                                                                                    | Hotel and resorts                                                             |                                                                                               |                      | 46,041    |              |           |         | 50,132  |      
|Deferred finance costs and other assets, net                                        |                                                                               |                                                                                               | 24,669               |           |              |           | 21,038  |        
|Long-term portion of investment in debt securities of affiliates                    |                                                                               |                                                                                               | 114,364              |           |              |           | 115,075 |        
|Investment in NEG Holding LLC                                                       |                                                                               |                                                                                               | 97,693               |           |              |           | 87,800  |        
|Equity interest in GB Holdings, Inc. (The Sands Hotel and Casino)                   |                                                                               |                                                                                               | 9,138                |           |              |           | 10,603  |        
|Deferred tax asset                                                                  |                                                                               |                                                                                               | 58,851               |           |              |           | 65,399  |        
|                                                                                    |                                                                               |                                                                                               |                      |           |              |          
|                                                                                    |                                                                               |                                                                                               | Total                |           | $            | 2,775,685 |         |         | $     | 2,263,057 | 
|                                                                                    |                                                                               |                                                                                               |                      |           |              |          

2



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS  (Continued)


|                                                                                                                                                   |                                                                                                                                                                                   |                             |         |           |              |  |         |           |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------- | --------- | ------------ |  | ------- | --------- | --------- | 
|                                                                                                                                                   |                                                                                                                                                                                   | March 31,                   |         |           | December 31, | 
|                                                                                                                                                   |                                                                                                                                                                                   | 2005                        |         |           | 2004         | 
|                                                                                                                                                   |                                                                                                                                                                                   |                             |         |           |              | 
|                                                                                                                                                   |                                                                                                                                                                                   | (Unaudited)                 |         |           |             
|                                                                                                                                                   |                                                                                                                                                                                   | (In $000s)                 |        
|LIABILITIES AND PARTNERS EQUITY                                                                                                                  
|Current Liabilities:                                                                                                                               |                                                                                                                                                                                   |                             |         |           |              |  |         |          
|                                                                                                                                                   | Current portion of mortgages payable                                                                                                                                              |                             | $       | 4,205     |              |  | $       | 3,700     |          
|                                                                                                                                                   | Mortgages on properties held for sale                                                                                                                                             |                             |         | 20,372    |              |  |         | 27,477    |          
|                                                                                                                                                   | Accounts payable, accrued expenses and other liabilities                                                                                                                          |                             |         | 76,100    |              |  |         | 81,793    |          
|                                                                                                                                                   | Securities sold not yet purchased                                                                                                                                                 |                             |         | 83,750    |              |  |         | 90,674    |          
|                                                                                                                                                   |                                                                                                                                                                                   |                             |         |           |              | 
|                                                                                                                                                   |                                                                                                                                                                                   | Total current liabilities   |         |           | 184,427      |  |         |           | 203,644   | 
|                                                                                                                                                   |                                                                                                                                                                                   |                             |         |           |              | 
|Other liabilities                                                                                                                                  |                                                                                                                                                                                   |                             | 21,817  |           |              |  | 23,239  |          
|Long-term portion of mortgages payable                                                                                                             |                                                                                                                                                                                   |                             | 55,614  |           |              |  | 60,719  |          
|Senior secured notes payable and credit facility                                                                                                   |                                                                                                                                                                                   |                             | 215,000 |           |              |  | 215,000 |          
|Senior unsecured notes
    payable-81/8%
    due 2012-net of unamortized discount of $2,321 and $2,402 at
    March 31, 2005 and December 31, 2004 |                                                                                                                                                                                   |                             | 350,679 |           |              |  | 350,598 |          
|Senior unsecured notes
    payable-71/8%
    due 2013                                                                                              |                                                                                                                                                                                   |                             | 480,000 |           |              |  |        |          
|Preferred limited partnership units:                                                                                                               |                                                                                                                                                                                   |                             |         |           |              |  |         |          
|                                                                                                                                                   | $10 liquidation preference, 5% cumulative pay-in-kind;
    10,900,000 authorized; 10,800,397 and 10,286,264 issued and
    outstanding as of March 31, 2005 and December 31, 2004 |                             |         | 108,006   |              |  |         | 106,731   |          
|                                                                                                                                                   |                                                                                                                                                                                   |                             |         |           |              | 
|                                                                                                                                                   |                                                                                                                                                                                   | Total long-term liabilities |         |           | 1,231,116    |  |         |           | 756,287   | 
|                                                                                                                                                   |                                                                                                                                                                                   |                             |         |           |              | 
|Commitments and contingencies (Notes 2 and 3):                                                                                                     |                                                                                                                                                                                   |                             |         |           |              |  |         |          
|Limited partners:                                                                                                                                  |                                                                                                                                                                                   |                             |         |           |              |  |         |          
|                                                                                                                                                   | Depositary units; 47,850,000 authorized; 47,235,484 outstanding                                                                                                                   |                             |         | 1,383,913 |              |  |         | 1,328,031 |          
|General partner                                                                                                                                    |                                                                                                                                                                                   |                             | (11,850 | )         |              |  | (12,984 | )        
|Treasury units at cost:                                                                                                                            |                                                                                                                                                                                   |                             |         |           |              |  |         |          
|                                                                                                                                                   | 1,137,200 depositary units                                                                                                                                                        |                             |         | (11,921   | )            |  |         | (11,921   | )        
|                                                                                                                                                   |                                                                                                                                                                                   |                             |         |           |              | 
|                                                                                                                                                   | Partners equity                                                                                                                                                                  |                             |         | 1,360,142 |              |  |         | 1,303,126 |          
|                                                                                                                                                   |                                                                                                                                                                                   |                             |         |           |              | 
|                                                                                                                                                   |                                                                                                                                                                                   | Total                       |         | $         | 2,775,685    |  |         | $         | 2,263,057 | 
|                                                                                                                                                   |                                                                                                                                                                                   |                             |         |           |              | 



3



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF EARNINGS


|                                                      |                                                                                             |                                              |         |            |        |   |         |            |       | 
|----------------------------------------------------- | ------------------------------------------------------------------------------------------- | -------------------------------------------- | ------- | ---------- | ------ | - | ------- | ---------- | ----- | 
|                                                      |                                                                                             | Three Months Ended                           |        
|                                                      |                                                                                             | March 31,                                    |        
|                                                      |                                                                                             |                                              |        
|                                                      |                                                                                             | 2005                                         |         |            | 2004   |  
|                                                      |                                                                                             |                                              |         |            |        |  
|                                                      |                                                                                             |                                              |         | (Restated) |       
|                                                      |                                                                                             | (Unaudited)                                  |        
|                                                      |                                                                                             | (In $000s except                            |        
|                                                      |                                                                                             | per unit data)                               |        
|Revenues:                                             |                                                                                             |                                              |         |            |        |   |         |           
|                                                      | Hotel and casino operating income                                                           |                                              | $       | 82,838     |        |   | $       | 75,009     |      
|                                                      | Land, house and condominium sales                                                           |                                              |         | 8,279      |        |   |         | 5,014      |      
|                                                      | Interest income on financing leases                                                         |                                              |         | 1,966      |        |   |         | 2,936      |      
|                                                      | Interest income on U.S. Government and Agency obligations
    and other investments         |                                              |         | 13,554     |        |   |         | 4,889      |      
|                                                      | Rental income                                                                               |                                              |         | 2,035      |        |   |         | 2,027      |      
|                                                      | Hotel and resort operating income                                                           |                                              |         | 5,563      |        |   |         | 1,335      |      
|                                                      | Accretion of investment in NEG, Holding LLC                                                 |                                              |         | 9,893      |        |   |         | 7,904      |      
|                                                      | NEG management fee                                                                          |                                              |         | 3,275      |        |   |         | 2,619      |      
|                                                      | Dividend and other income                                                                   |                                              |         | 4,206      |        |   |         | 834        |      
|                                                      | Equity in losses of GB Holdings, Inc.                                                       |                                              |         | (986       | )      |   |         | (348       | )    
|                                                      |                                                                                             |                                              |         |            |        |  
|                                                      |                                                                                             |                                              | 130,623 |            |        |   | 102,219 |           
|                                                      |                                                                                             |                                              |         |            |        |  
|Expenses:                                             |                                                                                             |                                              |         |            |        |   |         |           
|                                                      | Hotel and casino operating expenses                                                         |                                              |         | 57,624     |        |   |         | 54,243     |      
|                                                      | Cost of land, house and condominium sales                                                   |                                              |         | 7,047      |        |   |         | 3,358      |      
|                                                      | Hotel and resort operating expenses                                                         |                                              |         | 5,405      |        |   |         | 1,424      |      
|                                                      | Interest expense                                                                            |                                              |         | 19,161     |        |   |         | 6,181      |      
|                                                      | Depreciation and amortization                                                               |                                              |         | 7,154      |        |   |         | 7,422      |      
|                                                      | General and administrative expenses                                                         |                                              |         | 7,610      |        |   |         | 4,364      |      
|                                                      | Property expenses                                                                           |                                              |         | 952        |        |   |         | 1,085      |      
|                                                      |                                                                                             |                                              |         |            |        |  
|                                                      |                                                                                             |                                              | 104,953 |            |        |   | 78,077  |           
|                                                      |                                                                                             |                                              |         |            |        |  
|Operating income                                      |                                                                                             |                                              | 25,670  |            |        |   | 24,142  |           
|                                                      | Other gains and (losses):                                                                   |                                              |         |            |        |   |         |            |      
|                                                      | Other losses                                                                                |                                              |         | (180       | )      |   |         | (4         | )    
|                                                      | Unrealized gains on securities sold short                                                   |                                              |         | 21,704     |        |   |         |           |      
|                                                      | Gain on sales of marketable equity and debt securities                                      |                                              |         |           |        |   |         | 28,857     |      
|                                                      | Gain on sales and disposition of real estate                                                |                                              |         | 186        |        |   |         | 6,047      |      
|                                                      |                                                                                             |                                              |         |            |        |  
|Income from continuing operations before income taxes |                                                                                             |                                              | 47,380  |            |        |   | 59,042  |           
|                                                      | Income tax expense                                                                          |                                              |         | (7,650     | )      |   |         | (6,169     | )    
|                                                      |                                                                                             |                                              |         |            |        |  
|Income from continuing operations                     |                                                                                             |                                              | 39,730  |            |        |   | 52,873  |           
|                                                      |                                                                                             |                                              |         |            |        |  
|Discontinued operations:                              |                                                                                             |                                              |         |            |        |   |         |           
|                                                      | Income from discontinued operations                                                         |                                              |         | 957        |        |   |         | 3,218      |      
|                                                      |                                                                                             | Gain on sales and disposition of real estate |         |            | 18,723 |   |         |            | 6,929 | 
|                                                      |                                                                                             |                                              |         |            |        |  
|                                                      | Income from discontinued operations                                                         |                                              |         | 19,680     |        |   |         | 10,147     |      
|                                                      |                                                                                             |                                              |         |            |        |  
|Net earnings                                          |                                                                                             | $                                            | 59,410  |            |        | $ | 63,020  |           
|                                                      |                                                                                             |                                              |         |            |        |  
|Net earnings attributable to (Note 11):               |                                                                                             |                                              |         |            |        |   |         |           
|                                                      | Limited partners                                                                            |                                              | $       | 58,228     |        |   | $       | 57,608     |      
|                                                      | General partner                                                                             |                                              |         | 1,182      |        |   |         | 5,412      |      
|                                                      |                                                                                             |                                              |         |            |        |  
|                                                      |                                                                                             | $                                            | 59,410  |            |        | $ | 63,020  |           
|                                                      |                                                                                             |                                              |         |            |        |  
|Net earnings per limited partnership unit:            |                                                                                             |                                              |         |            |        |   |         |           
|                                                      | Basic earnings:                                                                             |                                              |         |            |        |   |         |            |      
|                                                      | Income from continuing operations                                                           |                                              | $       | 0.84       |        |   | $       | 1.03       |      
|                                                      | Income from discontinued operations                                                         |                                              |         | 0.42       |        |   |         | 0.22       |      
|                                                      |                                                                                             |                                              |         |            |        |  
|                                                      | Basic earnings per LP unit                                                                  |                                              | $       | 1.26       |        |   | $       | 1.25       |      
|                                                      |                                                                                             |                                              |         |            |        |  
|                                                      | Weighted average limited partnership units outstanding                                      |                                              |         | 46,098,284 |        |   |         | 46,098,284 |      
|                                                      |                                                                                             |                                              |         |            |        |  
|                                                      | Diluted earnings:                                                                           |                                              |         |            |        |   |         |            |      
|                                                      |                                                                                             | Income from continuing operations            |         | $          | 0.81   |   |         | $          | 0.93  | 
|                                                      |                                                                                             | Income from discontinued operations          |         |            | 0.39   |   |         |            | 0.19  | 
|                                                      |                                                                                             |                                              |         |            |        |  
|                                                      | Diluted earnings per LP unit                                                                |                                              | $       | 1.20       |        |   | $       | 1.12       |      
|                                                      |                                                                                             |                                              |         |            |        |  
|                                                      | Weighted average limited partnership units and equivalent
    partnership units outstanding |                                              |         | 49,857,622 |        |   |         | 52,499,303 |      
|                                                      |                                                                                             |                                              |         |            |        |  



4



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS


EQUITY AND COMPREHENSIVE INCOME


|                                                       |  |                                   |         |                   |                  |   |                  |         |  |       |           |   |  |        |       |  |  |   |           |  
|------------------------------------------------------ |  | --------------------------------- | ------- | ----------------- | ---------------- | - | ---------------- | ------- |  | ----- | --------- | - |  | ------ | ----- |  |  | - | --------- | -
|                                                       |  | Three Months Ended March 31, 2005 |        
|                                                       |  |                                   |        
|                                                       |  |                                   |         | Limited Partners |                  |   | Held in Treasury |         |  | Total |          
|                                                       |  | General Partners                 |         |                   | Equity           |   |                  |         |  |       | Partners |  
|                                                       |  | Equity                            |         |                   | Depositary Units |   |                  | Amounts |  |       | Units     |   |  | Equity |      
|                                                       |  |                                   |         |                   |                  |   |                  |         |  |       |           |   |  |        |      
|                                                       |  | (Unaudited)                       |        
|                                                       |  | (In $000s)                       |        
|Balance, December 31, 2004                             |  | $                                 | (12,984 | )                 |                  | $ | 1,328,031        |         |  | $     | (11,921   | ) |  |        | 1,137 |  |  | $ | 1,303,126 |  
|Comprehensive income:                                  |  |                                   |         |                   |                  |   |                  |         |  |       |           |   |  |        |       |  |  |   |           |  
|Net earnings                                           |  |                                   | 1,182   |                   |                  |   | 58,228           |         |  |       |          |   |  |        |      |  |  |   | 59,410    |  
|Net unrealized losses on securities available for sale |  |                                   | (48     | )                 |                  |   | (2,346           | )       |  |       |          |   |  |        |      |  |  |   | (2,394    | )
|                                                       |  |                                   |         |                   |                  |   |                  |         |  |       |           |   |  |        |      
|Comprehensive income                                   |  |                                   | 1,134   |                   |                  |   | 55,882           |         |  |       |          |   |  |        |      |  |  |   | 57,016    |  
|                                                       |  |                                   |         |                   |                  |   |                  |         |  |       |           |   |  |        |      
|Balance, March 31, 2005                                |  | $                                 | (11,850 | )                 |                  | $ | 1,383,913        |         |  | $     | (11,921   | ) |  | $      | 1,137 |  |  | $ | 1,360,142 |  
|                                                       |  |                                   |         |                   |                  |   |                  |         |  |       |           |   |  |        |      





5



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                      |                                                                                         |                                                        |                                                                                     |                                                            |         |        |          |          |         |        |          |  
|------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------ | ----------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------- | ------ | -------- | -------- | ------- | ------ | -------- | -
|                                      |                                                                                         | Three Months Ended                                     |                                                                                    
|                                      |                                                                                         | March, 31                                              |                                                                                    
|                                      |                                                                                         |                                                        |                                                                                    
|                                      |                                                                                         | 2005                                                   |                                                                                     |                                                            | 2004    |       
|                                      |                                                                                         |                                                        |                                                                                     |                                                            |         |       
|                                      |                                                                                         |                                                        |                                                                                     | (Restated)                                                 |        
|                                      |                                                                                         | (Unaudited)                                            |                                                                                    
|                                      |                                                                                         | (In $000s)                                            |                                                                                    
|Cash flows from operating activities: |                                                                                         |                                                        |                                                                                     |                                                            |         |        |          |         
|                                      | Income from continuing operations                                                       |                                                        | $                                                                                   | 39,730                                                     |         |        | $        | 52,873   |        
|                                      | Adjustments to reconcile net earnings to net cash provided by
    operating activities: |                                                        |                                                                                     |                                                            |         |        |          |          |        
|                                      |                                                                                         | Depreciation and amortization                          |                                                                                     |                                                            | 7,154   |        |          |          | 7,422   |       
|                                      |                                                                                         | Preferred LP unit interest expense                     |                                                                                     |                                                            | 1,286   |        |          |          | 1,225   |       
|                                      |                                                                                         | Gain on sales and disposition of real estate           |                                                                                     |                                                            | (186    | )      |          |          | (6,047  | )     
|                                      |                                                                                         | Other losses                                           |                                                                                     |                                                            | 180     |        |          |          | 4       |       
|                                      |                                                                                         | Gain on sales of marketable equity and debt securities |                                                                                     |                                                            |        |        |          |          | (28,857 | )     
|                                      |                                                                                         | Unrealized gains on securities sold short              |                                                                                     |                                                            | (21,704 | )      |          |          |        |       
|                                      |                                                                                         | Equity in losses of GB Holdings, Inc.                  |                                                                                     |                                                            | 986     |        |          |          | 348     |       
|                                      |                                                                                         | Deferred gain amortization                             |                                                                                     |                                                            | (510    | )      |          |          | (510    | )     
|                                      |                                                                                         | Accretion of investment in NEG Holding LLC             |                                                                                     |                                                            | (9,893  | )      |          |          | (7,904  | )     
|                                      |                                                                                         | Deferred income tax expense                            |                                                                                     |                                                            | 6,548   |        |          |          | 1,615   |       
|                                      |                                                                                         | Changes in operating assets and liabilities:           |                                                                                     |                                                            |         |        |          |          |         |       
|                                      |                                                                                         |                                                        | Decrease (increase) in land and construction-in progress                            |                                                            |         | 5,950  |          |          |         | (455   | )       
|                                      |                                                                                         |                                                        | (Decrease) increase in accounts payable, accrued expenses and
    other liabilities |                                                            |         | (505   | )        |          |         | 12,717 |         
|                                      |                                                                                         |                                                        | Increase in due from brokers                                                        |                                                            |         | (2,518 | )        |          |         |       |         
|                                      |                                                                                         |                                                        | Increase in restricted cash                                                         |                                                            |         | (8,682 | )        |          |         |       |         
|                                      |                                                                                         |                                                        | Decrease (increase) in receivables and other assets                                 |                                                            |         | 8,457  |          |          |         | (6,755 | )       
|                                      |                                                                                         |                                                        |                                                                                     |                                                            |         |       
|                                      |                                                                                         |                                                        |                                                                                     | Net cash provided by continuing operations                 |         |        | 26,293   |          |         |        | 25,676   |  
|                                      |                                                                                         |                                                        |                                                                                     |                                                            |         |       
|                                      | Income from discontinued operations                                                     |                                                        |                                                                                     | 19,680                                                     |         |        |          | 10,147   |        
|                                      |                                                                                         | Depreciation and amortization                          |                                                                                     |                                                            | 31      |        |          |          | 210     |       
|                                      |                                                                                         | Net gain from property transactions                    |                                                                                     |                                                            | (18,723 | )      |          |          | (6,929  | )     
|                                      |                                                                                         |                                                        |                                                                                     |                                                            |         |       
|                                      |                                                                                         |                                                        |                                                                                     | Net cash provided by discontinued operations               |         |        | 988      |          |         |        | 3,428    |  
|                                      |                                                                                         |                                                        |                                                                                     |                                                            |         |       
|                                      |                                                                                         |                                                        |                                                                                     | Net cash provided by operating activities                  |         |        | 27,281   |          |         |        | 29,104   |  
|                                      |                                                                                         |                                                        |                                                                                     |                                                            |         |       
|Cash flows from investing activities: |                                                                                         |                                                        |                                                                                     |                                                            |         |        |          |         
|                                      | Decrease in mortgages and notes receivable                                              |                                                        |                                                                                     |                                                           |         |        |          | 351      |        
|                                      | Net proceeds from the sales and disposition of real estate                              |                                                        |                                                                                     | 4,650                                                      |         |        |          | 11,346   |        
|                                      | Principal payments received on leases accounted for under the
    financing method      |                                                        |                                                                                     | 908                                                        |         |        |          | 1,112    |        
|                                      | Principal payments received on investments in debt securities of
    affiliates         |                                                        |                                                                                     | 2,700                                                      |         |        |          |         |        
|                                      | Increase in marketable equity and debt securities                                       |                                                        |                                                                                     | (66,250                                                    | )       |        |          |         |        
|                                      | Acquisitions of rental real estate                                                      |                                                        |                                                                                     |                                                           |         |        |          | (14,583  | )      
|                                      | Additions to hotel, casino and resort operating property                                |                                                        |                                                                                     | (4,781                                                     | )       |        |          | (1,492   | )      
|                                      | Additions to rental real estate                                                         |                                                        |                                                                                     |                                                           |         |        |          | (166     | )      
|                                      | Decrease (increase) in investment in U.S. Government and
    Agency Obligations         |                                                        |                                                                                     | 27,903                                                     |         |        |          | (61,077  | )      
|                                      | Proceeds from sale of marketable equity and debt securities                             |                                                        |                                                                                     |                                                           |         |        |          | 64,471   |        
|                                      | Increase in restricted cash                                                             |                                                        |                                                                                     |                                                           |         |        |          | (219,313 | )      
|                                      | Other                                                                                   |                                                        |                                                                                     |                                                           |         |        |          | (50      | )      
|                                      |                                                                                         |                                                        |                                                                                     |                                                            |         |       
|                                      |                                                                                         |                                                        | (34,870                                                                             | )                                                          |         |        | (219,401 | )       
|                                      | Cash flows from discontinued operations:                                                |                                                        |                                                                                     |                                                            |         |        |          |          |        
|                                      |                                                                                         |                                                        |                                                                                     | Net proceeds from the sales and disposition of real estate |         |        | 36,582   |          |         |        | 7,392    |  
|                                      |                                                                                         |                                                        |                                                                                     |                                                            |         |       
|                                      |                                                                                         |                                                        |                                                                                     | Net cash provided by (used in) investing activities        |         |        | 1,712    |          |         |        | (212,009 | )
|                                      |                                                                                         |                                                        |                                                                                     |                                                            |         |       

6



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)


|                                                                         |                                                             |                                    |                                           |            |         |         |         |         |         |         | 
|------------------------------------------------------------------------ | ----------------------------------------------------------- | ---------------------------------- | ----------------------------------------- | ---------- | ------- | ------- | ------- | ------- | ------- | ------- | 
|                                                                         |                                                             | Three Months Ended                 |                                          
|                                                                         |                                                             | March, 31                          |                                          
|                                                                         |                                                             |                                    |                                          
|                                                                         |                                                             | 2005                               |                                           |            | 2004    |        
|                                                                         |                                                             |                                    |                                           |            |         |        
|                                                                         |                                                             |                                    |                                           | (Restated) |        
|                                                                         |                                                             | (Unaudited)                        |                                          
|                                                                         |                                                             | (In $000s)                        |                                          
|CASH FLOWS FROM FINANCING ACTIVITIES:                                    |                                                             |                                    |                                           |            |         |         |         |        
|                                                                         | Debt:                                                       |                                    |                                           |            |         |         |         |         |        
|                                                                         |                                                             | Proceeds from Senior Notes Payable |                                           |            | 480,000 |         |         |         | 215,000 |        
|                                                                         |                                                             | Periodic principal payments        |                                           |            | (1,003  | )       |         |         | (1,738  | )      
|                                                                         |                                                             | Decrease in due to affiliates      |                                           |            | (16,602 | )       |         |         |        |        
|                                                                         |                                                             | Debt issuance costs                |                                           |            | (8,334  | )       |         |         | (7,515  | )      
|                                                                         |                                                             |                                    |                                           |            |         |        
|                                                                         |                                                             |                                    | Net cash provided by financing activities |            |         | 454,061 |         |         |         | 205,747 | 
|                                                                         |                                                             |                                    |                                           |            |         |        
|Net increase in cash and cash equivalents                                |                                                             |                                    | 483,054                                   |            |         |         | 22,842  |        
|Cash and cash equivalents, beginning of period                           |                                                             |                                    | 762,708                                   |            |         |         | 500,593 |        
|                                                                         |                                                             |                                    |                                           |            |         |        
|Cash and cash equivalents at end of period                               |                                                             | $                                  | 1,245,762                                 |            |         | $       | 523,435 |        
|                                                                         |                                                             |                                    |                                           |            |         |        
|Supplemental information:                                                |                                                             |                                    |                                           |            |         |         |         |        
|                                                                         |                                                             | Cash payments for interest         |                                           | $          | 9,517   |         |         | $       | 5,667   |        
|                                                                         |                                                             |                                    |                                           |            |         |        
|Supplemental schedule of noncash investing and financing
    activities: |                                                             |                                    |                                           |            |         |         |         |        
|                                                                         | Reclassification of real estate from operating lease        |                                    | $                                         | (411       | )       |         | $       | (14,353 | )      
|                                                                         | Reclassification from hotel and resort operating properties |                                    |                                           |           |         |         |         | (6,395  | )      
|                                                                         | Reclassification to properties held for sale                |                                    |                                           | 716        |         |         |         | 20,748  |        
|                                                                         | Reclassification of real estate to operating lease          |                                    |                                           | 3,068      |         |         |         |        |        
|                                                                         | Reclassification of real estate from financing lease        |                                    |                                           | (358       | )       |         |         |        |        
|                                                                         | Reclassification from properties held for sale              |                                    |                                           | (3,015     | )       |         |         |        |        
|                                                                         |                                                             |                                    |                                           |            |         |        
|                                                                         |                                                             | $                                  |                                          |            |         | $       |        |        
|                                                                         |                                                             |                                    |                                           |            |         |        
|Net unrealized gains (losses) on securities available for sale           |                                                             | $                                  | (2,394                                    | )          |         | $       | 2,378   |        
|                                                                         |                                                             |                                    |                                           |            |         |        
|Increase in equity and debt securities                                   |                                                             | $                                  | 805                                       |            |         | $       | 300     |        
|                                                                         |                                                             |                                    |                                           |            |         |        



7



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P.


FORM 10-Q MARCH 31, 2005





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)




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















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





8



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P.


FORM 10-Q MARCH 31, 2005


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














9



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P.


FORM 10-Q MARCH 31, 2005


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                              
|-- | -----------------------------
|3. | Commitments and Contingencies









|   |                                              
|-- | ---------------------------------------------
|4. | Hotel, Casino and Resort Operating Properties



| |                                         
| | ----------------------------------------
| | a. Hotel and Casino Operating Properties



10



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P.


FORM 10-Q MARCH 31, 2005


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |                                     |                    |        |        |      |   |        |        | 
|------------------------ | ----------------------------------- | ------------------ | ------ | ------ | ---- | - | ------ | ------ | 
|                         |                                     | Three Months Ended |       
|                         |                                     | March 31,          |       
|                         |                                     |                    |       
|                         |                                     | 2005               |        |        | 2004 |  
|                         |                                     |                    |        |        |      |  
|                         |                                     | (In $000s)        |       
|Revenues:                |                                     |                    |        |        |      |   |        |       
|                         | Casino                              |                    | $      | 47,729 |      |   | $      | 42,592 | 
|                         | Hotel                               |                    |        | 15,793 |      |   |        | 13,888 | 
|                         | Food and beverage                   |                    |        | 17,076 |      |   |        | 16,701 | 
|                         | Tower, retail and other income      |                    |        | 8,206  |      |   |        | 7,976  | 
|                         |                                     |                    |        |        |      |  
|Gross revenues           |                                     |                    | 88,804 |        |      |   | 81,157 |       
|                         | Less: Promotional allowances        |                    |        | 5,966  |      |   |        | 6,148  | 
|                         |                                     |                    |        |        |      |  
|Net revenues             |                                     | $                  | 82,838 |        |      | $ | 75,009 |       
|                         |                                     |                    |        |        |      |  
|Cost and Expenses:       |                                     |                    |        |        |      |   |        |       
|                         | Casino                              |                    | $      | 15,900 |      |   | $      | 15,696 | 
|                         | Hotel                               |                    |        | 6,023  |      |   |        | 5,596  | 
|                         | Food and beverage                   |                    |        | 12,376 |      |   |        | 11,620 | 
|                         | Other operating expenses            |                    |        | 3,619  |      |   |        | 3,151  | 
|                         | Selling, general and administrative |                    |        | 19,706 |      |   |        | 18,180 | 
|                         |                                     |                    |        |        |      |  
|Total costs and expenses |                                     | $                  | 57,624 |        |      | $ | 54,243 |       
|                         |                                     |                    |        |        |      |  



| |                                         
| | ----------------------------------------
| | b. Hotel and Resort Operating Properties





|   |                            
|-- | ---------------------------
|5. | National Energy Group, Inc.



11



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P.


FORM 10-Q MARCH 31, 2005


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                       |                                       |             |         |         |              |   |         |         | 
|---------------------- | ------------------------------------- | ----------- | ------- | ------- | ------------ | - | ------- | ------- | 
|                       |                                       | March 31,   |         |         | December 31, |  
|                       |                                       | 2005        |         |         | 2004         |  
|                       |                                       |             |         |         |              |  
|                       |                                       | (In $000s) |        
|Current assets         |                                       | $           | 30,991  |         |              | $ | 23,146  |        
|Noncurrent assets(1)   |                                       |             | 251,438 |         |              |   | 237,127 |        
|                       |                                       |             |         |         |              |  
|                       | Total assets                          |             | $       | 282,429 |              |   | $       | 260,273 | 
|                       |                                       |             |         |         |              |  
|Current liabilities    |                                       | $           | 35,699  |         |              | $ | 22,456  |        
|Noncurrent liabilities |                                       |             | 83,732  |         |              |   | 63,636  |        
|                       |                                       |             |         |         |              |  
|                       | Total liabilities                     |             |         | 119,431 |              |   |         | 86,092  | 
|Members equity        |                                       |             | 162,998 |         |              |   | 174,181 |        
|                       |                                       |             |         |         |              |  
|                       | Total liabilities and members equity |             | $       | 282,429 |              |   | $       | 260,273 | 
|                       |                                       |             |         |         |              |  






|    |                                 
|--- | --------------------------------
|(1) | Primarily oil and gas properties



|                       |                         |             |         |         |           |   |         |        | 
|---------------------- | ----------------------- | ----------- | ------- | ------- | --------- | - | ------- | ------ | 
|                       |                         | March 31,   |         |         | March 31, |  
|                       |                         | 2005        |         |         | 2004      |  
|                       |                         |             |         |         |           |  
|                       |                         | (In $000s) |        
|Total revenues         |                         | $           | 2,870   |         |           | $ | 25,569  |       
|Costs and expenses     |                         |             | (13,137 | )       |           |   | (11,044 | )     
|                       |                         |             |         |         |           |  
|                       | Operating income (loss) |             |         | (10,267 | )         |   |         | 14,525 | 
|Other income (expense) |                         |             | (916    | )       |           |   | (358    | )     
|                       |                         |             |         |         |           |  
|Net income (loss)      |                         | $           | (11,183 | )       |           | $ | 14,167  |       
|                       |                         |             |         |         |           |  







|                                               |  |   |        | 
|---------------------------------------------- |  | - | ------ | 
|Investment in Holding LLC at December 31, 2004 |  | $ | 87,800 | 
|Accretion of investment in Holding LLC         |  |   | 9,893  | 
|                                               |  |   |       
|Investment in Holding LLC at March 31, 2005    |  | $ | 97,693 | 
|                                               |  |   |       



|   |                                      
|-- | -------------------------------------
|6. | Marketable Equity and Debt Securities



12



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P.


FORM 10-Q MARCH 31, 2005


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                 
|-- | ----------------
|7. | Due from Brokers





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. $147,223  Due From Brokers  Net
    proceeds from short sales of equity securities and cash
    collateral held by brokerage institutions against our short
    sales.                                                                                                                                                                                                                                                                                                                   
|
| | b. $83,750  Securities Sold Not Yet
    Purchased  Our obligation to cover the short sales of
    equity securities described above. The Company recorded
    unrealized gains on securities sold short of $21.7 million
    in the three months ended March 31, 2005 reflecting a
    decrease in price of the securities sold short. This amount has
    been recorded in the consolidated statements of earnings for the
    three months ended March 31, 2005 in the respective caption.

8.                Investment
in Debt Securities of Affiliates (in $000s)


|                                  |  |           |         |   |              |   |         |  
|--------------------------------- |  | --------- | ------- | - | ------------ | - | ------- | -
|                                  |  | March 31, |         |   | December 31, |  
|                                  |  | 2005      |         |   | 2004         |  
|                                  |  |           |         |   |              |  
|Atlantic Holdings/ GB Holdings(a) |  | $         | 60,650  |   |              | $ | 60,004  |  
|TransTexas(b)                     |  |           | 27,500  |   |              |   | 27,500  |  
|Panaco(c)                         |  |           | 36,643  |   |              |   | 38,000  |  
|                                  |  |           |         |   |              |  
|                                  |  | $         | 124,793 |   |              | $ | 125,504 |  
|Less current portion              |  |           | (10,429 | ) |              |   | (10,429 | )
|                                  |  |           |         |   |              |  
|                                  |  | $         | 114,364 |   |              | $ | 115,075 |  
|                                  |  |           |         |   |              |  






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | See Note 2 regarding Atlantic Holdings Notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(b) |  | On December 6, 2004, the Company purchased from affiliates
    of Mr. Icahn $27,500,000 aggregate principal amount, or
    100%, of the outstanding term notes issued by TransTexas (the
    TransTexas Notes). The purchase price was
    $28,245,890, which equals the principal amount of the TransTexas
    Notes plus accrued but unpaid interest. The notes are payable
    annually in equal consecutive annual payments of $5,000,000, the
    final installment is due on August 28, 2008. Interest is
    payable semi-annually in February and August at the rate of
    10% per annum. Interest income of $687,500 was recognized
    in the three months ended March 31, 2005 and is included in
    Interest income on U.S. Government and Agency
    obligations and other investments in the consolidated
    statements of earnings. The TransTexas Notes are secured by a
    first priority lien on all of TransTexas assets. Trans Texas was
    indirectly controlled by Mr. Icahn. In April, 2005, the
    Company acquired 100% of the TransTexas equity. See
    Note 16b.
|   
|(c) |  | On December 6, 2004, the Company purchased all of the
    membership interests of Mid River LLC (Mid River)
    from Icahn affiliates for an aggregate purchase price of
    $38,125,999. The assets of Mid River consist of $38,000,000
    principal amount of term loans of Panaco (the Panaco
    Debt). The purchase price included accrued but unpaid
    interest. The principal is payable in twenty-seven equal
    quarterly installments of the unpaid principal of $1,357,143
    commencing on March 15, 2005, through and including
    September 15, 2011. Interest is payable quarterly at a rate
    per annum equal to the LIBOR daily floating rate plus four
    percent, which was 6.346% at December 31, 2004. Interest
    income of $400,822 was recognized in the three months ended
    March 31, 2005 and is included in Interest income on
    U.S. Government and Agency obligations and other
    investments in the consolidated statements of earnings.                                                                                                         

13



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P.


FORM 10-Q MARCH 31, 2005


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                                       
|-- | ----------------------------------------------------------------------
|9. | Senior Unsecured Notes Payable American Real Estate
    Partners, L.P.

1 8




|    |                
|--- | ---------------
|10. | Preferred Units





|    |                                      
|--- | -------------------------------------
|11. | Earnings Per Limited Partnership Unit







| |                    
| | -------------------
| | Net Income Per Unit



14



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P.


FORM 10-Q MARCH 31, 2005


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                            |                                     |                                  |            |      |      |   |            |      | 
|------------------------------------------------------------------------------------------- | ----------------------------------- | -------------------------------- | ---------- | ---- | ---- | - | ---------- | ---- | 
|                                                                                            |                                     | Three Months Ended               |           
|                                                                                            |                                     | March 31,                        |           
|                                                                                            |                                     |                                  |           
|                                                                                            |                                     | 2005                             |            |      | 2004 |  
|                                                                                            |                                     |                                  |            |      |      |  
|                                                                                            |                                     | In $000s (Except per unit data) |           
|Attributable to Limited Partners:                                                           |                                     |                                  |            |      |      |   |            |     
|Basic income from continuing operations                                                     |                                     | $                                | 38,940     |      |      | $ | 47,663     |     
|Add Preferred LP Unit distribution                                                          |                                     |                                  | 1,259      |      |      |   | 1,201      |     
|                                                                                            |                                     |                                  |            |      |      |  
|Income before discontinued operations                                                       |                                     |                                  | 40,199     |      |      |   | 48,864     |     
|Income from discontinued operations                                                         |                                     |                                  | 19,288     |      |      |   | 9,945      |     
|                                                                                            |                                     |                                  |            |      |      |  
|Diluted earnings                                                                            |                                     | $                                | 59,487     |      |      | $ | 58,809     |     
|                                                                                            |                                     |                                  |            |      |      |  
|Weighted average limited partnership units outstanding                                      |                                     |                                  | 46,098,284 |      |      |   | 46,098,284 |     
|Dilutive effect of redemption of Preferred LP Units                                         |                                     |                                  | 3,759,338  |      |      |   | 6,401,019  |     
|                                                                                            |                                     |                                  |            |      |      |  
|Weighted average limited partnership units and equivalent
    partnership units outstanding |                                     |                                  | 49,857,622 |      |      |   | 52,499,303 |     
|                                                                                            |                                     |                                  |            |      |      |  
|Basic earnings:                                                                             |                                     |                                  |            |      |      |   |            |     
|                                                                                            | Income from continuing operations   |                                  | $          | 0.84 |      |   | $          | 1.03 | 
|                                                                                            | Income from discontinued operations |                                  |            | 0.42 |      |   |            | 0.22 | 
|                                                                                            |                                     |                                  |            |      |      |  
|Basic earnings per LP unit                                                                  |                                     | $                                | 1.26       |      |      | $ | 1.25       |     
|                                                                                            |                                     |                                  |            |      |      |  
|Diluted earnings:                                                                           |                                     |                                  |            |      |      |   |            |     
|                                                                                            | Income from continuing operations   |                                  | $          | 0.81 |      |   | $          | 0.93 | 
|                                                                                            | Income from discontinued operations |                                  |            | 0.39 |      |   |            | 0.19 | 
|                                                                                            |                                     |                                  |            |      |      |  
|Diluted earnings per LP unit                                                                |                                     | $                                | 1.20       |      |      | $ | 1.12       |     
|                                                                                            |                                     |                                  |            |      |      |  



|    |                     
|--- | --------------------
|12. | Comprehensive Income





|                                                               |  |                    |        |            |      |   |        |  
|-------------------------------------------------------------- |  | ------------------ | ------ | ---------- | ---- | - | ------ | -
|                                                               |  | Three Months Ended |       
|                                                               |  | March 31,          |       
|                                                               |  |                    |       
|                                                               |  | 2005               |        |            | 2004 |  
|                                                               |  |                    |        |            |      |  
|                                                               |  |                    |        | (Restated) |     
|Net income                                                     |  | $                  | 59,410 |            |      | $ | 63,020 |  
|Net unrealized gains (losses) on securities available for sale |  |                    | (2,394 | )          |      |   | 7,433  |  
|Reversal of unrealized gains on securities available for sale  |  |                    |       |            |      |   | (4,900 | )
|                                                               |  |                    |        |            |      |  
|Comprehensive income                                           |  | $                  | 57,016 |            |      | $ | 65,553 |  
|                                                               |  |                    |        |            |      |  

15



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P.


FORM 10-Q MARCH 31, 2005


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                  
|--- | -----------------
|13. | Segment Reporting







|                                                                                 |                   |                                         |                                                    |            |        |         |         |   |        |         | 
|-------------------------------------------------------------------------------- | ----------------- | --------------------------------------- | -------------------------------------------------- | ---------- | ------ | ------- | ------- | - | ------ | ------- | 
|                                                                                 |                   | Three Months Ended                      |                                                   
|                                                                                 |                   | March 31,                               |                                                   
|                                                                                 |                   |                                         |                                                   
|                                                                                 |                   | 2005                                    |                                                    |            | 2004   |        
|                                                                                 |                   |                                         |                                                    |            |        |        
|                                                                                 |                   |                                         |                                                    | (Restated) |       
|Revenues:                                                                        |                   |                                         |                                                    |            |        |         |         |  
|                                                                                 |                   | Hotel and casino operating income       |                                                    | $          | 81,852 |         |         | $ | 74,661 |        
|                                                                                 |                   | Land, house and condominium sales       |                                                    |            | 8,279  |         |         |   | 5,014  |        
|                                                                                 |                   | Rental real estate                      |                                                    |            | 4,001  |         |         |   | 4,963  |        
|                                                                                 |                   | Hotel and resort operating income       |                                                    |            | 5,563  |         |         |   | 1,335  |        
|                                                                                 |                   | Oil and gas operating properties        |                                                    |            | 13,168 |         |         |   | 10,523 |        
|                                                                                 |                   | Other investments                       |                                                    |            | 11,092 |         |         |   | 4,763  |        
|                                                                                 |                   |                                         |                                                    |            |        |        
|                                                                                 |                   |                                         | Subtotal                                           |            |        | 123,955 |         |   |        | 101,259 | 
|Reconciling items  primarily interest income on
    U.S. Government obligations |                   |                                         | 6,668                                              |            |        |         | 960     |  
|                                                                                 |                   |                                         |                                                    |            |        |        
|                                                                                 |                   |                                         | Total revenues                                     |            | $      | 130,623 |         |   | $      | 102,219 | 
|                                                                                 |                   |                                         |                                                    |            |        |        
|Net earnings:                                                                    |                   |                                         |                                                    |            |        |         |         |  
|                                                                                 | Segment earnings: |                                         |                                                    |            |        |         |         |   |       
|                                                                                 |                   | Hotel and casino operating properties   |                                                    | $          | 24,228 |         |         | $ | 20,418 |        
|                                                                                 |                   | Land, house and condominium development |                                                    |            | 1,232  |         |         |   | 1,656  |        
|                                                                                 |                   | Rental real estate                      |                                                    |            | 3,049  |         |         |   | 3,878  |        
|                                                                                 |                   | Hotel and resort operating properties   |                                                    |            | 158    |         |         |   | (89    | )      
|                                                                                 |                   | Oil and gas operating properties        |                                                    |            | 10,113 |         |         |   | 8,092  |        
|                                                                                 |                   | Other investments                       |                                                    |            | 11,092 |         |         |   | 4,763  |        
|                                                                                 |                   |                                         |                                                    |            |        |        
|                                                                                 |                   |                                         | Total segment earnings                             |            |        | 49,872  |         |   |        | 38,718  | 
|Income from discontinued operations                                              |                   |                                         | 19,680                                             |            |        |         | 10,147  |  
|Gain on sales of marketable equity securities                                    |                   |                                         |                                                   |            |        |         | 28,857  |  
|Unrealized gains on securities sold short                                        |                   |                                         | 21,704                                             |            |        |         |        |  
|Gain on sales and disposition of real estate                                     |                   |                                         | 186                                                |            |        |         | 6,047   |  
|Other expenses, net                                                              |                   |                                         | (32,032                                            | )          |        |         | (20,749 | )
|General partners share of net income                                            |                   |                                         | (1,182                                             | )          |        |         | (5,412  | )
|                                                                                 |                   |                                         |                                                    |            |        |        
|                                                                                 |                   |                                         | Net earnings attributable to limited partner units |            | $      | 58,228  |         |   | $      | 57,608  | 
|                                                                                 |                   |                                         |                                                    |            |        |        

16



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P.


FORM 10-Q MARCH 31, 2005


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                         
|--- | ------------------------
|14. | Income Taxes (in $000s)

Corporate income
taxes




|         |  |                    |        |   |      |   |        |  
|-------- |  | ------------------ | ------ | - | ---- | - | ------ | -
|         |  | Three Months Ended |       
|         |  | March 31,          |       
|         |  |                    |       
|         |  | 2005               |        |   | 2004 |  
|         |  |                    |        |   |      |  
|Current  |  | $                  | (1,102 | ) |      | $ | (4,554 | )
|Deferred |  |                    | (6,548 | ) |      |   | (1,615 | )
|         |  |                    |        |   |      |  
|         |  | $                  | (7,650 | ) |      | $ | (6,169 | )
|         |  |                    |        |   |      |  



|                     |                                  |           |         |        |              |  |         |        |        | 
|-------------------- | -------------------------------- | --------- | ------- | ------ | ------------ |  | ------- | ------ | ------ | 
|                     |                                  | March 31, |         |        | December 31, | 
|                     |                                  | 2005      |         |        | 2004         | 
|                     |                                  |           |         |        |              | 
|Deferred tax assets: |                                  |           |         |        |              |  |         |       
|                     | Depreciation                     |           | $       | 38,424 |              |  | $       | 39,209 |       
|                     | Net operating loss carryforwards |           |         | 30,741 |              |  |         | 32,176 |       
|                     | Investment in NEG Holding LLC    |           |         | 1,927  |              |  |         | 5,333  |       
|                     | Other                            |           |         | 5,032  |              |  |         | 5,954  |       
|                     |                                  |           |         |        |              | 
|                     |                                  |           | 76,124  |        |              |  | 82,672  |       
|Valuation allowance  |                                  |           | (14,588 | )      |              |  | (14,588 | )     
|                     |                                  |           |         |        |              | 
|                     |                                  | Sub-total |         |        | 61,536       |  |         |        | 68,084 | 
|                     | Less current portion             |           |         | (2,685 | )            |  |         | (2,685 | )     
|                     |                                  |           |         |        |              | 
|                     | Net deferred tax assets          |           | $       | 58,851 |              |  | $       | 65,399 |       
|                     |                                  |           |         |        |              | 



|    |                                  
|--- | ---------------------------------
|15. | Significant Property Transactions







17



---



##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P.


FORM 10-Q MARCH 31, 2005


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                  
|--- | -----------------
|16. | Subsequent Events









|                      |  |             |        |     |      |   |        |  
|--------------------- |  | ----------- | ------ | --- | ---- | - | ------ | -
|                      |  | March 31,   |       
|                      |  |             |       
|                      |  | 2005        |        |     | 2004 |  
|                      |  |             |        |     |      |  
|                      |  | (In $000s) |       
|Total revenues        |  | $           | 6,064  | (1) |      | $ | 15,333 |  
|                      |  |             |        |     |      |  
|Pre-tax (loss)        |  | $           | (8,194 | )   |      | $ | (1,609 | )
|Estimated tax benefit |  |             | 2,868  |     |      |   | 203    |  
|Minority interest     |  |             |       |     |      |   | (39    | )
|                      |  |             |        |     |      |  
|Net (loss)            |  | $           | (5,326 | )   |      | $ | (1,445 | )
|                      |  |             |        |     |      |  






|    |                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a reduction in total revenues of approximately
    $9.8 million as a result of marking to market the oil and
    gas derivatives. This a non-cash transaction.







18



---



##### Table of Contents








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



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





Certain Trends and Uncertainties






| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our investment in property development may be more costly than
    anticipated.                                                                                                                                                        
|
| |  | Competition for acquisitions could adversely affect us and new
    acquisitions may fail to perform as expected.                                                                                                                       
|
| |  | We may not be able to sell our rental properties, which would
    reduce cash available for other purposes.                                                                                                                            
|
| |  | We face potential adverse effects from tenant bankruptcies or
    insolvencies.                                                                                                                                                        
|
| |  | The development of our New Seabury property may be limited by
    government authorities.                                                                                                                                              
|
| |  | We may be subject to environmental liability.                                                                                                                                                                                          
|
| |  | The gaming industry is highly regulated. The gaming authorities
    and state and municipal licensing authorities have significant
    control over our operations.                                                                    
|
| |  | Rising operating costs for our gaming and entertainment
    properties could have a negative impact on our profitability.                                                                                                              
|
| |  | We face substantial competition in the hotel and casino industry.                                                                                                                                                                      
|
| |  | Economic downturns, terrorism and the uncertainty of war, as
    well as other factors affecting discretionary consumer spending,
    could reduce the number of our visitors or the amount of money
    visitors spend at our casinos.
|
| |  | We may not be able to identify suitable investments.                                                                                                                                                                                   
|
| |  | Our investments may be subject to significant uncertainties.                                                                                                                                                                           
|
| |  | We face substantial risks in the oil and gas industry.                                                                                                                                                                                 
|
| |  | The oil and gas industry is highly regulated and federal, state
    and municipal licensing authorities have significant control
    over our operations.                                                                              
|
| |  | We and AREH are holding companies and will depend on the
    businesses of our subsidiaries to satisfy our obligations under
    the notes.                                                                                            
|
| |  | Our general partner and its control person could exercise their
    influence over us to your detriment.                                                                                                                               
|
| |  | Certain of our management are committed to the management of
    other businesses.                                                                                                                                                     
|
| |  | We may be subject to the pension liabilities of our affiliates.                                                                                                                                                                        

19



---



##### Table of Contents





| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | We are subject to the risk of possibly becoming an investment
    company.
|
| |  | We may become taxable as a corporation.                                   



| |             
| | ------------
| | Introduction















Results of Operations




| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Three Months Ended March 31, 2005 Compared to Three
    Months Ended March 31, 2004



20



---



##### Table of Contents





























Capital Resources and Liquidity




21



---



##### Table of Contents







|                                         |       |           |       |       |       |   |       |       |  |   |         |       |  |          |       |         |  |   |       |         | 
|---------------------------------------- | ----- | --------- | ----- | ----- | ----- | - | ----- | ----- |  | - | ------- | ----- |  | -------- | ----- | ------- |  | - | ----- | ------- | 
|                                         |       | Less Than |       |       | 1-3   |   |       | 3-5   |  |   | After   |       |  |         
|                                         |       | 1 Year    |       |       | Years |   |       | Years |  |   | 5 Years |       |  | Total(1) |      
|                                         |       |           |       |       |       |   |       |       |  |   |         |       |  |          |      
|Mortgages payable                        |       | $         | 4.2   |       |       | $ | 8.9   |       |  | $ | 29.3    |       |  | $        | 37.8  |         |  | $ | 80.2  |        
|Acquisition of TransTexas                |       |           | 180.0 |       |       |   |      |       |  |   |        |       |  |          |      |         |  |   | 180.0 |        
|Senior secured notes payable             |       |           |      |       |       |   |      |       |  |   |        |       |  |          | 215.0 |         |  |   | 215.0 |        
|Senior unsecured notes payable           |       |           |      |       |       |   |      |       |  |   |        |       |  |          | 833.0 |         |  |   | 833.0 |        
|Senior debt interest                     |       |           | 78.3  |       |       |   | 159.5 |       |  |   | 159.5   |       |  |          | 211.3 |         |  |   | 608.6 |        
|Construction and development obligations |       |           | 44.5  |       |       |   | 15.8  |       |  |   |        |       |  |          |      |         |  |   | 60.3  |        
|                                         |       |           |       |       |       |   |       |       |  |   |         |       |  |          |      
|                                         | Total |           | $     | 307.0 |       |   | $     | 184.2 |  |   | $       | 188.8 |  |          | $     | 1,297.1 |  |   | $     | 1,977.1 | 
|                                         |       |           |       |       |       |   |       |       |  |   |         |       |  |          |      






|    |                                                                           
|--- | --------------------------------------------------------------------------
|(1) | In addition, see Note 10 for preferred limited partnership
    redemption.



1 8


1 8






22



---



##### Table of Contents













1 8




Off Balance Sheet Arrangements









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





23



---



##### Table of Contents














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





24



---



##### Table of Contents






PART II. OTHER INFORMATION







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

| |    |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4  | .1 |  | Indenture, dated as of February 7, 2005, among American
    Real Estate Partners, L.P. (AREP), American Real
    Estate Finance Corp. (AREP Finance) and American
    Real Estate Holdings Limited Partnership (AREH), as
    Guarantor, and Wilmington Trust Company, as Trustee
    (incorporated by reference to Exhibit 4.9 to AREPs
    Form 8-K (SEC File No. 1-9516), filed on February 10,
    2005).
|
| | 4  | .2 |  | Form of AREP and AREP Finance
    71/8% Senior
    Note (incorporated by reference to Exhibit 4.10 to
    AREPs Form 8-K (SEC File No. 1-9516), filed on
    February 10, 2005).                                                                                                                                                                                                                                   
|
| | 4  | .3 |  | Registration Rights Agreement, dated as of February 7, 2005
    among AREP, AREP Finance and AREH, and Bear, Stearns &
    Co. Inc. and Jefferies & Company, Inc. (incorporated by
    reference to Exhibit 4.11 to AREPs Form 8-K (SEC File
    No. 1-9516), filed on February 10, 2005).                                                                                                                         
|
| | 31 | .1 |  | Certification of Chief Executive Officerpursuant to
    Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                          
|
| | 31 | .2 |  | Certification of Chief Financial Officerpursuant to
    Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                          
|
| | 32 | .1 |  | Certification of Principal Executive Officerpursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                         
|
| | 32 | .2 |  | Certification of Principal Financial Officerpursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                         

25



---



##### Table of Contents



SIGNATURES






| |                                                   
| | --------------------------------------------------
| | American Real Estate
    Partners, L.P.           
|
| | By: American Property Investors, Inc., the general
| | partner of American Real Estate Partners, L.P.    



| |     |                       
| | --- | ----------------------
| | By: | /s/ John P. Saldarelli

| |                                   
| | ----------------------------------
| |                                   
| | John P. Saldarelli                
| | Treasurer, Chief Financial Officer
| | and Principal Accounting Officer  



26



---



##### Table of Contents



EXHIBIT INDEX


| |    |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4  | .1 |  | Indenture, dated as of February 7, 2005, among American
    Real Estate Partners, L.P. (AREP), American Real
    Estate Finance Corp. (AREP Finance) and American
    Real Estate Holdings Limited Partnership (AREH), as
    Guarantor, and Wilmington Trust Company, as Trustee
    (incorporated by reference to Exhibit 4.9 to AREPs
    Form 8-K (SEC File No. 1-9516), filed on February 10,
    2005).
|
| | 4  | .2 |  | Form of AREP and AREP Finance
    71/8% Senior
    Note (incorporated by reference to Exhibit 4.10 to
    AREPs Form 8-K (SEC File No. 1-9516), filed on
    February 10, 2005).                                                                                                                                                                                                                                   
|
| | 4  | .3 |  | Registration Rights Agreement, dated as of February 7, 2005
    among AREP, AREP Finance and AREH, and Bear, Stearns &
    Co. Inc. and Jefferies & Company, Inc. (incorporated by
    reference to Exhibit 4.11 to AREPs Form 8-K (SEC File
    No. 1-9516), filed on February 10, 2005).                                                                                                                         
|
| | 31 | .1 |  | Certification of Chief Executive Officerpursuant to
    Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                          
|
| | 31 | .2 |  | Certification of Chief Financial Officerpursuant to
    Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                          
|
| | 32 | .1 |  | Certification of Principal Executive Officerpursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                         
|
| | 32 | .2 |  | Certification of Principal Financial Officerpursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                         

27